FEDERAL COURT OF AUSTRALIA Allen, in the matter of North East Wiradjuri Co Limited (Administrators Appointed) [2010] FCA 1248 Citation: Allen, in the matter of North East Wiradjuri Co Limited (Administrators Appointed) [2010] FCA 1248 Parties: BILL ALLEN, ESTER CUTMORE and ROBERT BUGG; DAVID SHANNON IN HIS CAPACITY AS ADMINISTRATOR OF NORTH EAST WIRADJURI CO LIMITED (ACN 125 329 526)(ADMINISTRATORS APPOINTED), BRUCE GLEESON IN HIS CAPACITY AS ADMINISTRATOR OF NORTH EAST WIRADJURI CO LIMITED (ACN 125 329 526)(ADMINISTRATORS APPOINTED) and NORTH EAST WIRADJURI CO LIMITED (ACN 125 329 526)(ADMINISTRATORS APPOINTED) v NORTH EASTERN WIRADJURI COMMUNITY FUND LIMITED (ACN 132 314 008) File number(s): NSD 1320 of 2010 Judge: JACOBSON J Date of judgment: 5 November 2010 Catchwords: CORPORATIONS – application for appointment of receiver – dispute as to control of company – deadlocked company – non trading company – pooling of funds – receivers appointed to supervise receipt and safekeeping of moneys until ultimate dispute resolved Legislation: Corporations Act 2001 (Cth) s 447A, 447C Federal Court of Australia Act 1976 (Cth) s 57 Cases cited: Australasian Memory Pty Limited v Brien (2000) 200 CLR 270 cited Calabretta v Redpen Developments Pty Limited (in liq) (2010) 183 FCR 47 applied Humphris, in the matter of ACN 004 987 866 Pty Limited (2003) 21 ACLC 1474 followed Re Evans & Tate Limited; Ex parte Jones (2007) 25 ACLC 1,580 referred to Re HPI Australia Pty Limited (2008) 26 ACLC 1,230 referred to Sims, Re Huon Corporation Pty Limited (administrators appointed) (2006) 58 ACSR 620 referred to Date of hearing: 5 November 2010 Date of last submissions: 5 November 2010 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 38 Counsel for the Applicants: Mr S Golledge Solicitor for the Applicants: Teitzel & Partners Counsel for the First and Second Plaintiffs: Mr M Condon Solicitor for First and Second Plaintiffs: ERA Legal Solicitor for Ms Syme, Mr De Launey and Ms Lewis (with leave): Mr M Hayter of Gillis Delaney Lawyers IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1320 of 2010 IN THE MATTER OF NORTH EAST WIRADJURI CO LIMITED (ACN 125 329 526) AND IN THE MATTER OF NORTH EASTERN WIRADJURI COMMUNITY FUND LIMITED (ACN 132 314 008) BETWEEN: BILL ALLEN First Applicant ESTER CUTMORE Second Applicant ROBERT BUGG Third Applicant DAVID SHANNON IN HIS CAPACITY AS ADMINISTRATOR OF NORTH EAST WIRADJURI CO LIMITED (ACN 125 329 526)(ADMINISTRATORS APPOINTED) First Plaintiff BRUCE GLEESON IN HIS CAPACITY AS ADMINISTRATOR OF NORTH EAST WIRADJURI CO LIMITED (ACN 125 329 526)(ADMINISTRATORS APPOINTED) Second Plaintiff NORTH EAST WIRADJURI CO LIMITED (ACN 125 329 526)(ADMINISTRATORS APPOINTED) Third Plaintiff AND: NORTH EASTERN WIRADJURI COMMUNITY FUND LIMITED (ACN 132 314 008) Defendant JUDGE: JACOBSON J DATE OF ORDER: 5 NOVEMBER 2010 WHERE MADE: SYDNEY THE COURT: 1. DECLARES pursuant to s 447D of the Corporations Act 2001 (Cth) ("the Act") that the First and Second Plaintiffs are justified, in their capacities as administrators of the Third Plaintiff pursuant to Part 5.3A of the Act in seeking each of the orders, directions and declarations sought herein. 2. ORDERS that the following persons be joined as defendants: 2.1 Martin Ronald De Launey; 2.2 Wendy Lewis; 2.3 Lynette Syme; 2.4 William "Bill" Allen; 2.5 Elaine Bugg; 2.6 Ester Cutmore; and 2.7 Robert Bugg. Validity of appointment 3. ORDERS pursuant to s 447A of the Act that Part 5.3A of the Act is to operate with regard to the Third Plaintiff so that the First and Second Plaintiffs were validly appointed as administrators of the Third Plaintiff on 2 August 2010 by the actions of Martin De Launey, Wendy Lewis and Lynette Syme. Administrators' remuneration and disbursements 4. DECLARES that the costs of these proceedings up to and including the date of the appointment of receivers and managers are disbursements properly incurred by the First and Second Plaintiffs in the course of acting as administrators of the Third Plaintiff. 5. ORDERS that the disbursements properly incurred by the First and Second Plaintiffs in the course of acting as the Administrators of the Third Plaintiff shall be payable forthwith from the pooled assets of the Third Plaintiff and the Defendant. 6. ORDERS that the remuneration of the First and Second Plaintiffs for acting as the Administrators of the Third Plaintiff shall be payable from the pooled assets of the Third Plaintiff and the Defendant, in such amount as is fixed or determined in accordance with s 449Eof the Act. Termination of administration of Third Plaintiff and appointment of receivers and managers to Third Plaintiff and Defendant 7. ORDERS pursuant to s 447A(1) of the Act that the administration of the Third Plaintiff end forthwith upon the appointment of the First and Second Plaintiffs as receivers and managers of the Third Plaintiff and the Defendant. 8. DECLARES that the First and Second Plaintiffs are not ineligible to act as receivers of property of the Third Plaintiff and the Defendant by reason of the provision of s 418 of the Act. 9. ORDERS that the First and Second Plaintiffs be appointed, and they hereby are appointed, as receivers and managers of the Third Plaintiff and the Defendant (including all of the property of the Third Plaintiff and the Defendant), without security, until further order. 10. ORDERS that the First and Second Plaintiffs, in their capacities as receivers and managers of the Third Plaintiff and The Defendant, shall have those powers set out in Schedule A to these Orders. 11. ORDERS that the costs and disbursements properly incurred by the First and Second Plaintiffs in the course of acting as receivers and managers of the Third Plaintiff and the Defendant, including remuneration, in such amount as may be fixed by the Court, shall be payable from the pooled assets of the Third Plaintiff and the Defendant. 12. The costs as agreed or assessed of the Applicants, Plaintiffs and Defendants to date on the Interlocutory Application filed 29 October 2010 be paid as an expense of the receivership. 13. The Interlocutory Application be stood over for directions on 26 November 2010 or such other date as determined by the Docket Judge. 14. The Originating Process filed by the Administrators of North East Wiradjuri Co Limited be otherwise dismissed. Schedule A 1. The powers set out in the following provisions of the Corporations Act 2001 (Cth) on the basis that the Court–appointed receivers are "receivers of property of a corporation" for the purposes of those provisions: (a) Section 420(1); and (b) Section 420(2)(a), (e), (f), (h), (j), (k), (n), (o), (p), (q), (r) and (u). 2. The power to commission, with the consent of the solicitors for the parties in these proceedings, any anthropology report. 3. The power to pay the just debts of the corporations. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1320 of 2010 IN THE MATTER OF NORTH EAST WIRADJURI CO LIMITED (ACN 125 329 526) AND IN THE MATTER OF NORTH EASTERN WIRADJURI COMMUNITY FUND LIMITED (ACN 132 314 008) BETWEEN: BILL ALLEN First Applicant ESTER CUTMORE Second Applicant ROBERT BUGG Third Applicant DAVID SHANNON IN HIS CAPACITY AS ADMINISTRATOR OF NORTH EAST WIRADJURI CO LIMITED (ACN 125 329 526)(ADMINISTRATORS APPOINTED) First Plaintiff BRUCE GLEESON IN HIS CAPACITY AS ADMINISTRATOR OF NORTH EAST WIRADJURI CO LIMITED (ACN 125 329 526)(ADMINISTRATORS APPOINTED) Second Plaintiff NORTH EAST WIRADJURI CO LIMITED (ACN 125 329 526)(ADMINISTRATORS APPOINTED) Third Plaintiff AND: NORTH EASTERN WIRADJURI COMMUNITY FUND LIMITED (ACN 132 314 008) Defendant JUDGE: JACOBSON J DATE: 5 NOVEMBER 2010 PLACE: SYDNEY REASONS FOR JUDGMENT 1 I have before me this morning an interlocutory application by Mr Bill Allen, Ms Ester Cutmore and Mr Robert Bugg for an interlocutory order appointing Mr David Shannon and Mr Bruce Gleeson as receivers and managers of the third plaintiff ("NEWCO") and the defendant ("NEWCF"). 2 Mr Shannon and Mr Gleeson were appointed as administrators of NEWCO at a meeting of creditors on 12 August 2010. I will refer to them hereafter as "the administrators". 3 They made an application to the court by originating process, filed on 7 October 2010, seeking orders as to the validity of their appointment, and certain other orders. I will refer to that application again later. 4 The reason why the administrators made their application and the reason underlying the application to appoint receivers and managers is that there is a dispute between two groups of shareholders of NEWCO and NEWCF as to who controls those companies. Also, there is an interrelationship between the companies, as I will explain further below. 5 The dispute between the groups of shareholders has resulted in a deadlock between them, and an inability to conduct the affairs of the company through the offices of directors of the companies. 6 I am satisfied on the evidence that there is a deadlock in the sense explained in the affidavits in particular of Mr Allen, and this itself is sufficient to justify the appointment of receivers so as to preserve the assets of both companies. 7 The applicants are one of two shareholder groups who are in dispute. The other group comprises Ms Lynette Syme, Mr Martin Ronald De Launey and Ms Wendy Lewis. I will refer to them as "the second shareholder group". They were represented this morning by their solicitor, Mr Hayter. 8 Importantly, for the purposes of today's application, the second shareholder group supports the applicants' application, and also supports the orders which are sought by the administrators. 9 The dispute is explained in Mr Allen's affidavit of 2 November 2010. Mr Allen's evidence is not in proper form for a final hearing, but Mr Hayter did not object to me receiving the evidence for the limited purpose of the interlocutory applications today. 10 In summary, NEWCF and NEWCO are companies which were established to deal with payments received from native title properties. The companies receive royalty payments from mining interests and distribute the payments to members of their community. 11 The applicants claim to be members of the Wiradjuri People and that Mr Allen was validly appointed to the Board of NEWCO at a meeting on 22 May 2010. 12 They say that Mr Allen was validly appointed because he is a Wiradjuri man and therefore has the requisite genealogical requirements for membership of the company and appointment to the Board. 13 There is a dispute between the applicants and the second shareholder group as to the validity of what took place at the meeting, including in particular the appointments of Mr De Launey and Ms Syme, who, according to Mr Allen, are not members of the Wiradjuri People, and are therefore not entitled to be members or directors of the company. 14 NEWCO and NEWCF are related in the sense that NEWCO is entitled to appoint directors to the Board of NEWCF so that the present dispute affects not only the question of who is entitled to conduct the affairs of NEWCO, but also the affairs of NEWCF. 15 Moreover, the dispute extends to the power and entitlement of the respective parties to deal with the proceeds of royalty payments. There are funds in the bank accounts for both companies, which accounts have now been frozen because of the dispute to which I have referred. 16 In those circumstances it is plain that the power to appoint receivers and managers contained in s 57 of the Federal Court of Australia Act 1976 (Cth) is enlivened. The applicants are persons who are aggrieved because they say the second shareholder group are not of the requisite genealogical descent and are therefore not entitled to be members or directors of the companies. It is therefore proper to exercise the power to appoint receivers where there is a dispute as to who exercises the power to control the companies. 17 The companies are not trading companies in the usual sense because their only activities are to distribute funds due under native title agreements. 18 I am satisfied on the evidence that it is just and convenient to appoint receivers to oversee or control the affairs of both companies, and to supervise the receipt and safekeeping of moneys coming in while the ultimate dispute is pending. The issue at a final hearing, unless resolved earlier, (perhaps by appointing a suitably qualified anthropologist to determine the ultimate fact in issue) will be who is entitled to be in charge of the companies. 19 The administrators are, as I have said above, already appointed as administrators of NEWCO, although as Mr Condon, who appears for the administrators, has pointed out, there is doubt as to the validity of their appointment. The doubt arises, needless to say, from the dispute. 20 The administrators have embarked on their administration. They hold funds in an administrators' bank account, but because of the disputed matters, they are unsure not only as to the validity of their appointment but also as to their entitlement to deal with the funds. 21 The administrators consent to be appointed as receivers and managers of both companies. In the circumstances explained above, it is appropriate that they be appointed by the court pending the resolution of the proceeding. 22 A number of matters in the evidence are relevant to the relief sought by Mr Condon. He seeks, inter alia, an order under s 447A of the Corporations Act 2001 (Cth) ("the Act"), declaring the validity of the appointment of the administrators as administrators of NEWCO up to and including today's hearing. 23 Since I am satisfied that it is appropriate that the administrators be appointed as receivers of both companies, their office of administrators of NEWCO will cease as of today, and to the extent necessary, I will so order. 24 Mr Condon also seeks orders for "pooling" of the funds of NEWCO and NEWCF in the respective bank accounts so as to enable the administrators to obtain payment of their fees which were approved at a creditors' meeting. I am satisfied that today's application has been served on all members of NEWCO and NEWCF with the possible exception of three members. However, it is significant that the second shareholder group is represented today, and as I have said, supports the applications. 25 Most of the creditors are represented by Mr Hayter this morning because the creditors include members of the second shareholder group. There is one other substantial creditor, Norton Business Advisers. That company did not appear, but I have evidence that the company consents to the orders which are sought this morning. 26 Some $55,000 in payments have been received under the native title agreements, and the balance presently recorded in the administrators' bank account for NEWCO is $75,000. 27 There is power under s 447C of the Act to declare that an administrator has been validly appointed. However, I do not consider it is appropriate to make an order confirming the validity of the appointments of the administrators under s 447C because the validity of their appointment at the meeting turns upon the ultimate fact in issue in this case. 28 Nevertheless, I am satisfied that I have power under s 447A of the Act to make an order confirming the validity of the appointment up to today. 29 In Sims, Re Huon Corporation Pty Limited (administrators appointed) (2006) 58 ACSR 620 at [11], Gyles J referred in particular to the width of the power and the need to be satisfied that all persons who might be affected by an order have been effectively given notice of the proceeding, and that none has appeared to oppose the orders. That seems to me, in effect, to be the position today. 30 In Re HPI Australia Pty Limited (2008) 26 ACLC 1,230 at [28], Barrett J referred to the amplitude of the power contained in s 447A as confirmed by the High Court in Australasian Memory Pty Limited v Brien (2000) 200 CLR 270. 31 The power to make such an order was recently referred to by Yates J in Calabretta v Redpen Developments Pty Limited (in liq) (2010) 183 FCR 47. His Honour dealt with the question of standing at [26]. His Honour also referred to the width of the power in [35] – [37]. His Honour observed at [37] that the discretion whether to exercise the power is undoubtedly a plenary one, to be exercised having regard to all of the circumstances of the case that have been brought to the court's attention, and by those who are interested in the matter and who may be affected by the granting of relief. His Honour also observed that a relevant consideration is whether substantial injustice would be caused by effectively validating an otherwise invalid appointment. 32 It seems to me that the circumstances of this case indicate that it is in the interests of those who have an interest in the companies, including creditors, for the validity of the appointment of the administrators to be confirmed. 33 The reasons why this is so were referred to in Mr Condon's written outline of submissions; in particular, the persons who are most directly affected by the dispute consent to the orders and, indeed, support them. Also, the possible defect in the administrators' appointment was discovered only after they were appointed to that office, and they had initially satisfied themselves that the Board of NEWCO was properly constituted. Moreover, they appear to have performed work of value for the benefit of NEWCO, and the value of that work is acknowledged by the fact that the protagonists wish the administrators to continue their role through the prism of a receivership. 34 I do not see that there is any prejudice in the present circumstances by the making of the order which, indeed, is justified by the considerations to which I have referred. This does not seem to me to be a case where substantial injustice would be caused by effectively validating what may be an otherwise invalid appointment. 35 The power to make such an order was referred to by Goldberg J in Humphris, in the matter of ACN 004 987 866 Pty Limited (2003) 21 ACLC 1,474 at [18] – [20]. His Honour observed that there is no express power in the Act to allow for or enable the pooling of assets of a group of companies in liquidation or under administration. However, his Honour was satisfied that the power was available under Part 5.3A of the Act. 36 I do not see that any different considerations arise in the present case where NEWCO will move from administration to receivership and NEWCF will be under the receivership of the administrators. 37 The order sought is not an order for general pooling and this consideration was referred to by Heenan J in Re Evans & Tate Limited; Ex parte Jones (2007) 25 ACLC 1,580 at [13] – [14]. 38 The orders in the present case, as in the matter of Evans & Tate, will inevitably give an advantage to the administrators, but in the circumstances that I have referred to above, it seems to me to be appropriate for the order to be made. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson. Associate: Dated: 16 November 2010