FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v Debut Developments Pty Ltd [2011] FCA 69 Citation: Deputy Commissioner of Taxation v Debut Developments Pty Ltd [2011] FCA 69 Parties: DEPUTY COMMISSIONER OF TAXATION v DEBUT DEVELOPMENTS PTY LTD ACN 109 601 550 File number: SAD 137 of 2010 Judge: BESANKO J Date of judgment: 11 February 2011 Catchwords: CORPORATIONS — Application pursuant to O 35 R 7(2)(a) of the Federal Court Rules to set aside winding up order made by Registrar against a company in administration when neither the director and sole shareholder or the administrator attended the hearing — where Registrar was advised that company was in administration and that first creditors' meeting had been held — where failure to attend was the fault of the director or the administrator — where Registrar was advised that no deed of company arrangement had been put forward — where director of company gave evidence of proposed deed of company arrangement at hearing of application to set aside — where application opposed by major creditor — whether appropriate to make an order under s 482(1) and s 482(3) of the Corporations Act 2001 (Cth) ('the Act') HELD: It was not appropriate to make an order under s 482 of the Act because that would not set aside the winding up order. It was appropriate to make an order setting aside the winding up order pursuant to O 35 R 7(2)(a) because it was in the interests of the creditors to have an opportunity to consider the proposed deed of company arrangement. Legislation: Corporations Act 2001 (Cth ss 435C, 440A, 440D, 482) Federal Court Rules O 35 r 7 Cases cited: Australian Prudential Regulation Authority v Rural and General Insurance Ltd (2004) 136 FCR 149, cited Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300, cited Austin RP and Ramsay IM, Ford's Principles of Corporations Law (14th ed, Butterworths) Date of hearing: 20 January 2011 Place: Adelaide Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 18 Counsel for the Plaintiff: Mr F Camatta Solicitor for the Plaintiff: Camatta Lempens Counsel for the Defendant: Mr B Williams Solicitor for the Defendant: Hunt and Hunt IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 137 of 2010 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: DEBUT DEVELOPMENTS PTY LTD ACN 109 601 550 Defendant JUDGE: BESANKO J DATE OF ORDER: 20 January 2011 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. The orders in paragraphs 2, 3 and the second numbered 3 made by Registrar Christie on 12 January 2011 be set aside under O 35 r 7 of the Federal Court Rules. 2. The application SAD137/2010 be referred back to Registrar Christie for further consideration by her as appropriate. 3. Mr Ian Alexander Roberts pay Mr Robert Ferguson's costs, being costs incurred by Mr Ferguson as the official liquidator of Debut Developments Pty Ltd. 4. Pursuant to s 1322(4) of the Corporations Act 2001 (Cth) the time within which the applicant is to lodge the appropriate form of notification of an application under s 482 of the Corporations Act 2001 be extended to 5 pm on Friday 21 January 2011. 5. Mr Ian Alexander Roberts or his solicitors notify the Australian Securities and Investments Commission of these orders on or before 4 pm on Tuesday 25 January 2011. 6. Mr Roberts pay the plaintiff's costs of the interlocutory process dated 17 January 2011 save and except for the costs of the hearing in the afternoon of Thursday 20 January 2011. 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 SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 137 of 2010 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: DEBUT DEVELOPMENTS PTY LTD ACN 109 601 550 Defendant JUDGE: BESANKO J DATE: 11 FEBRUARY 2011 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 On 20 January 2011, I made the following orders. 1. The orders in paragraphs 2, 3 and the second numbered 3 made by Registrar Christie on 12 January 2011 be set aside under O35 r 7 of the Federal Court Rules. 2. The application SAD137/2010 be referred back to Registrar Christie for further consideration by her as appropriate. 3. Mr Ian Alexander Roberts pay Mr Robert Ferguson's costs, being costs incurred by Mr Ferguson as the official liquidator of Debut Developments Pty Ltd. 4. Pursuant to s 1322(4) of the Corporations Act 2001 (Cth) the time within which the applicant is to lodge the appropriate form of notification of an application under s 482 of the Corporations Act 2001 be extended to 5 pm on Friday 21 January 2011. 5. Mr Ian Alexander Roberts or his solicitors notify the Australian Securities and Investments Commission of these orders on or before 4 pm on Tuesday 25 January 2011. 6. Mr Roberts pay the plaintiff's costs of the interlocutory process dated 17 January 2011 save and except for the costs of the hearing in the afternoon of Thursday 20 January 2011. 2 These are my reasons for making those orders. 3 The orders made by the Registrar on 12 January 2011 were, relevantly: 2. Debut Developments Pty Ltd, ACN 109 601 550, be wound up in insolvency under the provisions of the Corporations Act 2001. 3. Robert Anthony Ferguson, an official liquidator, be appointed as liquidator of the company. 3. The plaintiff's costs be fixed at $3049.43 and reimbursed in accordance with sub-section 466(2) of the Corporations Act 2001. 4 The orders which I made on 20 January 2011 were made on the application of Mr Ian Alexander Roberts, who is the director and sole shareholder of Debut Developments Pty Ltd ("the company"). 5 The history of this proceeding is as follows. The plaintiff issued an originating process on 24 September 2010 seeking, inter alia, an order that the company be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth) ('the Act'). The application was made on the basis of an alleged failure by the company to meet the requirements of a statutory demand for the repayment of a debt. The debt was alleged to be in the amount of $101,362.28. 6 The plaintiff's application came on before the Registrar on 27 October 2010. Mr Roberts sought and was granted leave to appear on behalf of the company. He advised the Registrar that the company was in the process of settling a property transaction and that he anticipated a settlement in late November 2010. The application was adjourned by consent to 1 December 2010. The matter came before the Registrar on 1 December 2010 and at that time she was advised that the property settlement was not proceeding and that the company was seeking financial advice. The parties agreed to an adjournment of the application, and it was adjourned to 12 January 2011. 7 On 7 December 2010, the defendant was placed into administration under Pt 5.3A of the Act. On 17 December 2010, the administrator held the first creditors' meeting. 8 The company did not appear on 12 January 2011 and the Registrar made the orders set out in [3] above. The Registrar was advised that the company had been put into administration and that a creditors' meeting had been held. She was advised that no deed of company arrangement had been put forward at that meeting. 9 Mr Roberts, in his affidavit sworn on 17 January 2011, states that neither he nor the administrator appeared on 12 January 2011, and that he did not appear as he thought the administrator would attend and 'the administrator likely believing I would attend'. In the same affidavit, Mr Roberts states that he proposes to put a deed of company arrangement to the company's creditors 'which will result in a better outcome for creditors as has been stated in the Report'. The report to which this statement refers is the circular to creditors from the administrator dated 13 January 2011. In that report the administrator states: As at today, the director of the company has not furnished me with a Deed of Company Arrangement proposal; however, he has advised that it is his intention to present me with a proposal for a Deed of Company Arrangement (DOCA) that is intended to provide a better return to creditors than would be the case if the company were liquidated. The director requested on the 12 January 2011 that he be allocated 2 more weeks to complete negotiations which will enable an offer for a DOCA to be made. I believe it is in the interest of the creditors to allow the time by adjourning the meeting to enable a supplementary report to be made. An adjournment to 2 February 2011 will be acceptable. I will inform all creditors of this proposal once I receive it. 10 Later in his report he states: I address each of the matters as follows: (i) A proposal for a Deed of Company Arrangement has not been received; therefore there cannot be any recommendation for a Deed of Company Arrangement. (ii) As the company is insolvent, it is not in the creditors' interest for the administration to end and for the control of the company to return to the directors. (iii) Without a proposal for a Deed of Company Arrangement it is my opinion that it would be in the creditors' interests for the company to be wound up. 11 The order of the Registrar that the company be wound up in insolvency had been entered. 12 The application by Mr Roberts was said to be made under s 482(1) and s 482(3) of the Act and O 35 r 7(2)(a) and r 7(2)(f) of the Federal Court Rules. It did not seem to me appropriate to make an order under s 482 of the Act. Such an order would terminate the winding up but it would not have the effect of setting aside the original order. In those circumstances, the winding up order probably brought the administration to an end (s 435C(3)(g)). Counsel for the respondent referred me to s 482(3) and suggested that I could make an order under that subsection which had the effect of setting aside the original order to wind up the company. I do not accept that submission as such an order would seem to be beyond the terms of the subsection. In any event, the company is plainly insolvent and there would not appear to be a basis to exercise the power in s 482. See Austin RP and Ramsay IM, Ford's Principles of Corporations Law (14th ed, Butterworths) at [28.090]. 13 It seemed to me that if it was appropriate to make an order sought by Mr Roberts, the relevant power was Order 35 rule 7(2)(a). Order 35 r 7(2)(f) is not relevant because the plaintiff appeared and did not consent to the setting aside of the order. Order 35 r 7(2)(a) is in the following terms: The Court may vary or set aside a judgment or order after the order has been entered where: (a) the order has been made in the absence of a party, whether or not the absent party is in default of appearance or otherwise in default and whether or not the absent party had notice of the motion for the order. 14 The power to set aside a final order must of course be exercised with great caution (Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 at 302-303 per Mason CJ). 15 The Registrar appears to have given Mr Roberts ample time to formulate a proposal which would avoid a winding up order. I was concerned when the matter came before me that even though I had sworn evidence from Mr Roberts that he intended to put forward a deed of company arrangement no details of a firm proposal were provided. I raised that matter with Mr Roberts' counsel on 20 January 2011. I said: … but I wanted to give you the opportunity to confront, either by submission or by evidence, whether it be evidence that is before me or evidence that could be put before me, the proposition that there is still before the court no evidence of a firm proposal for a deed of company arrangement or any details of what that deed of company arrangement might involve. 16 As a result of that observation Mr Roberts filed a further affidavit in which he said: 2. As the director of the Defendant I put forward the following proposal for a Deed of Company Arrangement ("DOCA") to be considered by the creditors of the Defendant: 2.1 that I will provide sufficient funds to the Defendant (together with funds recovered by the Administrator under the DOCA or as Voluntary Administrator) to enable the Defendant to: i. pay the costs and expenses of the administration and the DOCA; ii. pay the preferred creditors in accordance with priorities set out in section 556 of the Corporations Act 2001 (Cth); iii. pay a dividend of 15 cents in the dollars to those unpreferred creditors that lodge proofs in the DOCA; with the intention that all of these be paid within 12 months of the date of the DOCA. 3. I have put the above proposal as my best proposal to the creditors of the Defendant taking into account all of my personal obligations to various creditors of the Defendant and other third party creditors. 17 Whilst I still had some reservations about the utility of setting aside the order, I considered that it was in the interests of creditors that they have an opportunity to consider such a proposal and that it was appropriate to set aside the winding up order provided Mr Roberts paid the costs of the liquidator and certain costs of the plaintiff. 18 I should mention that in the course of submissions counsel for Mr Roberts referred me to s 440D and subsection 440A(2) of the Act. Section 440D is the section which provides that during the administration of a company a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with except under certain terms. Section 440A(2) requires the court to adjourn the hearing for an order to wind up a company if the company is under administration and the court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up. Although he referred to these sections, I do not think he suggested that either of them prevented the Registrar from making the order winding up the company. Section 440D is not relevant in the circumstances (see Australian Prudential Regulation Authority v Rural and General Insurance Ltd (2004) 136 FCR 149 at 153 [11] per Gyles J) and it may be assumed that for the purposes of s 440A(2) the Registrar was not satisfied that it was in the interests of the company's creditors for the company to continue under administration rather than be wound up. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko. Associate: Dated: 11 February 2011