Supreme Court New South Wales Medium Neutral Citation: In the matter of Order of AHEPA NSW Incorporated [2020] NSWSC 1626 Hearing dates: 30 October 2020 Date of orders: 30 October 2020 Decision date: 30 October 2020 Jurisdiction: Equity - Corporations List Before: Black J Decision: Appointment of administrators validated. Administrators are justified in proceeding on the basis that specified provisions in Pt 5.3A, the Insolvency Practice Schedule (Corporations) and the Insolvency Practice Rules are applicable in the administration of the Association, including certain provisions extended by order under s 477A of the Corporations Act 2001 (Cth). Costs of the application to be costs of the administration. Catchwords: CORPORATIONS – External administration – Association under the Associations Incorporation Act 2009 (NSW) – Uncertainty whether administrators validly appointed – Where facts indicate potential insolvency – Whether to make order under s 477A of the Corporations Act 2001 (Cth) validating administrators' appointment and applying provisions of Pt 5.3A, IPSC and Insolvency Practice Rules – Corresponding provisions of repealed Acts under s 68 of the Interpretation Act 1987 (NSW). Legislation Cited: - Associations Incorporation Act 2009 (NSW), s 54 - Associations Incorporation Regulation 2016 (NSW) - Co-operative (Adoption of National Law) Act 2012 (NSW), s 382; Sch 4, s 6 - Corporations Act 2001 (Cth), ss 447C, 1322 - Corporations (Ancillary Provisions) Act 2001 (NSW), ss 14 and 15 - Insolvency Practice Schedule (Corporations), s 90-15 - Interpretation Act 1987 (NSW), s 68 Cases Cited: - Re Gulf Energy Pty Ltd [2019] NSWSC 1637 - Re Keneally (as administrator of Australian Blue Mountain International Cultural and Tourist Group Pty Limited (admin apptd) [2015] NSWSC 937, (2015) 107 ACSR 172 - Re Lesso Building Material Trading (Sydney) Pty Limited (admins apptd) [2018] NSWSC 1486 - Re Australian Wine Consumers Co-Operative Society Limited trading as The Wine Society (admin apptd) [2020] NSWSC 1437 - Re University Co-Operative Bookshop Limited (admins apptd) [2019] NSWSC 1898 - Re University Co-Operative Bookshop Limited (admins apptd) (No 2) [2020] NSWSC 97 - Winter v Ministry of Transport [1972] NZLR 529 - Woolworths v Lister [2004] NSWCA 292 Category: Principal judgment Parties: Michael Hird and Alan Walker in their capacity as administrators of Order of Ahepa NSW Incorporated (Administrators Appointed) (Plaintiffs) Representation: Counsel: Mr B Katekar SC/Mr J Douglas (Plaintiffs) Solicitors: Watson Mangioni (Plaintiffs) File Number(s): 2020/294487 Judgment – ex tempore (Revised 11 November 2020) Background 1. By Amended Originating Process, filed on 27 October 2020, Messrs Hird and Walker in their capacity as administrators of Order of AHEPA NSW Incorporated (admins apptd) ("Association") apply, under s 90-15 of the Insolvency Practice Schedule (Corporations) ("IPSC") as set out in Sch 2 of the Corporations Act 2001 (Cth) and ss 447A(4) and 447C(1) of the Corporations Act 2001 (Cth) for certain relief. In particular, the administrators seek orders to confirm the validity of their appointment as administrators of the Association on 8 September 2020 whether under s 447C(2) of the Act, although that application was ultimately not pressed, or alternatively under s 447A or s 1322(4)(a) of the Act. On the basis that the validity of their appointment as administrators is confirmed, they also seek orders under s 90-15 of the IPSC directing that they are justified in proceeding on the basis that certain provisions of the IPSC and Insolvency Practice Rules are applicable to the administration of the Association, and orders under s 447A of the Act to apply certain other provisions to the administration. 2. The application is supported by an affidavit dated 13 October 2020 of Mr Michael Hird, one of the administrators. Mr Hird refers to the background of the Association, which is described on its website as a non-profit organisation aimed at fostering Australian and Greek relations by actively promoting awareness of the Hellenic culture in and through cultural, educational, charitable and social events and activities. I pause to comment that, despite its laudable aims, the Association has been occupied in the recent past in internal disputes, which have generated other litigation in this Court, including, most recently, litigation before Rees J and subsequently in the Court of Appeal, which are the immediate precursor of this application and indeed of the appointment of administrators to the Association. 3. Mr Hird refers to the appointment of the administrators, which took place at a meeting on 8 September 2020 following the giving of notice of that meeting late on 6 September 2020. He also refers to the agenda for that meeting, as described in the notice, which indicated that the matters to be discussed would include "NSW Court of Appeal decision (strictly privileged)" and general business relating to that matter. There was an error in that notice so far as the covering email initially had an incorrect date, but that was corrected by an email sent on the following day. There was also uncertainty, in the email and in the notice, as to whether the meeting which was to be called was a regular meeting of the Association, for which sufficient notice would not have been given in accordance with its Constitution, or an additional meeting, as to which sufficient notice would have been given, but a further issue as to the content of that notice would then arise. 4. Mr Hird draws attention to cl 20 of the Association's Constitution, both in its previous form and in an amended form. The amendments to that Constitution are controversial in other respects but not this respect. It relevantly provides that: "Additional meetings of the committee may be convened by any office bearer of the committee by giving at least 48 hours oral or written notice stating the general nature of the business to be transacted at the additional meeting except business which the committee members present at the additional meeting unanimously agree to treat as urgent business." 1. Mr Hird also refers to the meeting of 8 September 2020, at which it was resolved that, in the opinion of the members of the committee of management, the Association was insolvent or was likely to become insolvent at some future time and that administrators should be appointed. 2. Mr Hird also outlines the circumstances of previous disputes involving the Association, to which I have referred above. He notes that an issue may have arisen in the Court of Appeal, and is raised in orders which it is suggested will be sought from the Court of Appeal, if the stay of the appeal which arises from the administration is lifted, as to the membership of the management committee and, in particular, as to whether the Association had validly appointed any person to be the Secretary or Treasurer on the committee of management. Mr Hird notes that, not surprisingly given the complex history of the disputes within the Association, he has not yet formed a view as to that matter, but is concerned about it. 3. Mr Hird also refers to the administrators' investigations to date, which have disclosed that the Association has a significant number of creditors who have lodged proofs of debt, such that its known unsecured creditors as at the date of his affidavit are in excess of $1.8 million, and a third party, Judo Bank, is a secured creditor with a claim of $1.5 million plus interest and costs in addition to that amount. Mr Hird notes that the Association owns real property which is of very substantial value, but its assets that are realisable within a short period are substantially less than the amount of the present debts owed by it. It is implicit in Mr Hird's analysis, and I find, that the Association is presently likely to be insolvent on a cash flow basis, so far as its assets realisable within a short period would not be sufficient to meet the debts that would be payable within that period and, if it is not presently likely insolvent on that basis, then it is likely to become insolvent with the passage of time, particularly when any costs order made by the Court of Appeal in respect of the proceedings before it become due and payable. 4. The administrators also rely on the affidavit dated 23 October 2020 of their solicitor, Mr Steven Mattiussi, which refers to correspondence with solicitors representing persons interested in the Association, including the two groups which take two different views as to the Association's affairs. The administrators also rely on a second affidavit of Mr Mattiussi dated 27 October 2020 which refers to a deed of company arrangement proposal which has already been put by one of those groups in respect of the Association, and to the anticipation that a further deed of company arrangement proposal will be put by the other group. The second meeting of creditors has been adjourned to allow both proposals to be considered. Mr Katekar SC, who appears for the administrators, points to their concern, which seems to me to be well-founded given the Association's history, that there is a potential of or a likelihood of further dispute, including as to the validity of their appointment, if one or other deed of company arrangement was accepted, in a manner that caused disappointment to the group which supported a competing deed. 5. Mr Mattiussi's evidence establishes that persons interested in the Association's affairs are on notice of this application. They have not appeared on the application and the Court has been informed that they do not oppose the relief that is sought by the administrators. Relief under s 447C of the Act 1. Turning now to the relief sought in respect of the validity of the administrators' appointment, Mr Katekar did not press the relief claimed in the Amended Originating Process seeking an order declaring that the appointment of the administrators was valid under s 447C of the Act. An order under that section is, as its language indicates, declaratory of the position rather than altering the position, and it seemed to me Mr Katekar rightly recognised that there must be a degree of uncertainty as to the present position, by reason of the issues in the Court of Appeal as to the membership of the Association's management committee. For that reason, it seems to me that an order under s 447C of the Act could not presently be made, at least without resolving matters that are before the Court of Appeal, which I am not in a position to resolve in this application. Relief under s 1322 of the Act 1. Alternatively the Amended Originating Process sought relief under s 1322(4) of the Corporations Act as applied by provisions of the Associations Incorporation Act 2009 (NSW) and the Associations Incorporation Regulations, that the resolutions made at the meeting of the Association's committee of management on 8 September 2020 were not invalid by reason of the notice of meeting not specifying that the business to be conducted at the meeting included consideration of the financial position and solvency of the Association or that administrators may be appointed. 2. It seems to me that there is, at best, significant uncertainty as to whether the Court could make an order under s 1322 of the Act in that respect. Section 1322(4)(a) of the Act provides, relevantly, that the Court may make an order declaring that any matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, is not invalid by reason of a contravention of, relevantly, a provision of the Act or a provision of the constitution of the corporation. That section would, potentially, be wide enough to allow validation of a step taken to appoint the administrators, which was in breach of the provisions of the constitution dealing with the membership of the committee of management, or with the notice provisions for the relevant meeting. However, section 1322(6) of the Act provides that the Court may only make such an order if it is satisfied, in each case, that no substantial injustice has been or is likely to be caused to any person. In Re Keneally (as administrator of Australian Blue Mountain International Cultural and Tourist Group Pty Limited (admin apptd) [2015] NSWSC 937; (2015) 107 ACSR 172, I found that s 1322 of the Act could not be applied to validate a resolution, where insufficient notice was given of a meeting. It seems to me that there is at least uncertainty as to whether such an order could be made here, where the absence of notice, in specific terms, of the possibility that an administrator might be appointed might well have affected the decision of members of the management committee as to whether to attend that meeting, and as to how to conduct themselves if they did so. It is not necessary to determine that question, given the conclusions that I reach below. Relief under s 447 of the Act 1. Alternatively, the administrators seek relief under s 447A of the Act, namely an order that Part 5.3 of the Act is to operate in relation to the Association as if each of them were validly appointed as joint administrators of the Association by the resolution passed by the committee of management on 8 September 2020. It seems to me that the Court plainly has power to make such an order. In Re Lesso Building Material Trading (Sydney) Pty Limited (admins apptd) [2018] NSWSC 1486 at [31], I observed that the operation of that section was to vary the Act in circumstances that may, in an appropriate case, bring about a result that the Act would not otherwise bring about. I noted that there were many cases in which the Court had made orders under that section validating an appointment of an administrator where, for example, a quorum was not present or that the appointment was made by a de facto director rather than a statutory director, and that such orders were commonly made where a company was plainly insolvent and the appointment of an administrator will promote the purposes of Part 5.3A of the Act. I there noted that, had I not there found that the appointment of administrators was valid for other reasons, the evidence of insolvency of the company in that case would have been a strong reason to grant relief under section 447A of the Act, and that I would have made the order sought in that case under section 447A of the Act if it was necessary to do so. 2. Mr Katekar also refers to the comprehensive summary of the relevant principles by Ward CJ in Eq in Re Gulf Energy Pty Ltd [2019] NSWSC 1637 at [18]-[20], where her Honour noted that the orders that may be made under that section extend beyond the determination of the effect of the provisions of Part 5.3A to permit alterations to the operation of that part in respect of a particular company. Her Honour there noted that the discretion covered by that section is to be exercised having regard to all the circumstances of the case, and one relevant consideration would be whether the purposes of Part 5.3A would be best served by the making of an order, and that the apparent purpose and object of Part 5.3A is to provide a constructive approach to corporate insolvency by focusing the possibility of saving a business and preserving employment prospects. Her Honour also there noted the relevance of insolvency or the likelihood of insolvency when the appointment was made to the making of such an order. 3. It seems to me that there is a compelling basis for an order to be made under s 447A of the Act to validate the administrators' appointment by reference to several factors. First, there are uncertainties as to the validity of the administrators' appointment, at least by reason of the questions of the adequacy of notice of the meeting and the membership of the management committee to which I have referred above. Second, it is plain that the Association has substantial assets which are not realisable within a short time, but significantly exceed its debt. That allows a real prospect that a restructuring of the Association will preserve it, or at least its functions, for the benefit of the relevant community. Third, it seems to me that it is desirable, in the relevant circumstances, that an independent person, such as the administrators, have the conduct of that restructuring where the existing divisions within the management committee and the membership of the Association are otherwise likely to cause significant difficulties for such a reconstruction. Fourth, the validation of the administrators' appointment is desirable, from the point of view of members of the management committee who might otherwise be exposed to potential liabilities in respect of the continued conduct of the Association's affairs at a time that it either is, or is likely to become, unable to pay its debts as and when they fall due. Such an order will also particularly avoid the diversion of the Association's or its members' resources to a fruitless dispute at some point in the future as to the validity of the administrators' appointment and allow a more productive focus upon the steps that may be taken to preserve the Association or its functions. 4. For all of these reasons, I am comfortably satisfied that the factors to which Ward CJ in Eq referred to in Gulf Energy, and the purposes of Part 5.3A of the Act as applied to the Association by the Associations Incorporation Act, will be served by varying Part 5.3A of the Act in respect of the Association to confirm validity of the administrators' appointment. I therefore make the first of the orders sought by the administrators, confirming their appointment under section 447A of the Act. Application of the IPSC and Insolvency Practice Rules 1. The second question raised by the administrators relates to the application of provisions of the IPSC and the Insolvency Practice Rules in the administration, particularly so far as they relate to matters such as the conduct of meetings. Similar issues have arisen, although in a different context, in respect of co-operative bodies and were considered by this Court in my decision in Re University Co-Operative Bookshop Limited (admins apptd) [2019] NSWSC 1898, in the subsequent decision of Gleeson JA in Re University Co-Operative Bookshop Limited (admins apptd) (No 2) [2020] NSWSC 97 and in my further decision in Re Australian Wine Consumers Co-Operative Society Limited trading as The Wine Society (admin apptd) [2020] NSWSC 1437. 2. Mr Katekar rightly draws attention to the reasoning adopted in those decisions in submissions. The position in respect of the Association is ultimately the same, although it will be convenient to address that position by reference to the relevant legislation before returning to the approach adopted in those decisions in their different context. Mr Katekar points out that, by s 54 of the Associations Incorporations Act 2009, an association is declared to be an applied Corporations legislation matter for the purposes of Part 3 of the Corporations (Ancillary Provisions) Act 2001 in relation to the provisions of Part 5.3A and Part 5.9 Div 3 of the Corporations Act subject to specified modifications. That provision is broadly similar to s 382 of the Co-Operative (Adoption of National law) Act 2012 which applies in respect of co-operatives and was considered in the decision to which I have referred above. The effect of that provision is, broadly, to apply Part 5.3A and Part 5.9 Div 3 of the Corporations Act as State legislation in respect of incorporated associations, by reason of the operation of ss 14 and 15 of the Corporations (Ancillary Provisions) Act 2001 (NSW). 3. Mr Katekar points out, however, that an issue here arises in a similar way to that which has arisen in respect of co-operatives addressed in the cases to which I have referred, because the Associations Incorporation Act does not apply Part 5.4 Div 4 of the Corporations Act, which authorised the introduction of the IPSC, or the IPSC itself or the Insolvency Practice Rules in respect of an association. That, however, is not the end of the matter, both because of interpretation provisions to which I will refer, and because of the Court's power under s 447A of the Act to apply such provisions in an appropriate case. It is apparent that some of the provisions presently contained in the Insolvency Practice Rules correspond to previous provisions in the Corporations Act, and that was a matter which was addressed in the case law to which I have referred above. Mr Katekar rightly points to s 68 of the Interpretation Act 1987 (NSW) which relevantly provides that a reference to a provision of a repealed or re-enacted Act extends to the corresponding provision of the re-enacted Act. That section is in similar form to s 6 of Schedule 4 of the Co-Operative (Adoption of National Law) Act 2012 to which reference was made to in the decisions to which I have referred above. Mr Katekar also draws attention to the consideration of a corresponding earlier provision, s 68 of the Interpretation Act in Woolworths v Lister [2004] NSWCA 292 where the Court of Appeal in turn referred to the observations of the New Zealand Court of Appeal in Winter v Ministry of Transport [1972] NZLR 529 at [541], where Turner J treated a "corresponding section" as one which, "answered to the old one...in character and function", or is "similar in purpose, prescribes the same thing to be done and is designed to produce the same result". 4. The analysis undertaken in the cases to which I have referred above, and particularly in Re University Co-Op Bookshop (No 2), has identified provisions in the Insolvency Practice Rules which are, in that sense, corresponding provisions to those contained in the former Corporations Act, which are in turn applied to incorporated associations by the statutory regime to which I have referred above. I am satisfied that the provisions in the Insolvency Practice Rules which correspond to those earlier provisions in the Corporations Act have continued operation in respect of incorporated associations by reason of s 68 of the Interpretation Act to which I have referred above. That result is the same as that reached in respect of co-operatives in the cases to which I have referred above, albeit it depends upon the application of s 68 of the Interpretation Act as distinct from the effect of Schedule 4 of the Co-Operatives (Adoption of National Law) Act which was considered in those cases. For that reason I am satisfied that I can make the order sought by the administrators which takes the same form as the order made in those earlier cases, directing them that they are justified in proceeding on the basis that specified provisions of the IPSC and Insolvency Practice Rules are applicable in the administration of the Association. 5. I recognise that it might be suggested that there is a degree of apparent circularity involved in that direction, so far as the Court can only make a direction under s 90-15 of the IPSC, where the IPSC is in fact applied to an association in this manner. That is not in fact a circularity because, once the Court is satisfied, as I am, that the IPSC applies to an association in the manner that I have noted above, then it is able to make a direction under s 90-15 of the IPSC to confirm that position. That is not circularity, but the consequence of the finding that the IPSC is properly applied in the relevant circumstances by the reasoning that I have noted above. 6. I am also satisfied that, for the same reasons that such an order was made in the cases to the which I have referred above, an order also ought to be made under s 447A of the Act applying provisions that do not correspond to previous provisions in the Corporations Act, and have been introduced by the IPSC and Insolvency Practice Rules to the Association I will make an order in the form sought by the administrators in that respect. 7. For these reasons I am satisfied that I should make orders in accordance with paragraphs 1A, 3 and 4 of the Amended Originating Process filed by the administrators. Costs 1. I am also satisfied that I should make an order that the costs of this application be costs of the administration. The application was plainly necessary to progress the administration in an orderly way. I note, for completeness, that I accept that it was appropriate for the administrators to seek directions in this case as to the application of the provisions in the IPSC and Insolvency Practice Rules which correspond to former provisions in the Act, because that question had previously arisen only in respect of co-operative bodies and not in respect of incorporated associations. It may not be necessary for administrators of incorporated associations to seek such directions in the future, since they may well be entitled to proceed in accordance with the conclusions that I have reached in this case, in a similar way that administrators may properly follow the findings which Gleeson J reached in University Co-operative Bookshop (No 2) in respect of co-operatives. It may still be necessary for them to seek an order under s 447A of the Act in respect of those provisions that would not apply, because they do not correspond to previous provisions in the Act. Orders 1. I direct that the administrators bring in short minutes of order to give effect to this judgment. I will then make those orders and I would order that those orders be entered forthwith as soon as they are available. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 November 2020