AUSTRALASIAN MEMORY PTY LTD and ANOR v BRIEN and ANOR SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL SHELLER JA 30 September 1997 [1997] NSWCA 31 Sheller JA Australasian Memory Pty Ltd and Mr Barry Charles Amor have appealed from a decision of Santow J given on 10 and 19 September 1997. The appellants now apply by notice of motion to have the hearing of the appeal expedited, and to have the orders and declarations made by Santow J stayed pending the delivery of Judgment of the Court of Appeal in the appeal. The history of these proceedings is found conveniently in the affidavit of Mr Vohralik sworn on 23 September 1997. Mr Vohralik is the partner in the firm of Gillis Delaney Brown who has the conduct of this matter on behalf of the appellants. On 18 February 1997 the respondents to the appeal, Richard Campbell Brien and Steve Nicols, were appointed joint administrators of Australasian Memory Pty Ltd pursuant to a resolution of Mr Amor and other directors of that company under s436A of the Corporations Law. The first meeting of creditors under s436E of the Corporations Law was held on 21 February 1997. The second meeting of creditors, purportedly pursuant to s439A, was convened by notice dated 24 February to be held on 3 March 1997. The meeting began on that day. After discussion the creditors purportedly resolved that that meeting be adjourned to a date no later than three weeks thereafter. By further notices a further meeting of creditors was convened on 24 March 1997 and held on that day. At that meeting the creditors of Australasian Memory Pty Ltd purportedly resolved that it be wound up and that the respondents become liquidators of the company. In May 1997 the respondents caused the company to issue two creditors' statutory demands under s459E, to be served on companies known as Supervac Australia Pty Ltd and Australian Gold Pty Ltd. In response to those statutory demands, an application was filed by Supervac and Australian Gold in proceedings in the Federal Court of Australia. In those proceedings Mr Amor was joined as an applicant and the company was named as a respondent. The applications sought to have the statutory demands set aside and a number of declarations made relating to the meeting of creditors purportedly held on 3 March and adjourned to 24 March, to the effect that that meeting was invalid and of no effect. An order was made for the separate determination of the questions. Those questions were dealt with by his Honour Whitlam J. On 6 June 1997 his Honour delivered a reserved judgment in which he answered the question, "Was the meeting of the creditors of the respondent held on 3 March 1997 convened in accordance with subs439A(2) of the Corporations Law?" in the negative, and accordingly held that the two statutory demands be set aside. According to the affidavit of Mr Vohralik, it was common ground that the convening period ended on 10 March 1997 and in consequence, the administration of the company ended on that date. 2 UNREPORTED JUDGMENTS On 10 June 1997 in the Federal Court proceedings, the respondents caused the company to file a cross-claim against Supervac and the second appellant, namely Mr Amor. That cross-claim sought to have an order made validating the meeting on 3 March 1997. On 19 June, Whitlam J, for the reason that there was some irregularity in the filing, ordered that the cross-claim be summarily dismissed. Thereafter the respondents began the proceedings in the Equity Division of this Court which are the subject of this appeal, seeking a validating order under s1322 of the Corporations Law. During the course of the hearing of those proceedings, the respondents obtained leave to amend their summons to seek validating orders pursuant to s447A of the Corporations Law. Mr Amor at that time commenced proceedings in the Federal Court for the appointment of a provisional liquidator to the company. Those proceedings were by order transferred to the Supreme Court under the cross-vesting legislation. Santow J delivered his reasons for judgment on 10 September 1997 and on 19 September made formal orders. Those orders were as follows: "The Court: 1. Orders pursuant to s1322(4)(d) of the Corporations Law ("the Law') that the period for the holding of the meeting of creditors of the first defendant required by s439A of the Law is and was abridged to the period of 13 days beginning on 18 February 1997, so that the meeting could validly be held on 3 March 1997. 2. Declares pursuant to s1322(4)(a) of the Law that the resolution of the creditors of the first defendant made on 24 March 1997 that the first defendant be wound up is not invalid by reason of any contravention of the provisions of s439A of the Law. 3. Declares pursuant to s1322(4) of the Law that: (a) the winding up of the first defendant commenced on 18 February 1997 and has continued to the date hereof; and (b) the administration of the first defendant did not terminate on 11 March 1997 but continued until the time of the passing of the resolution by the creditors of the first defendant on 24 March 1997 that the first defendant be wound up. 4. Orders pursuant to s447A of the Law that Pt5.3A of the Law is to operate in relation to the first defendant as if: (a) s439A(2) of the Law permitted the plaintiffs as administrators of the first defendant to convene the meeting of the creditors of the first defendant required by s439A of the Law to be held on 3 March 1997; (b) the administration of the first defendant continued from 18 February 1997 until the time of the passing of the resolution of the creditors of the first defendant on 24 March 1997 that the first defendant be wound up; (c) s435C(3)(b) of the Law did not have the effect that the administration of the first defendant terminated on 11 March 1997; (d) the references to a meeting convened under s439A of the Law contained in s439B, s439C and s449E(1) of the Law shall be taken to refer to the meeting of the creditors of the first defendant held on 3 March 1997 and adjourned to 24 March 1997, which is the subject of these proceedings; (e) s446A of the Law had the effect that on 24 March 1997 the first defendant passed a special resolution under s491 of the Law that the first defendant be wound up voluntarily, and did so without a declaration having been made and lodged under s494 of the Law. URJAUSTRALASIAN MEMORY PTY LTD and ANOR v BRIEN and ANOR (Sheller JA) 3 5. The above orders and declarations are made on condition that, subject to any order of the Federal Court of Australia on appeal or otherwise, the plaintiffs will not, in any proceedings by the first defendant for the winding up of Supervac Australia Pty Ltd or Australian Gold Pty Ltd in any Court of competent jurisdiction, cause the first defendant to rely on non-compliance with the statutory demands served on the said companies on 5 and 8 May 1997 respectively. 6. The Court further orders: (a) that these orders and declarations be stayed until and including 3 October 1997 subject to the plaintiffs to apply on reasonable notice within that time in respect of this order; (b) that all questions of costs be deferred." In substance, his Honour abridged the time so that the meeting could be validly held on 3 March 1997, declared the resolution of 24 March 1997 not invalid, declared that the winding up commence on 18 February 1997 and declared that the administration generally terminated on 24 March 1997. Those orders, as appears from order five, were on condition that no proceedings be taken on the basis of the statutory declarations which had been held by the Federal Court to be invalid. With all respect to counsel for the claimants in this application, the grounds for stay appear to me to be quite ephemeral. There is a choice between the opponents being permitted, in accordance with or consequential upon Santow J's orders, to continue to administer the affairs of the company, taking account no doubt of the fact that this appeal is on foot, and effectively handing the administration back to the directors, which include Mr Amor. In particular, counsel referred to the consequences of the relation back date remaining fixed, as he put it, at 20 March 1997, to the company being fixed with the costs of the liquidators, to the possibility that in due course some scheme may be put forward for the administration of the company and to the fact, as it was suggested, that no harm would befall the company if its administration were handed back to the directors. There are a number of matters which, in my opinion, militate against the stay of his Honour's declarations and orders. These are conveniently dealt with in the affidavit of the second respondent, Mr Nicols, sworn on 25 September 1997. I summarise them as follows. Although the company is not now trading, the deficiency of its liabilities over its assets is now in an amount greater than $8 million. On 24 March 1997 fifty-five creditors voted in favour of the winding up of the company. One creditor voted against it and six abstained. In the course of his judgment on p24, Santow J remarked: "In response to the invitation to unsecured creditors to put their own views to the Court on the three matters of potential prejudice raised by the Defendants, none of the creditors appeared before me in response to the notice but a few of them responded by letter (as they were invited to do as an alternative to appearing in Court.) In each case they either supported the making of the orders sought or expressed indifference. The only response received from the alleged preferred creditors was a letter written on 21 August 1997 on behalf of Kingston, strongly supporting the making of the orders sought, and stating that on its advice it did not consider itself at risk of a preference claim, a view shared by the Plaintiffs though not by the Second Defendant." 4 UNREPORTED JUDGMENTS On 24 June 1997 the committee of creditors and major creditors unanimously resolved to approve the respondents' actions. Former employees of the company are owed amounts totalling approximately $200,000. There are further assets to be realised. The principal ones are trade debtors totalling approximately $131,000, the debt owing by Supervac Australia Pty Ltd in the sum of $305,000, the debt owing by Australian Gold Pty Ltd in the sum of $178,144.66, office furniture and computer stock held in the former Auckland office of the first appellant valued at about $NZ150,000. In reply, Mr Duncan pointed to matters which he suggests support the conclusion that there are defences available to both Supervac and Australian Gold against the claim made by the company. Mr Nicols takes account of the fact that no action is to be taken on the statutory demands declared by Whitlam J to be invalid. However, he submits that as a result of the judgment of Santow J under appeal, the respondents have a duty to serve fresh demands against the companies under s459E and should not be prevented from doing so. Mr Nicols says that substantial work remains to be done in the winding up in respect of the investigation of certain transactions entered into prior to 18 February 1997, such as that represented by entries made in the books and records of the first appellant in December 1996 whereby the Amor Family Trust was credited with an amount of $448,815.52, thereby being converted from a debtor to a creditor of the first appellant. Mr Nicols refers to the need to prepare accounts in respect of the winding up of the first appellant for the period ending 24 September 1997. He refers to proceedings in the Federal Court by Flexible Manufacturing Systems Pty Ltd which are now current. He refers to the need for immediate instructions to the New Zealand Official Assignee liquidator of the New Zealand assets of the company. Despite Mr Duncan's helpful submissions, I am satisfied that the various matters which I have summarised, and which are dealt with in more detail in Mr Nicols' affidavits, are matters which should be allowed to proceed, as I say, within the confines of the recognition that this appeal is on foot. Whether in any particular case they proceed or not is, of course, entirely a matter for the respondents subject to appropriate legal restraints. I must say that on the material before me, I find it difficult to see how Mr Amor has any interest in delaying the investigation of the various matters to which Mr Nicols has referred, and the preparation of necessary accounts and the investigation of the position with the various debtors and creditors of the company. In my opinion, it is an important factor to be weighed that the overwhelming majority of creditors support the winding up. This morning when the hearing of this application was resumed, Mr Duncan tendered undertakings which he proffers with the instructions of Mr Amor and his wife and Mr Fredericks, three of the four directors of the company. Mr Duncan suggests that on the basis of those undertakings, I should be persuaded to make the stay orders that he seeks. However, despite those undertakings and having taken account of their being proffered, I remain unpersuaded. In my opinion, this application should be dismissed with costs and those are the orders that I make. URJAUSTRALASIAN MEMORY PTY LTD and ANOR v BRIEN and ANOR (Sheller JA) 5 I think it is an appropriate case for an order that the hearing of the appeal be expedited and I so order. I vacate as from now O6(a) made by Santow J on 19 September 1997.