Reported Decision : [2000] 18 ACLC 341 New South Wales Supreme Court CITATION : Cussen v Signature Resorts Pty Ltd [2000] NSWSC 89 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 1453/2000 HEARING DATE(S) : 21/02/2000 JUDGMENT DATE : 21 February 2000 Neil Robert Cussen (P1) PARTIES : Paul Gerard Weston (P2) Kevin Shirlaw (P3) Signature Resorts Pty Limited (D) JUDGMENT OF : Young J COUNSEL : SOLICITORS : Solicitor for plaintiff: G Cussen of Kemp Strang CATCHWORDS : CORPORATIONS [177]- Administrator- Appointment- Partner of liquidator- Person formerly administrator under aborted administration- Whether appointment valid- Corporations Law ss 82A, 448C - WORDS & PHRASES- "Officer" LEGISLATION CITED : Corporations Law ss 82A, 448C CASES CITED : Re Chilia Properties Pty Limited (1997) 73 FCR 171 DECISION : See paras 10-12 THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG J MONDAY 21 FEBRUARY 2000 1453/2000 - NEIL ROBERT CUSSEN & ORS V SIGNATURE RESORTS PTY LTD JUDGMENT 1 HIS HONOUR: By summons filed a few minutes ago the persons who purport to be the voluntary administrators of the defendant and its court appointed liquidator, seek orders that the first two plaintiffs were validly appointed as such voluntary administrators on 1 February 2000. 2 The essential facts are that the defendant was ordered to be wound up by a court order made on 1 March 1991, and the third plaintiff was appointed official liquidator. The defendant did not trade after the appointment of the third plaintiff as official liquidator. Its principal asset is a resort at Coffs Harbour. 3 Towards the end of 1999 the third plaintiff formed the view that the only way of obtaining the best amount of money for the unsecured creditors was to sell the structure of the company rather than the assets. For this purpose the first and second plaintiffs were appointed as administrators, to take effect in November 1999. However, the purchaser's due diligence was not completed in time for the administration to proceed to completion, and so the administration was aborted. 4 The third plaintiff again appointed the first two plaintiffs as voluntary administrators on 1 February 2000. Shortly afterwards, it occurred to the plaintiffs that section 448C of the Corporations Law might invalidate the appointment. They therefore sought appropriate dispensation from the regulatory authority, which, after some acrimonious correspondence was "reluctantly" given, but to operate only from 11 February 2000. This rather bizarre decision meant that not only was the public's money wasted in having the regulatory authority consider the application, but the unsecured creditors had been put to thousands of dollars in expenses in coming to court. What appears to be bizarre behaviour on the part of the regulatory authority should really be drawn to the attention of the appropriate Minister so that he can make sure that public money is better spent in this area in the future. 5 The law clearly provides that failure to comply with s 448C does not invalidate the appointment of an administrator. It merely makes the persons who are involved in the regulatory conduct liable to a penalty; see Re Chilia Properties Pty Limited (1997) 73 FCR 171. Accordingly, there never was any real question as to the validity of the appointment and these whole proceedings were quite unnecessary. 6 However, it seems to me that the plaintiffs have also proceeded on another false basis. The perceived problem is that under section 448C(3)(b) a person who has been an administrator of a company within the last two years is disqualified from being reappointed an administrator, even though he would not have been disqualified under s 448C(1)(b) or (c). That just cannot be so. The whole purpose of subsection 3, as is made clear in paragraph 633 of the explanatory memorandum to the bill, was to "catch persons who, though not in a disqualified category at the time of the proposed appointment, had been within certain key categories within the previous two years". Thus, the proper construction of subsection 3 is that it only applies to a person who would be in a proscribed category under subsection 1. A person who has been an administrator or liquidator is not in that category, unless they are owed $5,000 or more by way of costs. 7 Another problem is section 448C(1)(g), because the first two plaintiffs are partners of the third plaintiff. 8 Mr Cussen, the solicitor for the plaintiffs, put that section 82A of the Corporations Law applies, so that the third plaintiff is not an officer, because he is a court appointed liquidator. I know section 82A says that, but it would seem fairly clear that a court appointed liquidator is within s 448C. That was not only said to be the case in dicta by Lehane J in the Chilia case at page 173, but it is also apparent from the plain reading of the section. The purpose of the section is that anybody, whether a court appointed liquidator or not, who is owed $5,000 or more is disqualified, and so is his or her partners. However, the only sensible way of reading (g), akin to the way one reads subsection 3, is that the disqualified person must be a partner of someone who himself or herself is disqualified. In other words, one must read before the word "officer" the words "who is a disqualified", or, some such words. On that basis as well, the present appointment does not fall foul of the section. 9 The regulatory authority suggests that it is inappropriate for reasons of actual perceived conflict of interest for external administrators to appoint fellow partners of their firm as external administrators, and the same would apply to liquidators. That is often the case, but, as Lehane J pointed out in the Chilia case, often the reverse applies. In the interest of cheap administration, if what is really happening is the one continuous administration in the interests of the unsecured creditors in two different modes, it may well be appropriate, where there is little prospect of conflict, to have greater regard to the costs of the matter and appoint a partner. 10 The proper method of making an order is probably to take advantage of section 447A of the Corporations Law and declare that the first two plaintiffs were validly appointed voluntary administrators of the defendant on 1 February 2000 and then stand the proceedings over to the Registrar's list on 3 April 2000. 11 There should be no costs of the application to date. 12 Further costs are reserved. oOo Last Modified: 09/25/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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