ASIC v Australian Rural Group [2002] NSWSC 1087

New South Wales Supreme Court

CITATION : ASIC v Australian Rural Group [2002] NSWSC 1087 CURRENT JURISDICTION: Equity Division Corporations List FILE NUMBER(S) : SC 4772/02 HEARING DATE(S) : 15/11/02 JUDGMENT DATE : 15 November 2002

Australian Securities and Investments Commission - Plaintiff Australian Rural Group Limited (Administrators Appointed) - First Defendant PARTIES : ARG Management Limited (Administrators Appointed) - Second Defendant ARG Financial Group Limited (Administrators Appointed) - Third Defendant ARG Custodians Limited (Administrators Appointed) - Fourth Defendant JUDGMENT OF : Barrett J

COUNSEL : Mr P N Riordan, Solicitor - Plaintiff Mr D P Cowling, Solicitor - Administrators SOLICITORS : Jan Redfern - Solicitor for ASIC Clayton Utz - Administrators CATCHWORDS : CORPORATIONS - voluntary administration - transfer of shares in company in administration void unless court otherwise orders - whether such order should be made LEGISLATION CITED : Corporations Act 2001 (Cth) Re Atlas Truck Services Pty Ltd [1974] ACTR 19 CASES CITED : Jardio Holdings Pty Ltd v Dorcon Constructions Pty Ltd (1984) 3 FCR 311 Re National Bank of Wales [1896] 2 Ch 851 Tellsa Furniture Pty Ltd v Glendave Nominees Pty Ltd (1984) 9 NSWLR 254 DECISION : Order made

- 4 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

BARRETT J

FRIDAY, 15 NOVEMBER 2002

4722/02 – AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v AUSTRALIAN RURAL GROUP LIMITED (UNDER ADMINISTRATION) & 3 ORS JUDGMENT 1 The applicants are the administrators of Australian Rural Group Limited ("ARGL") and certain wholly-owned subsidiaries, including ARG Management Limited ("ARGM") and ARG Custodians Limited ("ARGC"). All three companies have operated as responsible entities of managed investment schemes. In the course of administration under Pt. 5.3A of the Corporations Act 2001, the administrators accordingly have a need to consider the position of investors in such schemes as well as the interests of the creditors of the respective companies. 2 As administrators of ARGL, the applicants have negotiated a sale of the whole of the issued share capital of each of ARGM and ARGC to Huntley Consultancy Pty Limited. A preliminary sale agreement between those parties has been executed and is is in evidence as the annexure 'A' to the affidavit of Mr Robinson sworn on 14 November 2002. Huntley Consultancy will buy the shares in both companies for $200,000 and will undertake an obligation to pay the debts of ARGM except those incurred by it in a trustee capacity. The other company, ARGC, apparently has no non-trust creditors. 3 The reason the proposed sale of shares has come before the court lies in s.437F of the Corporations Act 2001 (Cth) which makes void, except so far as the court otherwise orders, any transfer of shares in a company made while the company is in administration. This section is the counterpart, in the administration context, of ss.468(1) and 493 in relation to winding up, save that s.468(1) (applying to winding up in insolvency or by the court) also extends to any dispensation of property. 4 Insofar as s.468(1) applies to dispositions of property of a company in the course of winding up, it confers a very broad validating discretion upon the court. In Tellsa Furniture Pty Ltd v Glendave Nominees Pty Ltd (1987) 9 NSWLR 254, Priestley JA (with whom Hope JA agreed) approved the observation of the Full Federal Court in Jardio Holdings Pty Ltd v Dorcon Constructions Pty Ltd (1984) 3 FCR 311, in relation to that aspect of the jurisdiction, that: "… the words in the section 'unless the Court otherwise orders' give the court a wide general discretion which is not to be limited by any attempted classification of those cases which do, and those which do not, fall within them." 5 The broad discretion thus identified as available in relation to validation of dispositions of property is, however, to be exercised by reference to a guiding principle based on the interests of creditors. A disposition of property under a transaction entered into in good faith which offers actual or potential advantage to the company or its general body of creditors will ordinarily be sanctioned: Re Atlas Truck Services Pty Ltd [1974] ACTR 19. 6 In the present case, the question is whether transfers of shares in ARGM and ARGC should be validated or, as it were, authorised in advance. It seems to me that, by analogy, the discretion on that issue is equally broad and the same guiding principle applies. Such cases as there are in the winding up context in relation to transfers of shares suggest that the main concern has been with the possibility that creditors of the company shares in which are transferred will be prejudiced by transfer of partly paid shares to persons without the means to discharge the liability of a contributory: see, for example, Re National Bank of Wales [1896] 2 Ch 851. The shares here are fully paid and no concern of that kind can arise. 7 It is not for the court to concern itself with the commercial desirability or otherwise of what is proposed, save insofar as the interests of creditors (and, in a case such as this, I think, those of investors in the managed investment schemes) arise for consideration. I am satisfied that the transfer of the shares in ARGM to Huntley Consultancy Pty Limited will positively serve the interests of the creditors of ARGM. This is because of the inclusion in the preliminary contract of the express undertaking by the purchaser in relation to creditors other than trust creditors. In both cases (ARGM and ARGC), there is also the advantage of the introduction of a new holding company that is not constrained by the lack of funds that affects the administrators of ARGL, so that the prospects of formulating some means of reviving the companies and bringing the administration to an end are enhanced. This works to the advantage of both creditors and managed investment scheme investors. 8 It is appropriate to make an order under s.437F in relation to each proposed transfer of shares. I note, in that connection, that ASIC was informed of this application and appeared by its solicitor to indicate that it had no objection to the order being made. 9 The appropriate order is that the transfer of all shares in the capital of each of ARG Management Limited and ARG Custodians Limited by Australian Rural Group Limited to Huntley Consultancy Pty Limited pursuant to the sale deed to be executed in conformity with the agreement dated 6 November 2002, which is the annexure 'A' to Mr Robinson's affidavit of 14 November 2002, will not be avoided by s.437F of the Corporations Act. I make that order. 10 I also order that the costs of the application be paid as an expense of the administration of Australian Rural Group Limited. **********