Application of Walker & anor [2002] NSWSC 705

New South Wales Supreme Court

CITATION : Application of Walker & anor [2002] NSWSC 705 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 3610/02 HEARING DATE(S) : 29 July, 9 August 2002 JUDGMENT DATE : 12 August 2002

PARTIES : Peter Murray Walker and Steven John Sherman as liquidators of One.Tel Ltd (in liq) (P) JUDGMENT OF : Austin J

COUNSEL : Mr C R Newlinds (P) SOLICITORS : Clayton Utz (P) CATCHWORDS : CORPORATIONS - winding up - creditors' voluntary winding up after voluntary administration - Court's power to extend time for holding meeting of creditors - Court's power to waive requirement for meeting of members LEGISLATION CITED : Corporations Act 2001 (Cth) ss 9, 446A, 447A, 508, 513B, 513C, 1322 CASES CITED : Gibbons v LibertyOne Ltd (in liq) [2002] NSWSC 274 DECISION : Order made under s 1322 extending time for convening meeting of creditors; order made under s 447A dispensing with the requirement for a meeting of members

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

AUSTIN J

MONDAY 12 AUGUST 2002

3610/02 PETER MURRAY WALKER AND STEVEN JOHN SHERMAN AS LIQUIDATORS OF ONE.TEL LTD (IN LIQ) JUDGMENT 1 HIS HONOUR: The plaintiffs are the liquidators of One.Tel Ltd and various subsidiaries in the One.Tel group. For convenience I shall refer to the parent and the relevant subsidiaries together as "the One.Tel Companies". By an originating process filed on 16 July 2002, they seek the following orders: "1. An order pursuant to section 447A (1), that Part 5.3A of the Corporations Act operate in relation to One.Tel Ltd and the companies in the attached Schedule [the relevant subsidiaries] as if the effect of section 446A (2) were that the following words were added: "and (c) to have done so without the necessity to: (i) convene any general meeting of the company pursuant to section 508 (1) (b) of this Act; and (ii) comply with section 508 (2) of this Act." 2. An order pursuant to section 1322 (4) of the Corporations Act extending the period by which the Plaintiffs must convene and hold a meeting of the creditors of One.Tel Ltd and the companies in the attached Schedule to within 6 months after the end of the first year from the commencement of their winding up." 2 The Australian Securities and Investments Commission has been notified of the application and does not oppose it. 3 The plaintiffs were appointed voluntary administrators of the One.Tel Companies on 30 May 2001. The second meeting of creditors required by s 439A of the Corporations Act was held on 24 July 2001. The plaintiffs were appointed joint liquidators of the One.Tel Companies pursuant to a resolution of the creditors at that meeting. In such circumstances s 446A has the effect that the winding up proceeds as if it were a creditors' voluntary winding up under Part 5.5. 4 The problem which leads to the present proceeding arises out of s 508, which applies to any voluntary winding up. Section 508 says that, in the case of a creditors' voluntary winding up, if the winding up continues for more than one year, the liquidator must convene a general meeting of the members and a meeting of the creditors within three months after the end of the first year from commencement of the winding up, and must cause the notices of the two meetings to be sent simultaneously. The plaintiffs say that they should be excused from the obligation to convene a meeting of members because to do so would be expensive and unnecessary. They ask that the time limit for convening the first meeting of creditors be enlarged from three to six months after the end of the first year from commencement of the winding up. I addressed substantially the same issues as are raised in this application, in Gibbons v LibertyOne Ltd (in liq) [2002] NSWSC 274 (8 April 2002); 41 ACSR 442, where (unlike the present case) the application was a contested application. 5 One.Tel Ltd, the holding company of the One.Tel Companies, was listed on the Australian Stock Exchange. There are 28,376 shareholders. A secured creditor of five of the One.Tel Companies, Lucent Technologies Pty Ltd, has appointed Mr Greg Hall as receiver of those five companies. 6 The principal business of the One.Tel Companies was the provision of telecommunications services. The affairs of the companies were complex because of the nature and size of the business activities and the manner in which the corporate group was structured. The administration of the winding up of the companies has also been complicated by the receivership. 7 The total claims of the unsecured creditors who have lodged proofs of debt amount to nearly $421 million. Mr Sherman, one of the plaintiffs, has given evidence that on the assumption that the liquidation of One.Tel Ltd continues, he believes that the unsecured creditors will receive a total dividend of approximately 30 cents in the dollar, and that there is no prospect that the shareholders will receive any return. On 30 May 2002 a declaration was made by the plaintiffs, and lodged with the Australian Taxation Office, that they have reasonable grounds to believe that there is no likelihood that the shareholders of One.Tel Ltd will receive any distribution in the course of the winding up. 8 An interim dividend of 15 cents in the dollar was declared on 7 May 2002 and has been paid to those unsecured creditors whose claims have been formally admitted. A dividend has also been paid to employees of One.Tel Ltd whose claims have been admitted, each employee receiving in full those entitlements which are afforded priority under s 556 of the Corporations Act. 9 Since their appointment as liquidators, the plaintiffs have held six meetings with the Committee of Inspection of One.Tel Ltd, for the purpose of keeping the Committee apprised of all relevant developments. The minutes of those meetings are in evidence. They cover aspects of the proposed sale of assets of the companies, and proposals for the public examination of directors and others by the plaintiffs. 10 During the course of this year the plaintiffs have conducted public examinations under Part 5.9 of the Corporations Act. Those examinations are continuing. They have extended beyond the time estimated for them in Mr Sherman's affidavit made on 11 July 2002. Mr Sherman then expressed the belief that the creditors of the One.Tel Companies will be interested in receiving and considering a detailed report on the public examinations once they have been concluded. He expressed his belief that it would be in the interests of creditors that the period by which the liquidators must convene and hold a meeting of creditors be extended by three months. That extension would allow the plaintiffs and their professional advisers to give proper consideration to the evidence received at the public examinations and to prepare a detailed report to creditors, which would be likely also to contain recommendations as to potential future recovery actions to be taken by the liquidators. 11 Mr Sherman's evidence is that the cost of preparing, printing and posting to 28,376 shareholders a notice of meeting including a copy of a report to creditors would be not less than $50,000. That cost would reduce to not less than $20,000 in the event that the notice of meeting without a copy of the report to creditors was sent to members. Those estimated costs do not include the cost of holding the meeting and dealing with inquiries before and after the meeting. Mr Sherman says it is difficult to estimate how much those costs would be, because any estimate must depend on the level of shareholder activity, but in his view the cost of holding the meeting and dealing with inquiries would be not less than $10,000 and could be many times that amount. 12 Mr Sherman says that the finalisation of the liquidation of the One.Tel Companies will take quite some time and probably a further one to three years. That will depend, to a large degree, on the progress of any claims in respect of voidable transactions or any claims against directors and former officers of the group. The time limit set by s 508 13 The time limit for convening the meetings required by s 508 is measured from "the commencement of the winding up". According to the definition in s 9, the word "commence", in relation to a winding up, has the meaning given by Division 1A of Part 5.6. Sections 513B and 513C have the effect that in the present case, the winding up commenced on the day on which the administration began, namely 30 May 2001. Therefore s 508 requires the meetings of members and creditors to be held no later than 30 August 2002, unless the Court makes an order. Extension of time for creditors' meeting 14 Section 1322 (4) (d) authorises the Court, on application by any interested person, to make an order extending the period for doing any act, matter or thing under the Corporations Act or in relation to a corporation. The plaintiffs are clearly interested persons having standing to seek relief under s 1322 (4). Subsection 1322 (4) (d) is literally available to extend the period for convening meetings set by s 508. 15 The Court must not make an order unless it is satisfied that no substantial injustice has been or is likely to be caused to any person: s 1322 (6) (c). In my opinion the evidence in this case is sufficient to satisfy me that an order extending the period for convening a meeting of creditors for a further three months will not cause substantial injustice to any person. The public examination of directors and officers of the One.Tel Companies has attracted very considerable publicity. The creditors are very likely to be aware that the process is continuing. It would be unreasonable for them to expect to have any useful report on the liquidators' prospects of recovery in respect of voidable transactions and against directors and officers until the process of examination has been completed and the results have been assessed. In my opinion there is no prospect that a delay of three months in the process of reporting to creditors and meeting with them would cause any substantial injustice to creditors. 16 Those who may be the subject of claims by the liquidators might arguably be disadvantaged by the three months delay, but it could not be said that the three months delay would cause them any substantial injustice. In reaching this conclusion, I take into account the complexity of the liquidators' tasks and the relatively short extension of time that is sought. 17 The case for exercising my discretion to extend time under s 1322 (4) (d) is a strong one. Again, the complexity of the plaintiffs' task is a relevant consideration. It is also relevant that the Committee of Inspection provides a continuing forum for the liquidators to consult with representatives of creditors with respect to creditors' interests. I agree with Mr Sherman that the creditors will be interested in receiving and considering a detailed report which takes into account the results of the public examinations and makes recommendations as to actions for recovery. It is obvious that the plaintiffs will be unable to complete the examinations, the analysis of the results of the examinations, preparation of a report and the convening of a meeting of creditors in time to meet the deadline prescribed by s 508. That deadline will expire in 18 days' time. These considerations demonstrate the need for an extension of time. 18 I shall therefore make Order No 2 sought in the originating process. I made a similar order in Gibbons v LibertyOne. Removal of requirement to convene a meeting of members 19 In Gibbons v LibertyOne I held that the Court's power under s 447A to make an order about "how this Part is to operate in relation to a particular company" extends to making an order modifying the "deeming" operation of s 446A. The Court has power, in other words, to make an order which affects the extent to which, and manner in which, the provisions of the Act with respect to creditors' voluntary winding up apply when a winding up follows voluntary administration in circumstances identified by s446A. This power permits the Court, in an appropriate case, to remove the requirement that a meeting of members be convened under s 508. 20 In the Gibbons case I identified some possible limitations to the Court's power, but none of them is attracted by the facts of the present case. Here, the application has been made and will be dealt with before the expiry of the period set by s 508, and the facts are relevantly indistinguishable from the facts in the Gibbons case. In this case, as in Gibbons, there is no prospect of the shareholders receiving any distribution. The winding up of the company is a very large exercise and it is important, in the interests of unsecured creditors, that the liquidators be allowed to get about their work without distractions and without incurring expense in unproductive exercises. The convening of a meeting of shareholders would be costly, time-consuming and pointless. The plaintiffs are accountable through the Committee of Inspection and the process of reporting to creditors and meeting with them. 21 It therefore appropriate, in my view, to make Order No 1 so as to dispense with the requirement to convene a meeting of members. **********