Reported Decision : (2002) 20 ACLC 1588 New South Wales Supreme Court CITATION : AFG Insurances [2002] NSWSC 735 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 4113/02 HEARING DATE(S) : 19/08/02, 20/08/02 JUDGMENT DATE : 20 August 2002 PARTIES : AFG Insurances Ltd - First Plaintiff Keiran Hutchison and John Raymond Gibbons - Second Plaintiffs JUDGMENT OF : Barrett J COUNSEL : Mr D R Pritchard - Plaintiffs SOLICITORS : Henry Davis York - Plaintiffs CATCHWORDS : CORPORATIONS - voluntary administration - application for letter of request to English court - whether "external administration matter" - whether "insolvency" - whether approrpriate to seek orders of English Court issuing general and undirected commands Corporations Act 2001 (Cth) LEGISLATION CITED : Corporations Regulations 2001 (Cth) Insolvency Act 1986 (UK) Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 Re Dallhold Estates (UK) Pty Ltd (1991) 6 ACSR 378 Re Dallhold Estates (UK) Pty Ltd [1992] BCLC 621 CASES CITED : Dick v McIntosh [2001] FCA 1008 Joye v Beach Petroleum NL (1996) 67 FCR 275 Re New Cap Reinsurance Corporation Holdings Ltd (1999) 32 ACSR 234 Official Trustee in Bankruptcy v Lyons (2000) 104 FCR 486 DECISION : Originating process dismissed - 11 - IN THE SUPREME COURT REVISED OF NEW SOUTH WALES EQUITY DIVISION BARRETT J 20 AUGUST 2002 4113/02 - AFG INSURANCES LTD JUDGMENT 1 I heard yesterday afternoon an application by Mr Hutchison and Mr Gibbons, whom I call "the applicants", for the issue by the court of a letter of request directed to the High Court of Justice in England seeking the making of certain orders by that court. 2 The applicants are the administrators of AFG Insurances Limited ("AFG"), having been appointed pursuant to Pt 5.3A of the Corporations Act 2001 (Cth) by a resolution of directors passed on 14 August 2002. The minutes of the meeting of directors at which the resolution was passed are in evidence. They record that all directors were present at the meeting and that a statement of the financial position of the company as at 31 July 2002 was tabled. The following resolutions are then recorded as having been passed: "IT WAS RESOLVED that, after examining the most recent statement of financial position, as presented to the meeting: (a) the directors have formed the opinion that AFG is either insolvent or is likely to become insolvent at some future time; and (b) Administrators of AFG should be appointed. IT WAS RESOLVED that John R Gibbons and Keiran W Hutchison, who have consented to act as Administrators, are hereby appointed as Joint and Several Administrators of AFG." The statement of financial position as at 31 July 2002 is not in evidence. 3 Following their appointment as administrators, the applicants gave notice to creditors convening the meeting of creditors called for by s.436E of the Corporations Act. That meeting is to be held at 6pm today, Sydney time, at an address in London where it will be 9am on the same day. The decision to hold the meeting in London with a facility for persons in Sydney to participate by way of conference call was prompted by regulation 5.6.14 of the Corporations Regulations 2001 which directs attention to the convenience of the majority of persons entitled to receive notice. 4 The applicants take the view, which is consistent with the evidence before me, that most of the creditors are in London or, at any rate, better able to attend in London than in Sydney. AFG is an insurance company which ceased writing new business in the 1980's and has been in run off mode since then. Its remaining assets and liabilities are centred largely on the London market. 5 Before turning to the substance of the application, I should deal with the question of jurisdiction. 6 The application is founded mainly on s.581(4) of the Corporations Act which empowers the court to request a foreign court to act in aid of and to be auxiliary to this court in an external administration matter. The section is in the following terms: "The Court may request a court of an excluded Territory, or a country other than Australia, that has jurisdiction in external administration matters to act in aid of, and be auxiliary to, it in an external administration matter." 7 It is, therefore, necessary to decide whether there exists here an "external administration matter". That expression is defined by s.580(1) as follows: " 'external administration matter' means a matter relating to: (a) winding up, under this Chapter, a company or a Part 5.7 body; (b) winding up, outside Australia, a body corporate or a Part 5.7 body; or (c) the insolvency of a body corporate or of a Part 5.7 body;" The aspect relevant for present purposes is paragraph (c). It is thus necessary to decide what the relevant "matter" is and, having identified it, to determine whether it bears the relevant relationship to the "insolvency" of a body corporate, that is, in this context, the insolvency of AFG. 8 First, then, does there exist a situation that can properly be described as the "insolvency" of AFG? The most the evidence allows me to conclude at this point is that the directors formed the opinion, on 14 August, that the company on that day was either insolvent or likely to become insolvent. The statement of financial position by reference to which the directors formed that opinion is, as I have said, not in evidence. There is in evidence, however, the special purpose financial report for the year ended 30 September 2001, which includes a statement dated 13 November 2001 that the directors of AFG were, at that date, of the opinion that there were reasonable grounds to believe that the company would be able to pay its debts as and when they became due and payable. All I really have therefore, as to the present position, is the directors' opinion of 14 August that the company was then either insolvent or likely to become so. 9 The Act contains no definition of "insolvency" which is the expression used in paragraph (c) of the definition of "external administration matter" in s.580, but I think it has to be accepted that there is no "insolvency" in relation to a person or entity unless that person or entity is "insolvent" within the meaning of s.95A. As things stand, it is not possible for the court to conclude that AFG is insolvent in that (or, indeed, any other) sense at this point. That being so, I do not see it as being open to the court to find that there is, at least at this stage, an "insolvency" of AFG which can support the exercise of the s.581(4) jurisdiction. That position might however change at virtually any moment. As the administrators pursue their functions, a clearer position and evidence warranting a conclusion of insolvency may emerge and it is therefore desirable that I not leave the matter at this point. 10 Even if the "insolvency" foundation had been shown to exist, I doubt that it would be appropriate to order that a letter of request issue in the terms sought. The request is expressed to be a request that the High Court of Justice assist this court by recognising the right and title of the applicants and their agents, when acting within the jurisdiction of that court, to represent an act on behalf of AFG and by ordering certain things expressed in general and undirected terms in the way in which a statute issues a command to the world. The full form of the letter is as follows: " THE SUPREME COURT OF NEW SOUTH WALES HEREBY REQUESTS the High Court of Justice in England, pursuant to the provisions of Section 426 of the English Insolvency Act 1986, to assist this Court by: 1. Recognising the right and title of Keiran Hutchison and John Raymond Gibbons when acting within the jurisdiction of the High Court of Justice in England (" the Court "), to represent and to act jointly and severally for and on behalf of AFG Insurances Limited (Voluntary Administrators Appointed) (" the Company ") as its Administrators for any and all purposes; 2. Recognising the right and title of any agent duly appointed by Mr Hutchison or Mr Gibbons as the Administrators of the Company to represent and to act for and on behalf of Mr Hutchison and Mr Gibbons as the Administrators of the Company within the jurisdiction of the Court; 3. Ordering that: (a) the continuation or commencement of all actions and proceedings against the Company within the jurisdiction of the Court; and (b) the putting in force of any attachment, sequestration, distress or execution, within the jurisdiction of the Court against the estate or effects of the Company, be restrained subject, in each case, to the leave of the Supreme Court of New South Wales, or the Administrators' written consent; 4. Ordering that: (a) a person within the jurisdiction of the High Court of Justice in England is not entitled, as against the Administrators to retain possession of books, papers or other records (including any electronic records) of the Company; (b) a lien or other right to retain possession of any of the books, papers or other records (including any electronic records) of the Company shall be unenforceable to the extent that its enforcement would deny possession of any such books, papers or other records to the Administrators save that this shall not apply to a lien on such documents or records which give a title to property within the jurisdiction of the Court and are held as such but in that event the Administrators shall be entitled to inspect, and make copies of, such books at any reasonable time; (c) the Administrators may give a person within the jurisdiction of the High Court of Justice in England a written notice requiring that person to deliver to the Administrators, not less than three business days after the notice the books, papers or other records (including any electronic records) of the Company as specified in the notice, that are in the person's possession and that person must comply with such notice except in so far as the person is entitled to retain possession of such documents or records; 5. Doing all such things as may be necessary or convenient to assist the Administrators in the exercise of their powers and the discharge of their functions as administrators; 6. Directing that in the event that the Company is hereafter wound up under the provisions of the Corporations Act , any disposition of the Company's property occurring within the jurisdiction of the Court, otherwise than by or on behalf of the Administrators, after the commencement of the Company's winding up is void unless the Supreme Court of New South Wales otherwise orders; 7. Granting such further and other relief as the High Court of Justice in England may consider just; 8. Making such further or other orders as may be necessary or appropriate to give effect of the foregoing orders (including provision for the costs incurred in relation to the application therefor)." 11 Paragraphs 1 and 2 seek the assistance of the English court in recognising, as I have said, the right and title of the applicants and their agents to act on behalf of AFG. It is by no means clear to me that a request of this court will achieve that or any other result if accepted and acted upon by the English court. Private international law principles in England will, one assumes, regard identification of the officers and other persons who may act for a foreign corporation as a matter to be determined by reference to the law of the foreign corporation's domicile. It is therefore not clear that a request by this court that the English court recognise the administrators and their agents will have any meaning or significance. Sections 437A and 437B of the Corporations Act, being provisions of the law of the place of domicile, will, it seems to me, be of much greater significance in the eyes of the English court than any request by this court. 12 There is also the point, to which I shall return in greater detail in relation to some of the later paragraphs, that I do not see how the request in paragraphs 1 and 2 for recognition of status and authority by the English court entails its acting in aid of and being auxiliary to this court in any matter. 13 Turning to paragraphs 3 and 4 of the form of letter of request, I note that these ask that the English court order, among other things, that proceedings not be commenced or continued against AFG in England except by leave of the Supreme Court of New South Wales or with the consent of the administrators, this of course being a prohibitory regime which applies here not by virtue of any order of the court but by force of the Corporations Act itself. 14 The conceptual problem I have with this is that the thing requested is not, as I see it, something that the English court would do in aid of or auxiliary to this court. It would not be something that the English court did to assist this court in exercising its jurisdiction. Assume someone attempts to sue AFG in the District Court at Sydney. That court will refuse to entertain the proceedings in the absence of the administrator's consent or an order of a court exercising jurisdiction under the Corporations Act granting leave to proceed. The District Court will take that course because s.440D so commands. That effect or result is in no sense the product of the jurisdiction of any court. It comes entirely from statute. The most a court exercising Corporations Act jurisdiction can do is to grant or withhold the leave without which the District Court proceedings cannot be commenced. 15 A Pt 5.3A administration is not a regime imposed by or arising from an order of this court or any other court. No court has the general superintendence or control of such an administration. Once administration has begun, this court or any other of the several other courts having jurisdiction under the Corporations Act of the Commonwealth may make orders of various kinds under various specific sections of that Act. It is quite conceivable that several courts may make orders at different stages in the course of a particular administration. No particular court covers the field, although in a practical sense one may come to do so just because all applications happen to be made to it. 16 This makes me think that, in the administration context (much more, perhaps, than in the case of a winding up ordered by the court), a foreign court can be regarded as acting in aid of or as auxiliary to this court only where this court has become seised of a particular proceeding relevant to the administration and the full and effective exercise of this court's jurisdiction will be assisted by some ancillary order of a foreign court. 17 Examples in the analogous bankruptcy field involve requests by one court to another for the appointment of a receiver by the recipient court to collect property of the bankrupt in the recipient jurisdiction (eg, Dick v McIntosh [2001] FCA 1008); or that an official of the recipient court exercise an examination power under local law in respect of persons in the recipient jurisdiction able to give information relevant to the bankruptcy ordered by the requesting court (eg, Official Trustee in Bankruptcy v Lyons (2000) 104 FCR 486). These are particular exercises of jurisdiction by the recipient court in aid of and auxiliary to the initiating court's function vis-a-vis the particular bankruptcy. 18 This causes attention to be directed towards the word "matter". This court may request a foreign court to act in aid of and be auxiliary to it in a "matter" that is related in the relevant way to one of the circumstances or states of affairs in paragraphs (a) to (c) of the definition of "external administration matter" in s.580. The meaning of "matter" applicable here was considered by the Full Federal Court in Joye v Beach Petroleum NL (1996) 67 FCR 275 to which reference was made in the course of submissions yesterday. It was there held that "matter" means "the subject matter for determination in a legal proceeding". The relevant matter there was the pursuit of a claim by the liquidator undertaken by him as an essential part of the winding up, being the realisation of the company's property so that the distributions could be made and the company finally wound up. As Justices Beaumont and Lehane said: "An activity so central to the winding up of a company is inescapably a matter relating to the winding up." 19 The letter of request which was upheld in Joye v Beach Petroleum asked the foreign court to order the production of certain documents by persons within its jurisdiction and in other specific ways to assist the Australian liquidator in his investigation of the affairs of the Australian company in liquidation. Unless and until there is identified some specific need of that kind connected with the particular winding up or other circumstance within paragraphs (a) to (c) of the definition of "external administration matter", I do not think that there is a "matter" capable of falling within the s.580 definition and therefore as being the object or occasion for a request for the exercise of the assisting and auxiliary function of a foreign court under s.581(4). 20 The orders contemplated by paragraphs 3 and 4 of the proposed letter of request do not relate to identified persons or circumstances. They are not, in terms, orders that any court would normally make. They are not in any way focused or directed. The foreign court would really be asked to make an order expressed to be binding on the whole world in the manner of legislation. I do not consider a request of that kind to be justified by s.581(4). 21 I should add that if and when it could be shown that there is, in relation to AFG, a situation of insolvency of the kind contemplated by paragraph (c) of the definition of "external administration matter" in s.580, there may well be a case for the issue of a letter of request in a much more particular form which, if acted upon by the High Court of Justice in England, will achieve in a concentrated and specific way the objective the administrators seek of having in place in England a supervisory regime complementing that arising by Pt 5.3A. 22 A brief perusal of Part II of the Insolvency Act 1986 of the United Kingdom shows that it provides for a system of administration generally similar to that created by Pt 5.3A, including provisions creating a moratorium on the enforcement of securities, the levying of execution and the initiation and continuation of legal proceedings in each case without the leave of the appropriate United Kingdom court. The administrator is invested with statutory powers largely corresponding with those conferred on an administrator operating under Pt 5.3A of the Australian Act. This United Kingdom system of administration is initiated or imposed by court order and, as is shown by Re Dallhold Estates (UK) Pty Ltd [1992] BCLC 621 (in which the English court acted upon a letter of request from the Federal Court of Australia: see Re Dallhold Estates (UK) Pty Ltd (1991) 6 ACLR 378), there is jurisdiction for the High Court of Justice to make an administration order under Pt II of the Insolvency Act 1986 in aid of or auxiliary to an Australian winding up, provided that the exercise of that jurisdiction is sought by request made by the relevant Australian court. I say no more about that than that a request in those terms would, to my mind, clearly be within the scope of s.581(4) provided, of course, that an "insolvency" had been shown to exist so as to provide a foundation for the s.581(4) jurisdiction; also that, as Young J pointed out in Re New Cap Reinsurance Corporation Holdings Ltd (1999) 32 ACSR 234, it is generally desirable for courts to order ancillary or auxiliary administrations in cases where business operations involve several countries and there are assets or creditors or both in each country. 23 I should also add that I did consider whether, as submitted, s.447A(1) would provide appropriate jurisdiction to justify an order for the issue of the letter of request. Even allowing for the comprehensive operation of that section accepted by the High Court in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270, it does not seem to me to extend far enough. Sectiion 447A(1) appears in Pt 5.3A. It empowers the court to make orders "about how this Part is to operate in relation to a particular company". Such an order may modify the operation of a statutory provision, in so far as it already operates or will in future operate upon or in relation to a particular company, provided that the provision in question is located in Pt 5.3A. It seems to me to be clear from the joint judgment in Australasian Memory that, before any order can properly be made under s.447A(1), it is necessary to identify the Pt 5.3A provision (or the effect produced, or to be produced, by a Pt 5.3A provision) the operation of which is to be modified and then to articulate the modification that the order is to achieve. I do not think it is possible to identify any Pt 5.3A provision as relevant for present purposes; and none was suggested in the course of submissions. Section 581(4) is, of course, in Pt 5.6. 24 Counsel also referred to the possibility of the issue of a letter of request in the exercise of the court's inherent jurisdiction. Reference was made to the well established practice of issuing letters of request or letters rogatory to a foreign court in connection with the taking of evidence on oath within the jurisdiction of the foreign court. However, no established practice beyond this (and apart from the statutory examples in the bankruptcy and corporate insolvency contexts) was referred to by counsel. 25 Counsel has drawn my attention to an instance in which a letter of request generally in the terms now sought was issued by the court in the context of a Pt 5.3A administration, although it does not appear that reasons were given for the decision in that case – or, at least, if reasons were given, a copy has not been provided; and I note that the solicitors who acted there are the instructing solicitors on the present application. 26 As things currently stand, the application for the issue of a letter of request in the form of annexure A to the originating process filed in court will be dismissed. But that, of course, will be without prejudice to the ability of the applicants to approach the court again in that respect if and when circumstances are seen by them to warrant it. ********** Last Modified: 08/22/2002 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.