Expile Pty Limited v Jabb's Excavations Pty Ltd & Anor (No 2) [2004] NSWSC 301

New South Wales Supreme Court

CITATION : Expile Pty Limited v Jabb's Excavations Pty Ltd & Anor (No 2) [2004] NSWSC 301 HEARING DATE(S) : 13 April, 2004 JUDGMENT DATE : 13 April 2004 JURISDICTION: Equity Division JUDGMENT OF : Palmer J DECISION : Adjournment granted for four days.

CATCHWORDS : CORPORATIONS - DEED OF COMPANY ARRANGEMENT - TERMINATION - WINDING UP - judgment delivered in which Court indicates deed of company arrangement will be terminated and company wound up - company seeks adjournment to pay plaintiffs' debt in full - whether adjournment should be granted - policy of Pt 5.3A Corporations Act. Expile Pty Limited - Plaintiff PARTIES : Jabb's Excavations Pty Ltd - First Defendant Peter Ngan - Second Defendant FILE NUMBER(S) : SC 1887/02 COUNSEL : S.D. Epstein SC - Plaintiff R.G. Forster SC and D.A. Allen - Defendants SOLICITORS : Baron & Associates - Plaintiff Middletons - Defendants

Ex tempore

1 In this matter I gave judgment this morning. I indicated that I had come to the conclusion that the Deed of Company Arrangement dated 8 August 2003 entered into between the First and the Second Defendants should be terminated forthwith pursuant to s.445D(1) of the Corporations Act 2001 (Cth). I indicated also that I proposed to make an order winding up the First Defendant. I stood the matter down to 3.00pm today in order to enable the parties to consider the reasons for judgment and then make such submissions as they may wish as to the identity of the person who should be appointed liquidator, and as to the costs of the proceedings. 2 When the matter was called on this afternoon, Mr Forster QC, who appears with Mr Allen for the Defendants, applied for an adjournment of the proceedings without order, for a period of twenty-one days. Mr Forster said that on his instructions those controlling Jabb's were to provide sufficient funds to enable Expile's costs of the winding up proceedings and the appeal proceedings to be paid in full. In those circumstances, he submitted, the essential reason for setting aside the Deed of Company Arrangement which I had given in my judgment would be removed and it would be to the advantage of the company as a whole, and its creditors, for the Deed of Company Arrangement to stand. 3 Mr Forster, very properly and frankly, conceded that he was not able, at the moment, to give any particulars as to how the additional funds would be provided and he had no evidence available to hand to indicate any reasonable basis for the assurance given to him and relayed by him to the Court that the funds would be provided within the period of twenty-one days. 4 Mr Epstein SC, who appears for the Plaintiff, opposes any further adjournment of the matter. He points out – and with very powerful justification – that the winding up of this company has been protracted since March 2002: firstly, by the proceedings in which the company unsuccessfully sought to establish its solvency; secondly, by the appeal against that decision and, thirdly, by the execution of a Deed of Company Arrangement and the contest between the parties which has ensued. He points out, as Mr Forster expressly recognised, that the problem for the company caused by its refusal to pay Expile's costs in priority was one which was clearly raised when the proceedings came before Justice Campbell in July last year. It was a problem which the administrator, Mr Ngan, pointed out in his circular to creditors shortly afterwards, and it is a problem that is only now beginning to be addressed by the company and then only after it has unsuccessfully resisted an application to set aside the Deed of Company Arrangement. Those are very powerful circumstances militating in favour of an immediate termination of the Deed and the winding up of the company. 5 However, I must bear in mind that Pt 5.3A of the Corporations Act commences with a statement that the object of that Part is the rehabilitation of companies in financial difficulties, or else a better return to the creditors, so far as that may be achieved consistently with the other policies evident in the Corporations Act . I bear in mind that this company has now been trading for some nine or ten months since the Deed of Company Arrangement was first entered into. I have very little information about its present solvency. Such information as was placed before the Court during the hearing tended to suggest, but no more than that, that the company was able to pay its debts as they fell due. I bear in mind that the fund required to be paid to the administrator under the terms of the Deed was not paid in accordance with the terms of the Deed and not even in accordance with the assurances given on behalf of Jabb's at the commencement of the trial that it would be paid very shortly and during the course of the trial. The money required to provide the fund under the Deed, which is not insubstantial, was actually found and provided in cleared funds within a day after the trial concluded. 6 I have to consider the interests of the company as a whole and of its creditors as a whole. It seems to me that there is much to be said for affording the company one last opportunity to remove the obstacle which, in my opinion, would otherwise require the Deed of Company Arrangement to be terminated. 7 If those controlling Jabb's are able to find a sufficient sum to pay Expile's costs in full, some $81,000, then the result will be that the prejudice occasioned to Expile by the continuation of the Deed – which was the motivating reason for the orders which I proposed in my judgment – will be removed. Expile will have received payment of its costs in full. Further, Expile will receive under the Deed of Company Arrangement, in common with other creditors of the company, 20 cents in the dollar of its claim. 8 On the other hand, if the Deed of Company Arrangement is terminated and if the company is now wound up in accordance with the original application of Expile, then so far as the evidence presently goes, it may well be the case that Expile receives less than half of its costs order and, in common with other creditors, virtually nothing in respect of its original claim against the company. It does not seem to me that that result should be compelled while there is any reasonable prospect that the company would be able to discharge the whole of the costs order which Expile presently has and, as well, provide the benefits to the creditors generally contained in the Deed of Company Arrangement. 9 The situation in which the company and its creditors, not to mention Expile, are now placed cannot continue for any unconscionable length of time: in my view, no further time should be allowed than this Friday, that is 16 April. I will refrain from making any orders in the matter this afternoon, save for an order extending further the time during which the company may be wound up. 10 I will stand the matter over before me at 10.00am on 16 April, 2004. By that time either cleared funds in the sum of not less than $81,000 will have been deposited in a solicitor's trust account to abide the order of the Court or else there will be proper evidence from the controller or controllers of Jabb's upon affidavit which shows that there is a reasonable ground for the assurance that the sum of $81,000 will be procured within a very short time thereafter. I will not permit any affidavit to be read unless the deponent is available for cross examination and I will require the affidavits to be served in time to enable Mr Epstein to prepare to meet them, if he so wishes. 11 I will expect also to see evidence which assures the Court that if the further sum of $81,000 is lent to the company or provided to the company, that very additional loan in itself will not cause the company to be insolvent. In other words, I will expect evidence upon which the Court can proceed with some assurance that it will not be releasing into the community with a clean bill of health a company which will be insolvent and which will trade while insolvent. I do not think that it is appropriate for me to do at this stage other than indicate the evidence which I expect to see next Friday. It will be a matter for the Defendants' legal advisors to consider carefully what evidence will persuade the Court against exercising its discretion in favour of a termination of the Deed and a winding up in accordance with the Court's reasons already published. 12 I should add, however, that what has happened today, in terms of Mr Forster's application for adjournment and what may happen hereafter, will not affect the costs order which I will have to make in respect of the proceedings to date. In other words, if the further sum of $81,000 is provided and on that ground the Deed of Company Arrangement is not terminated and the company is not wound up, they will not be matters which I will take into account in determining how the costs of the proceedings to date should be paid by the parties respectively. 13 The application made by Mr Forster is one which appeals to a discretion which the Court always has to make or refuse a winding up order and that discretion may be exercised upon facts which come to light after the trial has concluded and after reasons have been published, but before orders have been made. 14 The orders I make are as follows: