Re ACN NPD 008 144 536 Limited [2004] NSWSC 450

Reported Decision : 49 ACSR 527

New South Wales Supreme Court

CITATION : Re ACN NPD 008 144 536 Limited [2004] NSWSC 450 HEARING DATE(S) : 13 May 2004 JUDGMENT DATE : 13 May 2004 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Leave granted for creditor to consent to acting as administrator, actually acting as administrator, and acting as administrator of Deed of Company Arrangement of debtor company, upon certain undertakings.

CATCHWORDS : CORPORATIONS - voluntary administration - creditor in an amount exceeding $5,000 sought to be appointed as administrator of company - debt arises from peculiar form of administration of a related company - undertakings appropriate when one person appointed as administrator of several companies in group LEGISLATION CITED : Corporations Act 2001 (Cth) Re Central Spring Works (Australia) Pty Ltd; McLellan and Benton (in their capacity as proposed admin of the company) (2000) 34 ACSR 164 CASES CITED : Nambucca Investments Pty Ltd v Star (1995) 13 ACLC 1814 Re St George Builders Hardware Pty Ltd (1995) 18 ACSR 451 PARTIES : Antony Leslie John Woodings - First Plaintiff Ian Charles Francis - Second Plaintiff FILE NUMBER(S) : SC 2865/04 COUNSEL : A Coleman - Plaintiffs SOLICITORS : Kemp Strang - Plaintiffs

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

CAMPBELL J

THURSDAY 13 MAY 2004

2865/04 IN THE MATTER OF ACN NPD 008 144 536 LIMITED JUDGMENT – Ex Tempore 1 HIS HONOUR: This is an application by the administrators of a company called Garrisons Accounting Group Limited ("Garrisons"). They make an application under s 448C(1) of the Corporations Act 2001 where they seek leave to consent to acting as the administrators of five particular companies, to actually acting as the administrators of those five companies, and also to acting as the deed administrators of any Deed of Company Arrangement entered into by those five companies should creditors resolve that any one or more of those companies enter into a Deed of Company Arrangement. Section 448C(1), Corporations Act 2001, says:- "Subject to this section, a person must not, except with the leave of the Court, seek or consent to be appointed as, or act as, administrator of a company or of a deed of company arrangement if: … (b) the person is, otherwise than in a capacity as administrator or liquidator of, or as administrator of a deed of company arrangement executed by, the company or a related body corporate, a creditor of the company or of a related body corporate in an amount exceeding $5,000. …" 2 The plaintiffs have acted as both administrators of Garrisons and as administrators of a Deed of Company Arrangement entered into by Garrisons. 3 Garrisons is a company which was listed on the Stock Exchange. Its listing is something which is itself of value. To enable the value of that listing to be realised a particular form of company arrangement was entered into, which would allow a clean company shell, which had the listing right attached, to be sold to someone who was interested in acquiring it. So that this could be done, the Deed of Company Arrangement took the form of providing that a payment from a person interested in acquiring the company's shell should be made to the administrators as trustees of a trust for creditors, that all the assets of Garrisons should be transferred to the administrators as trustees of that same trust, and that thereupon the claims of the creditors of Garrisons should be barred. 4 Garrisons had two subsidiaries which were wholly owned. Those two subsidiaries had between them three other companies as their wholly-owned subsidiaries. It is those five companies which are the subject of the present application. 5 There were debts owed by those companies to Garrisons. The effect of the entering into of the Deed of Company Arrangement concerning Garrisons is that those debts have now come to be owed to the plaintiffs in their capacity as trustees of the trust for creditors. The amount of the debts owed by the two direct subsidiaries of Garrisons appears to be, on the information presently known, around $47,000 owed by one subsidiary, and around $17,000 owed by the other. 6 The directors of the five subsidiaries wish to appoint the plaintiffs as administrators of those five companies. They see an advantage in the appointment being made, so that the knowledge which the plaintiffs have gained from acting as administrators of Garrisons can be made available to the subsidiaries. However, because the debts owed by the subsidiaries to Garrisons have now come to be owing to the plaintiffs in their capacity as trustees of the trust for creditors, s 448C(1)(b) prohibits the plaintiffs from being appointed as administrators of those companies without the leave of the Court. 7 The principles on which the Court acts in deciding applications under s 448C have been summarised by Santow J in Re St George Builders Hardware Pty Ltd (1995) 18 ACSR 451 at 452 as follows:- "In giving leave in applications of this kind, the court should have regard to analogous principles to the removal of a liquidator on the ground of actual or perceived conflict of interest. In Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230, the relevant principles are set out and may be summarised as follows: 1. The cases show that there must be a real and not merely theoretical possibility of conflict and that the guiding principle in the appointment by the court of a liquidator is that he must be independent and must be seen to be independent. 2. Those who assert that a liquidator should be removed are under a duty to establish at least a prima facie case that this is for the general advantage of the persons interested in the winding up and the onus of proof will not be easy to discharge if the liquidator has become well acquainted with the business and affairs of the company. 3. A liquidator may act as a liquidator of a company even if there is a prior involvement with the company in liquidation provided that involvement is not likely to impede or inhibit the liquidator from acting impartially in the interests of all creditors or give rise to a reasonable apprehension that the liquidator might be so inhibited or impeded." 8 Those principles have been followed in other cases, including Nambucca Investments Pty Ltd v Star (1995) 13 ACLC 1814 and Re Central Spring Works (Australia) Pty Ltd; McLellan and Benton (in their capacity as proposed admin of the company) (2000) 34 ACSR 164. 9 Here, if the plaintiffs were to be appointed as administrators of the five subsidiaries, they would be in a position of having to decide what amount was really owing by one company in the group to another. However, their position would be no different in commercial substance to the position that they would have been in if the form of the deed of company arrangement adopted by Garrisons was one whereby the assets of Garrisons did not pass to the plaintiffs as trustees of the trust for creditors, but remained instead vested in Garrisons. In that situation, the exception in s 448C(1)(b) whereby a person can be appointed as administrator of a company or by Deed of Company Arrangement, even if he is, in his capacity as an administrator of a related company, owed more than $5,000, applies. In other words, it is the device of setting up the separate trust so as to enable the listing of Garrisons to be realised, which has led to the possibility of contravention. When that is the case, the appointment of the plaintiffs as administrators of the five subsidiaries is not within the mischief at which s 448C(1)(b) was aimed. 10 One of the plaintiffs has stated in his affidavit that he does not believe there will be any conflict arising from the plaintiffs being appointed as administrators of the subsidiaries. He offers an undertaking that if he perceives such a conflict to arise, he will approach the Court for directions in relation to his position. 11 In the course of argument, it became apparent that there was a limited possibility for conflict, in that, because of the inter-company debts, the administrators could be voting on resolutions concerning their remuneration. To deal with that problem and to ensure that the creditors of the five subsidiaries are aware of the circumstances in which the plaintiffs have come to be appointed as administrators, four undertakings are proffered to the Court. They are:- "A) They will notify all creditors of: ACN NPD 008 144 536 Limited ACN ICS 008 077 325 Limited ACN SP 062 875 183 Pty Limited ACN DAS 007 813 685 Pty Limited ACN NPDQ 057 804 636 Pty Limited ("The Garrisons' Subsidiaries") in the material sent out with the first notice of meeting under s 436E of the Corporations Act that they required and obtained leave in respect of their appointments under s 448C(1)(b) of the Act. B) They will draw to the attention of the creditors of the Garrisons' Subsidiaries at the first meetings of those creditors the circumstances of their appointment and to the right of such creditors to vote on a resolution for the removal and replacement of them as administrators of the Garrisons' Subsidiaries. C) They will not vote in their capacity as trustees of the Garrisons' Creditors' Trust, created by the Garrisons' Creditors' Trust Deed, dated 1 October 2003, on any resolution pursuant to s 449E(1)(a) of the Act fixing or approving their remuneration as administrators of the Garrisons' Subsidiaries. D) They will otherwise notify the Court if any reasonable apprehension of conflict of interest arises subsequent to their appointment as administrators of the Garrisons' Subsidiaries." 12 Upon those undertaking being given, I will make the orders asked. 13 I note that the plaintiffs by their counsel give to the Court the undertakings lettered A, B, C and D in the document which I initial, date today's date and shall place with the papers. 14 Upon those undertakings being made, I make orders in accordance with the draft order which I initial, date today's date and shall place with the papers. 15 I grant leave for the orders to be entered forthwith. **********