Reported Decision : (2003) 21 ACLC 1481 New South Wales Supreme Court CITATION : GIO Workers Compensation v Primbee [2003] NSWSC 591 HEARING DATE(S) : 10 June 2003 JUDGMENT DATE : 12 June 2003 JURISDICTION: Equity JUDGMENT OF : Austin J DECISION : Hearing of winding up application is adjourned CATCHWORDS : CORPORATIONS - companies - winding up - adjournment of winding up proceedings after appointment of voluntary administrator - relevant considerations under s 440A - whether leave required under s 440D LEGISLATION CITED : Corporations Act 2001 (Cth) ss 440A, 440D Hall v Mercury Information and Technology (South Australia) Pty Limited [2002] FCA 272 CASES CITED : NRMA Insurance Ltd v A W Edwards Pty Ltd (1995) 11 BCL 200n Waste Recycling and Processing Services of New South Wales v Local Government Recycling Co-operative Limited (1999) 32 ACSR 94 Young v Sherman [2001] NSW SC 1020 PARTIES : GIO Workers Compensation (NSW) Limited (P) Primbee Pty Ltd (D) FILE NUMBER(S) : SC 2562/03 COUNSEL : D McCrostie (Solicitor) (P) M P Cleary (D) SOLICITORS : TurksLegal (P) Thomson Playford (D) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION AUSTIN J THURSDAY 12 JUNE 2003 2562/03 GIO WORKERS' COMPENSATION LTD V PRIMBEE PTY LTD JUDGMENT 1 HIS HONOUR: By originating process filed on 30 April 2003 the plaintiff brought proceedings for the winding up of the defendant. That application was returnable on 3 June 2003. 2 On 28 May 2003 Adrian Duncan and Nicholas Seaton were appointed administrators of the defendant company. Tragically, Mr Seaton died suddenly and unexpectedly on 30 May and since that time Mr Duncan has been the sole administrator of the company. He caused the company to make an oral application to Bryson J as Duty Judge on 3 June 2003 for an order under s 440A of the Corporations Act for the adjournment of the winding up proceedings until after 24 June 2003, the date upon which the second meeting of creditors of the defendant company in administration is scheduled to take place. That application came before me in the Corporations List on 10 June 2003. On that occasion Mr Cleary who appeared for the defendant also contended that the plaintiff could not continue with the winding up proceedings without leave, having regard to s 440D. 3 Let me deal with the latter point first. Section 440D(1) states that: "During the administration of a company, a proceeding in a Court against the company or in relation to any of its property cannot be begun or proceeded with except with the administrator's written consent or with leave of the Court." 4 In Young v Sherman [2001] NSW SC 1020 I decided that a proceeding to challenge the validity of a deed of company arrangement or to terminate it is not a proceeding falling within s 440D and therefore the plaintiff in such a proceeding does not require the administrator's consent or the leave of the Court for that purpose. I took the view that such a proceeding is not in any substantive sense a proceeding "against" the company or "in relation to any of the property of the company" but is better characterised as a proceeding in respect of the company and its affairs. It would be odd if legislation, which expressly confers upon persons with standing the right to bring proceedings to challenge or terminate a deed of company arrangement, should require the consent of the persons whose responsibility it is to maintain the validity of the deed, or the leave of the Court, before the exercise of that statutory right. 5 In Hall v Mercury Information and Technology (South Australia) Pty Limited [2002] FCA 272 administrators were appointed to a company on 5 February 2002 and then on 19 February 2002 a creditor commenced proceedings for orders, including an order for the appointment of a provisional liquidator. Stone J referred to Young v Sherman and distinguished it on the basis that the application before her was quite different from an application to challenge or terminate a deed of company arrangement. She pointed out (at para 14) that the application before her was for the appointment of a provisional liquidator as a precursor to an order for the winding up of the company and was therefore a proceeding directly affecting the whole of the company's affairs and assets. She expressed the opinion that in those circumstances the leave of the Court was required under s 440D. However, as she intended in the exercise of her discretion under s 440D to grant the applicant leave to proceed it was not, in her Honour's view, necessary for her to consider the issue in the degree of detail that would have been required if she were disposed not to grant leave. 6 In the present case, in contrast with the Mercury Information case, the application for winding up was commenced before the appointment of the administrators. That circumstance may make a difference, especially having regard to the wording of s 440A to which I shall shortly turn. 7 Section 440A deals specifically with a case such as the present, where a winding up application is commenced and then an administrator is appointed. It requires the Court to adjourn the winding up application unless it is satisfied of certain matters. Arguably, s 440A is an exhaustive text of the matters to be considered by the Court in such a case. On this argument it would be otiose for the legislature to require leave or the consent of the administrator under another provision by reference to less specific criteria. 8 However, like Stone J, I am in the position in this case of having decided that it is appropriate to adjourn the winding up application for a short time in order to permit the creditors to consider a proposal for a deed of company arrangement. In such a case the issue whether leave is required to be granted and, if so, whether it should be granted having regard to discretionary matters, is an issue upon which I do not have to make a decision. That being so it is unnecessary for me to decide whether s 440D applies in a case where a winding up application is followed by the appointment of administrators and so I leave the issue for another occasion. 9 The principal issue for me today is whether to adjourn the winding up application under s 440A. Section 440A(1) refers to a company under administration being wound up voluntarily except as provided by s 446A. Subsection (2) is in the following terms:- "The Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up." 10 In Waste Recycling and Processing Services of New South Wales v Local Government Recycling Co-Operative Limited (1999) 32 ACSR 94 Santow J considered the scope of s 440A(2). He pointed out that, for the purposes of that provision:- "'In the interests of the company's creditors' must be affected by the length of the adjournment envisaged, where the adjournment is only for a limited time. It is also affected by the envisaged purpose and likely consequence of such adjournment." 11 At 195 he recognised that a short adjournment may in some cases permit:- "A greater level of assurance of salvageability or otherwise to be assessed in the interests of creditors by an independent administrator, without adverse countervailing consequences from such a short delay." 12 On the one hand, he noted:- "To grant such an adjournment there must be a sufficient possibility, as distinct from mere optimistic speculation, that such a deferment for the envisaged time is in the interests of creditors." 13 In the case before his Honour the adjournment was sought for only a very short time. In the present case the adjournment is sought for a period of about 13 days. 14 There is one other matter that Santow J noted (at 196). If an order is made under s 440A and subsequently a deed of company arrangement is propounded, the relation-back day for the purposes of recovery proceedings may be a different and later day than if the winding up were allowed to continue. In the present case, as in the case before his Honour, not much turns on that point. The relation-back day if the company is wound up is the date of filing of the originating process, namely, 30 April 2003. The relation-back day, if the company proceeds through administration and subsequently a deemed voluntary winding up in the event that a deed of company arrangement cannot be successfully propounded, is 28 May 2003. The difference is less than a month. The substantive question is whether, given that the adjournment will be for a short period of time, there is in Santow J's words "a sufficient possibility, as distinct from mere optimistic speculation" that the deferment will operate in the interests of creditors. 15 When the matter came before me on 10 June 2003 I adopted a circumspect approach to that question, on the basis of the evidence then before me. Mr Duncan provided an affidavit to which he annexed a one-page proposal from the director of the company, Mr Truong, which was distinguished by its vagueness. Mr Duncan was nevertheless able to say in his first affidavit that he believed that it would be in the interests of the creditors of the company for him to have further time to investigate the director's proposal and the affairs of the company, so as to see whether a viable proposal would emerge that could be put to the creditors. I indicated that this evidence was not adequate to satisfy me, for the purpose of s 440A, that it would be in the interests of the company's creditors for the adjournment to be granted. On the application of the defendant, I adjourned the application for two days until this morning to give the defendant the opportunity to put some more specific evidence before me. 16 This morning the defendant filed, with leave, a further affidavit from Mr Duncan. That affidavit annexed a more detailed proposal from the director of the company and also a draft report to creditors. Mr Duncan now gives evidence that he has completed his investigations and is ready to despatch that report. In his report he identifies payments to six creditors totalling about $106,000 that may constitute unfair preference payments, some possible related party transactions and the possibility of a case against the directors for insolvent trading. He notes, however, that if a liquidator, once appointed, wished to pursue those matters it would be necessary for the liquidator to secure funding. Absent that funding, Mr Duncan's opinion is that in liquidation the company would provide no distribution to creditors. 17 The proposal by Mr Truong for a deed of company arrangement has the following features:- "The Directors have submitted a formal proposal to present to creditors at the second meeting of creditors. The proposal, which is attached as "Annexure A") to this report, can be summarised as follows: · All cash, stock and debtors at the date of the appointment of the Voluntary Administrators are available to the Deed Fund; · Control of the Company reverts to the Directors; · Employee Entitlements will remain with the Company and be paid in the ordinary course of business; · Employee's accrued superannuation of approximately $8,000 will be paid from the Deed Fund; · $40,000 from re-financing of the Directors' house to be paid to the administrators within 14 days of the execution of the Deed; · A further 12 monthly instalments of $6,612.41; · Total payments to the Deed Fund will be $119,349; · The Directors will guarantee the payments and the Company will give a charge over its assets; · The Directors and related parties owed $420,000 will not participate in the Deed; and · The Directors envisage a dividend of approximately 20 cents in the dollar to unsecured creditors. I note that my estimate detailed in Section VIII below estimates that the return will actually be in the order of 19 cents in the dollar." 18 Essentially, Mr Truong will put about $119,000 into the company to permit costs to be paid and a distribution to be made to unsecured creditors, other than related party creditors, of about 19 cents in the dollar. The company will be returned to its directors and will continue to trade. Apart from agreed superannuation entitlements that will be paid from the deed fund, the entitlements of employees will remain with the company on the basis that they would be paid in the ordinary course of business. 19 The application for an adjournment of the winding up summons is opposed by the plaintiff and also by the Australian Taxation Office, a major creditor. The opposition has some substance. The plaintiff points to the fact that the liquidator has identified unfair preference recoveries of not much less than the amount that the directors will put into the company, quite apart from insolvent trading and related party claims. The information made available (and this was not put forward as a criticism of the administrator) is quite thin as to the nature of the related party debts and it is also not clear whether there may be some related party debtors of the company. Generally, the information about the assets of the company is still limited. Moreover, the plaintiff points out that if a viable and agreed proposal satisfactory to the liquidator is put forward then it is always open to the liquidator to appoint an administrator under s 436B. The plaintiff complains that the appointment of the administrator was made at the 11th hour and was a step that could have been taken and ought to have been taken much earlier, when the Australian Taxation Office pressed its claim by issuing a statutory demand. 20 While I have sympathy with these submissions, it seems to me that the opinion of the administrator, Mr Duncan, must be given due weight. I am impressed by his report. It seems to me to provide a substantial amount of detail so as to present information to creditors in a manner that will enable them to make a decision about their own interests. 21 The proposal by Mr Truong is now much more specific than it was on Tuesday of this week. It seems to me desirable in the interests of the creditors to let them make their own decision about that proposal at a meeting intended to be held in 12 days time. It does not seem to me that the adjournment of the winding up application until after that meeting is likely to cause any real prejudice and, on the other hand, it seems to me that, since a substantial amount of work has now been done in respect of Mr Truong's proposal and Mr Duncan's report to the creditors, the matter is now mature for consideration by the creditors. 22 I have decided therefore that for the purpose of s 440A(2) it is in the interests of the company's creditors that an adjournment of the winding up application be ordered so that the defendant can consider the proposal that has emerged and Mr Duncan's views upon it. 23 I make the following orders:- (1) I order that the hearing of the application to wind up the defendant be adjourned to 11 a.m. on Tuesday 1 July 2003, before the Registrar. (2) Costs of the application reserved. ********** Last Modified: 07/28/2003 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.