New South Wales Supreme Court CITATION : Blundell v Macrocom [2004] NSWSC 848 HEARING DATE(S) : 6 September 2004 JUDGMENT DATE : 6 September 2004 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Adjournment granted CATCHWORDS : CORPORATIONS - winding up - company already in administration - whether winding up proceedings to be adjourned - different operation of rules for recovery of preferential or other voidable payments under Deed of Company Arrangement and in liquidation - significance of recovery of preferential or other voidable payments for unsecured creditors - whether date from which preferences for other uncommercial transactions could be recovered will alter if adjournment is granted LEGISLATION CITED : Corporations Act 2001 (Cth) Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd (admins apptd) [2003] NSWSC 47; (2004) 44 ACSR 377 CASES CITED : In re M C Bacon Ltd [1991] 1 Ch 127 Tolcher v National Australia Bank Ltd (2003) 44 ACSR 727 Tolcher v National Australia Bank [2004] NSWSC 6 PARTIES : Barnett Blundell - Plaintiff Macrocom Pty Ltd - Defendant FILE NUMBER(S) : SC 4368/04 COUNSEL : A Loel, solicitor - Plaintiff T Hall - Defendant SOLICITORS : Toomey Pegg Drevikovsky - Plaintiff Matthews Folbigg Pty Ltd - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST CAMPBELL J MONDAY 6 SEPTEMBER 2004 4368/04 BARNETT BLUNDELL v MACROCOM PTY LTD JUDGMENT – Ex Tempore (Revised 8 September 2004) 1 HIS HONOUR: The plaintiff in this matter is a former employee of the defendant. He served the defendant with a statutory demand on 12 July 2004, claiming a little over $84,000 in what he said was unpaid employee entitlements. That statutory demand was not complied with, and on 5 August 2004 he filed an originating process seeking the winding up in insolvency of the defendant. After that originating process was filed, a company called Crown Finance Pty Ltd, which holds a charge over the assets of the defendant, appointed administrators to the company, under section 436C Corporations Act 2001 (Cth). That appointment was made last week, on 2 September 2004. 2 Today, the matter has come before the Court, with the plaintiff seeking to proceed with the application to wind up. The defendant, through its administrators, opposes the application for winding up, and seeks an adjournment. The adjournment which it seeks is an adjournment of 14 days. That adjournment, if granted, would be to 20 September 2004. The second meeting of creditors is due to be held in early October 2004. 3 Under section 440A Corporations Act 2001 (Cth), the Court is to adjourn the hearing application for an order to wind up a company if the company is under administration, and if 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. 4 The amount of evidence which is needed to satisfy the Court that it is in the interests of the company's creditor for the company to continue in administration, rather than be wound up, can change significantly as the administration proceeds. At the outset comparatively little evidence might be needed to discharge that onus of proof: Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd (admins apptd) [2003] NSWSC 47; (2004) 44 ACSR 377 at para [18]. 5 In the present case, the evidence shows that there will be a very significant deficiency of assets, even so far as the secured creditor is concerned. On present indications, the secured creditor will suffer a shortfall of $6 million or thereabouts. Thus, if the company were to be wound up, then apart from any preferential payments or other voidable payments which there might have been, the unsecured creditors would receive nothing. In that situation, it is of particular importance to the unsecured creditors whether there is any prospect of recovery of preferential or other voidable payments. This is because recoveries made by a liquidator in exercise of powers to recover preferences or other voidable transactions are not subject to any security over its own property which the company might have given – rather, the preferential disposition of property is binding on the secured creditor, and the recovery of the preference or voidable transaction inures for the benefit of the general creditors only: Tolcher v National Australia Bank Ltd (2003) 44 ACSR 727; Tolcher v National Australia Bank [2004] NSWSC 6 at [21]; In re M C Bacon Ltd [1991] 1 Ch 127 at 137 per Millet J. 6 I recognise that, as Mr Loel, for the plaintiff, points out, the way in which the preferential payment regime operates when a company is wound up is somewhat different to the way in which the preferential payment regime operates when a company is in administration and consequently enters into a deed of company arrangement. There is no evidence, however, of there being any payment which might arguably be a preferential payment which has been entered into in a period where the difference between winding up and the company entering into a deed of company arrangement, might matter. 7 There is evidence that the administrators are giving consideration to the entering into of a deed of company arrangement. There is some discrepancy in the evidence as to just who it is that might be behind any such deed of company arrangement - one piece of evidence suggests it might be the secured creditor, Crown, while another piece of evidence suggests it might be Mr Muldoon, who is the only ongoing director of the company. However, at least some discussions directed towards that end are under way. 8 Mr Loel pointed out that, if the company is ordered to be wound up, and a proposal for a deed of company arrangement emerges at that stage, it is possible for a liquidator to appoint an administrator under section 436B Corporations Act 2001 (Cth). I accept that that is so, but if there was first a liquidation, then an administration, it might cause duplication of work, and liquidation sometimes depresses the value of corporate assets to a greater extent than an administration. 9 In all the circumstances it seems to me to be preferable that the present winding-up application be adjourned for a short time, so that the administrators have the opportunity of exploring whether a deed of company arrangement is practical. It seems to me that an appropriate time for the adjournment is the 14 days which Mr Hall seeks. By that time, it should be possible for the administrators to put before the Court their views as to whether there are real prospects of a deed of company arrangement being entered, which would result in unsecured creditors receiving more than they would on a winding-up. It should also be possible for the administrators, by that stage, to put before the Court at least their preliminary views on whether there are transactions which are possible preferences or other voidable transactions, in relation to which the timing difference involved in a winding up and the entry into a deed of company arrangement, might matter. 10 As the company is now in administration, if it were to be wound up by the Court, the winding up would, by virtue of sections 513A and 513C Corporations Act 2001 (Cth), be taken to have begun on the day the administration began. Any voidable transactions in any such winding up would, under section 588FE Corporations Act 2001 (Cth), need to be ones falling within a certain time before the relation-back day. The definition of "relation-back day" in section 9, as applied to this company, would result in the relation back day being the day the administration began. Thus, if it were to happen that, after the administrators had some time to investigate the transactions of the company, the view was arrived at that the preferable course for the unsecured creditors was for the company to be wound up by the Court, the possible advantage to the unsecured creditors which might emerge if there are any such preferential payments or uncommercial transactions will not be lost if the adjournment which Mr Hall seeks is granted. The relation-back day will still be the date the administration began, whether the company is wound up by the Court today or in a few weeks time. 11 For these reasons, I adjourn the application to Monday 20 September 2004. I reserve the costs of today's argument. ********** Last Modified: 09/20/2004 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.