Singleton & Anor v Andreones Pty Ltd [2005] NSWSC 730

New South Wales Supreme Court

CITATION : Singleton & Anor v Andreones Pty Ltd [2005] NSWSC 730

HEARING DATE(S) : 18/07/05

JUDGMENT DATE : 18 July 2005

Equity Division JURISDICTION : Corporations List

JUDGMENT OF : Barrett J

DECISION : Order under s.447A terminating voluntary administration

CATCHWORDS : CORPORATIONS - voluntary administration - administrator appointed by bank as secured creditor - all facilities called up - subsequent willingness of bank to reinstate facilities - evidence of solvency if facilities reinstated - whether court should order termination of administration on undertaking given to court by bank

LEGISLATION CITED : Corporations Act 2001 (Cth), s.447A

GIO Workers' Compensation (NSW) Ltd v Advance International Pty Ltd [2002] NSWSC 261 CASES CITED : Sutherland v Rahme Enterprises Pty Ltd (2003) 46 ACSR 458

Neil Geoffrey Singleton and Anthony Milton Sims as Administrators of Andreones Pty Limited - Plaintiffs PARTIES : Andreones Pty Limited - Defendant

FILE NUMBER(S) : SC 3995/05

COUNSEL : Mr D.R. Pritchard - Plaintiffs

SOLICITORS : Garland Hawthorn Brahe - Plaintiffs

LOWER COURT JURISDICTION :

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

BARRETT J

MONDAY 18 JULY 2005

3995/05 – NEIL GEOFFREY SINGLETON & ANOR v ANDREONES PTY LIMITED

JUDGMENT

1 Before me is an application under s.447A of the Corporations Act 2001 (Cth) by Mr Singleton and Mr Sims as administrators of Andreones Pty Ltd. They seek an order under that section that the administration of Andreones Pty Ltd end. That section gives, as an example of the type of order that may be made under it, an order "that the administration is to end". 2 The administration began as recently as 12 July 2005 when Macquarie Bank Limited, a secured creditor, made an appointment under s 436C. The company conducts an incorporated solicitors' practice. The appointment of the administrator followed a dispute among the shareholders. 3 As a result of that dispute, one of the shareholders, Mr Andreone, gave notice to Macquarie Bank of termination, as to the future, of his liability as a guarantor of indebtedness of the company to Macquarie Bank. The Bank, in turn, treated that as an event of default under the security held from the company, entitling it to enforce its charge on the whole, or substantially the whole of the company's property. It was that circumstance that made it possible for Macquarie Bank to appoint an administrator under s.436C. 4 The whole of the indebtedness of the company to Macquarie Bank became due and payable as a result of the actions the bank took. 5 The day after the administrator was appointed, the dispute among the shareholders was resolved on the basis that Mr Andreone would buy out the remaining shareholders, but only if the administration ended. Macquarie Bank, for its part, said that if the deed providing for the buy-out by Mr Andreone was consummated, the company's banking and financing facilities would be restored to the state in which they existed before appointment of the administrator. 6 An important consideration on any application to terminate a voluntary administration is whether the company is solvent. Section 447A itself instances solvency as one of the grounds on which a terminating order may be made. As a general proposition, the court would not make such an order unless satisfied as to solvency. This aspect of the s.447A jurisdiction is analogous, in that respect, with the jurisdiction under s.482 to terminate a winding up. 7 Mr Singleton, one of the administrators, has given evidence about likely outcomes in different eventualities. His evidence is to the effect that, if the company can be restored to going concern status with the Macquarie Bank facilities reinstated so that they are ongoing facilities subject only to periodic review in the normal course (rather than debts immediately due and payable), the company will clearly be solvent. On the other hand, Mr Singleton says that, if the Macquarie Bank facilities remain immediately due and payable and the company is unable to continue in operation, it will equally clearly be insolvent. The key, therefore, is reinstatement of the Macquarie Bank facilities to their pre-existing status as sources of longer term finance rather than debts immediately due. 8 I indicated earlier today that I would not make an order terminating the administration unless some means were found of ensuring that the solvent position depicted in Mr Singleton's affidavit would prevail rather than the insolvent position. During the adjournment, Macquarie Bank has changed its position so that its willingness to reinstate the facilities to their former status is not dependent on consummation of the buy-out deed between the shareholders. Rather, such reinstatement will be effected simultaneously with the court's making an order that the administration end. Under that approach, the solvency position depicted by Mr Singleton would prevail immediately the order was made and this would be so whether or not the shareholders eventually completed the transaction evidenced by their deed. 9 This position is, in that way, significantly different from the position as it was originally presented. The court does not, under that approach, have the problem that it may make an order in circumstances where solvency is not assured. 10 Macquarie Bank's commitment is to be given in the form of an undertaking to the court. It has been said in cases involving termination of winding up that the court is unwilling to take undertakings from related party creditors intended to ensure that debts are somehow subordinated and solvency thereby restored: see GIO Workers' Compensation (NSW) Ltd v Advance International Pty Ltd [2002] NSWSC 261; Sutherland v Rahme Enterprises Pty Ltd (2003) 46 ACSR 458. This case is clearly distinguishable. The entity proffering the undertaking is a major financial institution which is at arm's length from the company and its shareholders. Its provision of finance is purely a commercial matter and the risks inherent in the other kind of case I have mentioned simply do not arise here. 11 Mr Pritchard has informed me that he has instructions from Macquarie Bank to proffer to the court the undertaking set out in paragraph 3 of the second affidavit of today sworn by Ms Doran of Macquarie Bank. Mr Pritchard's instructing solicitor has instructions from Macquarie Bank to file a notice of appearance and I note that that will be filed by close of business tomorrow. 12 With the solvency concern thus addressed and what was effectively the cause of the appointment of the administrator defused, I am prepared to make an order under s.447A terminating the administration. 13 I make the following orders: 1. Upon Macquarie Bank Limited by its counsel giving to the court an undertaking that simultaneously upon the court making an order that the administration of Andreones Pty Limited end, it will: (a) reinstate the overdraft facility account, the bank guarantee facility account and the fully drawn advance account as referred to in the first affidavit of Elizabeth Kim Doran sworn 18 July 2005 in accordance with and upon their respective terms current as at 11 July 2005 as if there had been no event of default as referred to in paragraph 23 of Ms Doran's first affidavit sworn on 18 July 2005; and (b) not thereafter treat or purport to treat the events referred to in Ms Doran's earlier affidavit sworn 18 July 2005 as an event of default under the facilities or any of them, order pursuant to s.447A of the Corporations Act 2001 that the administration of Andreones Pty Ltd end this day, 18 July 2005. 2. Order that the costs of this application be costs in the administration. 14 I note the undertaking by Mr Miller of Garland Hawthorn Brahe to file a notice of appearance on behalf of Macquarie Bank as mentioned previously by me. **********