New South Wales Supreme Court CITATION : Bechara v Sotrip Pty Ltd [2006] NSWSC 208 HEARING DATE(S) : 27/03/06 JUDGMENT DATE : 30 March 2006 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Adjournment refused CATCHWORDS : CORPORATIONS - winding up application - application for adjournment - adjournment refused - no matter of principle LEGISLATION CITED : Corporations Act 2001 (Cth), ss.440A, 459C Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 CASES CITED : Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd (2003) 44 ACSR 377 TCS Management Pty Ltd v CTTI Solutions Pty Ltd [2001] NSWSC 830 Buddy Bechara - Plaintiff PARTIES : Sotrip Pty Ltd - Defendant Gino Cassaniti - Creditor FILE NUMBER(S) : SC 1056/06 Mr J.M. White - Plaintiff COUNSEL : Mr P.M. Fordyce, Solicitor - Defendant Mr D.A. Allen - Creditor SOLICITORS : Harris & Harris - Plaintiff PMF Legal - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J THURSDAY, 30 MARCH 2006 1056/06 BUDDY BECHARA v SOTRIP PTY LTD JUDGMENT 1 I have before me an application for adjournment of an originating process seeking a winding up order. The application is made by the defendant company (Sotrip Pty Ltd) and is supported by a creditor (Mr Gino Cassaniti). The application is opposed by the plaintiff (Mr Buddy Bechara). Winding up is sought on the grounds of insolvency, a presumption of insolvency having arisen pursuant to s.459C of the Corporations Act 2001 (Cth) in consequence of non-satisfaction of a statutory demand. 2 Relevant chronology is as follows: 11 January 2006 - Winding up application filed (returnable on 3 March 2006) 22 February 2006 - Sole director of defendant appoints administrator under Part 5.3A 3 March 2006 - Winding up application adjourned to 24 March 2006 14 March 2006 - Administrator's report to creditors 22 March 2006 - Second meeting of creditors in Part 5.3A administration; resolves to adjourn for "up to 60 days" 24 March 2006 - Winding up application adjourned to 27 March 2006 27 March 2006 - Present adjournment application heard by me 3 Under s.440A of the Corporations Act, the court must adjourn the hearing of a winding up application in respect of a company under Part 5.3A administration if it "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". The defendant company and the creditor who appeared on the application contend that the court should be so satisfied. The plaintiff says that it should not be. 4 The defendant company's only activity, at relevant times, appears to have been to hold a parcel of real property at Mudgeeraba in Queensland. According to the administrators' report, records held by the company's accountants value the property at $800,000 while independent appraisals indicate a value of between $620,000 and $800,000. On 7 February 2006 (that is, some four weeks after the filing of the winding up application and some two weeks before the appointment of administrators), the company – presumably at the behest of its sole director - contracted to sell the property to a company called McInnes Perpetual Pty Ltd. McInnes Perpetual is wholly owned and controlled by Mr Gino Cassaniti. 5 The purchase price under the contract is $660,000. The administrators' report of 14 March 2006 lists charges and encumbrances to which the property is subject. On the best information the administrators have, the aggregate sum secured is approximately $2,763,000, that is, something like four times the price under the contract for sale. 6 The administrators' report of 14 March 2006 also refers to a proposal by "the directors" (although there is only one) for a deed of company arrangement. Even though only the only real information given about the proposal in the report was that a deed fund of $300,000 was to be contributed to the company, the administrators went so far as to record a recommendation that "the DCA be accepted". It was said in the report that the deed would be available at the meeting. In fact, no deed was available at the meeting as the $300,000 proposal was withdrawn shortly before the meeting. The proponent, who was apparently Mr Sam Peter Cassaniti, is serving a term of imprisonment. Mr Fordyce, the administrators' solicitor, interviewed Mr S. P. Cassaniti in Long Bay Gaol in relation to the proposal. 7 The meeting of creditors on 22 March was informed that the proposal to which I have referred was not available. The meeting was also informed, however, that a $50,000 proposal had been received, although details were apparently sparse. The meeting then adjourned. 8 After the meeting had adjourned, eleven creditors (or proposed creditors) notified the administrators in writing of their support for the $50,000 proposal. There are doubts about the creditor status of some of these people. I do not need to go into that matter. The documentation and communication of their consent was arranged by Mr Gino Cassaniti, he in fact being one of them. He is also the source of the $50,000 proposal. 9 The document by means of which each of the eleven persons signified their support for the proposal in question was an endorsement signed by the person and appended to a letter from the defendant's sole director. The letter read: "We inform creditors that the property 35-37 Railway Street Mudgeeraba Qld has been sold to McInnes Perpetual Pty Ltd for the sum of $660,000 (incl. Gst). We propose to put forward an offer to creditors to contribute additional funds in the order of $50,000. We further inform creditors that a fixed fee arrangement with the current administrator is in place. This fee arrangement will not remain force [sic] should a change of administrator be made. Should this proposal be accepted, please sign where indicated below." 10 This letter from the sole director was quite misleading. By referring in the first paragraph to "additional funds", it conveyed the clear message that creditors could look forward to the benefit of $50,000 in addition to $660,000 to come from the sale of the property, with that benefit being provided in some way that was undefined, although somehow requiring expressions of acceptance by creditors. In reality, of course, there will be no return to the company from the sale of the property for $660,000. The idea the creditors will have the benefit of $660,000 is quite unreal; and to suggest that any such benefit would be available is entirely misleading. Furthermore the "we" referred to by the sole director as the providers of the "additional funds" is, on the evidence, an as yet unascertained person, being one of Mr Gino Cassaniti and two other persons with the surname Cassaniti. Mr Gino Cassaniti could not say in the witness box which of the three would provide the funds; nor could he identify arrangements under which the funds would be obtained and provided. 11 Annexed to an affidavit of Mr Gino Cassaniti is what he says is a copy of the proposed deed of company arrangement. It contains the following pertinent passage: "Third party undertaking:- Contributions in the amount of $710,000.00 are to be received by the Administrators on or before 30/04/2006 made up as follows To make available to creditors all monies received, after disbursements from the sale of property located at 35-37 Railway Street Mudgeeraba Qld which was sold for $660,000.00 inc gst. A further $50,000.00 will be contributed once the sale of the property has been finalised." 12 This too is quite misleading, in that, as mentioned already, the information provided by the administrators shows that there will be no net proceeds to the company from the sale of the property. The "contributions in the amount of $710,000" will, to the extent of $660,000, be non-existent. The "further $50,000" is also illusory, or practically so. That sum (the source of which is not identified in the document and was not satisfactorily identified by Mr Gino Cassaniti in the witness box) will, it is said, be contributed by its unidentified and unidentifiable providers "once the sale of the property has been finalised". This timing factor requires attention. 13 The contract for the sale of the property is in evidence. Special condition 4.3 says that the contract "is subject to and conditional upon the Buyer obtaining the approval of the Board of Directors of Coles Myer Limited (ACN 004 089 936) and the management of the Buyer". The clause goes on to say what will happen if that approval is not obtained. Mr Gino Cassiniti, the sole owner and controller of the buyer, was shown that provision in the witness box. He said he was surprised to see it and that it should not be in the contract. He assumed the solicitor had used a form of contract prepared for an earlier proposed transaction and had not taken out a clause inappropriate to the new circumstances. When he referred to the solicitor, he must have been referring to the solicitor for the vendor (present defendant) since the buyer (wholly owned and controlled by Mr Gino Cassaniti) is shown in the contract as "Acting for self". In acting for itself, the buyer did not, on the basis of what Mr Gino Cassaniti said, protect itself from the inclusion of what he regards as an unintended provision. 14 The provision in question casts doubt over the sale. It suggests that, at the least, there will be delay while rectification proceedings or some other measures are pursued. The vendor, under external administration, may not be a willing party to any consensual alteration. In those circumstances, the time at which the "further $50,000" would be contributed under the proposed deed ("once the sale of the property has been finalised") is uncertain and unascertainable. 15 If one has regard purely to mathematics, creditors could be said to be better off under a deed of company arrangement providing $50,000 for them than they would be under a winding up where there was a nil return (as will be the case in a winding up of this company). But, on the evidence before me, I cannot be satisfied that the $50,000 will ever be forthcoming. I cannot be satisfied that there is even a reasonable likelihood of its becoming available. The draft deed of company arrangement, as presented, is based on false premises, involves funds said to be coming from an indeterminate source by unidentified means and entails uncertainties of timing that have no apparent solutions. The supposed creditors who expressed support for it did so on the basis of a wholly misleading description of it. Their supposed support can safely be ignored. 16 In a winding up of the company, two possibilities will be open to potentially fruitful examination. First, the administrators, in their report of 14 March 2006, said that investigations by a liquidator would be warranted on possible preferences and possible insolvent trading. Second, the sale of the property – as regards timing, identity of buyer and price as against valuations – may call for scrutiny by a liquidator. These opportunities would be lost if any deed of company arrangement were adopted. 17 The approach to be taken by the court in s.440A cases such as this is described in the judgment of McPherson JA (with whom Pincus and Davies JJA agreed) in Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 at p.457: "In order to satisfy the court of the matter referred to in s 440A(2) of the Corporations Law, one would expect that there would have to be some persuasive evidence to enable it to be seen that there were assets which, if realised under one form of administration rather than the other, would produce a larger dividend, or at least an accelerated dividend for the creditors." 18 In TCS Management Pty Ltd v CTTI Solutions Pty Ltd [2001] NSWSC 83, Hamilton J said at [18]: "… it is dangerous, as in so many cases, to place any gloss upon the statute. The sole consideration posited as the criterion for the Court's decision in s 440A(2) is the interests of the company's creditors. It is clear that the onus is on the person seeking the adjournment to establish to the satisfaction of the Court that the adjournment is in the interests of those creditors. In general terms, that will be difficult to do unless there is a good case that there will be a greater or more accelerated return from the course contended for. But considerations beyond mere quantum may be relevant to take into account in determining what is in the interests of the creditors and whether it is established that an adjournment may be said to be in the creditors' interests. Where there are advantages in either course, in general terms it may well be the proper course to give such adjournment as will allow the creditors themselves to vote upon the proposal and determine which course they prefer." 19 Both the above passages were quoted with approval by Campbell J in Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd (2003) 44 ACSR 377. 20 In the present case, the onus is upon the defendant company to put forward "persuasive evidence" to show that there are or will be assets under a deed of company arrangement regime that will produce a larger return to creditors than a winding up will produce. The defendant company, even with the support of Mr Gino Cassaniti, has conspicuously failed to discharge that onus. There can be no suggestion that the adjournment sought is justified by considerations beyond those involved in the s.440A assessment. That assessment shows quite clearly that s.440A does not operate to require an adjournment. 21 The application for adjournment of the winding up application is refused. I will hear argument on the costs of the adjournment application. ********** 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.