Reported Decision : (2006) 24 ACLC 1236 New South Wales Supreme Court CITATION : Ausino International Pty Ltd v Apex Sports Pty Ltd [2006] NSWSC 986 HEARING DATE(S) : 21/09/06 JUDGMENT DATE : 21 September 2006 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J EX TEMPORE JUDGMENT DATE : 09/21/2006 DECISION : Adjournment granted CATCHWORDS : CORPORATIONS - voluntary administration - deed of company arrangement - plaintiff seeks order terminating or avoiding deed - alleges actual or apprehended bias of deed administrators and material deficiencies in information given to creditors - administrators concede deficiencies to some extent and seek adjournment so that they may put corrected and updated information to affected creditors and call meeting to resolve future status of deed LEGISLATION CITED : Corporations Regulations 2001 (Cth), reg 5.6.21 CASES CITED : Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (2005) 226 ALR 510 Greek Orthodox Community of Oakland & District Inc v Pizzey Noble Pty Ltd (1997) 23 ACSR 274 Ausino International Pty Ltd - Plaintiff Apex Sports Pty Ltd - First Defendant PARTIES : Ronald John Dean-Willcocks - Second Defendant Adam Shepard - Third Defendant Jack Anthony Barry - Fourth Defendant FILE NUMBER(S) : SC 3883/05; 2683/05 Mr A.G. Bell SC/Mr N. Kabilafkas - Plaintiff COUNSEL : Mr C.R.C. Newlinds SC/Ms V.E. Whittaker - First, Second and Third Defendants Mr A.P. Coleman - Fourth Defendant Henry Davis York - Plaintiff SOLICITORS : Abbott Tout - First, Second and Third Defendants Kemp Strang - Fourth Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J THURSDAY 21 SEPTEMBER 2006 3883/05 AUSINO INTERNATIONAL PTY LTD V APEX SPORTS PTY LTD (ADMINISTRATORS APPOINTED) & ORS 2683/05 AUSINO INTERNATIONAL PTY LTD v APEX SPORTS PTY LTD JUDGMENT - On adjournment application. See p32 of transcript. 1 After Mr Bell SC had opened the plaintiff's case this morning, Mr Newlinds SC, on behalf of the first, second and third defendants, applied for an adjournment. This followed the grant of leave on 12 September for the plaintiff to amend the statement of claim and, while the late amendment is in one way the source of the adjournment application, that application has not arisen in what one might expect to be the usual way in such a context. 2 The plaintiff's claims are directed towards termination or avoidance of a deed of company arrangement executed by the first defendant on 17 June 2005. The plaintiff is a significant creditor of the first defendant and voted against the deed proposal. The vote on the motion for adoption of the deed was split in the way that, under regulation 5.6.21 of the Corporations Regulations 2001 (Cth), gives rise to a casting vote on the part of the chairman of the meeting. The chairman, one of the Part 5.3A administrators, exercised the casting vote in favour of the adoption deed stating reasons for doing so. Those administrators became the administrators of the deed of company arrangement. They are the second and third defendants. 3 In attacking the deed, the plaintiff relies on two main contentions or groups of contentions. First, the plaintiff says that the information creditors were given, for the purposes of and in the context of the meeting, was deficient, that is to say, affected by material omission and by material statements of a false and misleading kind. 4 Second, the plaintiff contends that, because of an advisory assignment one of the administrators had taken on for the first defendant before the advent of the Part 5.3A administration, there was bias or grounds for a reasonable apprehension of bias on the part of the administrators that disqualified them from acting generally and in particular should have caused the chairman of the creditors meeting to refrain from exercising the casting vote. 5 There are also complaints by the plaintiff that adoption of the deed of company arrangement represented a triumph for the wishes of small creditors over those of large creditors, although that is something, that in the long run, may be seen to be no more than a playing out of the statutory scheme in the particular case. 6 One of the things added to the statement of claim by the late amendment of 12 September is a series of counts based on the prior association of one of the administrators with the first defendant. The other goes to a particular matter of alleged non-disclosure or inadequate disclosure concerning the position of Mrs Barry, the wife of the sole shareholder and director of the first defendant and, in particular, her position as a secured creditor of the first defendant. 7 It was represented in the materials furnished to creditors (and indeed it was stated by the chairman at the meeting to be one of the considerations that caused him to act as he did in the matter of the casting vote) that Mrs Barry was a secured creditor of the first defendant for some $1.8 million, having acquired a security held by the National Australia Bank upon payment to it of indebtedness of several associated companies of that aggregate amount. It is complained that statements to that effect concerning Mrs Barry were false and misleading when one analyses the relevant transactions involving, as they do, inter-company debts, guarantees, and rights of indemnity, contribution and subrogation raising issues of some complexity. 8 The second and third defendants, after receiving and considering the amended statement of claim, have come to the view that the plaintiff's contentions in respect of Mrs Barry's position are basically correct and that Mrs Barry should have been recognised and represented as being a secured creditor of the first defendant for something of the order of $600,000, not $1.8 million. 9 There is now, in general terms (if perhaps not as to details), a large measure of agreement between the plaintiff and the second and third defendants on this particular issue, that is, the position occupied by Mrs Barry as a secured creditor and the amount for which her security is operative vis-a-vis the first defendant. 10 Having reached this position, the second and third defendants believe that the right course of action is for them to go back to the creditors. It is for that reason that they seek an adjournment. They have indicated that they will undertake to the court, if an adjournment is granted, to call a meeting of creditors, that is, the creditors affected by the deed. Indeed, it was put from the bar table that the voluntary administrators might proceed to call a meeting of those creditors even in the absence of an adjournment. 11 The purpose of such a meeting of creditors would be to give them an opportunity to decide whether they wish to continue with the deed of company arrangement. They would be given that opportunity in the context of new and updated disclosure. This would cover not only the true picture regarding Mrs Barry's secured debt, but some other matters as well, being matters that have come to light or been clarified in the meantime. These include the effects of deeds of company arrangement subsequently executed by a number of associated companies which have had an effect on the state of the indebtedness between the first defendant and those companies; an undertaking that the plaintiff has today given to the court regarding provision by it of funding to pursue liquidator's claims in the event of a winding up of the first defendant; the fact that the moneys coming from outside the company to constitute part of the deed fund, about the availability of which there was some speculation at the time creditors voted on the deed proposal, are now in a solicitor's controlled moneys account; and, possibly, results of further enquiries about Mr Barry's position, which is something relevant to consideration of the possibility of recovery proceedings in any winding up. In relation to the last matter, there are apparent or possible unexplained gaps between his situation of real property ownership five or six years ago and the position of modest means reflected in the statutory declaration he gave to the second and third defendants. 12 In making the adjournment application Mr Newlinds referred to cases in which the significance of updated expressions of creditor views have been of assistance to courts in cases of this kind. He took me to the judgment of Hansen J in Greek Orthodox Community of Oakland & District Inc v Pizzey Noble Pty Ltd (1997) 23 ACSR 274. I quote from that judgment (at p.287): "What I do need to determine for the purposes of the present application is this: can the administrator, acting either on his own motion or at the request of the court, canvass the views of some or all creditors to determine whether those creditors would have voted any differently had the omitted fact or matter been brought to their attention before the deed was executed? In my opinion, the answer to that question is yes. In Emanuele , the Full Court of the Federal Court itself suggested that such a step may be permissible and appropriate in a particular case: 'There may be cases where a court would find it appropriate to seek the views of the majority of creditors and to given weight to them, but the present is not such a case.' Indeed, in a number of other cases, available to counsel at the time of the present application, the administrator (wisely in my view) presented evidence to the court that the deed of company arrangement is still supported by a majority of creditors who have been informed of the relevant fact or matter which the applicant says should have been included in the administrator's report: see, for example, DCT (Cth) v Comcorp Australia Ltd (1995) 13 ACLC 1671 at 1684 (appeal on other grounds dismissed: (1996) 14 ACLC 1616); DCT (Cth) v Pddam Pty Ltd (1996) 19 ACSR 498 at 512. I agree with respect with Sundberg J who in Comcorp said at 1684 that: 'Even where the court cannot be certain what effect the provision of omitted information might have had on creditors' voting intentions, it might appear in all the circumstances that it would not be in their interests for the deed to be terminated.'" 13 I was also referred to the decision of Campbell J in Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (2005) 226 ALR 510. His Honour there said (at p.544): "On occasions, when there is an application to terminate a deed, the courts have adjourned the proceedings, and invited the administrators to call a meeting so that the actual views of the creditors can be ascertained on whether, once they have been provided with the material with which they were not provided prior to adopting the deed, they still wish the deed to continue to operate: Greek Orthodox Community of Oakleigh and District Inc v Pizzey Noble Pty Ltd (admin apptd) (1997) 23 ACSR 274; 15 ACLC 741. Ascertaining the views of the creditors in this way is not something which goes to the materiality of the information, but rather goes to discretion." 14 Against the background of the general philosophy of Part 5.3A, under which the wishes of creditors are the principal determinant of the course the relevant company should follow, these attitudes are both understandable and consistent with the legislative scheme. 15 The fourth defendant, Mr Barry, neither consents to nor opposes the adjournment. The plaintiff opposes the grant of any adjournment. It was submitted on behalf of the plaintiff that a decision to adjourn would, as it were, set at nought the objections the plaintiff has raised other than those based on allegedly faulty disclosure. In particular, the grant of an adjournment would set at nought the important and serious question of the independence of the voluntary administrators at the time they accepted appointment and at the time of the preparation of their report and the exercise of the casting vote. It is wrong, in the plaintiff's submission, for that matter, as it were, to go by default. It is said that an adjournment could properly be granted only if that and the other matters raised by the plaintiff as grounds for attacking the deed of company arrangement were properly seen to be hopeless. 16 I do not accept that submission. Those claims are serious claims and the grant of an adjournment would in no way stifle them. They would remain alive for agitation in due course if an adjournment were granted and the matter of the future of the deed of company arrangement went back to the creditors and it was their decision that the deed should continue in force. 17 It was also submitted on behalf of the plaintiff that there is a public interest in the determination of these proceedings. It is now 15 months since the deed of company arrangement was executed and its fate and status ought now be addressed and determined. The submission in reply, on behalf of the defendants, is that the present situation and the application for adjournment crystallised only from the late amendment of the statement of claim on 12 September. 18 I have reached the conclusion that the court will be assisted by further expression of creditors' wishes obtained in the way foreshadowed. That expression of wishes may cause these proceedings no longer to be necessary. It may cause them to be confined to narrower issues. One thing it will not do, it seems, is to leave them in precisely their current configuration. Further attention to the matter by creditors, on the basis of the corrected and updated information that has been foreshadowed, can only be helpful in setting the ultimate course for these proceedings, if indeed they are to continue at all, in the light of the creditors' further decision. 19 It seems to me that if, on the basis of further information given to them or for any other reason, the creditors should, at the further meeting, see fit to terminate the deed of company arrangement, that outcome would not be different from the outcome sought by the plaintiff in these proceedings so far as the effect of the deed is concerned. That seems to follow from s.445H which equates termination and avoidance under all or any of the methods provided for in Division 11, so far as the future effect of the deed is concerned. 20 The plaintiff is not, to my mind, prejudiced by the adjournment, except to the extent of further delay in having its claims determined. But pressing on for the sake of pressing on would be short-sighted, where the opportunity for potentially valuable further input from creditors is available. 21 I propose therefore to grant an adjournment in terms that will now have to be precisely formulated, subject to the giving, by the second and third defendants of the foreshadowed undertaking in terms which will now have to be formalised. [Short adjournment. Upon resumption, the second and third defendants offered to the court, by their counsel, the following undertaking: "1. Mr Shepard and Mr Dean-Willcocks undertake that on or before 20 November 2006 they will convene a meeting of creditors of the first defendant pursuant to section 445F of the Corporations Act and at that meeting will propose the following resolutions: (i) to confirm the deed of company arrangement; (ii) to terminate the deed of company arrangement; and (iii) to wind up the first defendant. 2. Mr Shepard and Mr Dean-Willcocks further undertake that they will provide to creditors, prior to that meeting, a report substantially in the form required by section 439A of the Corporations Act dealing, amongst other things, with: (i) Mrs Barry's secured debt; (ii) the effect of the deed of company arrangements in relation to other companies in the Apex group; (iii) the offer to fund made by the plaintiff today; (iv) the result of any further investigations regarding Mr Barry's financial position; and (v) the current financial position of the first defendant." Counsel addressed on costs.] 22 In relation to costs, the position taken by the first, second and third defendants, that is to say the company subject to the deed and the deed administrators, is that costs should be reserved. The plaintiff says that the second and third defendants, that is the deed administrators, should pay personally, and without recourse to company assets, the costs thrown away by reason of the adjournment and the costs of today. The fourth defendant's submission is that the plaintiff should pay those costs. 23 The contentions of the plaintiff and the fourth defendant throw into stark relief the two possible views of the cause of the adjournment. On the one hand the concession by the deed administrators about Mrs Barry's position which led to the proposal for a further meeting of creditors, at which that and other matters would be exposed, was the cause of the adjournment. The other view is that the matter of the misdescription of Mrs Barry's secured position would probably have never have come to light (because no-one would have revisited it) unless the plaintiff had, on 12 September, obtained leave to add that matter as one of the grounds of attack on the deed of company arrangement. Both views have merit and in the circumstances the appropriate course is that costs should be reserved so that decisions on costs can be made in the fullness of time and in the light of the final outcome 24 I make the following orders in 3883/05: 1. Stand over the further hearing of the proceedings to 9.30 am on 22 November 2006 before me. 2. Note the written undertaking of the plaintiff to the court concerning funding of liquidator's recovery proceedings which I initial and date. 3. Note the written undertaking of the second and third defendants to the court concerning convening of a further meeting of creditors which I initial and date. 4. 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