Reported Decision : (2007) 25 ACLC 1,034 New South Wales Supreme Court CITATION : IRM Home Loans & Ors v Superwoman Financial Solutions Group & Ors [2007] NSWSC 604 HEARING DATE(S) : 29/05/07 JUDGMENT DATE : 29 May 2007 JURISDICTION : Equity Division Corporations List JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 29 May 2007 DECISION : See paragraphs 30-31 of judgment. CATCHWORDS : CORPORATIONS – Administration – Application by shareholders to adjourn second meeting of creditors – Where there are two alternate proposals for deeds of company arrangement – Whether court should order adjournment of second meetings of creditors so as to allow time for second proposal to be offered unconditionally – Where second proposal subject to due diligence being completed and due diligence will not be complete before scheduled meeting – Where second proposal would be sufficient to discharge debts to all creditors and provide surplus funds and first proposal would discharge only debts to unsecured creditors – Where adjournment could result in first proposal being withdrawn and second proposal might not be offered unconditionally – Held that meeting ought not be adjourned or restrained – Order that operation of Part 5.3A of the Corporations Act 2001 (Cth) modified so that no deed of company arrangement may be entered into until expiration of 14 days after second meeting of creditors. - (Cth) Corporations Act 2001, ss 436C, 445D, 447A, 447E LEGISLATION CITED : Corporations Act 2001 (Cth) IRM Home Loans Pty Ltd & 3 Ors PARTIES : v Superwoman Financial Solutions Group Pty Ltd (Administrators Appointed) & 3 Ors FILE NUMBER(S) : SC 2948/07 COUNSEL : Plaintiffs: J T Svehla Defendants: D Cook SOLICITORS : Plaintiffs: M D Nikolaidis Defendants: N/A IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST WHITE J Tuesday, 29 May 2007 2948/07 IRM Home Loans Pty Ltd & 3 Ors v Superwoman Financial Solutions Group Pty Ltd (Administrators Appointed) & 3 Ors JUDGMENT 1 HIS HONOUR: This is an application to restrain the holding of a second meeting of creditors, or to require the adjournment of the second meeting of creditors, of three companies, namely Superwoman Financial Solutions Group Pty Limited (Administrators appointed), Superwoman Financial Solutions Pty Limited (Administrators appointed) and Superwoman Money Pty Limited (Administrators appointed). 2 Superwoman Financial Solutions Group Pty Limited ("SFSG") is the holding Company of the other two companies. The plaintiffs hold 50% of the shares in SFSG. The other 50% shareholder in SFSG is Millennium 3 Financial Services Group Pty Limited ("Millennium"). It is also the holder of a charge over the assets of SFSG, to secure moneys payable to it. It holds guarantees from the plaintiffs as further security for the debts owed to it. 3 The fourth defendants are the administrators of the three companies. They were appointed as administrators on 19 April 2007. They were appointed by Millennium pursuant to s 436C of the Corporations Act 2001 (Cth). 4 The second meeting of creditors has been convened to be held tomorrow, 30 May 2007 at 10.00 am. In their report to creditors, the administrators describe two proposals for the companies to enter into a deed of company arrangement. 5 One proposal is by Millennium. It proposes to provide sufficient funds to pay all proven unsecured creditors, and for the assets of the company to be transferred to it. Its proposal does not involve the release of its secured debt. The plaintiffs would remain liable on their guarantees. 6 The second proposal outlined in the administrator's report to creditors is a proposal from WestFin (Australia) Limited ("WestFin"). Its proposal is to pay $3,000,000, which would be sufficient to discharge all creditors, both secured and unsecured, and would provide a surplus of funds to shareholders, including the plaintiffs. It would do so for an assignment of all of the assets and business of the companies. 7 WestFin's proposal is contained in a letter of 18 May 2007 and was expressed to be "subject to due diligence", including: "... an acceptable inspection of all assets, vetting of all contracts, agreements and licences, with particular reference to the 'Superwoman' trademark, which comprise the assets of the group, ensuring they can be legally assigned or sold and are acceptable; vetting of the report to creditors and acceptance of outstanding creditor obligations; and Millennium 3 discharging its Equitable Mortgage, and any other lien or charge, over the assets and undertakings of Superwoman Financial Solutions Group Pty Limited and its wholly owned subsidiaries, such discharge to occur simultaneously with financial settlement." 8 In their report to creditors, the administrators advised that if both proponents were able to satisfy a defence of their proposals and if WestFin's offer was unconditional at the time of the second meeting of creditors, then the administrators would recommend WestFin's offer to the companies' creditors as it provides a return to shareholders of SFSG, whereas Millennium's proposal did not. 9 WestFin's proposal has not become unconditional. Nor has it paid funds to the administrators' account to satisfy the administrators that WestFin has the financial resources to complete its proposal. 10 The plaintiffs have tendered an exchange of correspondence between the administrators and WestFin in relation to the carrying out of due diligence. 11 On 23 May 2007, the administrators advised WestFin that Westfin's access to the company's premises was immediately suspended. The reason given was that WestFin had gone well beyond the terms of the approval which the administrators had given to it to conduct its due diligence and had exhibited bad faith. 12 It appears that the administrators complained that WestFin had discussed with the companies' employees questions of their redundancies. WestFin denies this and denies that they sought to go, or did go, beyond the approval which had been given by the administrators for their conduct of due diligence. It is not possible to resolve the rights or wrongs of that matter on this application this evening. 13 Earlier today, WestFin wrote to the administrators saying that to complete their due diligence and to make their offer unconditional and to lodge moneys with the administrators to satisfy creditors' obligations, they urgently requested the delivery, at a minimum, of the following information: . Legal Documentation relating to the ownership of the Trade Marks in Class 36, including registration details. . List of current clients and Funds Under Management. . Clear list of Equipment Assets, Office Furnishings, Office Machines and IT. . A Copy of the Signed Real Property Lease for Carrington Street. . A Copy of software licences. . Access to review computer records, marketing materials, other related Intellectual property owned by the Superwoman Group of Companies. . Profit and Loss Reports to date. . Current Debtors' Ledger. . Current Creditors' Ledger. 14 This evening, the administrators, through their counsel, have proffered an undertaking to provide WestFin with access to such documents during reasonable business hours and under the supervision of the administrators. However, that does not resolve the questions arising from the imminence of the second meeting of creditors. 15 The plaintiffs complain that they are at a real risk that the legitimate interests of shareholders will be thwarted if the meeting of creditors proceeds, as the other creditors will be fully paid out under either proposal. The other creditors, it is said, have no real incentive to agree to an adjournment of the meeting of creditors to enable WestFin to complete its due diligence and for its offer to become unconditional. 16 The plaintiffs say that on the evidence there is at least a serious question as to whether the administrators have managed the companies' affairs in a way that is prejudicial to their interests as members. They say that the Court has power under s 447E of the Corporations Act to make such orders as it thinks just to redress any such prejudice. 17 It is not possible to determine on this application whether, at a final hearing, the plaintiffs will make good their complaint under s 447E. 18 There is no issue that, in exercising the Court's powers under s 447A to modify the operation of Pt 5.3A in relation to these particular companies, the Court could either restrain the holding of the meeting, or make an order for the adjournment of the meeting as the plaintiffs proposed. 19 However, such a course would raise the real risk that the Millennium proposal may be withdrawn and that the WestFin proposal may never become unconditional. If that were to occur, the creditors could face substantial losses. To order the adjournment of the meetings or to restrain the holding of meetings would, in substance, be to grant interlocutory relief for which an undertaking as to damages would be required. There is no evidence as to the plaintiffs' ability to meet such an undertaking. The Court is reluctant to restrain the holding of meetings. 20 The creditors have power themselves at the meeting to direct an adjournment. If the meeting is not adjourned, and if the creditors resolve that the companies enter into deeds of company arrangement as proposed by Millennium, it does not follow that the plaintiffs would be without relief. There would, in any event, be some lapse of time prior to the execution of the deed of company arrangement. Unless the Court otherwise orders, such a deed would be required to be entered into within twenty-one days. 21 Even if the deed of company arrangement is entered into, the Court has wide powers under s 445D to order that such a deed be terminated (see particularly, s 445D(1)(g)). 22 I think Mr Cook (counsel for the administrators) is correct in saying that if, after tomorrow's meeting, WestFin completed its due diligence, and its offer became unconditional, and it demonstrated its ability to pay the moneys required under its proposal, there would then be strong grounds under at least s 445D(1)(g) for the Court to order any deed of company arrangement which may have been entered into with Millennium to be terminated. 23 If WestFin's proposal became unconditional before the deed of company arrangement was entered into, then the plaintiffs or WestFin could bring an application under s 447A for a modification of Pt 5.3A in substance, to undo any resolution which may be made tomorrow, in order for the companies to enter into a deed of company arrangement on better terms with WestFin. 24 In my view, the Court ought not require the adjournment of the meeting, or restrain the holding of the meeting of creditors. It is a matter for the creditors to consider whether the risk of losing both proposals is such that the proposal advanced by Millennium should be adopted. 25 I do not consider that the plaintiffs will necessarily face irremediable prejudice if such a resolution is passed. 26 In coming to that view, I take into account the undertaking which the administrators offer to provide WestFin access to the documents which I have earlier identified, irrespective of the outcome of tomorrow's meeting. I also propose to order that the administrators provide reasonable assistance to WestFin to answer queries relating to the companies' operating systems, internal systems and management of clients' funds. 27 I also propose to make an order under s 447A that Pt 5.3A operate in relation to the first, second and third defendants, as if the Part provided that, if the creditors resolve that the companies enter into a deed of company arrangement with Millennium, no such deed of company arrangement be entered into prior to the expiration of fourteen days. 28 Accordingly, if the resolutions which the plaintiffs fear may be passed are passed, the plaintiffs and WestFin will still have the opportunity over the following two weeks to progress WestFin's proposal. Neither Millennium nor other creditors of the companies could have a legitimate basis for thinking they could compel the companies or the administrators to enter into a deed of company arrangement prior to the period of fourteen days. 29 I do not consider that the modification of Pt 5.3A in that respect, or the orders addressed to the administrators and the undertakings proffered by the administrators, are matters which warrant the exaction of an undertaking as to damages. 30 For these reasons, I will make the following orders, (but I will first set out the orders I propose to make in case counsel have any submissions to make as to the precise terms of the orders): 1. I note the undertaking of the fourth defendants to the Court to provide access to WestFin (Australia) Limited during reasonable business hours, under the supervision of the Administrators, to the following documents: . Legal Documentation relating to the ownership of the Trade Marks in Class 36, including registration details. . List of current clients and Funds Under Management. . Clear list of Equipment Assets. Office Furnishings, Office Machines and IT. . A Copy of the Signed Real Property Lease for Carrington Street. . A Copy of all software licenses. . Access to review computer records, marketing materials, other related Intellectual property owned by the Superwoman Group of Companies. . Profit and Loss Reports to date. . Current Debtors Ledger. . Current Creditors Ledger. 2. I order that, for a period of not less than fourteen days, the Administrators provide reasonable assistance to WestFin (Australia) Limited to answer any queries it may have relating to the current client files, operating systems, the internal systems or the management of client funds of the first, second and third defendants. 3. I order, pursuant to s 447A of the Corporations Act, that the operation of Pt 5.3A in relation to the first, second and third defendants be modified as if that Part provided that, in the event that at the meeting of creditors of the first, second and third defendants, convened to be held on 30 May 2007 it is resolved that those companies enter into a deed of company arrangement, or deeds of company arrangement, with the fifth defendant, Millennium 3 Financial Services Group Pty Limited, then any instrument to be prepared pursuant to s 444A of the Corporations Act not be executed prior to fourteen days after the end of the meeting of creditors. 31 I grant liberty to apply to all parties on reasonable notice. If anyone wants to ask for costs then they can exercise that liberty. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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