New South Wales Supreme Court CITATION : Tran v Sennrate Pty Ltd [2007] NSWSC 403 HEARING DATE(S) : 24/04/07 JUDGMENT DATE : 24 April 2007 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J EX TEMPORE JUDGMENT DATE : 24 April 2007 DECISION : Winding up application adjourned CATCHWORDS : CORPORATIONS - winding up - application for winding up in insolvency - defendant's company goes into Part 5.3A administration - whether hearing of winding up application should be adjourned - where creditors' interests lie LEGISLATION CITED : Corporations Act 2001 (Cth), Part 5.3A, ss.440A(2) CASES CITED : Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 PARTIES : Minh Dat Tran - Plaintiff Sennrate Pty Limited - Defendant FILE NUMBER(S) : SC 1202/07 COUNSEL : Mr S.M. Pateman, Solicitor - Plaintiff Mr D.R. McCrostie, Solicitor - Administrator SOLICITORS : Pateman Legal - Plaintiff TurksLegal - Administrator IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J TUESDAY 24 APRIL 2007 1202/07 MINH DAT TRAN v SENNRATE PTY LTD JUDGMENT 1 By originating process filed on 22 January 2007, the plaintiff seeks an order for the winding up of the defendant in insolvency. 2 When the matter came before me for hearing yesterday I was informed that, on the immediately preceding business day, Friday 20 April 2007, Mr Roufeil had been appointed administrator of the defendant under Part 5.3A of the Corporations Act 2001 (Cth). At that stage, the administrator had had very little opportunity to obtain information about the defendant and the state of affairs, and I adjourned the winding up application to this afternoon. 3 When the matter came back before me this afternoon, there was filed an affidavit of the administrator which gave an account of matters with the benefit of another twenty-four hours of familiarity with the defendant and its affairs. Needless to say, that account is incomplete and a number of questions must be regarded as open. 4 The administrator contends that a further adjournment should be granted. 5 Mr Pateman, on behalf of the defendant, resists any further adjournment and presses the winding up application. He points to uncertainties of various kinds, in particular about the state of the defendant's indebtedness to the National Australia Bank and apparent absence of any bank debt from a balance sheet as at 30 June 2006, to which the administrator has had regard. Mr McCrostie submitted on the administrator's behalf that the further hearing of the winding up application should be stood over to 28 May 2007 which will be a date very soon after the holding of the second meeting of creditors in the voluntary administration. 6 Section 440A(2) of the Corporations Act directs the court to adjourn a winding up application in circumstances of the present kind, that is where an administrator has been appointed, 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. There is thus a balancing exercise to be undertaken with the respective merits of continuation of voluntary administration and imposition of winding up being compared, to the extent that they can reliably be compared, according to the state of the evidence as it exists. 7 The administrator, as I have said, does not purport at this point to have the full picture so far as the defendant and its affairs are concerned, but he has discovered enough to enable him to form an opinion that, at this stage at any rate, it is in the interests of the creditors to permit the administration to run its course. He states reasons for that opinion in paragraph 12 of his affidavit, which I will not trouble to reproduce in full. 8 One significant factor, however, is that he has received a deed of company arrangement proposal from the defendant's director which, if carried through to fruition, would see the debts of the director and his associated interests being capitalised rather than being proved for, with the result, the administrator says, that there would be some $4 million less in unsecured claims in an administration under deed of company arrangement compared with winding up. The same conversion of debt to equity would not be available in a winding up. 9 Despite the fact that there may be uncertainties about some aspects of the defendant's affairs, the tangible aspect to which I have just referred is a significant one weighing substantially in favour of the proposition central to s.440A(2). 10 Having regard to the decision of the Queensland Court of Appeal in Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456, the question whether an administration should continue rather than being replaced by winding up is "obviously closely related to the further question of whether the creditors could hope to get more by way of payment of their debts from one form of process or administration, than from the other". In view of the matter I have mentioned, the creditors' hope of better return lies, at this stage, with administration rather than winding up. 11 One other matter raised by the plaintiff is a perception that Mr Roufeil may lack independence. This is because of a prior contact between him and the defendant and its director, that is to say a contact before his appointment as voluntary administrator. 12 Of course, there must be prior contact of some kind or other in every case. In this case the prior contact first took the form of a retainer of Mr Roufeil to provide a report as to the solvency of the defendant for the purposes of the present winding up proceedings. Mr Roufeil says in his affidavit that, having embarked on that task, he learned of certain matters, whereupon he informed the director and his lawyers that it appeared to him, prima facie, that the company was insolvent because it must have been in default of its payment obligations to the National Australia Bank which had appointed a receiver. Mr Roufeil says further that he provided certain advice to the director in relation to the company's solvency, whereupon the director determined that he would appoint Mr Roufeil voluntary administrator of the company. 13 This, to my mind, does not appear to have involved any form of association that would call into question Mr Rouffeil's ability to discharge the duties of voluntary administrator with the required objectivity. 14 In any event, should there be any concern among creditors on that score, they will have the opportunity at the first meeting of creditors to be held on 27 April to address the matter. It is for creditors to decide at that meeting whether Mr Roufeil should continue or whether he should be replaced by some other administrator. 15 Because of my finding on the matter central to the operation of s.440A(2), as already stated by me, I am compelled by that section to adjourn the hearing of the winding up application. 16 The originating process is therefore stood over to 11am on 28 May 2007 before the Registrar. Costs of today are reserved. ********** 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.