Supreme Court New South Wales Medium Neutral Citation: Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 379 Hearing dates: 2 May 2011 Decision date: 05 May 2011 Jurisdiction: Equity Division - Corporations List Before: Barrett J Decision: Plaintiff's interlocutory process seeking termination of voluntary administration dismissed Catchwords: CORPORATIONS - voluntary administration - application for order terminating administration - applicant is plaintiff under pending winding up summons - plaintiff/applicant contends that preference recoveries for the benefit of creditors in a winding up will potentially be greater if the administration is terminated before a winding up order is made - consequent desire of plaintiff/applicant to avoid winding up by resolution of creditors in the administration or by order of the court while the administration subsists - potentially greater returns for creditors through preference recoveries is the only ground on which application for termination of administration is advanced - not a sufficient ground for the exercise of s 447A jurisdiction Legislation Cited: Corporations Act 2001 (Cth), Part 5.3A, Part 5.7B, ss 9, 436A, 447A, 513A, 513B Cases Cited: Aloridge v Christianos (1994) 13 ACSR 99 Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270 Blacktown City Council v Macarthur Telecommunications Pty Ltd [2003] NSWSC 883; (2003) 47 ACSR 391 Brett Southern v Heartwood Architectural Timber & Joinery Pty Ltd [2008] QSC 354 Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607 Foti v P&S Investments Pty Ltd [2009] FCA 1409 Plumbers Supplies Co-operative Limited v Firedam Civil Engineering Pty Limited [2011] NSWSC 325 Re Sons of Gwalia Ltd; Ex parte Love [2008] WASC 75; (2008) 66 ACSR 253 Rodgers v Radly [2000] VSC 570; (2000) 160 FLR 85 Spacorp Australia Pty Ltd v Fitzgerald [2001] VSC 61; (2001) 19 ACLC 979 St Leonards Property Pty Ltd v Ambridge Investments Pty Ltd [2004] NSWSC 851; (2004) 50 ACSR 443 Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 299 Category: Interlocutory applications Parties: Workers Compensation Nominal Insurer - Plaintiff Perfume Empire Pty Ltd - Defendant Representation: Counsel: Mr J T Johnson - Plaintiff Mr P M Stern - Defendant Mr D M Jay - Deputy Commissioner of Taxation Solicitors: P H Legal - Plaintiff Addisons - Defendant ATO Legal Services Branch - Deputy Commissioner of Taxation File Number(s): 2011/39721 Judgment 1These are winding up proceedings in which the plaintiff claims an order that the defendant be wound up in insolvency on the basis of non-compliance with a statutory demand. 2The originating process was filed on 7 February 2011. The matter came before the Registrar on 17 March 2011, 24 March 2011 and 31 March 2011 and was on each occasion adjourned - on the last occasion to 11 April 2011. On 28 March 2011, the defendant became subject to voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth) by virtue of a determination of its sole director in terms of s 436A(1). 3When the winding up application came before me on 11 April 2011, the plaintiff was given leave to file and move at once on an interlocutory process by which it sought an order that the Part 5.3A administration "end forthwith" and an order that, pending determination of the winding up application, the defendant be restrained from making any new appointment under Part 5.3A. It was made clear that, following the making of those orders and after an interval of a few days, the plaintiff would press its winding up application. 4Following a hearing on 11 April 2011 and for reasons published on 15 April 2011 ( Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 299), I directed that certain persons be made aware of these proceedings and served with key documents. The matter was stood over to 2 May 2011. 5When the proceedings came before the court on 2 May 2011, Mr Johnson of counsel again appeared for the plaintiff. He read affidavits which established that the direction of 11 April 2011 had been complied with. Mr Stern again appeared for the defendant (instructed by its voluntary administrator, Mr Woodgate). In addition, a notice of appearance was filed by the Deputy Commissioner of Taxation (one of the persons the subject of the earlier direction) and Mr Jay of counsel appeared and made submissions on the Deputy Commissioner's behalf. No other person served in accordance with the earlier direction has sought to play a part in the proceedings. 6Mr Johnson pressed for the relief sought in the plaintiff's interlocutory process filed on 11 April 2011, again making it clear that, if that relief was granted, the plaintiff would, after a period of a few days, press the winding up application. 7Mr Stern, on the instructions of the defendant through its administrator, supported the plaintiff's application. 8Mr Jay, on behalf of the Deputy Commissioner of Taxation, by contrast, submitted that the court should refuse the relief sought in the interlocutory process and proceed at once to deal with the winding up application. 9It is relevant to set out again the factual findings summarised in the earlier reasons (at [6]): "1. On 29 March 2011, the defendant's secured lender appointed receivers in exercise of powers given by its fixed and floating security. 2. On 30 March 2011, the defendant ceased trading at all but about five of its 34 retail perfume outlets in New South Wales, Victoria, Queensland, South Australia, Western Australia and the Northern Territory and at its New South Wales warehouse. 3. The employment of most of the 246 staff was terminated by the receivers. 4. The receivers sent all remaining stock to the five retained retail stores and conducted a clearance sale. All those shops have now been closed. 5. Mr Woodgate has formed an opinion that the defendant was insolvent at 31 August 2010, and perhaps earlier. He gives comprehensive reasons in his affidavit for that view. He is also of the view that the defendant continues to be insolvent. 6. Mr Woodgate has identified payments which represent his preliminary estimate of "unfair preferences" within s 588FA which might be recoverable upon application made by a liquidator under s 588F F . He has made estimates of recoveries on the basis of two alternative dates as the "relation-back day" referred to in s 588FE(2). 7. Mr Woodgate estimates that, if the relation-back day is 28 March 2011 (as it will be if creditors voluntary winding up arises as a sequel to the current voluntary administration), a liquidator will have a good claim to recover as unfair preferences a total of about $1,191,550. If, on the other hand, the relation-back day is 7 February 2011 (as it will be if a winding up order is made on the plaintiff's pending application and there was not, immediately before the order is made, any voluntary administration in place), the aggregate for which a liquidator would have a good claim will be of the order of $1,731,550. 8. There are no assets in Mr Woodgate's hands. Liquidator recoveries appear to represent the only possibility of return to creditors in any winding up." 10A relation-back day of 28 March 2011 will apply by virtue of s 513A(b) or s 513B(b) if the company is subject to voluntary administration "immediately before" the making of a winding up order by the court or the passing of a resolution for winding up at the second meeting of creditors in the voluntary administration. If, however, winding up is ordered by the court on the plaintiff's pending application and the company is not under administration "immediately before" the making of the order, s 513A(e) and paragraph (a) of the definition of "relation-back day" in s 9 will produce the result that the "relation-back day" is 7 February 2011. 11The plaintiff's interlocutory process is advanced on the basis of a submission that the sequence of events for which the plaintiff contends - termination of the voluntary administration, followed by an interval of a few days, followed by the making of a winding up order - will cause the "relation-back day" for the purposes of the winding up to be the earlier date of 7 February 2011; and that, as outlined at paragraph 7 of the above extract from the earlier reasons, it is in the interests of creditors that that earlier date apply, rather than the later, since that will potentially enable the liquidator to obtain some $500,000 more for creditors' benefit by means of preference recovery actions under Division 2 of Part 5.7B. The administrator supports that submission. 12The power of the court to put an end to a voluntary administration is conferred by s 447A which, so far as relevant, provides: "(1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company. (2) For example, if the Court is satisfied that the administration of a company should end: (a) because the company is solvent; or (b) because provisions of this Part are being abused; or (c) for some other reason; the Court may order under subsection (1) that the administration is to end. " 13The court's power under s 447A to make an order terminating an administration needs to be considered in the light of other ways in which an administration may be brought to an end. 14In the ordinary course of events, administration ends if the company and the administrator execute a deed of company arrangement, if the creditors resolve that the administration end, if the creditors resolve that the company be wound up or if the court makes a winding up order or appoints a provisional liquidator. An administration will also end if the second meeting of creditors which is to consider the company's future is not held within the permitted time, if that meeting is concluded without the creditors passing a resolution in respect of its future or the company does not execute a deed of company arrangement within the time permitted after a creditors' meeting at which it is resolved that the deed be executed. 15In each of the cases just mentioned, termination of the administration is either a consequence of a decision of creditors that the company should progress to a new regime determined by them (or a decision of the court that a liquidator or provisional liquidator should be in office) or a default mechanism upon the breakdown of some element of the creditor decision-making process upon which Part 5.3A is based. 16The court's power under s 447A to terminate an administration must, in my view, be regarded as supplementing the provisions under which the legislation otherwise puts an end to the administration. Section 447A as a whole has been characterised as the source of a "general supervisory jurisdiction" exercisable by the court over voluntary administrations, but on a case-specific basis in relation to a particular company: Re Sons of Gwalia Ltd; Ex parte Love [2008] WASC 75; (2008) 66 ACSR 253. And while that jurisdiction is "wide", it is not "entirely without limit": Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270 at [20]. It is, in essence, a protective jurisdiction to be exercised to ensure that, in the particular case, what would otherwise be the unmodified operation of Part 5.3A does not produce distortion, subversion, anomaly, unfairness or other untoward consequence. In Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607 at 611, Young J described s 447A as the source of " plenary powers to do whatever it [ie, the court] thinks is just in all the circumstances" but observed that "the court is to bear in mind when exercising those powers the rights of the various groups of people that are affected by voluntary administration." 17In the present case, the sole basis put forward for intervention by the court under s 447A goes to the fixing of the relation-back day for the purposes of what is considered to be the inevitable winding up of this company. As I have said, the plaintiff, supported by the administrator, relies on the proposition that, if the administration is terminated and, after an interval of a few days, a winding up order is made on the plaintiff's application, the earlier relation-back day available to the liquidator then appointed will mean that there are prospects of more extensive preference recoveries than would be the case if the later relation-back day were available to a liquidator either appointed by the court upon an immediate hearing of the plaintiff's application or installed through a resolution at the second meeting of creditors that the company be wound up. 18The position the plaintiff takes is that ensuring that the earlier relation-back day will apply (or, at least, that there is an argument that the earlier relation-back day will apply) is something that will enhance the interests of creditors; and that, of itself, is sufficient to warrant exercise by the court of the s 447A power to put an end to the administration. 19There are several responses to this. First, it is by no means certain that the earlier relation-back day will be achieved by the procedure that is envisaged. On that, I need not express any concluded view: it is sufficient to refer to paragraph [49] of my recent judgment in Plumbers Supplies Co-operative Limited v Firedam Civil Engineering Pty Limited [2011] NSWSC 325 (20 April 2011): "Success in achieving the earlier relation-back day rather than the later would, in any event, have depended on making good the proposition that, "immediately before" the making of the winding up order by the court on the plaintiff's application (assuming that it was made), the company was not under voluntary administration, so that s 513A(b) did not operate. That is a matter that would have brought to the fore potentially difficult considerations referred to by McMurdo J in Re Octaviar Ltd (formerly MFS Ltd ) [2008] QSC 216 at [33]: '[T]here is authority suggesting that the term "immediately before" could permit an interval between administration and liquidation. In Chief Commissioner of State Revenue v Rafferty's Resort Management , Austin J applied the obiter dicta of Emmett J in Commissioner of Taxation v Macquarie Health Ltd (1999) 17 ACLC 171, that the expression "immediately before" within s 513A(b) "would permit of there being some interval between administration ending and a winding-up order being made", although as Austin J noted, it was unnecessary for Emmett J to decide how long an interval would be sufficient to preclude the operation of s 513A(b). In St Leonards Property Pty Ltd v Ambridge Investments Pty Ltd (Admins Apptd) (2004) 210 ALR 265; (2004) 50 ACSR 443; [2004] NSWSC 851, Barrett J thought that the passage of a day between administration and liquidation would be sufficient. Having found that the administration was commenced for the improper purpose of affecting the relation-back day, he ordered that the administration be terminated, and stood over the winding-up application to the following day, restraining in the interim the initiation of any further administration. In Andreotti v Ausforest Ltd [2004] NSWSC 1229, Palmer J left open the question of whether the orders in St Leonards Property would be effective to avoid s 513A(b), but said that there was no point in making them in the case before him because there was no demonstrated need on the facts to do so.'" 20Second, a consequence of termination of the administration would be that the director of the company was again responsible for its affairs and might well consider that the proper course of action was to re-impose voluntary administration. The possibility that this could be countered by a prohibiting order of the court raises the difficult issues mentioned at paragraph [46] of the Plumbers Supplies judgment. I accept, however, that, despite the claim in its interlocutory process of 11 April 2011, the plaintiff does not now seek such an order and that the point is, in a practical sense, of reduced cogency in this case where receivers appointed by a secured creditor have control of the company's assets and undertaking. 21Third, the plaintiff suggests no basis on which the court ccould or should conclude that the interests of the company's creditors generally are more deserving of the court's favourable attention than the interests of the particular creditors exposed to the possibility of preference recovery proceedings who might be adversely affected if the earlier relation-back day applies. An important consideration in that regard was referred to in submissions made by Mr Jay on behalf of the Deputy Commissioner of Taxation. There is no suggestion that any of those creditors is other than an arm's length party with which the company had ordinary commercial dealings; and there is no basis for any conclusion or even suspicion that imposition of voluntary administration while the winding up application was pending was motivated by any purpose of protecting anyone who might be made the subject of preference recovery proceedings by a liquidator. 22This brings me to a significant point. The cases in which the court has intervened to terminate a voluntary administration are all cases in which there has existed what might be termed some ulterion element. Some of those cases are as follows: * In Aloridge v Christianos (1994) 13 ACSR 99, it was found that the directors had put the company into voluntary administration not for a purpose envisaged by the legislation but with a view to installing an administrator who might be more compliant than the provisional liquidator already in office. * In Spacorp Australia Pty Ltd v Fitzgerald [2001] VSC 61; (2001) 19 ACLC 979, a secured creditor imposed voluntary administration at a time when an appeal by the company was pending against dismissal of its application for an order setting aside a statutory demand served by the secured creditor. The court viewed as "totally inappropriate" the attempt by the creditor to obtain winding up through a voluntary administration when its more direct attempt centred on a statutory demand was before the appeal court * In Blacktown City Council v Macarthur Telecommunications Pty Ltd [2003] NSWSC 883; (2003) 47 ACSR 391, the sole director imposed voluntary administration with a view to the adoption of a deed of company arrangement by a decision of creditors (being himself and two persons allied with him) of doubtful value which would bar particular claims already being litigated against the company. * In St Leonards Property Pty Ltd v Ambridge Investments Pty Ltd [2004] NSWSC 851; (2004) 50 ACSR 443, the finding was that voluntary administration was imposed by the sole director, in the face of a pending winding up application, in order to manipulate the relation-back day to his own personal advantage. 23Cases in which termination of an administration has been sought but refused are, by and large, cases in which factors of the kind mentioned in the above decisions have been alleged but not sufficiently established: see, for example, Rodgers v Radly [2000] VSC 570; (2000) 160 FLR 85; Brett Southern v Heartwood Architectural Timber & Joinery Pty Ltd [2008] QSC 354 ; Foti v P&S Investments Pty Ltd [2009] FCA 1409. 24In the present case, as I have said, the only matter put forward in favour of the exercise of the court's power to put an end to the voluntary administration is that the proceeds of preference recovery proceedings might be greater if winding up (which is regarded as inevitable) is ordered by the court a few days after termination of the administration than if it is imposed (either by order of the court or by resolution of creditors) without such termination. 25Section 447A(2) gives examples of cases in which the court may make an order changing what would otherwise be the course of a particular voluntary administration. Although it refers to the possibility of terminating a voluntary administration not only for one of the reasons stated in s 447A(2)(a) and (b) but also "for some other reason" (s 447A(2)(c)), I am not persuaded that, in this case, the matter put forward by the plaintiff represents a sufficient basis for such intervention. There can be no abstract principle that the court, when asked to act under s 447A, should always comply merely because to do so will enhance the chances of more favourable returns for the general body of creditors of the company under administration, assuming that it eventually passes into winding up. This is particularly so where there has been no attempt at distortion or manipulation and any enhancement, if it eventuates, will be at the expense of persons who have been, in every real sense, innocent bystanders in the events leading to voluntary administration and ultimate winding up. An arm's length creditor who receives a payment that is in due course held to be preferential is not, to my mind, someone who attempts distortion or manipulation. There is, in such a case, no occasion for the exercise of the supervisory or protective jurisdiction made available by s 447A. 26If the abstract principle for which the plaintiff contends existed, it would justify any departure at all from the ordinary Part 5.3A regime just because the departure would (or might) enhance the interests of creditors in a subsequent winding up. It would, for example, allow a s 447A order that s 446A was to operate in the particular case as if the following sub-section (8) were added to it: "Division 2 of Part 5.7B applies in relation to the winding up as if references in it to the relation-back day were references to the day that was 5 years before that on which a special resolution under section 491 is taken by operation of subsection (2) to have been passed." 27That modification would obviously work to the advantage of the general body of creditors by opening up the possibility of much greater preference recoveries in the winding up. But the modification would be to the potential detriment of particular persons whose conduct and motives were not questioned. It would, for that reason, be unprincipled and, although within the s 447A power (which clearly enables the court to change people's rights in an adverse way), would therefore not be made. 28The plaintiff's interlocutory process filed on 11 April 2011 will be dismissed. The court must then entertain the plaintiff's pending winding up application and an interlocutory process (not so far mentioned) by which the administrator advances the proposition that he, not the person nominated by the plaintiff, should be appointed liquidator if a winding up order is made. ********** 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. Decision last updated: 05 May 2011