Supreme Court New South Wales Medium Neutral Citation: Andrew Learmont & Tracey Learmont -v- Love Childcare Pty Ltd trading as Croft CA Pty Ltd [2012] NSWSC 1322 Hearing dates: 8 June 2012 Decision date: 08 June 2012 Jurisdiction: Equity Division Before: Windeyer AJ Decision: Winding up proceedings to be adjourned Catchwords: CORPORATIONS - whether requirements of s 436A (1) of the Corporations Act 2001 (Cth) met - whether winding up application should be adjourned Legislation Cited: Corporations Act 2001 (Cth) Category: Principal judgment Parties: Andrew Learmont & Tracey Learmont - Plaintiffs Love Childcare Pty Ltd ACN 115 255233) - Defendant Representation: Counsel: J.T. Johnson - Plaintiffs T. Russell - Defendant G. McDonald - Directors Solicitors: Sewell & Kettle - Plaintiffs ERA Legal - Defendant File Number(s): 2012/150045 EX TEMPORE Judgment 1HIS HONOUR:The first question is whether the appointment of the administrators is valid. The basis on which it is claimed it is not valid is that the required resolutions under s 436A(1) of the Corporations Act 2001 (Cth) ("the Act") were not passed. The section requires the company to resolve that, in the opinion of the directors who are voting for the resolution, the company is insolvent, or is likely to be insolvent at some future time, and an administrator of the company be appointed. 2The meeting was held on 7 May 2012. On the evidence given this morning it appears that the minutes were written up on 7 or 8 May 2012. They were signed by Mr Dalton, the chairman of the meeting. Those minutes do not record resolutions in accordance with s 436A(1) of the Act. What they do record is that Messrs Devine and Kukulovski be appointed joint and several administrators of the company. 3It is clear that the meeting was conducted with a draft of minutes sent by Mr McDonald to Messrs Dalton and Forrest, which set out a draft agenda, matters for discussion, and resolutions which ought to be considered and passed if the company were validly to be put into administration. That document did not include in the resolutions the required resolutions which would have brought about compliance with s 436A of the Act. The question is whether or not those resolutions were passed. The minutes do not record those resolutions having been passed. 4Mr Dalton and Mr Forrest having become aware of this problem, have both sworn affidavits yesterday where they say that there was discussion as to the question of insolvency or likely future insolvency, and that the three resolutions in the draft; namely, the resolution that the company was not insolvent but was likely to become insolvent, and that administrators be appointed, were all dealt with together and voted on at the same time. 5Mr Dalton made notes on the draft minutes which he took with him at the meeting and he noted at the end of the draft, or perhaps it could be said, at the end of the proposed resolutions, "confirmed". It that is correct that would support the finding that the required resolutions were passed. 6There is no evidence contrary to the evidence which has been given by affidavit and in cross-examination in Court this morning. There is one matter against the evidence of Mr Forrest and Mr Dalton in that Mr Forrest said that he had taken handwritten notes, but those notes had not been produced and were not annexed to his affidavit. 7Mr Learmont has, as I understand it, been sitting in Court this morning. He has given no evidence contrary to that put forward by the other directors. He was at the meeting. If he wished to say something contrary to what was said he had the opportunity to do so, and has not done so. An inference can be drawn from his silence that his evidence would not have assisted the claim that the resolutions were not properly made. 8I have come to the conclusion that the necessary resolutions were passed and I so find. 9The next question to be decided in the case is whether or not the winding up application should be adjourned on the basis, first, that the facts fall within s 440A (2) of the Act. 10The administrators in their evidence have stated that they consider that they will recommend a Deed of Company arrangement be approved by the creditors because that will result in a benefit to the creditors which will not be obtained on winding up. The benefit which it is said is likely to flow, is that the company will over a period of twelve months pay into the Deed Fund the sum of $120,000 and that this will be guaranteed by the two directors, Mr Forrest and Mr Dalton, who have proposed the Deed of Company Arrangement. Those monies are, of course, monies that would not be available if a winding up order were made. The only other benefit which seems to be suggested will flow, is that it is at least likely that the fees of the administrators will be less than the fees which will be charged by liquidators on a winding up. 11On the figures which appear on page 43 to the affidavit of Mr Devine, one of the administrators, sworn on 4 June 2012, the view of the administrators is that on a winding up there would be no dividend to creditors and, on the basis of the Deed of Company arrangement, there would be a dividend of between three cents and four cents in the dollar. For the purposes of this decision, I will work on the basis of three cents in the dollar. 12The other basis which was put forward as being beneficial, not necessarily to the Deed creditors but to the company, was that the tax losses would be preserved. It is accepted now that those tax losses would, if they do become a benefit, be a benefit to the trust of which the defendant is the trustee, and would not flow to the company. 13There is no other evidence which would be relevant in making this decision. The Court is required to adjourn the hearing of the winding up proceedings where a company is under administration and the Court is satisfied it is in the interests of the creditors for the company to continue under administration rather than to be wound up. 14The evidence is that if the Deed goes ahead, it is at least likely and certainly more likely than not, that the creditors will obtain a dividend of about three cents in the dollar in respect of their proved debts. If a winding up takes place they will get nothing. The Deed provides that the $120,000 payable over twelve months is a liability of the company, guaranteed by two of the directors. Of course, there is a possibility that it will be necessary to call on the guarantee and, of course, the benefit if it becomes available will only become available in twelve months time because up to that time at least part of it is likely to go on the cost of administration and it is thus unlikely that there will be any distribution until twelve months. 15Nevertheless, three cents as against no cents seems to me to be of benefit to the creditors. In those circumstances, the requirements of S 440A of the Corporations Act 2001 (Cth) are made out. 16The proceedings will have to be adjourned, and I so order. ********** 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: 30 October 2012