Supreme Court New South Wales Medium Neutral Citation: In the matter of Nahas Construction and Development Pty Limited (Subject to Deed of Company Arrangement) (ACN 083 581 257) [2014] NSWSC 628 Hearing dates: 31 March 2014 Date of orders: 31 March 2014 Decision date: 31 March 2014 Jurisdiction: Equity Division - Duty List Before: Brereton J Decision: Order pursuant to s447A that DoCA may be amended by order of Court, and consequential order amending DoCA Catchwords: CORPORATIONS - voluntary administration - deed of company arrangement – application by administrator to vary deed – jurisdiction - whether the Court may void or validate deed Legislation Cited: (Cth) Corporations Act 2001, s 444E, 444D, 445A, 445B, 445D, 445G, 562 (NSW) Law Reform Miscellaneous Provisions Act 1946, s 6(4) Cases Cited: Re Giga Investments Pty Ltd (admr apptd) (1995) 17 ACSR 547 Milankov Nominees Pty Ltd v Roycol Ltd (1994) 52 FCR 378 Mulvaney v Rob Wintulich Pty Ltd (1995) 18 ACSR 384 Category: Procedural and other rulings Parties: John Vouris and Bradley John Tonks in their Capacity as Administrators of Nahas Construction and Development Pty Limited (Subject to Deed of Company Arrangement) (ACN 083 581 257); Nahas Construction (NSW) Pty Limited (Subject to Deed of Company Arrangement) (ACN 124 452 786; Nahas Construction Pty Limited (Subject to Deed of Company Arrangement) (ACN 150 545 878) (applicants) SJYC Pty Limited (ACN 129 441 265), Youseef Nahas, Fadir Nahas, Mounir Nahas (respondents) Representation: Counsel: J Johnson (applicants) J Bardetta (respondents) Solicitors: Eakin McCaffery Cox Lawyers (applicants) Landerer & Company (respondents) File Number(s): 2014/82527 Judgment (ex tempore) 1. HIS HONOUR: On 27 December 2012, three companies in voluntary administration - namely Nahas Construction and Development Pty Limited (ACN 083 581 257), Nahas Construction (NSW) Pty Limited (ACN 124 452 786), and Nahas Construction Pty Limited (ACN 150 545 878) – entered into a deed of company arrangement within (Cth) Corporations Act 2001, Part 5.3A, under which the present applicants John Vouris and Bradley John Tonks, formerly the voluntary administrators, became the deed administrators. Other parties to the deed of company arrangement were SJYC Pty Limited, which agreed to contribute to the deed fund, and Youssef Nahas, Mounir Nahas and Fadie Nahas, who were directors of the companies. The deed established a deed fund of $1.25 million contributed by SJYC, and essentially provided for creditors to prove their debts and the fund to be distributed first in payment of administrators' expenses and remuneration, secondly, in payment of the costs of the petitioning creditors in respect of winding up proceedings against the companies; thirdly, in payment of priority creditors' claims; and finally, in payment of claims of the remaining creditors pro rata. 2. It is necessary to refer to a number of the provisions of the deed. 3. Clause 1.1 contained a number of definitions, including relevantly the following: Subparagraph (f) "Claim" includes a claim, demand, debt, action, proceeding, suit, cost, charge, expense, damage, loss and other liability; Subparagraph (k) "Creditor" means a person other than the Deferred Creditors who has a debt payable by or Claim against the Companies whether present or future, certain or contingent, ascertained or sounded only in damages, the circumstances giving rise to which occurred on or before the relevant date; Subparagraph (l) "Creditors' claim" means in relation to Creditor, the Creditors' debt payable by or Claim against the Companies as at the Relevant Date, such Creditors' Claims to be pooled for the purpose of participating in the Fund; Subparagraph (o) "Deferred creditors" means the Directors and any related entity, associated entity or associated party of the Directors or the Companies (except companies in liquidation); Subparagraph (x) "Relevant dates" means in the case of NCD and NCN, 14 August 2012 and in the case of NC, 15 November 2012. 1. Clause 1.5 provide: Where any provision of the Act or Corporations Regulations was incorporated into, or is said to apply to the deed, that provision was incorporated into, or applies to this Deed with all modifications as are necessary to give effect to Part 5.3A of the Act, this Deed, and as if references to the "liquidator" were references to the Administrators, references to the "relevant date" were references to the Relevant Dates, and references to "winding up" were references to the arrangement effected by the deed". 1. Clause 3 made provision in respect of the appointment of administrators and, relevantly Clause 3.2(2) provided: In exercising the powers conferred by this Deed and carrying out the duties arising under this Deed, the Administrators are taken to act as agents for and on behalf of the Companies. … (2) to pay any class of Creditors in full, subject to Subdivision D of Division 6 of Part 5.6 of the Act where consistent with the other provisions of this Deed. 1. Clause 10 provided for a moratorium on action against the companies and provided that: 10.1 During the period of this Deed and subject to compliance by the parties with clauses 5.1, 5.2, 5.3 and 5.4 of this Deed, each Creditor and Deferred Creditor must not: (a) make or proceed with any application for an order to wind up the Companies; (b) without leave of the Court, and then, only in accordance with such terms as the Court imposes: (i) begin or proceed with a proceeding against the Companies or in relation to any of the Companies; property or property used or occupied by, or in the possession of, the Companies, either in a court or in arbitration; (ii) begin or proceed with any enforcement process in relation to any of the Companies' property, or property used or occupied by, or in the possession of, the Companies; (c) exercise any right of set off to which the Creditor would not have been entitled had the Companies been wound up with the Relevant Dates being the day on which the winding up was taken to have begun. 10.2 During the period of this Deed the Companies, the Companies' members and the Directors must not make or proceed with any application for a order to wind up the Companies (or any of them). 10.3 Nothing in this clause 10 limits the operation of s 444D(2) or section 444D(3) of the Act. 10.4 This clause has effect in addition to, and not in derogation of, section 444E of the Act. 1. This clause expressly preserved the effect of s 444E of the Act. 2. Clause 11 imposes a bar on "Creditors' claims", relevantly in the following terms: 11.1. Subject to s 444D of the Act this deed may be pleaded by the companies against any creditor in bar of any debt or claim admissible under this deed and a creditor (whether it is or is not admitted or established under this deed) must not before the termination of this deed: … (b) except for the purpose and to the extent provided in this Deed, institute or prosecute any legal proceedings in relation to any debt incurred or alleged to have been incurred by the Companies or any of them before the day when the administration began; or (c) take any further step (including any step by way of legal or equitable execution) in any proceedings pending against or in relation to the Companies or any of them at the day when the administration began … 1. It will be observed that the operation of Clause 11.1 was confined to debts or claims that were "admissible under this deed", though not to debts that were actually admitted. 2. Clause 13 applied relevant provisions of the Act by providing: Subdivisions A, B, C, D and E of Division 6 of Part 5.6 of the Act apply to claims made under this Deed as if the references to the liquidator were references to the Administrators of this Deed. 1. However, the concept of admissibility of debts or claims referred to in Clause 11.1 discussed above was addressed in Clause 14 of the deed which provided that a debt payable by or claimed against the companies was not admissible to proof unless it was a "Creditors' claim". Clause 14.3 again provided that for the purpose of determining a creditors' claim subdivisions A, B, C, D and E of Part 5.6 of the Act applied. Clause 14.4 excluded deferred creditors' claims from admissibility by providing that such claims are not admissible to proof under this deed. 2. Clause 17.2 provided that the deed automatically terminated, inter alia, when the administrators issued a notice under Clause 17.3 that they had applied all of the proceeds of realisation of all assets available for the payment of creditors. Clause 18 provided: The Creditors must accept their entitlements under this Deed in full satisfaction and complete discharge of all debts or claims which they have or Claim to have against the Companies or any of them as at the day when the administration began and each of them will, if called upon to do so, execute and deliver to the Companies such forms of release of any such claim as the Administrators require. 1. Clause 19.1 provided that upon termination of the deed in accordance with Clause 17, the Companies are released from all "Creditors' claims", save those of the "Deferred creditors" (to the extent they have not been satisfied). 2. On 23 April 2013, Gisele McTear as plaintiff commenced proceedings against a company therein described as Nahas Construction Pty Limited, but which is in fact a reference to the company identified in the deed of company arrangement as Nahas Construction (NSW) Pty Limited, for damages for personal injuries said to have been occasioned when she was walking along a footpath adjacent to premises occupied by the company, and temporary fencing fell upon her occasioning injury, disability, loss and damage. 3. When it was ascertained that the company was the subject of a deed of company arrangement, a Notice of Motion was filed by the plaintiff in the District Court proceedings seeking to substitute HIA Insurance Services Pty Limited as defendant, and leave pursuant to the (NSW) Law Reform Miscellaneous Provisions Act 1946, s 6(4), to sue HIA Insurance Services Pty Limited. But subsequently it emerged that HIA was in fact a broker, not an insurer, the insurer being Allianz. Apparently the motion is to be amended to seek substitution and leave against Allianz rather than HIA. By doing so, Ms McTear seeks to rely on the charge on the insurance moneys that may become payable to the company in respect of its liability to her, pursuant to the Law Reform Miscellaneous Provisions Act, s 6(4). 4. In those circumstances the question has arisen whether, assuming that leave to sue the insurer is granted in the District Court, Ms McTear would be able to recover any amount greater than that to which she would be entitled against the company under the deed of company arrangement. It is at least arguable that the effect of the deed of company arrangement would be to limit her claim to proving pro rata with the other unsecured creditors. This, it was submitted, was not the intention of the deed of company arrangement, particularly in so far as it incorporated (Cth) Corporations Act 2001, Part 5.6, Div 6, subdiv D. Within that subdivision, s 562 provides: (1) Where a company is, under a contract of insurance (not being a contract of reinsurance) entered into before the relevant date, insured against liability to third parties, then, if such a liability is incurred by the company (whether before or after the relevant date) and an amount in respect of that liability has been or is received by the company or the liquidator from the insurer, the amount must, after deducting any expenses of or incidental to getting in that amount, be paid by the liquidator to the third party in respect of whom the liability was incurred to the extent necessary to discharge that liability, or any part of that liability remaining undischarged, in priority to all payments in respect of the debts mentioned in section 556. (2) If the liability of the insurer to the company is less than the liability of the company to the third party, subsection (1) does not limit the rights of the third party in respect of the balance. (3) This section has effect notwithstanding any agreement to the contrary. The practical effect of that is that, to the extent that Ms McTear's claim is, as it appears to be, the subject of contract of insurance under which the company would be insured against its liability to Ms McTear, then any amounts received by the company pursuant to that contract of insurance should be payable to her. To give effect to that, and to ensure that there can be no doubt in the circumstances, the administrators wish to amend the deed to make clear that insured claims that would attract the operation of s 562 are excluded from the proof and pro rata divisibility provisions of the deed of company arrangement. 1. So far as concerns the amendment of a deed of company arrangement, Corporations Act, s 445A, provides as follows: A deed of company arrangement may be varied by a resolution passed at a meeting of the company's creditors convened under section 445F, but only if the variation is not materially different from a proposed variation set out in the notice of the meeting. 1. Section 445B confers on the Court the power, on the application of a creditor, cancelling or confirming a variation that was approved by a meeting of creditors. The proposed amendment has not been considered by a meeting of creditors. 2. Section 445D confers jurisdiction on the Court to terminate a deed of company arrangement on a number of grounds. Section 445G provides that: (1) Where there is doubt, on a specific ground, whether a deed of company arrangement was entered into in accordance with this Part or complies with this Part, the administrator of the deed, a member or creditor of the company, or ASIC, may apply to the Court for an order under this section. (2) On an application, the Court may make an order declaring the deed, or a provision of it, to be void or not to be void, as the case requires, on the ground specified in the application or some other ground (3) On an application, the Court may declare the deed, or a provision of it, to be valid, despite a contravention of a provision of this Part, if the Court is satisfied that: (a) the provision was substantially complied with; and (b) no injustice will result for anyone bound by the deed if the contravention is disregarded. (4) Where the Court declares a provision of a deed of company arrangement to be void, the Court may by order vary the deed, but only with the consent of the deed's administrator. 1. It is a pre-condition to the operation of s 445G that there be a doubt on a specific ground whether the deed of company arrangement was entered into in accordance with, or complies with the Part. Thus, it is only where there is doubt as to whether there has been a non-compliance with Corporations Act, Part 5.3A, in entering into a deed of company arrangement, that jurisdiction under s 445G is attracted. 2. No provision of Part 5.3A that might have affected the validity of what was done has been identified. There does not appear to me any doubt of the type contemplated in s 445G whether this deed of company arrangement was entered into in accordance with, or in compliance with, Part 5.3A. In my view s 445G is not enlivened. 3. Section 447A provides that the Court may make such order as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company. The breadth of that jurisdiction has been stated many times. 4. In Milankov Nominees Pty Ltd v Roycol Ltd (1994) 52 FCR 378, Lee J contemplated (at 301) that an order amending a deed might be authorised under s 447A. Those observations were approved by Branson J in Re Giga Investments Pty Ltd (admr apptd) (1995) 17 ACSR 547, 549. Her Honour then applied those observations in the subsequent case of Mulvaney v Rob Wintulich Pty Ltd (1995) 18 ACSR 384, (at 386): I do not propose here to re-examine the authorities considered by me in the GIGA case. I am satisfied that s 447A of the Corporations Law empowers the court to alter the operation of Div 11 of Pt 5.3A of the Corporations Law so as to allow, in appropriate circumstances, a deed of company arrangement to be varied, not by a resolution passed at a meeting of the company's creditors convened under s 445F of the Corporations Law, but by orders of the court. 1. In this case, the orders are sought by the administrators. Thus, to the extent that there is some analogy with s 445G(4), the requisite consent is present. The proposed amendments are either consented to, or at least not opposed, by the other parties to the deed of company arrangement, all of whom have appeared before the Court on the hearing. 2. There will be no prejudice to the other creditors, as excluding the claims of insured creditors from the deed fund will preserve the value of the deed fund for the other creditors, leaving the insured creditors to claim against the insurance funds only. 3. In those circumstances, it seems to me appropriate to order that, for the purposes of these particular companies, the deed of company arrangement may be varied also by an order of the Court on the application of the administrators. 4. Accordingly, the Court orders that: 1. Pursuant to Corporations Act, s 447A, Part 5.3A of the Act is to operate in relation to Nahas Construction and Development Pty Limited, Nahas Construction (NSW) Pty Limited and Nahas Construction Pty Limited as if section 445A provided that a deed of company arrangement may be varied by the Court upon the application of the deed administrators. 2. Pursuant to Corporations Act, s 445A as so varied and applied to the companies the subject of these proceedings, the deed of company arrangement dated 27 December 2012 be amended by: 1. inserting after clause 1.1(s) the following additional definition: "(sa) 'insured creditor' means a creditor whose claim would have been subject to Corporations Act section 562 had the companies or any of them been wound up on the relevant date" 2. by inserting after clause 14.4 the following additional clause: "14.5 Claims by the insured creditors are not admissible to proof under this deed." and 3. inserting in clause 19.1(a), after the words "deferred creditors", the words "and the insured creditors". 1. The applicant's costs of this application, and the respondent's costs fixed in the sum $2,750, be paid out of the deed fund. ********** 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: 14 January 2015