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  • Unreported Judgment

Re Tony Michael Mechanical Pty Ltd

 

[2003] QSC 141

Reported at [2004] 1 Qd R 186

 

SUPREME COURT OF QUEENSLAND

PARTIES:

FILE NO/S:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

DELIVERED ON:

15 May 2003

DELIVERED AT:

Brisbane

HEARING DATE:

12 May 2003

JUDGE:

Fryberg J

ORDER:

(a)Application dismissed;

(b)Order that the respondent company pay the costs of the applicant Ledger Liquidation Co Limited to be assessed;

(c)Direct that s 444A of the Corporations Act operate in relation to the company so that the instrument therein referred to must specify that those costs be paid by the deed administrators in priority to all other amounts payable by them;

(d)Order that the respondent company pay the costs of the supporting creditor A Factors to be assessed.

CATCHWORDS:

CORPORATIONS – Voluntary administration – Deeds of company arrangement – Power of court to make costs order varying deed – Whether costs of winding-up application should be assigned priority over all other debts

Corporations Act 2001 (Cth), s 447A

FAI Workers Compensation (NSW) Ltd v Philkor Builders Pty Ltd (1996) 21 ACSR 532, considered

Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270, followed

Ansett Australia Ltd v Ansett Australia Ground Staff Superannuation Plan Pty Ltd (2002) 41 ACSR 598, applied

COUNSEL:

C McNeil (sol) for the substituted applicant/supporting creditor

No appearance for the respondent

B Topping (sol) for the supporting creditor

C D Coulsen for the administrators of Tony Michael Mechanical Pty Ltd

SOLICITORS:

Jones King Lawyers for the substituted applicant/supporting creditor

No appearance for the respondent

Blake Topping Solicitors for the supporting creditor

Herdlaw Solicitors for the administrators of Tony Michael Mechanical Pty Ltd

The proceedings

[1] An originating application to wind up Tony Michael Mechanical Pty Ltd was filed on 7 October 2002.  Two persons gave notice of intention to attend the hearing, both in support of the application: Ledger Liquidation Co Limited (“Ledger”) and A Factors (a firm) (“Factors”). After several adjournments it was set to be heard before a registrar on 3 April 2003.  Shortly before that date the original applicant's debt was paid.  Consequently, on 3 April Ledger Liquidation Co Ltd was substituted as applicant and the application was adjourned until the following day.  Ledger’s and Factors’ costs were reserved.

[2] Early on 4 April the company appointed the present respondents, Mr Schmirer and Mr McLeod as administrators.  This had the effect of staying the application.[1] Before the adjourned hearing it showed affidavits proving the appointment to Ledger and Factors.  I was told that they then consented to the further adjournment of the application, although the court record does not show that the adjournment was by consent.  On the same day the matter was brought before a judge who ordered that the period in which the winding up was to be determined be extended to 15 May 2003.[2]  Whether it was necessary to obtain leave pursuant to s 440D before seeking such an order was not considered.  It is a question on which views would differ.  I shall assume that if leave was necessary, it was implicit in the order.

[3] On 1 May the second creditors’ meeting was held and the creditors resolved "that the deed of company arrangement, as tabled, be executed by the company".  I was told from the bar table that neither the company nor the administrators had executed the deed as tabled and that they did not intend to do so.  It was said that they regarded it as merely an indicative document and that they were working on the drafting of another deed for execution.  Counsel for the administrators conceded that the deed as tabled did not comply with s 444A(4), at least in so far as it did not specify the day on or before which claims must have arisen to be admissible under the deed. 

[4] The application came before me in the applications court on 12 May.  Counsel appeared for administrators as such and, I assume, as representing the interests of creditors, but expressly did not appear on behalf of the company.  It was unrepresented.  Ledger and Factors were separately represented.  Ledger asked that the application be dismissed and sought an order for costs in its favour.  Factors also sought costs.  I granted its proprietors, DM and HM Leybourne, leave to be heard without becoming parties under r 2.13.  Ledger also sought an order that its costs[3] be included in the deed of company arrangement as a priority.  I shall refer to this as "the further order".  It emerged on the hearing that this meant in priority to everyone, including the administrators. That seemed to take counsel for the administrators by surprise.  The application was estimated to take 10 minutes.  That reflected the parties’ total unpreparedness.  In fact it took over four hours.  I regret to say that I did not receive the assistance to which the bench is entitled.

Section 467

[5] Ledger's initial submission was simple: s 467 gave the court the necessary power to make the order and fairness required that should be made.  No authority was cited to support the view that the power in s 467 was wide enough to justify such an interference with an as yet non-existent deed of company arrangement.  No consideration had been given to whether leave to proceed was necessary under s 440D.  When that section was drawn to the attention of Ledger’s solicitor he applied for leave on its behalf.  There being no opposition I granted leave.  No authority was cited on whether leave was necessary in order to seek the dismissal of the application.  It now appears that there is a division of opinion on the question of what is meant by "proceed" in a similar context.[4]  Not having had the benefit of argument and from an abundance of caution, I shall allow the order for leave to stand in accordance with my original instinct.

[6] Section 467 undoubtedly confers power to dismiss the application and to make costs orders.  It is appropriate to dismiss the application and order the company to pay Ledger’s costs.  In the absence of authority I am not prepared to hold that the section confers power to make the further order.  It is true that the words of para (1)(c) are wide: "make any interim or other order that it thinks fit".  However the context is unrelated to deeds of company arrangement.  In the absence of authority or of any contrary argument, I do not think they support the further order claimed by Ledger.

The need for an order

[7] Counsel for the administrators initially submitted that no order was necessary because Ledger would be entitled to priority over virtually all other unsecured creditors under the proposed deed.  It was submitted that this followed from the third clause of that document: "The Administrators must apply the property of the company coming under their control under this Deed in the order of priority specified in Part 5.6 of the Corporations Act 2001."   That order of priority is set out in s 556 of the Act.  In view of its ultimate irrelevance I shall not reproduce that section.  The argument was that the costs would fall under para (b) and would therefore rank ahead of virtually all other claims, including debts (or most of them) for which the administrators were entitled to be indemnified.

[8] The argument was pregnant with difficulties:

(a)it was by no means clear what was "property of the company coming under [the administrators’] control." The deed provided for control of the company to return to the sole shareholder and director.

(b)s 556(1)(b) is subject to a condition, namely "if the Court ordered the winding up".  It might be argued that the condition was unfulfilled because the winding up application was dismissed.

(c)the administrators could argue that they were entitled to priority because they were secured creditors holding the lien conferred by s 443F while s 556 priorities relate only to unsecured creditors or that the property of the company did not come into their control "under this Deed", but before it was executed.

[9] After a good deal of time was devoted to these issues counsel for the administrators seemed to abandon the argument.  He did so on the basis that the deed would not apply to the debt constituted by the costs order because it would be a claim arising after the day specified in the deed under s 444A(4)(i).  This would have the consequence that the deed would not be binding on Ledger in respect of that debt.[5]  This view assumed that the date which would be specified in the deed when executed would be not later than 4 April, the date when the administrators were appointed.  It is correct that the specified date must be not later than the day when the administration began[6] and that the administration began when the administrators were appointed.[7]  However this approach opened up the question whether, on its proper interpretation, the resolution of the meeting authorised the execution of a deed in any other form than that tabled, and if so whether such a modified deed could include a date when none was placed before the meeting.  It also raised the question whether the omission of a date from the document the subject of the resolution made the resolution void under s 444A(4).  No one was prepared to advance any arguments on these questions.

[10] I do not propose to try to answer them.  The parties have assumed that the deed will be valid in its redrafted form with a date not placed before the meeting.  That date will be no later than 4 April.  On the parties’ assumptions Ledger will not be bound by the deed so far as concerns its claim for costs.  Nor, as regards that claim will it be constrained by s 444E. That section must be read as if the words "so far as concerns claims arising on or before the day specified in the deed" were implied in s 444E(1).[8] These proceedings can be resolved on those assumptions.  The argument for the administrators that no order was necessary should, if it was not abandoned, be rejected.

Section 447A

[11] In the alternative it was argued on behalf of Ledger that the order should be made in reliance upon the power conferred by s 447A or s 447E.  Again, no authority was cited on behalf of Ledger in support of its submissions on these sections.  It seemed that s 447A got into the argument only because counsel for the administrators submitted that it could have no application.  The solicitor for Ledger sought to distinguish the interpretation of s 447A advanced in FAI Workers Compensation (NSW) Ltd v Philkor Builders Pty Ltd[9].  Before I turn to that case and others, it is convenient to set out the section:  

“447A(1)[Orders as to operation of Part]  The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.

447A(2)[Example of order]  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.

447A(3)[Order subject to conditions]  An Order may be made subject to conditions.

447A(4)[Who may apply for order]  An order may be made on the application of:

(a)a company; or

(b)a creditor of the company; or

(c)in the case of a company under administration – the administrator of the company; or

(d)in the case of a company that has executed a deed of company arrangement – the deed’s administrator; or

(e)ASIC; or

(f)any other interested person”

[12] Section 447A was considered at some length by the High Court in Australasian Memory Pty Ltd v Brien[10].  In the unanimous judgment, the court said:

“It is important to notice that the orders that may be made under s 447A(1) are described as orders about how Pt 5.3A is to operate “in relation to a particular company”.  The power is not cast in terms of a power to make orders to cure defects or to remedy the consequences of some departure from the scheme set out in the other provisions of Pt 5.3A.  Its operation is not confined to such cases.  Nor is there anything on the face of s 447A(1) that suggests that it should be read down.  In particular, the words of the provision are wide enough to confer power to make orders which will have effect in the future but which are occasioned by something that has been done (or not done) under the other provisions of Pt 5.3A before application is made under s 447A(1).”

[13] The following propositions can be extracted from the judgment:

(a)the reference to making an order at about how "this Part" is to operate is to be understood as a reference to each of the provisions in the part, not to the part in some global way (para [18])

(b)orders made under the section may alter the operation of other provisions of the part; in other words go beyond a curial determination of the effect of existing provisions (how the part operates in relation to a company) to alter how the part is to operate in relation to a particular company (para [18])

(c)the section was intended to permit a much wider class of orders than those which protect the interests that creditors have in the administration of a company being carried out in accordance with law (para [19]).

Those propositions are to be applied in the present case.

[14] The further order  has two aspects: the inclusion of the debt constituted by the costs order in the deed as an amount payable by the deed administrator, and the assignment to that debt of priority of payment over all other debts.  Such an order could reasonably be understood as directing how s 444A is to operate in relation to this company.  It would also have the effect of modifying the proposed deed by the inclusion of a provision not approved by the creditors at their meeting and which would (or might) operate to their detriment.  It would have the further effect (assuming that the administrators take possession under the deed of all of the company's property) of requiring a payment to be made out of that property in possible diminution of the value of the administrators’ lien.  The administrators submitted that the power conferred by the section did not extend to making an order having the effect of modifying or varying a deed.  In support of that submission they relied upon the judgment of Young J in Philkor.  In that case His Honour said:

“In my earlier judgment I said that there was no power for the Registrar to add a new debt to the debts being considered in the administration.  Mr Svehla puts that it would be incompetent for like reasons for the creditors to vary the deed.  He says, quite correctly, that it may well have been that the original deed was brought about by a balance of considerations of the creditors voting and had the additional debt been brought into consideration, the deed would not have been passed in the first place.  A fortiori is this the situation where there is a substantial minority vote on the question as to whether the deed should be approved.

I think this is correct.  If it is not correct, then I do not consider that the court should put the administration to the costs of convening a meeting of creditors to find that out.

It is quite clear under s 447A (and by analogy the same matters are relevant under s 445A) that consideration must be given as to the effect on other creditors: see the judgments of Branson J in the Mulvaney v Rob Wintulich Pty Ltd (1995) 60 FCR 81; 18 ACSR 384 and Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (1996) 135 ALR 280; 19 ACSR 160.”[11]

[15] It is not altogether clear whether His Honour was saying that there is no power to make such an order or that the order should not be made having regard to the interests of the creditors.  If the former than I respectfully disagree with that view.  I prefer the conclusion reached by Warren J. in Ansett Australia Ltd v Ansett Australia Ground Staff Superannuation Plan Pty Ltd:[12]

 “Since the judgment in Mulvaney a number of authorities have confirmed the power of the court to vary or amend a deed of company arrangement under s 447A: see Hamilton v National Australia Bank Ltd (1996) 66 FCR 12; Mentha v GE (1997) 27 ACSR 696; Re The Hellenic Athletic and Soccer Club of SA Inc (1999) SASC 393; Re Paradox Digital (2001) WASC 182; see also, Santow J at first instance in Brien v Australasian Memory (1997) 25 ACSR 1, 45, 51.

Finally, I note that in Ford’s Principles of Corporations Law (Butterworths, loose leaf service) at para 26.410 the authorities Mulvaney and Hamilton are cited as examples of orders under s 447A for varying deeds of company arrangements.  The learned authors cite, also, Mentha v GE as an example of an order under s 447A.

From the analysis of the authorities and the removal in particular of any doubt by the High Court in Australasian Memory I conclude that the power of the court to amend or vary a deed of a company arrangement relying on the power in s 447A is well established and has been so now for some years.”

[16] It must be remembered that some years have passed since the decision in Philkor and a number of decisions on the ambit of the section have clarified its operation.[13] 

[17] Strictly speaking the present case does not involve an order having the effect of modifying a deed.  It involves an order having the effect of requiring the inclusion of a term in an instrument which will become a deed.  I do not think this is a material difference - indeed, if anything it makes the case a fortiori.  In my judgment the Court has power under s 447A to make the further order.

[18] How should the discretion be exercised in the present case?  There is no doubt that but for the appointment of the administrators a winding up order would have been made.  The company was plainly insolvent.  It ought not to have been allowed to continue to trade as it was.  The original applicant and Ledger, the substituted applicant, were acting in the public interest in bringing the proceedings.  The inference is strong that had the proceedings not been brought, the administrators would not have been appointed and the personal funds to be provided under the deed by the sole director and shareholder and his wife would not have become available. The administrators have estimated that on a winding up no dividend would be paid to creditors.  The deed envisages payment of 100 cents in the dollar. If the order is not made there is no obstacle to Ledger serving a fresh statutory demand once its costs are assessed and bringing a further winding up application.  Not only would that be a waste of money, it would also have the probable effect of destroying the benefit of the deed.  It is true that the creditors’ decision in favour of the deed was made apparently without knowledge of the debt and that in a small administration such as this, the amount of the debt is not insignificant.  Nonetheless, I have come to the conclusion that fairness as between creditors and the public interest both support the making of the order.

[19] In reaching this conclusion I have not overlooked the possible impact of the order on the administrators.  However there is little likelihood that the administrators will end up out of pocket.  The available funds will almost certainly be sufficient to pay both the costs and amounts owing to the administrators.  In any event, there is yet to be decided the question of whether Ledger is entitled to a costs order against the administrators in their own right, at least in respect of costs incurred when the administrators appeared in that right.  Given that Ledger became involved in the proceedings only shortly before the administrators were appointed, the bulk of its costs would be covered by any such order.  I propose to hear the parties on that question.

[20] In these circumstances it is unnecessary for me to consider the argument advanced on behalf of Ledger under s 447E(1)(b).

The supporting creditor

[21] As far as A Factors is concerned it is well settled that the court would ordinarily allow one set of costs for supporting creditors.  Despite the dismissal of the application it is entitled to an order.  No point has been taken that its notice ought to have been given in the name of the proprietors of the firm rather than in the firm name and the order granting leave to be heard was made in favour of the proprietors, Mr and Mrs Leybourn by that name.   A Factors expressly did not seek an order modifying the deed, on the basis that it feared the power conferred by the section was inadequate.  It sought an order that its costs be paid by the company and that the administrators pay these costs in priority to all other debts owing at that time of assessment of the costs.  The supporting creditor cited authority for such an order and I do not conceive it to be my function to dream up arguments on its behalf.  There will be an order that the company pay the supporting creditor’s costs to be assessed.

Conclusion

[22] I propose the following orders:

(a)application dismissed;

(b)order that the respondent company pay the costs of the applicant Ledger Liquidation Co Limited to be assessed;

(c)direct that s 444A of the Corporations Act operate in relation to the company so that the instrument therein referred to must specify that those costs be paid by the deed administrators in priority to all other amounts payable by them;

(d)order that the respondent company pay the costs of the supporting creditor A Factors to be assessed.

I shall hear the parties in relation to costs of and incidental to the hearing before me as between the parties present.

Footnotes

[1] Companies Act, s 440D.

[2] Section 459R.

[3] It also sought the inclusion of Factors’ costs, but did not argue it had standing to do so.

[4] Compare FAI Workers Compensation (NSW) Ltd v Philkor Builders Pty Ltd (1996) 20 ACSR 592; further proceedings (1996) 21 ACSR 532 and Re DIM Furniture Wholesale (NSW) Pty Ltd (1998) 28 ACSR 407 on the one hand and Milankov Nominees Pty Ltd v Roycol Ltd (1994) 14 ACSR 296 on the other.

[5] Section 444D.

[6] Section 444A(4).

[7] Section 435C(1).

[8] FAI Workers Compensation (NSW) Ltd v Philkor Builders Pty Ltd (1996) 20 ACSR 592.

[9] (1996) 21 ACSR 532.

[10] (2000) 200 CLR 270.

[11] (1996) 21 ACSR 532 at 533.

[12] [2002] VSC 114 at paras [17] to [19]; now reported at (2002) 41 ACSR 598 at 602.

[13] Many of them are helpfully summarised by Austin J in Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 34 ACSR 391 at p 398.

Close

Editorial Notes

  • Published Case Name:

    In the Matter of Tony Michael Mechanical P/L (under administration)

  • Shortened Case Name:

    Re Tony Michael Mechanical Pty Ltd

  • Reported Citation:

    [2004] 1 Qd R 186

  • MNC:

    [2003] QSC 141

  • Court:

    QSC

  • Judge(s):

    Fryberg J

  • Date:

    15 May 2003

Litigation History

Event Citation or File Date Notes
Primary Judgment [2004] 1 Qd R 186 15 May 2003 -

Appeal Status

No Status