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  4. SKJ Qld Pty Ltd v Turul Building Services Pty Ltd [No 3] - [2025] QDC 35

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SKJ Qld Pty Ltd v Turul Building Services Pty Ltd [No 3][2025] QDC 35

SKJ Qld Pty Ltd v Turul Building Services Pty Ltd [No 3][2025] QDC 35

DISTRICT COURT OF QUEENSLAND

CITATION:

SKJ Qld Pty Ltd v Turul Building Services & Anor (No. 3) [2025] QDC 35

PARTIES:

SKJ QLD PTY LTD A.C.N. 654 675 180 ABN 64 264 366 846 AS TRUSTEE FOR THE SKJ PROPERTY TRUST

(Plaintiff)

v

TURUL BUILDING SERVICES PTY TD ABN 99 626 781 968 TRADING AS TURUL BUILDING SERVICES

(First Defendant)

And

ANDREW STEVEN LAZAR

(Second Defendant)

FILE NO:

3149/23

DIVISION:

Civil

PROCEEDING:

Claim

ORIGINATING COURT:

District Court at Brisbane

DELIVERED ON:

20 March 2025

DELIVERED AT:

Brisbane

HEARING DATE:

24 and 25 February 2025

JUDGE:

Porter KC DCJ

ORDER:

  1. 1.
    The counterclaim be stayed until both of the following events occur:
  1. (a)
    The restructuring plan for the first defendant made 24 July 2024 terminates; and
  1. (b)
    The Court orders the lifting of the stay.

CATCHWORDS:

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – SET OFF AND COUNTERCLAIM – where the plaintiff and first defendant were parties to a building contract – where the plaintiff purported to terminate the contract for breach – where the plaintiff sought damages against the first and second defendant for contractual breaches, misleading and deceptive conduct and a restitutionary claim – where the first defendant advanced a counterclaim for damages for wrongful termination – where the first defendant made a restructuring plan – where the plaintiff was accepted as creditor with an admissible debt or claim in the plan based on setting off the plaintiff’s claim against the defendant’s counterclaim – whether the defendant’s counterclaim should be stayed pending performance of the plan

CORPORATIONS – RESTRUCTURING – where the first defendant made a restructuring plan under Part 5.3B Corporations Act 2001 – where the plaintiff sought damages against the first defendant arising out of a building contract and the first defendant had counterclaimed for sums alleged to be due under the contract – where the amount of the admissible debt or claim of the plaintiff for the purposes of restructuring was in dispute – where the plaintiff submitted in the restructuring that the claim and counterclaim should be set-off and the plaintiff’s admissible debt or claim should be for the net amount due from the first defendant – where the restructuring practitioner recommended the first defendant admit the plaintiff for the net amount after set-off – where the plaintiff contends that the counterclaim should be stayed pending performance of the plan – whether on the proper construction of admissible debts and claims as defined for the purpose of restructuring under Part 5.3B incorporates insolvency set-off pursuant to s. 553C(1) of the Act.

CASES:

Deputy Commissioner of Taxation v Pope Joan Hospitality Pty Ltd (Restructuring Practitioner Appointed) [2023] FCA 872

Metal Manufacturers Pty Ltd v Morton (2023) 275 CLR 100

Re Force Corp (2020) 149 ACSR 451

LEGISLATION:

Corporations Act 2001 (Cth) ss. 453A, 453B, 453C, 453E, 453K, 453L, 453M, 453N, 455A, 455B, 458B, 459H, 482, 533, 553, 553A, 553AB, 553B, 553C and 596AA,

Corporations Regulations 2001 (Cth) regs. 5.3B01, 5.3B.02, 5.3B.03, 5.3B.15, 5.3B.16, 5.3B.17, 5.3B.18, 5.3B.19, 5.3B.20, 5.3B.21, 5.3B.22, 5.3B.25, 5.3B.26, 5.3B.27, 5.3B.28, 5.3B.29, 5.3B.30, 5.3B.31 and 5.3B.60

SECONDARY MATERIALS:

D. Pearce, Statutory Interpretation in Australia (LexisNexis Butterworths, 9th ed, 2019)

COUNSEL:

L. M. Campbell for the Plaintiff

S. P. Taylor for the Defendant

SOLICITORS:

Holding Redlich for the Plaintiff

Wood L&M Solutions for the Defendants

Contents

The question3

The proceedings3

The legislative scheme for restructuring5

Corporations Act restructuring provisions5

Corporations regulations7

Further Corporations Act provisions13

Turul’s restructuring plan14

The parties’ submissions17

Analysis18

An alternative argument?24

Conclusion24

  1. The question
  1. [1]
    The question raised by this application is whether, under the statutory scheme governing reconstruction namely, Part 5.3B Corporations Act 2001 (Cth) (the Act), admissible debts and claims as defined for the purposes of reconstruction under that Part and the related regulations incorporates insolvency set-off pursuant to s. 553C(1) of the Act.
  2. [2]
    The answer is yes.
  1. The proceedings
  1. [3]
    The plaintiff (SKJ) and the first defendant (Turul) were owner and builder respectively in the substantial renovation of a dwelling.  The contractual relationship was complex.  Ultimately, SKJ purported to terminate the building contract for breach. 
  2. [4]
    On 26 October 2023, SKJ sued Turul for damages of $646,147.19 for various breaches of the alleged contracts. It also sought as an alternative, damages for misleading or deceptive conduct against Turul in the amount of $468,403.99.  SKJ also sued the second defendant (Mr Lazar) for damages for misleading or deceptive conduct in the same amount and in relation to the same conduct.  Finally, SKJ sought to recover $646,147.19 as the difference between the value of the work done and sums paid under the contract, articulated as a restitutionary claim based on mistake.
  3. [5]
    The gravamen of SKJ’s case is that Turul delivered progress claims which claimed for work that had not been done (in breach of various terms of the alleged contract[1]), and that Turul and Mr Lazar misrepresented that the progress claims were valid when they were not.  Further it alleged that the total value of the work done exceeded the amount paid under the contract.
  4. [6]
    The defendants filed a defence and counterclaim.  Turul counterclaimed on the basis that SKJ had repudiated the contract by wrongful termination and sought damages or restitution totalling $396,164.30.
  5. [7]
    On 5 and 6 June 2024, I heard cross applications for the strike out of parts of the statement of claim and the defence and counterclaim:
  1. (a)
    On SKJ’s application, I ordered further particulars be given of certain paragraphs of the defence and of the counterclaim; and
  1. (b)
    On the defendants’ application, I ordered:
  1. (i)
    Certain paragraphs relating to the misleading or deceptive conduct claims be struck out with leave to replead;
  1. (ii)
    That the whole of the restitutionary claim advanced on a final account basis be struck out with leave to replead; and
  1. (iii)
    That further particulars be provided of various allegations.
  1. [8]
    As I read the statement of claim in light of those orders, the claim for $646,147.19 remained on foot, albeit not as a restitutionary claim for a single sum.  The other orders did not involve the striking out of any claim or counterclaim in full.
  2. [9]
    The events described below in relation to the reconstruction plan occurred after the strike out applications were heard and while SKJ and the defendants were working on amendments to address the orders made on 6 June.
  3. [10]
    On 17 September 2024, after the making of the plan, SKJ filed an amended statement of claim maintaining claims against Turul and against Mr Lazar.  The amended defence pleads the plan as a defence to the claims against Turul.  It also maintains the counterclaim in full.
  4. [11]
    SKJ submits that the counterclaim (along with SKJ’s claim) will be extinguished if the plan terminates following performance of its terms.  It will not do so, based on the terms of the plan, for some three years.  In the meantime, SKJ seeks a stay of the counterclaim. 
  1. The legislative scheme for restructuring
  1. Corporations Act restructuring provisions
  1. [12]
    The legislative scheme for the restructuring process is contained in Part 5.3B of the Act and the regulations made under that Part.  Justice Sarah Derrington in Deputy Commissioner of Taxation v Pope Joan Hospitality Pty Ltd (Restructuring Practitioner Appointed) [2023] FCA 872 described the background to the introduction of Part 5.3B as follows:
  1. Regulatory Framework
  1. 16
    Corporate rescue provisions were first modernised in Australia in 1993 with the introduction of Pts 5.3A and 5.7B into the Corporations Act which established the voluntary administration and insolvent trading regimes, respectively. Part 5.3A sought to maximise the chance for a company to continue in existence, or, where that was not possible, result in better returns for a company’s creditors. The Part has been described as a “one-size-fits-all” approach to corporate rescue which did not meet the needs or expectations of MSMEs (micr-, small- and medium sized enterprises): Jason Harris, “Should Voluntary Administration Remain a One-Size-Fits-All Procedure? Do We Need a Fast Track System for Small Business Rescue?” in Shelley Griffiths, Sheelagh McCracken and Ann Wardrop (eds), Exploring Tensions in Finance Law: Trans-Tasman Insights (Thomson Reuters, 2014) 101, 106.
  1. 17
    From 1 January 2021, the corporate rescue scheme was expanded with the introduction of Pt 5.3B of the Corporations Act. Part 5.3B was introduced by the Corporations Amendment (Corporate Insolvency Reforms) Act 2020 (Cth) (Reform Act) and established a new debt restructuring process for eligible small companies to allow a faster and less complex process to restructure existing debts, continue trade and maximise their chances of survival: Explanatory Memorandum to the Reform Act (EM).
  1. 18
    The Reform Act was enacted partly in response to the economic impact of the COVID-19 pandemic and an anticipated consequential increase in the number of businesses facing financial distress. The reform aim to achieve greater economic dynamism and to ultimately help more small businesses to survive: EM at p 9. In particular, the EM states at p 13 at [1.3]-[1.4]:
  1. The intention of the debt restructuring process is to provide an alternative to the ‘one-size-fits-all’ voluntary administration regime for small businesses with non-complex debt. It reduces the complexity and cost of the administration process, providing a greater role for the company directors during the process and allowing them to retain control over the company throughout. These changes are intended to encourage more small businesses to seek debt restructuring earlier, increasing their chance of regaining viability.
  1. The ultimate aim of restructuring is to have a plan in place which sets out an approach to repayment of the company’s existing debts, thereby enabling the company to stay in business and avoid being wound up. The restructuring process covers the period during which a plan is being developed by the business owners, following the appointment of a small business restructuring practitioner. The restructuring process may also be referred to as the period where the company is ‘under restructuring’ or ‘during restructuring’. The restructuring process ends once the plan is in place.
  1. 19
    This aim is reflected in the Object of Pt 5.3B of the Corporations Act, which is expressed in s 452A:
  1. Object of this Part
  1. The object of this Part, and Schedule 2 to the extent that it relates to this Part, is to provide for a restructuring process for eligible companies that allows the companies:
  1. (a)
    to retain control of the business, property and affairs while developing a plan to restructure with the assistance of a small business restructuring practitioner; and
  1. (b)
    to enter into a restructuring plan with creditors.
  1. (Emphasis added.)
  1. [13]
    Part 5.3B contains some of the provisions which regulate restructuring, but much of the statutory regime is provided for in Part 5.3B Corporations Regulations 2001 (Cth) (the regulations).
  2. [14]
    Part 5.3B Division 2 is headed “Restructuring” and relevantly provides (with some regulations added):
  1. (a)
    By s. 453A, that the restructuring of a company begins when a restructuring practitioner is appointed under s. 453B and ends in the circumstances provided in the regulations. 
  1. (b)
    By reg. 5.3B.02, that restructuring ends on, amongst other events:
  1. (i)
    The directors declaring in writing that it ends;
  1. (ii)
    A restructuring plan not being proposed within the proposal period (usually of 20 days) or having been proposed, lapses;
  1. (iii)
    The restructuring practitioner terminates the restructuring for various reasons (set out in 453J); or
  1. (iv)
    The company makes a restructuring plan.
  1. (c)
    By s. 453B(1) and 453C(1), that a company may appoint a restructuring practitioner  if:
  1. (i)
    The company meets the eligibility criteria in the regulations based on liabilities of the company; and
  1. (ii)
    The Board has resolved to the effect that the company is insolvent or is likely to become insolvent.
  1. (d)
    By reg. 5.3B.03(1), that:
  1. …the test for eligibility is that on the day the restructuring begins the total liabilities of the company to pay any admissible debts and claims must not exceed $1 million.
  1. (e)
    By s. 453E(1), that the functions of a restructuring practitioner are to provide advice to the company on restructuring, to assist the company to prepare a restructuring plan; and
  1. (f)
    By 459H, that when acting as a restructuring practitioner, the restructuring practitioner is taken to be acting as the company’s agent.
  1. [15]
    Subdivision D deals with conduct of the company during restructuring.  It relevantly provides:
    1. By s. 453K(1), that while a company is under restructuring the company has control of the company’s business, property and affairs;
    2. By ss 453L and 453M, that subject to dealings in the ordinary course of business or carried out with the restructuring practitioners’ consent, a director of a company under restructuring must not be involved in the company entering into a transaction affecting the property of the company.  Such transactions are void; and
    3. By s. 453N, that a transaction entered into or any act done in good faith by a restructuring practitioner, or by the company with the restructuring practitioner ’s consent, is valid and effectual for the purposes of the Act and is not liable to be set aside in a winding up.
  2. [16]
    Subdivision E deals with the effect of restructuring on the company and its creditors.  In broad terms it restricts enforcement of securities and judgments during restructuring and provides for a stay of proceedings against the company during restructuring.
  3. [17]
    Part 5.3 Division 3 is headed “Restructuring Plan”.  It relevantly provides by s. 455A that a company may propose a restructuring plan to its creditors and that the company is taken to be insolvent if it does so.  
  4. [18]
    Section 455B provides that the regulations may make provision for, in broad terms, the proposal of a restructuring plan, the making of a restructuring plan, the effect of that plan on debts of and claims against the company and the role of a restructuring practitioner for the plan.
  1. Corporations regulations
  1. [19]
    The starting point is the definitions.  The key definitions are as follows:

5.3B01

Definitions

  1. In this Part, unless the contrary intention appears:
  1. …
  1. admissible debt or claim, in relation to a company under restructuring or a company’s restructuring plan, means a debt or claim that would be admissible to proof against the company under subsection 553(1) of the Act if:
  1. (a)
    the company were wound up; and
  1. (b)
    the relevant date were:
  1. (i)
    if the company is under restructuring – the beginning of the restructuring; and
  1. (ii)
    if the company has made a restructuring plan – the beginning of the restructuring that ended when the plan was made;
  1. but does not include:
  1. (c)
    the entitlements of an employee of the company; or
  1. (d)
    a debt or claim that would be admissible to proof under subsection 553(1A) of the Act
  1. Note:
    Employee entitlements are defined in subsections 596AA(2) and (3) of the Act and include superannuation contributions payable by the company.
  1. affected creditor means:
  1. (a)
    in relation to a proposal to vary or terminate a company’s restructuring plan – a creditor of the company who is a party (as creditor) to the plan; or
  1. (b)
    in relation to a proposal by a company to make a restructuring plan – a person who would be a party to the restructuring plan if it were made.
  1. [20]
    The definition of admissible debt or claim calls up s. 553(1) of the Act.  I set out that provision and its related provisions below. 
  2. [21]
    Division 2 contains some general provisions.  I have referred to regulations regarding ending restructuring and regarding eligibility already.
  3. [22]
    Division 3 of the regulations deals with restructuring plans.
  4. [23]
    Regulation 5.3B.15 is headed “Contents of a restructuring plan” and provides:
    1. By subregulation (1), that a company under restructuring must prepare a plan that complies with the requirements of the regulation;
    2. By subregulation (2), that the plan must, relevantly, identify the property of the company to be dealt with by the plan and specify how that property is to be dealt with; and
    3. By subregulation (4), the plan must not provide for the transfer of property other than money to a creditor or provide for the company to make a payment under the plan, “in respect of an admissible debt or claim” after three years from the date of the plan.
  5. [24]
    Regulation 5.3B.16 is headed “Restructuring proposal statement” and provides that a plan must be accompanied by such a statement and the statement must include a schedule of debts and claims.[2] 
  6. [25]
    Regulations 5.3B.17 to .20 contains further regulations governing the proposal of a restructuring plan.  They provide for a proposal period of some 20 days, declarations from the restructuring practitioner and for the lapsing of a proposal.
  7. [26]
    Regulation 5.3B.21 is headed ‘Proposing a restructuring plan to creditors” and provides:
  1. (1)
    As soon as practicable after a company executes a restructuring plan, the restructuring practitioner for the company must do the following:
  1. (a)
    give to as many of the company's affected creditors as reasonably practicable a copy of:
  1. (i)
    the company's restructuring plan; and
  1. (ii)
    the restructuring plan standard terms; and
  1. (iii)
    the company's restructuring proposal statement; and
  1. (iv)
    the declaration prepared by the restructuring practitioner under regulation 5.3B.18;
  1. (b)
    ask each affected creditor to:
  1. (i)
    give a written statement setting out whether or not the restructuring plan should be accepted; and
  1. (ii)
    if the creditor agrees with the company's assessment of the amount of the creditor's admissible debts or claims--verify the creditor's admissible debts or claims as set out in the schedule of debts and claims included with the restructuring proposal statement; and
  1. (iii)
    if the creditor disagrees with the company's assessment of the amount of the creditor's admissible debts or claims--notify the restructuring practitioner in accordance with regulation 5.3B.22;
  1. (c)
    inform each affected creditor of the person to whom the statement should be given and of the need to give the statement before the end of the acceptance period.
  1. (2)
    Paragraphs(1)(b) and (c) do not apply in relation to anexcluded creditor.
  1. Definitions
  1. (3)
    In this regulation:
  1. …
  1. "restructuring plan standard terms" means the terms specified in subregulation   5.3B.27(1).
  1. [27]
    The standard terms are set out in [33] below.
  2. [28]
    Regulation 5.3B.22 provides the mechanism for challenging the company’s assessment of a creditor’s admissible debt or claim.  It applies to a creditor who disputes their omission as a creditor, disputes the amount of the admissible debt or claim or disputes the specification of the creditor as an excluded creditor.  The mechanism is analogous to the process for disputed proofs of debt, though considerably less formal.  The regulation relevantly provides:
  1. Creditor may notify restructuring practitioner of disagreement
  1. (2)
    The person may give written notice of the disagreement to the company's restructuring practitioner.
  1. (3)
    The notice:
  1. (a)
    …[certain short time limits are specified]
  1. (b)
    if the disagreement relates to the person's admissible debts or claims:
  1. (i)
    must include detailed particulars of the debt or claim sought to be proved; and
  1. (ii)
    in the case of a debt, must include a statement of account; and
  1. (iii)
    must specify the vouchers (if any) by which the statement can be substantiated; and
  1. (c)
    if the disagreement relates to the person's status as an excluded creditor--must include detail sufficient to resolve the disagreement.
  1. (4)
    The restructuring practitioner may, after receiving the notice, request that the person or the directors of the company:
  1. (a)
    give the restructuring practitioner information about the company's business, property, affairs and financial circumstances; and
  1. (b)
    verify the information by statutory declaration.
  1. Restructuring practitioner may refuse to consider disagreement
  1. (5)
    If the notice is given after the period specified in subparagraph (3)(a)(i) or (ii), the restructuring practitioner may refuse to consider the disagreement if the restructuring practitioner is satisfied that the person did not take all reasonable steps to give notice within that period.
  1. …
  1. Restructuring practitioner must resolve disagreement as soon as practicable
  1. (7)
    If:
  1. (a)
    a person gives notice under subregulation (2) of a disagreement to the restructuring practitioner for a company; and
  1. (b)
    the restructuring practitioner has not refused to consider the disagreement under subregulation (5);
  1. the restructuring practitioner must:
  1. (c)
    give written notice to the company and the person:
  1. (i)
    setting out the restructuring practitioner's recommendations for resolving the disagreement; and
  1. (ii)
    giving reasons for the recommendations; and
  1. (d)
    if the restructuring practitioner recommends that the schedule of debts and claims be varied and is of the opinion that the variation is significant--give written notice to the company and as many of the company's creditors as reasonably practicable:
  1. (i)
    stating that fact; and
  1. (ii)
    outlining the creditors' rights under regulation 5.3B.23.
  1. (8)
    If the restructuring practitioner recommends that the schedule of debts and claims be varied, the company must vary the schedule in accordance with the recommendation as soon as practicable.
  1. [29]
    (The regulations provide for judicial determination of a dispute about the restructuring practitioner’s determination under subreg. (8): see [39] below).
  2. [30]
    Regulation 5.3B.25 deals with how a restructuring plan is accepted.  It relevantly provides:
  1. When restructuring plan is accepted
  1. (1)
    A company’s restructuring plan is accepted if, at the end of the last day of the acceptance period, the majority in value of those creditors from whom the restructuring practitioner for the plan has received a statement under paragraph 5.3B.21(1)(b) stated that the restructuring plan should be accepted.
  1. (2)
    For the purposes of subregulation (1):
  1. (a)
    the value of an affected creditor is to be worked out:
  1. (i)
    by reference to the value of the creditor’s admissible debts or claims that are known at the time the restructuring began; or
  1. (ii)
    if a person is an affected creditor because the person purchased another creditor’s admissible debts or claims—by reference to the value of the purchase price; and
  1. (b)
    where there have been mutual credits, mutual debts or other mutual dealings between the company and an affected creditor:
  1. (i)
    an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and
  1. (ii)
    the sum due from the one party is to be set off against any sum due from the other party; and
  1. (iii)
    the value of the affected creditor is to be worked out only by reference to the balance of the account; and
  1. (c)
    disregard an affected creditor who is an excluded creditor.
  1. [31]
    Regulation 5.3B.26 deals with how a restructuring plan is made.  It relevantly provides:
  1. (1)
    If a company’s proposal to make a restructuring plan is accepted in accordance with regulation 5.3B.25, the company is taken to have made the restructuring plan.
  1. (2)
    The restructuring plan is taken to have been made:
  1. (a)
    if the plan is expressed to be conditional on the occurrence of a specified event within a specified period and the event occurs within that period—on the day after the end of that period; and
  1. (b)
    otherwise—on the day after the end of the acceptance period.
  1. (3)
    A restructuring plan that has been made has the same force and validity as if it were a deed executed by each of the parties to the plan.
  1. [32]
    Subregulation (3) above gives the terms of a plan significant legal force against parties to the plan.  Regulation 5.3B.28 identifies the parties to a plan as the company and any person who has an admissible debt or claim in relation to the plan.  Note that a creditor will be a party to the plan even if it is not notified of the plan and not included in it.
  2. [33]
    Regulation 5.3B.27 specifies the standard terms for restructuring plans.  It provides:
  1. (1)
    A restructuring plan made by a company is taken to include all of the following terms:
  1. (a)
    all admissible debts and claims rank equally;
  1. (b)
    if the total amount paid by the company under the plan in respect of those debts or claims is insufficient to meet those debts or claims in full, those debts or claims will be paid proportionately;
  1. (c)
    a creditor is not entitled to receive, in respect of an admissible debt or claim, more than the amount of the debt or claim;
  1. (d)
    the amount of an admissible debt or claim will be ascertained as at the time immediately before the restructuring began;
  1. (e)
    if a creditor is a secured creditor:
  1. (i)
    if the creditor does not realise the creditor’s security interest while the plan is in force, the creditor is taken, for the purposes of working out the amount payable to the creditor under the plan, to be a creditor only to the extent (if any) by which the amount of the creditor’s admissible debt or claim exceeds the value of the creditor’s security interest; and
  1. (ii)
    if the creditor realises the creditor’s security interest while the plan is in force, the creditor is taken, for the purposes of working out the amount payable to the creditor under the plan, to be a creditor only to the extent of any balance due to the creditor after deducting the net amount realised.
  1. (2)
    A restructuring plan is void to the extent that it is inconsistent with any of the matters set out in subregulation (1).
  1. [34]
    Note again, it applies to all admissible debts or claims, not just those identified in the plan.
  2. [35]
    Regulation 5.3B.29 makes provision for effects on secured creditors and owners of property.  
  3. [36]
    Further, regulation 5.3B.30 provides that until a restructuring plan terminates, a person bound by the plan cannot bring or pursue winding up proceedings, legal proceedings to recover an admissible debt or claim, or bring or pursue enforcement proceedings except with leave.  Notably, that provision does not restrain the company from bringing or pursuing a counterclaim against a creditor.
  4. [37]
    Regulation 5.3B.31 deals with termination of a plan and the consequences of termination.  Most relevant here is the case where the plan is terminated because its terms are performed.  The regulation provides in that regard:
  1. (1)
    A company’s restructuring plan terminates:
  1. (a)
    on the day on which all of the following conditions are satisfied:
  1. (i)
    the company’s obligations under the plan have been fulfilled;
  1. (ii)
    the obligations of any other party to the plan have been fulfilled;
  1. (iii)
    all admissible debts or claims have been dealt with in accordance with the plan; or
  1. …
  1. (2)
    If a company’s restructuring plan terminates because of the happening of the event mentioned in paragraph (1)(a):
  1. (a)
    the company is entitled to any property that was subject to the plan but that was not required by the plan to be distributed to creditors; and
  1. (b)
    the company is released from all admissible debts or claims.
  1. (3)
    If a company’s restructuring plan terminates because of the happening of an event mentioned in paragraph (1)(b), (c), (d), (e) or (f), any admissible debt or claim that has not been dealt with in accordance with the plan is taken to be due and payable on the business day after the day on which the termination occurs.
  1. [38]
    Division 6 confers powers on the Court under s. 458B(1) of the Act to make orders in relation to the plan process.  Most relevant here is reg. 5.3B.60 which provides a mechanism for a creditor or the company to apply to the court in relation to a dispute about the schedule of debts and claims, where the restructuring practitioner refuses to consider the dispute (under reg. 5.3B.22(5)) or makes or refuses to make a recommendation to vary the schedule under reg. 5.3B22(7).
  2. [39]
    Subregulation (2) provides:
  1. (2)
    The Court may, on the application of the company or a creditor of the company, make one or more of the following orders:
  1. (a)
    that the restructuring practitioner consider the disagreement and make a recommendation in accordance with subregulation 5.3B.22(7);
  1. (b)
    that the schedule of debts and claims be varied as set out in the order;
  1. (c)
    that the acceptance period for the proposal to make the restructuring plan be extended.
  1. Further Corporations Act provisions
  1. [40]
    Fundamental to the resolution of the plaintiff’s application is Division 6 of the Act because “admissible debt or claim” is defined in the regulations by reference to s. 553(1) of the Act (see [19] above) and that subsection incorporates Division 6 as “this Division”. Section 553(1) appears in Division 6 and provides:
  1. (1)
    Subject to this Division and Division 8, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company.
  1. [41]
    The definition of admissible debt or claim in the regulations specifically excludes admissible debts or claims under s. 533(1A). That section extends the scope of s. 553(1) to debts or claims arising after the relevant dates in certain circumstances, by reference to, inter alia, the existence of restructuring or a restructuring plan immediately prior to winding up.  Obviously, those provisions are irrelevant.
  2. [42]
    The definition of admissible debt or claim in the regulations also specifically excludes employee entitlements under s. 596AA(2) and (3) of the Act.  Those subsections define certain entitlements for employees and then creates specific statutory protections for those entitlements in insolvency.  I assume employee entitlements are excluded because a successful restructuring plan results in the company continuing to trade, so employee entitlements are properly excluded from the restructuring process.  Further, Parliament might have been concerned to ensure that employee entitlements could not be compromised where a plan is successful and thereby used to disadvantage employees in favour of shareholders.
  3. [43]
    The only other variation to the operation of s. 553(1) by the definition in the regulations is to specify that the time for application of the provision is the beginning of restructuring.
  4. [44]
    Section 553(1) is specifically referred to in the definition in the regulations.  However, as we have seen, that section itself is stated to be subject to Division 6 and Division 8 of Part 5.6.  The definition in the regulations makes no express provision in relation to whether and to what extent these words in s. 553(1) are included or excluded.
  5. [45]
    Division 6 Subdivision A contains a number of provisions which directly confine, extend or alter the meaning of admissible debt or claim under 553(1).  They include:
    1. Section 553A which provides that a member cannot prove for a debt due from the company unless the member has paid contributions due as a shareholder;
    2. Section 553AB, which modifies when a person may prove for a superannuation contribution debt in circumstances, broadly, where that debt has been proved in another manner (under the Taxation Administration Act 1953 (Cth)); and
    3. Section 553B, which excludes proof of fines or penalties imposed by a court, subject to an except for proceeds of crime.
  6. [46]
    That subdivision also includes s. 553C which provides for insolvency set-off:
  1. (1)
    Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company:
  1. (a)
    an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and
  1. (b)
    the sum due from the one party is to be set off against any sum due from the other party; and
  1. (c)
    only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.
  1. (2)
    A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent.
  1. Turul’s restructuring plan
  1. [47]
    On 13 May 2024, Turul appointed Mr Jarvis Archer as restructuring practitioner. 
  2. [48]
    On 16 May 2024, Mr Jarvis wrote to SKJ’s solicitors referring to the proceedings and informing SKJ that Turul disputed SKJ’s claim and contended SKJ was a debtor of Turul.  In the interests of resolving any disputes promptly, Mr Archer asked for pleadings, affidavit and any evidence in support of SKJ’s claim by 21 May 2024.  On 3 June 2024, SKJ’s solicitors provided that information.
  3. [49]
    On 12 June 2024, Mr Archer inquired if SKJ wished to claim in Turul’s restructuring.  On 18 June 2024, SKJ lodged its Notification of Debt or Claim in the restructuring of Turul (SKJ Proof).
  4. [50]
    The SKJ Proof provided relevantly as follows:
    1. It advanced a claim for $646,147 based on its claim in these proceedings;
    2. It contained an annexure which explained in a summary manner the nature of the claims advanced and included some submissions as to the strength of the claims and an additional cause of action based on a final account between the parties.
  5. [51]
    On 17 June 2024, Mr Archer’s office queried the effect of my orders striking out parts of the statement of claim and ordering particulars and the costs order made on SKJ’s claim in these proceedings.  SKJ’s solicitors responded on 19 June 2024.
  6. [52]
    On 21 June 2024, Mr Archer issued a circular to creditors containing the various documents and information called for in relation to a restructuring proposal. Of interest are the following:
    1. Mr Archer’s own circular summarised the reasons for the failure of the company.  There were many.  They included the termination of the SKJ contract and the subsequent legal dispute.
    2. It stated the proposed plan as providing for $210,000 to be paid in 30 monthly instalments of $7,000;
    3. It predicted a return of 29.46c/$
    4. The director’s statement included in the materials took a firmer view on the effect of the termination of the SKJ contract.  Not surprisingly, he contended the termination was unlawful but recognised the cost impact of the legal dispute;
    5. Annexure B was the restructuring plan itself which included the proposed payment. It included admissible debts and claims estimated at $594,064.02;
    6. Annexure C contained the standard terms;
    7. Annexure D contained the restructuring proposal statement, listing the identified creditors.  It identified that the ATO as the principal creditor owed $460,221.34 and $17,000 in Superannuation guarantee charge.  SKJ was omitted.
    8. Annexure E is an Estimated Outcome Statement.  It estimates the outcome without regard to SKJ, but refers to it in note 14 to the Statements as follows:

Contingent creditor

[SKJ]…has lodged a claim …currently subject to complex legal proceedings [in this Court].  The Company disputes the claim and does not admit that any amount is owed to SKJ.  As such, this claim has not been included in the Company’s restricting proposal statement.

  1. [53]
    These documents appear to comprise a valid proposal for a restructuring plan under the various statutory provisions.  No suggestion to the contrary was made in submissions.
  2. [54]
    On 26 June 2024, SKJ’s solicitors queried the omission of SKJ’s claim from the restructuring proposal statement and the calculations based on it.  Mr Archer responded stating that he had acted on instructions from Turul as to the disputed nature of the claim.
  3. [55]
    On 28 June 2024, SKJ delivered, a Notice of Disagreement of the Schedule of Debts and Claims reg. 5.3B.22(2) (the Dispute Notice): see [28] above.  The Dispute Notice reiterated the points previously made in the SKJ Proof, including that the only valuation of work undertaken was that relied upon by SKJ.  It sought to have SKJ included as a creditor for the full amount of the claim at $646,147.19.
  4. [56]
    On 9 July 2024, Mr Archer responded, referring to reg. 5.3B.22(7) (also at [28] above).  He recommends that the dispute be resolved by SKJ being included in the Restructuring Proposal Statement for $103,272.28.  His reasons were:   
  1. Reasons for recommendation
  1. I have recommended to the Company that your client’s claim of $646,147.19 be partially admitted in the amount of $103,272.28 on the following basis which I consider reasonable:
  1. 1.
    The claim is subject to complex legal proceedings, the determination of which is beyond the scope of my engagement as Restructuring Practitioner. 
  1. 2.
    SKJ has a claim in the SBR as a contingent creditor, which is an admissible claim in the restructure;
  1. 3.
    The Restructuring Practitioner is required to make a just estimate of the claim; and 
  1. 4.
    The most reasonably accurate basis upon which to make the assessment, in circumstances where the matter is unresolved and part of SKJ’s claim has been struck out by the Court, is:
  1. a)
    Accepting the minimum balance of the SKJ claim, being $499,436.58,
  1. b)
    Deducting the Company’s counterclaim of $396,164.30;
  1. c)
    Arriving at a balance of $103,272.28 
  1. [57]
    I make three comments about the reasons:
    1. First, the statute does not expressly impose an obligation on the Restructuring Practitioner to make a just estimate of the claim, though some such obligation would be implied.  However, any such obligation must be informed by the prompt process which is part of the objective of restructuring.  Requiring detailed inquiries or detailed reasons will likely be inconsistent with that object;
    2. Second, the key to Mr Archer’s recommendation is his decision to set off the claims of the two parties to obtain a net balance.  He applied the mechanism in s. 553C(1),albeit he did not refer to the section; and
    3. Third, Turul was compelled by reg. 5.3B.22(8) to vary the schedule in accordance with his recommendation.  A revised Restructuring Proposal Statement was included showing SKJ as a creditor for $103,272.28.
  2. [58]
    SKJ was not satisfied with this outcome.  On 16 July 2024, it gave a Plan Voting Response Form by which it again disputed the amount for which SKJ was shown in the Restructuring Proposal Statement as creditor.  SKJ stated it should be included as a creditor for $249,982.89.   It included a document entitled Supporting Information for Plan Voting Response Form which included its contentions in support of that sum.  I see no reason why this was not an effective way to give “written notice of the disagreement to the company's restructuring practitioner” in accordance with reg. 5.3B.22(2).  I also see no reason why a second notice cannot be given if the earlier dispute was not resolved in a satisfactory manner to the creditor in question.  The right to dispute the Restructuring Proposal Statement arises when it is given.  If a Restructuring Proposal Statement is revised, then reissued, it appears the rights to dispute it arise again.  If the restructuring practitioner considers his or her earlier decision was correct, he or she can simply affirm that decision.  There is then the option for the creditor to take a matter to the Court for resolution.
  3. [59]
    SKJ’s second submission was prepared on the basis of the substantive set-off analysis adopted by Mr Archer in his reasons of 9 July 2024 but submitted (broadly) that Mr Archer had adopted the full amount of Turul’s counterclaim but the lesser alternative for SKJ’s claim.  It maintained its submission that the full amount of SKJ’s claim should be accepted (particularly as the full amount of the counterclaim had been accepted).  SKJ’s position was then as follows:
  1. 7
    SKJ repeats and relies on its Notice of Discontinuance provided on 28 June 2024 and the documents provided therein to support its position that SKJ’s claim as included in the Proposal should be $249,982.89 calculated as:
  1. (a)
    $646,147.19, being the highest amount of SKJ’s claim; less
  1. (b)
    $399,164.30, being the highest amount of the Company’s counterclaim.
  1. [60]
    On 16 July 2024, Mr Archer issued a revised circular to creditors in relation to the proposed plan.  It stated that there had been a further dispute and informed all creditors that he had considered the disagreement and recommended that the Company accept the SKJ claim at the amount contended for by SKJ, $249,982.89. 
  2. [61]
    An amended schedule of claims was attached incorporating that sum and Mr Archer provided a revised analysis of the rate of return, to 20.73 c/$.  He included a further Plan Voting Response Form.  Although he did not explain the reasons for this recommendation in the 16 July 2024 circular, it can be reasonably inferred that he accepted the reasoning in SKJ’s 16 July 2024 response.  That is, he made the recommendation applying the set-off analysis used in his first recommendation and adopted by SKJ in its second submission.  Again, Turul was compelled to accept that recommendation, subject to application to the Court.  There was no such application.
  3. [62]
    On 23 July 2024, SKJ voted against the plan.  On 24 July 2024, the majority of creditors voted to accept the proposed plan based on the 16 July schedule.  Accordingly, the plan was made on 24 July 2024. 
  1. The parties’ submissions
  1. [63]
    SKJ contends that set-off arises in a restructuring for the following reasons.
    1. The definition of admissible debts and claims in the regulations adopts the definition in s. 553(1) of the Act and s. 553(1) in turn picks up s. 553C(1) by the words in 553(1) “subject to this Division”.  The Division referred to is Division 6, which includes s. 553C(1);
    2. The underlying policy of insolvency set-off is to prevent injustice to a creditor in a winding up and the effect of a plan is analogous to the effect of a winding up on creditors who are deemed parties to the plan under the regulations; and 
    3. There are other textual indications consistent with the construction of the definition advanced. In particular, s. 455A that a company which proposes a restructuring plan is taken to be insolvent.  This is submitted to be a strong textual indicator that the incidents of admissibility in insolvency ought to be applied to restructuring.
  2. [64]
    Turul’s submissions can be summarised as follows:
    1. Section 553C(1) is inapposite to restructuring because restructuring is not analogous to winding up.  Its purpose is to facilitate continuity of the business not finalisation of the affairs of the company;
    2. In context of the detailed statutory scheme in the regulations, the reference in the definition of admissible debt or claim to s. 553(1) should be read down as applying only the substantive words of that subsection.  It is submitted that to read in those provisions incorporated by reference to Division 6 and 8 in their entirety would be inconsistent with that detailed scheme; and
    3. Incorporation of s. 553C(1) is inconsistent with the express reference to set-off for voting purposes in reg. 5.3B.31(2)(b).
  1. Analysis
  1. [65]
    In my view, s. 553C(1) is incorporated into the definition of admissible debt or claim in reg. 5.3B.01.
  2. [66]
    First, under the definition in the regulations, admissible debt or claim “means a debt or claim that would be admissible to proof against the company under subsection 553(1)”.  That definition is exclusive.  Subject to contrary intention, s. 553(1) provides the exclusive criteria for identifying a debt or claim as admissible. 
  3. [67]
    Section 553(1) provides that the identified kinds of debts and claims are admissible to proof subject to Division 6 and Division 8.  The provisions of those Divisions are conditions which must be met before a debt or claim as identified in the balance of the section is admissible.  That is, the provisions of Division 6 and 8 (to the extent they are relevant) are part of the statutory identification under s. 553(1) of admissible debts and claims.  Section 553C(1) is part of Division 6.  So, the starting point is that the words of s. 553(1) incorporate that section.
  4. [68]
    Turul submitted that, despite the above, the incorporation of s. 553(1) by the definition in the regulations should be read down because it cannot have been Parliament’s intention to read in provisions from Division 6 and Division 8 which are inconsistent with the restructuring scheme.  I do not agree.
  5. [69]
    It is important to keep in mind that not every provision in Division 6 and Division 8[3] is incorporated into s. 553(1).  It will only be the provisions which have an impact on the test for admissibility or which impact on the calculation of the amount of an otherwise admissible debt.  Division 6 has four Sub-divisions. 
  6. [70]
    Most relevant is Sub-division A entitled ‘Admission to proof of debts and claims’. It deals with proof by shareholders, avoiding double proof for Superannuation Guarantee Charges, and fines and penalties.  There is no obvious reason why any of those conditions would be inconsistent with the statutory scheme.  Indeed, those provisions give effect to fair adjustments to admissibility which seems as relevant to restructuring as to insolvency.  Section 553C(1) sits comfortably within that range of provisions designed to give effect to practical or policy considerations. 
  7. [71]
    Subdivision B makes various provisions for computation of the amount of an otherwise admissible debt.  Those provisions are also convenient and deal with problems which need to be resolved where the amount of an otherwise admissible debt or claim needs to be calculated, whether in liquidation or restructuring. 
  8. [72]
    Subdivisions C and D deal with proofs by secured creditors and priorities.  There are express provisions dealing with both matters in the restructuring scheme.  To the extent that those provisions are inconsistent with express provisions in the restructuring scheme, they might not be applicable. However, that provides no answer to the application of other parts of Division 6. 
  9. [73]
    Given the evident usefulness of Subdivisions A and B in resolving issues of admissibility (which will inevitably come up in restructuring every bit as much as in insolvency), I do not accept the submission that reading s. 553(1) according to its terms is inconsistent with the regulations. 
  10. [74]
    Indeed, far from being inconsistent with incorporation of Division 6, the definition in the regulations appears to contemplate its incorporation.  That is evident from paragraphs (a) to (c) of the definition in the regulations:
    1. Paragraph (a) arguably does so by expressly providing that s. 553(1) is to apply as if the company was being wound up.  That supports the inference that s. 553(1) should be applied in the definition as it applies in winding up;
    2. Paragraph (b) arguably does so by providing how s. 553(1) is to apply even though a restructuring has no relevant date, by providing relevant dates for s. 553(1) to apply;
    3. Paragraph (c) arguably does so by making express adjustment to the ordinary reach of s. 553(1) by excluding employee entitlements (impliedly adopting the balance of the provisions in Division 6 regulating admissible debts and claims).
  11. [75]
    However, more compelling, as Mr Campbell for SKJ submitted, is the textual indication of Parliament’s intention in s. 455A of the Act which provides that a company which proposes a restructuring plan is taken to be insolvent.  That provision carries particular weight for two reasons:
    1. First, it is contained in the statute creating restructuring, not in delegated legislation; and
    2. Second, Parliament must be taken to have understood the implication of deeming the company insolvent, particularly as s. 455A appears in Chapter 5, dealing with external administration.  
  12. [76]
    Section 455A comprises in my view a provision which discloses an underlying policy of restructuring that a company under restructuring is to be treated as  an insolvent company.  Division 6 of the Act articulates well known provisions that identify an admissible debt or claim in insolvency.  It is difficult to see why the definition in the regulations should then adopt a narrower construction of admissible debt or claim than in an insolvency where express adoption of s. 553(1) occurs.
  13. [77]
    The above considerations taken together support a reading of the definition of admissible debts and claims in the regulation as incorporating the whole of s. 553(1), including provisions from Division 6, at least to the extent they are relevant to identifying what is an admissible debt or claim and for determining the value of such a claim.
  14. [78]
    Second, I do not accept Turul’s submission that the purpose and outcome of insolvency is materially different from the purpose and outcome of restructuring, such that the policy of insolvency set-off is inapplicable to restructuring.  Rather the contrary is true when one considers the position of creditors.  From a creditor’s perspective, the effect of a plan is relevantly indistinguishable from the effect of winding up in insolvency.  Indeed, the effect of restructuring magnifies the potential for injustice in the absence of s. 553C(1) applying.  I explain as follows.
  15. [79]
    Turul’s submission summarised in [64](a) above is correct.  Insolvency does usually involve the end of the company, while restructuring is aimed at facilitating the survival of the company.  The objective of restructuring is more fully explained in the quote from Justice S. Derrington in paragraph [12] above.  However, that distinction between insolvency and restructuring is not the correct point of focus for considering whether s. 553C(1) is consistent with the statutory scheme regulating restructuring.  The correct point of focus is the impact of a plan on the rights of creditors with admissible debts or claims.  When looked at from that perspective, insolvency and restructuring are almost indistinguishable, at least when a plan terminates on performance of its terms.
  16. [80]
    In insolvency, all admissible debts and claims against the company are converted into a right to prove in the winding up and be paid from the available assets of the company on a pro rata basis.  Unsecured creditors are confined to that remedy.
  17. [81]
    If a restructuring plan is made, the result is the same.  On a plan being made:
    1. All creditors with admissible debts or claims rank equally and are entitled to share in the property available under the plan pro rata [reg. 5.3B.27(1)(a) and (b)];
    2. All creditors with admissible debts or claims are parties to the plan and are bound by the plan [5.3B.28 and .29];
    3. All creditors with admissible debts or claims are prohibited from taking any step based on their debt or claim during the period of the plan; and
    4. Most importantly, if the plan is fully executed, the company is released from all admissible debts or claims.
  18. [82]
    Practically, where a plan is executed, creditors are in the same position as in an insolvency: their causes of action against the company are extinguished in exchange for their pro rata share of the pool of funds available under the plan.
  19. [83]
    Indeed, a creditor’s position in restructuring is worse than in an insolvency where the company has a counterclaim against the creditor (absent s. 553C(1) applying).  In an insolvency, s. 553C(1) operates automatically to set-off the mutual claims.  The counterclaim is gone, never to return.
  20. [84]
    If a creditor’s claim is released on completion of the plan, it will then be facing a solvent counterclaimant (the debtor company, ready willing and able to pursue its counterclaim), having eliminated the creditor’s claim by the performance of the plan. 
  21. [85]
    For example, a creditor with a claim for $1,000,000 facing a counterclaim for $250,000 would ordinarily be in a strong position.  However, if the creditor receives 20c/$ (as was proposed here), it receives only $200,000, and then faces the prospect of paying more than that to the newly capitalised company on termination of the plan.  It is ironic that in that situation, the company counterclaiming has been recapitalised, not by raising capital, but by eliminating debt, including the creditor’s own debt or claim.  That is all the more objectionable as a commercial outcome of restructuring because that outcome can be forced on the creditor by the vote of a majority in value.
  22. [86]
    Frankly, in the absence of s. 553C(1) applying to restructuring plans, there would be a real incentive for the restructuring process to be misused so as to unfairly improve the company’s position in a claim/counterclaim situation.  (I do not suggest in any way that is what is intended in this case.)
  23. [87]
    It is exactly this kind of injustice which s. 553C(1) is intended to prevent.  In Metal Manufacturers Pty Ltd v Morton (2023) 275 CLR 100 at [16], the majority[4] restated the role of insolvency setoff as follows (footnotes omitted):

It might be thought that s 553C offends the pari passu principle because it gives the creditor a complete discharge of what it is owed, dollar for dollar. Such an observation is mistaken. The purpose of s 553C is to ascertain what is available for distribution on a pari passu basis. It is only the balance of any set-off (when it favours the creditor) which is then admissible to proof against the company for the purposes of s 553. Before then, the law permits a set-off of mutually incurred credits, debts or dealings because that is a just outcome chosen by Parliament. As this Court observed in Gye v McIntyre, when considering the equivalent right of set-off conferred by s 86 of the Bankruptcy Act:

"It has often been pointed out that the object of set-off in bankruptcy is, in the words of Parke B in Forster v Wilson, 'to do substantial justice between the parties, where a debt is really due from the bankrupt to the debtor to his estate'. Where there are genuine mutual debts, credits or other dealings, it would be unjust if the trustee in bankruptcy could insist upon having 100 cents in the dollar upon the whole of the debt owed to the bankrupt but at the same time insist that the bankrupt's debtor must be satisfied with a dividend of some few cents in the dollar on the whole of the debt owed by the bankrupt to him. It was to prevent such injustice that the 'mutual credits' and 'mutual debts', and later 'mutual dealings', provisions were introduced into bankruptcy legislation". 

  1. [88]
    As I have explained, that outcome will be as unjust in restructuring as it is in insolvency, unless s. 553C(1) applies, perhaps more so.  In those circumstances it would take quite clear language from Parliament to exclude the incorporation of s. 553C(1) into the definition of admissible debt or claim in the regulation where prima facie the statutory provisions appear to embrace it (as I have already explained).
  2. [89]
    Third, reg. 5.3B.25(2)(b) (see [30] above), relied upon by Turul as telling against incorporation of s. 553C(1), does not lead to a different conclusion.
  3. [90]
    It can be accepted that if s. 553C(1) is applicable in identifying admissible debts or claims under the regulations, reg. 5.3B.25(2)(b) is probably unnecessary.  That follows because when the definition of relevant date in the definition is read into s. 553(1), that section takes effect from the beginning of the restructuring.  The beginning of the restructuring is when a restructuring practitioner is appointed: s. 453A of the Act.  Set-off is self-executing in the sense that it occurs automatically on the relevant date.[5]  Creditors will therefore necessarily be considering a restructuring plan after appointment of the restructuring practitioner.  Accordingly, the better view is that if s. 553C(1) applies, set-off under that section will have automatically occurred already.
  4. [91]
    The specific provision for set-off in reg. 5.3B.25(2)(b), using the language of s. 553C(1), is therefore not strictly necessary on the construction of the statute I propound.  Turul submits that this reveals a Parliamentary intention that set-off only applies for voting on a plan.  I disagree.
  5. [92]
    Turul’s construction would mean that while a creditor with a large claim is limited to its net claim in voting on a restructuring plan, it is entitled to receive a pro rata dividend based on its gross claim.  I can see no reason in policy or principle why that should be so.  Turul relied on its submission dealt with in [78] to [88] above as providing a rationale however, as explained in those paragraphs, I do not accept that submission, at least in so far as the effect of restructuring on creditors is concerned. 
  6. [93]
    Further, on the construction which incorporates s. 553C(1), reg. 5.3B.25(2)(b) might be strictly unnecessary, but it is not a circumstance where the words are given no meaning or effect.[6]  Indeed, they take effect according to their terms, consistent with the effect of s. 553C(1).  Indeed, it is possible that the purpose of the regulation was to remove doubt about the timing of the set-off.
  7. [94]
    Finally, it is also notable that reg. 5.3B.25(2)(b) does not say that the set-off it provides for takes effect only for voting.  The regulation does not say anything about whether the set-off it provides for ceases to have effect once the vote is completed.  It seems to me open to construe reg. 5.3B.25(2)(b) as impliedly introducing set-off by its express provision for it in voting. 
  8. [95]
    I recognise the importance of construing the statutory scheme as a whole.  However, for the reasons I have already given, reading the scheme as a whole persuasively supports the conclusion that s. 553C(1) is incorporated into the definition of admissible debt or claim in the regulations.  I consider reg. 5.3B.25(2)(b) to be insufficient to drive the analysis to the opposite conclusion.  And even if it does, arguably it impliedly gives rise to insolvency set-off by its own terms.
  9. [96]
    Fourth, reg. 5.3B.30 provides further support for the construction which incorporates s. 553C(1).  As noted in [36] above, that section imposes restrictions on a person bound by the plan from taking any action against the company or its property until a plan terminates.  That regulation does not apply to the company. 
  10. [97]
    If Turul’s construction is correct, the consequence will be that the company can pursue a creditor bound by the plan on its counterclaim while the creditor is prevented from pursuing its claim.  The potential for injustice (and indeed abuse) is high on such a construction. 
  11. [98]
    It is also a very improbable construction of the statutory scheme in circumstances where the Act deems the company to be insolvent on appointment of a restructuring practitioner.  Surely it would not be intended that in the executory period of the plan, a company deemed insolvent could pursue with impunity a counterclaim while preventing the creditor from pursuing its claim.  This could even lead to a situation where the company obtained judgment for its counterclaim while the plan remained in its executory period. 
  12. [99]
    Finally, a difficulty which arises if s. 553C(1) applies in restructuring [or if it applies by implication from reg. 5.3B.25(2)(b)] is how set-off will be reversed if the plan terminates other than for performance of its terms or supervening insolvency. 
  13. [100]
    Regulation 5.3B.31(3) provides that where a plan is terminated other than by performance of the plan, any admissible debt or claim that has not been dealt with in accordance with the plan is taken to be due and payable immediately after termination.  This regulation is drafted in terms which does not provide reversal of set-off between a creditor’s claim and the company’s counterclaim.  However, that difficulty is an example of a much large problem which I perceive see in that regulation. 
  14. [101]
    It is quite common in insolvency for disputed debts and claims to be admitted to proof based on assessment of the proof by the liquidator, subject to review of that decision to the Court.  That creates no difficulty because apart from the exceptional case of termination of a winding up under s. 482 of the Act (where the Court has express power to make orders to deal with the termination), the admission to proof in a winding up is final (whether the process ends with the liquidator or the Court). 
  15. [102]
    The difficulty with reg. 5.3B.31(3) is that it appears not to have been drafted considering that admissible debts or claims admitted in restructuring might be contested claims.  It is hard to see why, if the plan is terminated in a manner which does not finally dispose of all claims, a disputed claim between the creditor and the company should be quelled by reference to the manner in which it was dealt with in restructuring.  Surely if the plan terminates so as to put the parties back in the position they were before the plan, disputed claims should be left to be determined by the court.  
  16. [103]
    Let me give an example.  Let us assume that a creditor is suing a company on a guarantee and the company disputes the guarantee on the basis that it was invalid.  The restructuring practitioner then makes a recommendation about the amount which should be admitted based on the prompt and limited investigation required for a restructuring.  The creditor and the company decided not to further dispute that recommendation for reasons of commercial pragmatism.  If the plan fails, why should the informal and limited process engaged in by the restructuring practitioner continue to bind the parties?  I see no reason why it should.
  17. [104]
    So, reg. 5.3B.31(3) is not just an issue for set-off, it is an issue for every disputed debt and claim which is included in a plan.  That issue is not before me.  However, it seems to me that it would have to be resolved on the basis that if the plan terminates other than for performance of its terms or insolvency, the creditors and company should be put back in the position they occupied before the restructuring began as to disputed debts and claims inter se.  If that was the intention of the drafters of reg. 5.3B.31(3), attention might be given to revising the terms of that regulation.
  18. [105]
    Of course, if the intention was that the status of admissible debt or claim under the plan apply into the future even if the plan fails, then there is no difficulty for my construction.  The set-off under restructuring just continues into the future.
  1. An alternative argument?
  1. [106]
    Even if set-off does not apply in restructuring, it seems to me that there is an argument that SKJ and Turul are bound by Mr Archer’s recommendation on the basis of set-off.  I refer to reg. 5.3B.26(3) in [31] above which provides that a plan binds the parties as if it was a deed.  Where the sum for which SKJ is admitted is calculated based on set-off of the mutual claims by Mr Archer, one speculates that SKJ and Turul might be bound to that result as if it were contained in a deed.  The point was not raised, and there are many potential difficulties with it.  I do not consider it further.
  1. Conclusion
  1. [107]
    For the above reasons, the definition of admissible debt or claim in reg. 5.3B.01 incorporates s. 553C(1).
  2. [108]
    No submission was made by Turul that the claims of SKJ and counterclaim of Turul against SKJ did not amount to mutual claims which fell within the scope of s. 553C(1).
  3. [109]
    Further, the events in [47] to [62] had the effect of authoritatively determining, for the purposes of the restructuring and the restructuring plan, the balance of account after set-off which was the admissible claim of SKJ in the plan.  Turul did not submit to the contrary.  Indeed the availability of an efficient process in the regulations to determine disputes about the balance of account between a creditor and a company in a restructuring is another factor which tends to support the construction incorporating s. 553C(1) because it cannot be said that incorporation of set-off would unduly delay or frustrate the prompt process contemplated by the restructuring provisions.
  4. [110]
    Accordingly, Turul’s counterclaim was set-off against SKJ’s claim in accordance with Mr Archer’s second recommendation. 
  5. [111]
    However, the set-off arising from a plan is conditional on performance of the plan.  Until then, SKJ is restrained from pursuing its admissible debt or claim. Given the effect of set-off on Turul’s counterclaim, that must necessarily mean that the counterclaim also has been extinguished conditionally on performance of the plan.   
  6. [112]
    In the circumstances, therefore, there should be a stay of the counterclaim pending termination of the plan.  However, that does not mean that Turul should be at liberty immediately upon termination of the plan to pursue its counterclaim. 
  7. [113]
    The effect of these reasons is that if the plan terminates under 5.3B.31(1)(a), the counterclaim should be dismissed because the conditional set-off will become unconditional and the counterclaim will be extinguished, along with SKJ’s admissible claim.  If the plan terminates for some other reason identified in 5.3B.31, however, it does not necessarily follow that the effect of set-off on the counterclaim will be immediately reversed.  For example, if the plan terminates under 5.3B.31(f) because a liquidator is appointed, set-off under 553C(1) will apply in that winding up.  The preferable course then is to make termination of the plan just one of two conditions of the stay, the other being an order of the Court lifting the stay.  In that way, the status of the counterclaim can be reconsidered by the parties, and if necessary by the Court, in light of the circumstances of termination.

Footnotes

[1] There were two contracts alleged, though that detail is irrelevant to this application.

[2] Note that the regulation does not use the phrase admissible debts and claims, though that must be implied given that the balance of the statutory scheme refers to admissible debts and claims.

[3] Division 8 deals with pooling for corporate groups.  It is difficult to see how it would apply in restructuring. I will not refer further to this Division.

[4] And see Gageler J at [69] to like effect.

[5] Re Force Corp (2020) 149 ACSR 451 at [81] to [84].

[6]   D. Pearce, Statutory Interpretation in Australia (LexisNexis Butterworths, 9th ed, 2019) 2.43.

Close

Editorial Notes

  • Published Case Name:

    SKJ Qld Pty Ltd v Turul Building Services & Anor (No. 3)

  • Shortened Case Name:

    SKJ Qld Pty Ltd v Turul Building Services Pty Ltd [No 3]

  • MNC:

    [2025] QDC 35

  • Court:

    QDC

  • Judge(s):

    Porter KC DCJ

  • Date:

    20 Mar 2025

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2025] QDC 3520 Mar 2025-
Primary Judgment[2025] QDC 6615 May 2025-
Notice of Appeal FiledFile Number: CA 1593/2517 Apr 2025-
Appeal Discontinued (QCA)File Number: CA 1593/2529 May 2025-

Appeal Status

Appeal Discontinued (QCA)

Cases Cited

Case NameFull CitationFrequency
Metal Manufacturers Pty Ltd v Morton (2023) 275 CLR 100
2 citations
Jump To
Cite 1 - (2023) 275 CLR 100
Cite 2 - (2023) 275 CLR 100

Cases Citing

Case NameFull CitationFrequency
SKJ Qld Pty Ltd v Turul Building Services Pty Ltd (No 4) [2025] QDC 661 citation
SKJ Qld Pty Ltd v Turul Building Services [No 2] [2025] QDC 341 citation
1

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