Supreme Court of Western Australia
COTE -v- DEVINE [2013] WASC 79
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2013] WASC 79 | |
| Mar 13, 2013 | |||
| Case No: | COR:25/2013 | 5 MARCH 2013 | |
| Coram: | ALLANSON J | 3/5/13 | |
| 18 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| B | |||
 PDF Version |
| Parties: | ROBERT COTE MARIE CELINE SOLANGE CHOUINARD GEORGINA MARGARET MOORE TRENT DEVINE SULE ARNAUTOVIC RODERICK MACKAY SUTHERLAND |
Catchwords: | Practice and procedure Interlocutory injunction Corporations Law Application to restrain conduct of second meeting of creditors Notice of meeting Whether administrators were impartial and independent Turns on own facts |
Legislation: | Corporations Act 2001 (Cth) Corporations Regulations 2001 (Cth) |
Case References: | Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199 Commonwealth Bank of Australia v Fernandez [2010] FCA 1487 Commonwealth of Australian v Irving (1996) 19 ACSR 459 Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; (2002) 44 ACSR 21 McGeachie v Clark [2005] WASC 177 National Australia Bank Ltd v Market Holdings Pty Ltd (in liq) [2001] NSWSC 253; (2001) 37 ACSR 629 Re Allebart Pty Ltd (in liq) [1971] 1 NSWLR 24 Selim v McGrath [2003] NSWSC 927; (2003) 177 FLR 85 SMS Rental (WA) Pty Ltd v Cahma Life Nominees Pty Ltd [2009] WASC 359 Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
Aurora Balanced Living Pty Ltd (Administrators Appointed)
- MARIE CELINE SOLANGE CHOUINARD
GEORGINA MARGARET MOORE
Applicants
AND
TRENT DEVINE
SULE ARNAUTOVIC
RODERICK MACKAY SUTHERLAND
Respondents
Catchwords:
Practice and procedure - Interlocutory injunction
(Page 2)
Corporations Law - Application to restrain conduct of second meeting of creditors - Notice of meeting - Whether administrators were impartial and independent - Turns on own facts
Legislation:
Corporations Act 2001 (Cth)
Corporations Regulations 2001 (Cth)
Result:
Application dismissed
Category: B
Representation:
Counsel:
Applicants : Mr R M Garratt QC
Respondents : Mr D K J Skender
Solicitors:
Applicants : Culshaw Miller
Respondents : Sparke Helmore
Case(s) referred to in judgment(s):
Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199
Commonwealth Bank of Australia v Fernandez [2010] FCA 1487
Commonwealth of Australian v Irving (1996) 19 ACSR 459
Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; (2002) 44 ACSR 21
McGeachie v Clark [2005] WASC 177
National Australia Bank Ltd v Market Holdings Pty Ltd (in liq) [2001] NSWSC 253; (2001) 37 ACSR 629
Re Allebart Pty Ltd (in liq) [1971] 1 NSWLR 24
Selim v McGrath [2003] NSWSC 927; (2003) 177 FLR 85
(Page 3)
SMS Rental (WA) Pty Ltd v Cahma Life Nominees Pty Ltd [2009] WASC 359
Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110
(Page 4)
1 ALLANSON J: On 5 March 2013 I heard an urgent application to restrain the conduct of a second meeting of creditors of two companies, Aurora Balanced Living Properties Pty Ltd (ABLP) and Aurora Balance Living Pty Ltd (ABL) which are in voluntary administration. The application was brought by three creditors of the two companies, with the administrators named as respondents.
2 The application was filed on 1 March 2013. I was prepared to hear it on that day, the meeting in question being scheduled to take place on 5 March at 10:30 am. The matter was, however, only ready to be heard on 5 March. It concluded after the scheduled time for the meeting to commence. As a result, I took the unusual course of giving my decision with my reasons to be published later. These are my reasons for dismissing the application.
The history of the application
3 The dispute between the first two named applicants and the present directors of ABLP and ABL, Colin Werner and Augustus Lee-Steere, has gone on for some years, and has resulted in litigation in the Magistrates Court and in this court. I do not propose to go into those events except to record that, at the time the directors of ABLP and ABL resolved to put the companies into administration, there were proceedings in this court by ABLP against Ms Chouinard to set aside a statutory demand.
4 The history of the present matter, in brief, is that on 31 January 2013, the directors of ABLP and ABL resolved to appoint the respondents as administrators. The respondents are members of Jirsch Sutherland, a Sydney-based firm. The directors provided the administrators with a list of the creditors of the companies. Only one of the applicants, Georgina Margaret Moore, was listed as a creditor.
5 ABLP had creditors listed to the total value of approximately $1.89 million. The largest creditor by value was the National Australia Bank, Singapore.
6 ABL had listed creditors to the value of approximately $78,000.
7 On 4 February 2013, the administrators gave notice to creditors of a concurrent meeting of the creditors of both companies to be held on 12 February 2013. By s 436E(2) of the Corporations Act 2001 (Cth) the meetings were required to be held within eight business days after the administration began. The notice to creditors for the first meeting included the declaration of relevant relationships and indemnities as
(Page 5)
- required by s 436DA. With regard to NAB, a secured creditor of ABLP, the administrators declared that there had been no dealings in relation to the two companies. Otherwise they declared that they had never 'formally' acted for ABLP or ABL, their directors, or current shareholders before the current appointment.
8 On 4 February 2013, Culshaw Miller, solicitors for the applicants, wrote to solicitors who had acted for the administrations on a particular application. On 7 February, Culshaw Miller wrote to the administrators. The letter contained a series of requests or demands, including that the administrators provide copies of all notes of communications that had taken place between the administrators and the directors of ABLP, with details of the dates, places and persons present at each meeting. The letter included the assertion that the list of creditors appeared to be manifestly false, and asked for an explanation of the basis on which those debts had been included on the list, and what original supporting and accounting documents there were for those debts. Noting that the declaration of relevant relationships had referred to whether the administrators had 'formally' acted, the letter requested detail of the extent to which the administrators had acted informally or otherwise.
9 Culshaw Miller continued that they had the gravest reservations about the propriety of members of the administrators' firm acting, and stated that it was inappropriate for the first creditors meeting to proceed on the date listed 'or at all' until the required disclosures had been made. They requested confirmation that the meetings would be adjourned without any business being conducted, and foreshadowed a move for injunctive relief, together with a subpoena for the production of the required documents, if confirmation was not given.
10 On 8 February 2013, the solicitors for the administrators responded. They advised that there was no provision enabling them to defer the first creditors meeting as requested, and advised the applicants of their entitlement to attend that meeting and prove the debts they asserted. The administrators affirmed their independence and the propriety of their appointment.
11 The first creditors' meeting was held on 12 February 2013. Marcus Easthope, a solicitor from the firm Culshaw Miller, attended as the proxy or attorney of the applicants.
12 A copy of the minutes of the meeting, as lodged with the Australian Securities and Investments Commission, was in evidence. The minutes
(Page 6)
- record that Mr Easthope objected to the rulings of the chairperson with regard to some proofs of debt, and the chairperson advised that those proofs of debt would be marked as objected to and the objection would be noted in the minutes of the meeting.
13 The minutes record that Mr Easthope raised the issue of the independence of the administrators, and whether they should be removed. He sought an adjournment of the meeting with regard to ABLP. On a poll, the resolution to adjourn lost on both number (9/6) and value.
14 Mr Easthope specifically questioned the decision to accept the proofs of debt of three companies: Verrell Pty Ltd, Mobias Group (Australia) Pty Ltd and Navitas Business Modelling Pty Ltd. He advised the meeting that Mobias Group was currently deregistered.
15 A motion was put that the meeting appoint a creditors' committee for ABLP with three members, being the current applicants. On a poll, requested by Mr Easthope, the resolution was lost both on number (9/6) and value.
16 The chairperson called for nominations for alternative administrators and no nominations were received.
17 On 22 February, the administrators gave notice to the creditors of a concurrent second meeting of creditors of the two companies to be held on 5 March 2013. On this occasion the notice included the proof of debt/claim forms for all secured and unsecured creditors of the companies, and a report by administrators pursuant to s 439A(4). The notice advised creditors that the purpose of the concurrent meeting included for creditors to resolve whether:
(a) the companies execute a deed of company arrangement; or
(b) the administrations should end; or
(c) the companies be wound up.
18 Other matters to be considered included the nomination of a person to be liquidator or deed administrator; to consider the appointment and constitution of a committee of inspection; and to authorise the liquidators under s 477 of the Corporations Act in the event that it was resolved the company be wound up.
19 In Part 6 of the report, the administrators set out the historical financial position of each company. In doing so, they noted 'due to the
(Page 7)
- time constraints imposed by the Act in the preparation of this report, we have not conducted an audit or obtaining independent verification of the accuracy of the draft management accounts'. Based on those accounts, however, the statement of financial position for ABL showed both an excess of liabilities over assets, and a trading loss over the years ended 30 June 2011, 30 June 2012, and the seven months to 31 January 2013. For ABLP, the statement of financial position recorded a positive balance of assets over liabilities, but substantial losses over each of the three years.
20 At cl 10.2 of the report, the administrators recommended that the creditors vote in favour of the companies being placed into liquidation.
The proceedings for removal of the administrators
21 On 25 February 2013, the applicants filed an originating process under s 449B of the Corporations Act seeking orders including the removal of the respondents as administrators of ABLP and ABL and appointing Gary John Anderson, an official liquidator, as administrator of each company.
22 The application for interlocutory relief was filed on 1 March 2013. The course taken in bringing the application so close to the meeting created considerable difficulties for the court and the parties. I cannot understand why interlocutory relief was not sought at the time the originating process was filed, or soon after. The result was a hearing on the morning of the meeting. The parties relied on about 1,000 pages of affidavit material, although there were several substantial duplications in the annexed documents. The respondents' material (about half of the total), through no fault of the respondents, was only received on the morning of the hearing. Counsel were under time constraints and the court had no time for any detailed consideration. Although I had read the affidavits filed on behalf of the applicants in support of the originating process, counsel for the applicants relied on additional matters which were not adverted to in them.
The evidence
23 The originating process was supported by affidavits of each of Mr Cote, Ms Chouinard, and Ms Moore, as well as an affidavit of Mr Easthope. Each of the applicants asserted that the administrators had not conducted themselves impartially or independently.
(Page 8)
24 Mr Cote deposed that he was a shareholder in ABL, and an original investor in ABLP. He also claims against ABL for conversion of certain items, said to be valued at not less than $50,000. Mr Cote asserts that Mr Lee-Steere and Mr Werner 'have had substantial contact' with the administrators since early October 2012. Mr Cote says that notice of the first meeting was not sent to either him or to his wife, Ms Chouinard.
25 Mr Cote also relied on matters after the first meeting of creditors. On 18 February 2013, the administrators wrote to Mr Cote by email, copied to his solicitor. The letter set out the alternatives which were available to creditors: liquidation of the company, a deed of company arrangement as proposed by the current directors (although noting that at the date of the email the administrators had not yet received a proposal from the current directors), or a deed of company arrangement as proposed by Mr Cote or a related party. The email advised that the administrators were required to issue a report to creditors pursuant to s 439A of the Corporations Act by no later than 22 February 2013, for a meeting of creditors to be held on 5 March 2013 and stated that they required an outline of any proposal by 19 February. A further email, attaching the email of 18 February, was sent on 20 February 2013. On 20 February, Mr Cote responded that the administrators were proceeding 'far too quickly' and he needed more time.
26 Ms Chouinard deposed that although the administrators were aware of proceedings in the Supreme Court relating to her statutory demand on ABLP, the administrators did not contact her as a creditor of ABLP and provide her with an opportunity to lodge a proxy or formal proof of debt. She became aware of the first meeting of creditors through other means.
27 Ms Chouinard deposed that the original investors in ABLP had assigned their loans to her. She lodged a formal proof of debt for the first creditors meeting, describing her claim as 'loans - assigned from original investors', with a value of $426,782.86. At the first creditors meeting she was permitted to vote, but not on the value of the debt she claimed and only to the value of $1.00. The original investors who had lodged proofs were also permitted to vote, but also to a value of $1.00. The reasons given to her, in correspondence from the administrators after the meeting, was a lack of documents to support the debt of the original investors and the assignment to her of that debt. Each of the original investors had notified the administrators of their claim by proof of debt or appointment of proxy form, so there were two claims to the same debt.
(Page 9)
28 Ms Moore received notice of the first meeting of creditors. She claimed to be a creditor to $64,580, but was admitted as a creditor for $25,000 only, with respect to that part of the original investment which neither she nor Ms Chouinard asserted had been assigned. A $1.00 value was determined for her other claims. On 18 February, the administrators provided reasons for why she was not admitted to the full amount of her claims, including the lack of documentation and the claim of Ms Chouinard to part of the debt as assignee. Ms Moore was asked to provide documents supporting the claims with regard to both the original loan and the claim for payment for cleaning services.
29 Finally, the applicants rely upon an affidavit of Mr Easthope. Mr Easthope attached a letter he had sent to Murfett Legal (as solicitors for the administrators) on 4 February 2013, requesting that they provide various information relating to contact or communications between members of the administrators' firm and Mr Werner and Mr Lee-Steere. Murfett Legal advised that they had only limited instructions, in relation to adjourning a proceeding in the Supreme Court, and that Mr Easthope should liaise directly with the administrators on any other matters.
30 On 7 February, Mr Easthope wrote directly to the administrators, seeking responses to his requests in the letter of 4 February and also additional matters, including reasons for the exclusion of Mr Cote as a creditor.
31 Sparke Helmore, as solicitors for the administrators, responded on 8 February. This was the beginning of a sequence of correspondence by mail and email. In particular, on 11 February, Sparke Helmore advised the solicitors for the applicants that proofs of debt or proxies for some of his clients may be rejected or admitted for voting purposes at only $1.00 'subject to the provision of any further information that you may provide prior to the meeting'. Sparke Helmore referred to the lack of proof of Ms Chouinard's claim, and that it was inconsistent with an affidavit she had sworn in earlier proceedings. The letter also advised that the admission of proof of debt was for the purposes of voting only, and was not a final determination of any creditor's claim.
32 Further correspondence was exchanged between the lawyers on the day of the first meeting. For present purposes, it is sufficient to note the administrators were ostensibly acting with the advice of their solicitors.
33 Mr Easthope also set out his recollection of proceedings at the meeting.
(Page 10)
34 Mr Easthope made a further affidavit, dated 28 February 2013, for the purposes of the interlocutory application. Part of that affidavit dealt with his correspondence with Sparke Helmore:
1. On 25 February 2013, Mr Easthope sent the originating process and supporting affidavits to the administrators' solicitors, and requested an undertaking from the administrators that the second creditors' meeting would be adjourned pending the outcome of the application.
2. Sparke Helmore responded on 27 February. They advised, in effect, that whether a meeting was adjourned was at the direction of the creditors, not the administrators; that if the applicants wished to participate for the full value of their alleged claims, they should provide the proof earlier requested; and that the directors had withdrawn their proposal for a deed of company arrangement and should the applicants wish to propose an alternative deed to be considered at the meeting, such a proposal should be provided as soon as possible.
3. On 28 February, Mr Easthope advised Sparke Helmore of his instructions to apply for urgent relief 'unless by 4 pm Perth time today Sparke Helmore confirms that the Respondents hold and will act on proxies by a majority of the creditors whom they admitted on 12 February 2013 to adjourn the meeting to a date to be fixed'.
35 The balance of the affidavit was in the nature of assertion and submission.
36 The administrators filed two affidavits in response. An affidavit of Lachlan Wilson, of Sparke Helmore, set out the correspondence in the affidavit of Mr Easthope, but included later correspondence between them on 28 February and 1 March 2013.
37 The substantial affidavit of the respondents was sworn on 4 March 2013 by Trent Andrew Devine, a registered liquidator and partner of Jirsch Sutherland, and one of the joint and several liquidators appointed to ABLP and ABL. Because of the lateness of the affidavit, I was able to have regard to only parts of it in making the decision.
38 First, Mr Devine said that in or about October 2012, Mr Dewhurst, a consultant to the administrators, had a first meeting with Mr Lee-Steere to discuss potential appointments. There were later numerous discussions by
(Page 11)
- telephone between Mr Dewhurst and Mr Lee-Steere and Mr Werner for the purpose of discussing the financial position of the companies, obtaining sufficient information about them to advise the companies and their directors on the solvency of the companies, clarifying and explaining the various options available to the companies and the nature and consequences of an insolvency appointment, and clarifying the indemnity for costs needed by the administrators. These matters were set out in the declaration of independence, relevant relationships, prior engagements and indemnities. The declaration also disclosed a personal indemnity and guarantee from Mr Werner and Mr Lee-Steere for a contribution of $30,000 towards fees and costs for the administration of the companies.
39 On the day before the appointment of the administrators, Mr Devine had a telephone conversation with the directors, together with Mr Bellamy, and discussed the current financial position of the companies and options available to them, the indemnity for costs needed by an administrator, and the details of the secured creditor of the companies. An oral agreement was reached for the directors to personally cover any travel expenses for the administrators to come to Perth.
40 Mr Devine said he omitted to include a specific reference to his conversation and the oral agreement in the declaration, but the indemnity for travel expenses was disclosed at the first meeting of creditors. Mr Devine said that he would prepare an updated declaration to be tabled at the second meeting to include the matters omitted, and to explain why the administrators do not consider that those matters affect their independence or result in a conflict of interest or duty.
41 Mr Devine then set out and attached the correspondence which had been referred to, and annexed to, affidavits of other witnesses. Mr Devine attached a true copy of all proofs of debt and proxies provided to the administrators for the purpose of the first meeting.
42 Mr Devine then set out his reasons for concern about Ms Chouinard's proof of debt, including an affidavit sworn by Ms Chouinard in 2011 in which she deposed to the original investors being 'bought out' by Redport Nominees Pty Ltd. Mr Devine deposed that, in the time available to them at the first meeting, the administrators were unable to identify the identity of the proper creditor, and determined the most appropriate course was to admit each of the competing claims for $1.00 to ensure no creditor was preferred over another for the same claim.
(Page 12)
43 Mr Devine attached to his affidavit a copy of the notice to creditors dated 22 February 2013, including the report to creditors pursuant to s 439A of the Corporations Act. Mr Easthope had annexed the report to his affidavit of 25 February.
44 Mr Devine referred also to the likely financial impact of replacing the administrators, with approximately $28,000 worth of fees incurred to date, that the secured creditor (National Australia Bank) has been supportive of the current administrators, and the costs that would attend the adjournment of the meeting.
45 Finally, Mr Devine put forward his view that the decision on the value at which debts were admitted for voting purposes would not have affected the outcome of the resolutions on which a poll was taken at the first meeting. Each party made submissions before me relating to this issue. In my opinion, it is unnecessary to resolve the competing arguments as they are irrelevant to the basis of the relief sought. The core complaint is that the administrators are not impartial. Their decisions on admitting or disallowing proofs of debt for voting purposes may be relevant to whether they are, or might reasonably be perceived to be, not impartial. The actual outcome of any vote is not to the point.
The context
46 There are some particular matters which affect the consideration of the claims of the applicants, including the legislation governing the meeting of the creditors.
47 First, the process of voluntary administration is necessarily carried out expeditiously. The first meeting had to be held within eight business days of when the administration began: s 436E Corporations Act. The convening period for the meeting of the company's creditors is set out in s 439A. While the meeting may be adjourned, the total periods of adjournment are also limited: s 439B. The assessment of the conduct of the administrators must be viewed in the context of their attempts to meet this aim.
48 Second, reg 5.6.23 Corporations Regulations 2001 (Cth), governed the process by which the administrator were to determine who may vote, including the provision for making a just estimate of the value of a debt or claim. In some circumstances of particular doubt or difficulty, the token sum of $1.00, which ensures the ability to vote on a head count, may be estimated: see, for example, Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; (2002) 44 ACSR 21.
(Page 13)
49 Third, under reg 5.6.26, the chairperson at the first meeting, if in doubt whether a proof of debt or claim should be admitted or rejected, was required to mark it as objected to, and allow the creditor to vote, subject to the vote being declared invalid if the objection was sustained. The minutes of the first meeting record that Mr Easthope objected to the rulings of the chairperson, and the chairperson advised that those proofs of debt would be marked as objected to and the objection would be noted in the minutes of the meeting. Under reg 5.6.26(3), the decision by the chairperson may have been appealed within 10 business days. There is no evidence that it was.
50 Fourth, the general principles which apply to an application for interlocutory relief are not in dispute: see, for example, Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 [7] - [13]; SMS Rental (WA) Pty Ltd v Cahma Life Nominees Pty Ltd [2009] WASC 359. It is necessary to identify the legal or equitable rights which are to be determined at trial and in respect of which final relief is sought: seeAustralian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199 [11], [105]. The court may grant the injunction for the purpose of keeping matters in status quo until the parties' rights are determined at trial.
51 The same principles apply where an injunction is sought to restrain a meeting. The cases display what Commissioner Odes QC, inMcGeachie v Clark [2005] WASC 177, referred to as a 'general but firm reluctance' on the part of the courts to intervene by granting an injunction in relation to the holding of meetings of a body convened in order to discuss resolutions proposed for consideration of its members. But there are exceptions to this approach, and the preservation of the status quo may require intervention.
52 In considering whether the applicants have shown a sufficient likelihood of success to justify the preservation of the status quo pending the trial, I should have regard to the nature of the rights they assert and the practical consequences likely to flow from the orders the applicants seek. In a matter like the present, there may be less room for arguments on balance of convenience, at least for the arguments put forward by the administrators regarding the cost of adjourning the meeting. If there are reasonable grounds for apprehending that the administrators will not act impartially, they should be restrained.
53 Fifth, the principles regarding independence and impartiality which have been developed and applied to liquidators are applied also to
(Page 14)
- voluntary administrators under pt 5.3A of the Corporations Act: see, for example, Commonwealth of Australian v Irving (1996) 19 ACSR 459, 462. An administrator must be both independent and impartial, and the impartiality and independence of the administrator must be manifest: Re Allebart Pty Ltd (in liq) [1971] 1 NSWLR 24, 30. That does not preclude all prior contact with the company under administration, or those associated with it: see National Australia Bank Ltd v Market Holdings Pty Ltd (in liq) [2001] NSWSC 253; (2001) 37 ACSR 629 [194]. But there should not be any involvement that is likely to impede or inhibit the administrator from acting impartially and in the interests of all creditors, or that would give rise to a reasonable apprehension that the administrator might be so impeded or inhibited.
The matters relied on
54 The matters relied on by the applicants were summarised by counsel in submissions.
55 First, there is the communication between Mr Dewhurst and a director of the companies from October 2012. As noted above, the communications were recorded in the declaration signed by the administrators. There is nothing before me to suggest that the degree or nature of the communications is such as to raise questions about the independence or impartiality of the administrators. InCommonwealth of Australian v Irving, Branson J said:
It is not, in my view, the law that a person appointed as an administrator of a company under pt 5.3A of the Corporations Law may not have had any prior contact with the company or its directors or officers. It is now common place for a company to seek professional advice respecting actual or apprehended insolvency and for the advice received to be to appoint an administrator pursuant to pt 5.3A of the Corporations Law. Not infrequently, and, in my view, not improperly, the proponent of the advice to appoint an administrator then accepts appointment as that administrator. There would, I consider, be an air of commercial unreality about any suggestion that this course of events is necessarily improper (464).
56 The applicants rely, in part, on the refusal of the administrators to provide access to the notes of these communications. The applicants' solicitors requested detailed information and documents about any contact in their letters of 4 and 7 February 2013. In response, Sparke Helmore referred them to the declaration completed by the administrators, as required by the Act. I was not taken to anything which suggests that the administrators had an obligation beyond that, and behaved improperly or showed partiality in responding as they did.
(Page 15)
57 The administrators accept that there was an omission in the declaration made before the first meeting, and that a replacement declaration will be made. That is not, in my opinion, a circumstance requiring the restraint of the second meeting.
58 Second, the administrators are located in Sydney. I am not sure to what this is suggested to be relevant.
59 Third, the applicants complain about the conduct of concurrent meetings of ABLP and ABL. This is not a matter which calls for the court to intervene.
60 Fourth, the administrators have not agreed to a process which would allow the bias allegations to be resolved before the second meeting of creditors by putting back the second meeting until after the originating process has been heard.
61 The administrators have consistently taken the position that they have no power to adjourn the meeting other than by a vote of the creditors at the meeting. That is, in my opinion, correct. The administrator is to act as chairperson of the first meeting of creditors:Corporations Regulations reg 5.6.17; and for a meeting convened under s 439A of the Corporations Act, the administrator is to preside: s 439B. But a chairperson has no inherent power to adjourn a meeting without consent of the majority of the creditors who are present: seeCommonwealth Bank of Australia v Fernandez [2010] FCA 1487 [27]. There are exceptions to that rule, but none of them is relevant here.
62 I am not satisfied that the administrators' conduct in not agreeing to adjourn the meetings is evidence of partiality or provides some other basis to restrain them.
63 Fifth, the applicants point to the failure of the administrators to give notice to each of Mr Cote and Ms Chouinard of the first meeting of creditors. The list of creditors provided to the administrators did not include either of them. That is not the doing of the administrators and is no basis for a reasonable apprehension that they are biased.
64 Sixth, the administrators made decisions at the first meeting to accept some proofs of debt, as the basis for voting rights, and reject others. As the respondents submit, the decisions under reg 5.6.23 and 5.6.26 are, of necessity, 'somewhat summary by nature': seeSelim v McGrath [2003] NSWSC 927; (2003) 177 FLR 85 [103]. The decisions may have been wrong, but that is not proof of bias. In particular, reg 5.6.26 provides that
(Page 16)
- in case of doubt whether a proof or claim should be admitted or rejected, the proof or claim should be marked as objected to and the creditor allowed to vote. Regulation 5.6.26(3) provides an avenue of appeal.
65 Counsel for the applicants presented cogent arguments why some of the proofs should not have been allowed, and why Ms Chouinard should be entitled to vote at more than a nominal value. I do not need to finally determine those arguments and I do not purport to do so. What also emerges on the papers before me is that the administrators were taking legal advice as to the claims, to the extent they could. The minutes of the first meeting record that the chairperson advised that all proofs of debt had been forwarded to the solicitors acting for the administrators for review. This also appears from the correspondence between Sparke Helmore and Culshaw Miller.
66 In particular, with regard to the treatment of Ms Chouinard's proof, there was a problem caused by both the assignors and Ms Chouinard proving for the same debt. The course taken allowed a vote, although did not recognise the value of the claim. I do not need to decide whether this was a proper case for determining the value at $1.00 under reg 5.6.23. I am not satisfied that it gives rise to a reasonable apprehension of bias.
67 Finally, I was taken to deficiencies in the administrators' report, which the applicants submitted, as a result, was not a report of the kind required by s 438A to be laid before the creditors. Each of the particular matters appears to have been raised for the first time at the hearing, even though the report was made available on 22 February. The matters relied on at the hearing were:
1. The report discloses that the administrators had not yet received a report as to affairs from the directors, although that is required within five business days of the commencement of the administration. Section 438B requires that report within five business days or such longer period as the administrator allows. The report states that the report as to affairs is expected before the forthcoming meeting. I can form no view about why the report of affairs was delayed.
2. The report provides a statement of financial position from draft management accounts. The administrators report that due to time constraints they had not conducted an audit or obtained independent verification. Elsewhere, however, the report refers to initial forensic investigation to identify transactions which may be
- preference payments. Again, it is difficult in the absence of any response to reach any conclusion about the information that was relied upon. In particular, having regard to the purposes of the second meeting in the context of pt 5.3A of the Act, and in the absence of any further evidence, I do not know whether the financial information reported is sufficient.
- 3. The applicants relied on the issue of reporting of insolvent trading. In particular, they assert:
(a) the administrators had not considered, notwithstanding evident insolvency, whether loss had been incurred by the companies for which the directors should compensate the companies;
(b) the administrators wrongly found that it is not established that the companies incurred any of the current debts while insolvent, and that it is not conclusively established that a reasonable person in the position of the directors would have suspected insolvency.
If the matter were pursued, a Liquidator would be required to present sufficient evidence to show that the Company were insolvent and secondly to refute any statutory defenses provided by a director.
Further investigations in relation to a potential claim for insolvent trading would need to be undertaken by a Liquidator to determine the specific date that the companies became insolvent and the specific quantum of the potential insolvent trading claim against the director. A significant amount of further investigations would need to be conducted by a liquidator before a date of insolvency and the quantum of any potential claim can be finalised.
Creditors should note that only a Court can determine the actual date of insolvency. If the Court agrees with my preliminary investigations the director may be liable to pay for all outstanding liabilities incurred by the Company during his tenure as Company officer, subsequent to the date it became insolvent.
(Page 18)
- An action for insolvent trading would only be brought against the director by a Liquidator if a benefit would accrue to creditors from doing so. A further detailed analysis of the Companies would need to be undertaken by a Liquidator to evaluate the merits of any such action.
69 In my opinion, reading the report as a whole, this complaint is unfounded. The administrators do not shy away from the possibility that the companies traded while insolvent and the directors may be liable. But such matters require some investigation. Whether a company is insolvent at any particular time is a question of fact to be ascertained having regard to all of the circumstances. The ability of the company to borrow and the willingness of creditors to continue lending may be significant factors. The likelihood that directors and shareholders will continue to support the company by lending money, and the terms on which that money is made available, must all be considered. This statement of provisional findings is as likely to be evidence of care and prudence on the part of the administrators, as it is likely to be evidence of partiality.
70 In summary, I am not satisfied on the evidence that I have been able to consider in the time available, that the applicants have presented a sufficient case to support the relief they claim. There may be deficiencies in the report, but I am not satisfied that they would lead a reasonable creditor to apprehend bias.
71 The other matter which I take into account is the stated aim of the applicants to prevent the meeting proceeding so that they may present their own deed of company arrangement to the creditors when they are in a position to do so. This is despite the fact that they have previously taken steps towards having the company wound up. They have no current proposition to put to the creditors. It would, in my opinion, be contrary to the aim of pt 5.3A of the Corporations Act to delay the completion of the administration on such an uncertain basis.
72 In the circumstances, having regard to the imminence of the meeting, I am not satisfied that there is a sufficiently arguable case to support an order restraining the conduct of the meeting.
No comments:
Post a Comment