ACN 002 596 Pty Ltd v Minshull

[2005] NSWSC 4

Reported Decision: 53 ACSR 598
(2005) 23 ACLC 402

New South Wales

Supreme Court

CITATION:	ACN 002 596 Pty Ltd v Minshull [2005] NSWSC 4
HEARING DATE(S):	15/11/04
JUDGMENT DATE :	1 February 2005
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Short minutes to be brought in

CATCHWORDS:	CORPORATIONS - voluntary administration - deed of company arrangement - internal inconsistencies of approach - resort to materials sent to creditors before meeting and to proceedings at meeting - whether deed has run its course - whether it should be amended to put this beyond doubt - PROCEDURE - separate proceedings cross vested from Industrial Relations Commission and Federal Court - observations on how they should be progressed together.
LEGISLATION CITED:	Corporations Act 2001 (Cth), Part 5.3A, ss.444E, 447A
CASES CITED:	Selim v McGrath (2003) 47 ACSR 537
PARTIES:	ACN 002 596 509 Pty Ltd - First Plaintiff John Lawrence Meyers - Second Plaintiff Geoffrey Tattersal - Third Plaintiff Sepa Waste Water Treatment Pty Limited - Fourth Plaintiff Roger Andrew Minshull - First Defendant Rexula Pty Limited - Second Defendant John Frederick Lord as administration of ACN 002 596 509 Pty Ltd - Applicant
FILE NUMBER(S):	SC 3962/04
COUNSEL:	Mr D.D. Knoll - Plaintiffs Mr J.T. Johnson - First Defendant Mr D.R. Pritchard - Applicant
SOLICITORS:	Thompson Norrie - Plaintiffs The Argyle Partnership - First Defendant TurksLegal - Applicant

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

TUESDAY, 1 FEBRUARY 2005

3962/04 – ACN 002 596 509 PTY LIMITED (FORMERLY KNOWN AS SEPA WASTE WATER TREATMENT PTY LIMITED) & 3 ORS v ROGER ANDREW MINSHULL & ANOR

JUDGMENT

1 On 15 November 2004, I heard argument on matters arising from three processes, each styled notice of motion. Before referring to those matters, I should describe the parties and the proceedings. In doing so, it will be preferable to refer to them by name. The reason for this will emerge.

2 On 23 September 2003, Mr R A Minshull commenced proceedings 5287/03 in the Industrial Relations Commission of New South Wales seeking relief un s.106 of the Industrial Relations Act 1996. He sought an order declaring void or, alternatively, varying a contract between him and Sepa Waste Water Treatment Pty Ltd (which, for reasons that will become apparent, I shall call “Old Sepa”), being a contract whereby Mr Minshull “performed work in the engineering industry”. Mr Minshull also sought an order declaring Mr J L Meyers “closely and culpably associated with the unfairness” arising out of the contract. Orders for the payment of money were sought against Old Sepa and Mr Meyers.

3 On 16 April 2004, an amended summons was filed in the Commission. It added three new parties and expended the claims. Added as an applicant was Rexula Pty Limited, a company associated with Mr Minshull. Added as respondents were Geoffrey Tattersall and Sepa Waste Water Treatment Pty Ltd (“New Sepa”). By that time, Old Sepa had entered voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth), a deed of company arrangement had been executed and Old Sepa’s business had been sold to New Sepa, the principals and directors of which were Mr Meyers and Mr Tattersall. These events happened in October 2003. The amended summons sought various relief in respect of the deed of company arrangement and the contract for the sale of the business by Old Sepa to New Sepa, including an order declaring them “unfair” within the meaning of the Industrial Relations Act and an order declaring that they were created for the purpose of defeating any judgment of the Commission in the proceedings.

4 On 14 July 2004, Old Sepa, New Sepa, Mr Meyers and Mr Tattersall commenced proceedings against Mr Minshull and Rexula Pty Ltd in the Federal Court of Australia. The relief sought was a declaration that s.106 of the Industrial Relations Act, when applied to avoid or vary the terms or effect of a deed of company arrangement, is inconsistent with Part 5.3A of the Corporations Act and is, to the extent of the inconsistency, invalid. There was also a claim for an order prohibiting the applicants in the Commission from taking further steps in the Commission proceedings in relation to the deed of company arrangement; and an order prohibiting the taking of further steps in the Commission against Old Sepa without a grant of leave under s.444E of the Corporations Act.

5 The Commission proceedings came before Schmidt J on 16 July 2004. Her Honour delivered a judgment on 19 July 2004. In the result, she left it to the parties to formulate orders giving effect to her decision. She inclined to the view (but did not find it necessary to decide) that the Commission had no power to deal with the deed of company arrangement and the contract for the sale of the business by Old Sepa to New Sepa as they are not contracts whereby work was performed in an industry as referred to in s.106 (paragraph 21 of the judgment). Her Honour decided that the proceedings in the Commission could not be further pressed without a grant of leave under s.444E of the Corporations Act (paragraphs 24 and 26). She also said that she was satisfied that “an arguable constitutional point does arise”, and that notices under s.78B of the Judiciary Act should be given.

6 On 28 July 2004, Schmidt J granted leave for Mr Minshull to file an amended summons and said:

“Whether or not leave be granted to pursue it is another matter which need not be determined at this stage.”

This appears to be a reference to leave under s.444E of the Corporations Act . Her Honour also stayed the proceedings in the Commission pending determination of an application to cross-vest them to this court. There was also an order that, if this court did not make a cross-vesting order within 60 days, notices were to be given under s.78B of the Judiciary Act .

7 On 15 July 2004, Old Sepa, Mr Meyers, Mr Tattersall and New Sepa filed a summons in this court seeking an order that the proceedings in the Industrial Relations Commission be removed into this court. On 19 August 2004, a registrar of this court noted the Commission’s orders of 19 July 2004 and a cross-vesting order made on 29 July 2004 by the Federal Court of Australia in the related proceedings in that court. By consent of the parties, the registrar made orders completing removal of both the Industrial Relations Commission proceedings and the Federal Court proceedings into this court. The cross-vested Federal Court proceedings are within this court’s file 3962/04. The removed Industrial Relations Commission proceedings are within file 5685/04.

8 I come now to the three notices of motion heard by me on 15 November 2004. Each has been filed in 3962/04. The first, in order of time, is a notice of motion filed on 15 September 2004 by Mr Minshull seeking an order joining John Frederick Lord (the deed administrator of the deed of company arrangement in relation to Old Sepa) as a defendant “in these proceedings”. The second, filed by Mr Minshull on 30 September 2004 in 3962/04, seeks a declaration that the deed of company arrangement has not been terminated; alternatively, an injunction preventing Mr Lord as deed administrator from taking any step to terminate it; alternatively, an order pursuant to s.1321 of the Corporations Act setting aside the lodgment by Mr Lord with ASIC of any notice under clause 20.1 of the deed of company arrangement. The third is a notice of motion filed on 1 October 2004 by Mr Lord in 3962/04 seeking an order varying the deed of company arrangement in certain respects.

9 I should say more about the deed of company arrangement and the processes associated with it. The deed is dated 13 November 2003, as is the agreement for the sale of the business to New Sepa in accordance with a form of agreement attached to the deed. Clause 10.3 of the deed provided for the purchaser of the business to “guarantee payment in full of the unsecured Creditors (as declared at the Commencement Date being $444,243.00)”. Clause 11.1 provided for payment of unsecured creditors by the purchaser in a certain way. Later provisions in the deed created a regime for the proving of claims and the application of funds which may not be consistent with clauses 10.3 and 11.1. It was provided that the deed would terminate upon the earlier of two events, one of which was receipt by the administrator of all the payments required by clause 11 plus “final distribution” of “the Administration Fund” in accordance with clause 16. There was also provision for the deed administrator to lodge a statement with ASIC following termination of the deed. All these provisions will be considered further presently.

10 Mr Minshull lodged a proof of debt with the deed administrator. It was dated 8 October 2003. He claimed $161,268.33 for “employee claims”, $4,500.00 for “legal costs” and “$1.00 (nominal)” for “s.106 claim with IRC” – a total of $165,769.33. By letter dated 28 October 2003, Mr Lord, as administrator, notified Mr Minshull that $37,227.93 of this total was accepted and gave reasons for rejecting the balance. This, of course, pre-dated the deed of company arrangement.

11 At this point, I pause to consider the several claims currently before this court. They are as follows:

1. Claims by Mr Minshull and Rexula Pty Ltd against Old Sepa, Mr Meyers, Mr Tattersall and New Sepa based on s.106 of the Industrial Relations Act 1996 in respect of arrangements under which Mr Minshull performed work in an industry with Old Sepa, coupled with associated s.106 claims in relation to the deed of company arrangement and the contract for the sale of Old Sepa’s business to New Sepa, all being claims enunciated in the amended summons filed in the Commission on 16 April 2004 and now pleaded in points of claim filed in this court pursuant to leave granted on 27 September 2004 in Supreme Court proceedings 3962/04, although the transferred Industrial Relations Commission proceedings are, in this court, 5685/04.
2. Claims by Old Sepa, Mr Meyers, Mr Tattersall and Old Sepa against Mr Minshull and Rexula Pty Ltd for declarations and injunctions based on alleged inconsistency between s.106 of the Industrial Relations Act and Part 5.3A of the Corporations Act , the injunctions being to the effect that Mr Minshull and Rexula Pty Ltd not take further steps in the Industrial Relations Act proceedings
(a) at all, to the extent that there are claims under s.106 in relation to the deed of company arrangement; and
(b) unless and until leave under s.444E of the Corporations Act has been granted,
being the claims in the proceedings commenced in the Federal Court and cross-vested to this court, which are now Supreme Court proceedings 3962/04.
3. The claim by Mr Minshull, by the notice of motion filed on 15 September in 3962/04, for an order joining Mr Lord in his capacity as administrator of the deed of company arrangement.
4. The claim by Mr Minshull, by the notice of motion filed on 30 September 2004 in 3962/04 for declarations and orders as to the status of the deed of company arrangement.
5. The claim by Mr Lord, by notice of motion filed on 1 October 2004 in 3962/04, for orders varying the deed of company arrangement.

12 Mr Lord strenuously resists Mr Minshull’s application that he be joined as a party to 3962/04. That is, on the face of things, a curious attitude on Mr Lord’s part when he has purported already to seek relief by a notice of motion filed in those proceedings, albeit that it is stated in the notice of motion that it is filed for “the respondent to the motion filed 15 September 2004 on behalf of the first defendant”.

13 Mr Minshull’s two notices of motion (filed 15 September 2004 and 30 September 2004) should, I think, be taken together. Between them they seek to join Mr Lord as a defendant to 3962/04 and to advance in that proceeding the claims for declarations and orders as to the effect of the deed of company arrangement. In substance, it seems to me, Mr Minshull is attempting to graft an additional element on to the proceedings that began life in the Industrial Relations Commission and in which s.106 relief is sought not only in relation to the employment contract but also the deed of company arrangement. That additional element involves a new avenue of attack by Mr Minshull by reference to the deed of company arrangement, his target being Mr Lord as deed administrator and the basic proposition he seeks to agitate being that the deed has not terminated (and should not be terminated) so that he can still seek to come in and claim under it.

14 The central questions raised by Mr Minshull’s notices of motion are, it seems to me, whether these claims that Mr Minshull wishes to pursue against Mr Lord in respect of the deed of company arrangement involve questions of law or fact also arising in the transferred Industrial Relations Commission proceedings or arise out of a transaction involved in the transferred Industrial Relations Commission proceedings and whether joinder of Mr Lord to those proceedings is necessary to ensure that all matters there in dispute may be effectually and completely determined and adjudicated upon. In stating the questions in this way, I am having regard to Part 8 rules 2 and 8 of the Supreme Court Rules.

15 Mr Minshull is free to commence new proceedings for the purpose of litigating the claims he wishes to pursue in relation to the questions about the termination of the deed of company arrangement. Mr Lord would be a necessary party to those proceedings. It is difficult to see that there would be any basis on which an application to stay any such new proceedings as an abuse of process could be made. That being so and in view of the obvious overlap in subject matter, efficiency would indicate that those claims should be argued with, and proceed together with, the existing claims concerning the deed of company arrangement.

16 Mr Pritchard, who appeared for Mr Lord, put forward two grounds on which Mr Minshull’s application to join Mr Lord should be refused. One is delay. The other is, in effect, that Mr Minshull’s claims against Mr Lord are so devoid of merit that, if they were already on foot, they would be struck out.

17 As to delay, I am not aware of any principle that says that a plaintiff seeking to amend (which is what Mr Minshull is effectively doing) can be debarred by delay. On the contrary, amendment is permitted at any stage of the proceedings with leave. Leave will only be refused if the amendment is obviously futile (this is effectively the other ground of objection by Mr Pritchard), if the application to amend is made for an improper purpose, if there will be prejudice to another party that cannot be compensated by a costs order or if the amendment would be contrary to the interests of the administration of justice. Delay as such is not a party of any of these.

18 In support of the contention that the case Mr Minshull wishes to make against Mr Lord is so obviously futile that the court should not grant Mr Minshull the leave he needs to pursue it, Mr Pritchard went through the history of the formulation, adoption and implementation of the deed of company arrangement. From that, he submits that the deed can be seen to have taken its ordained course and to be exhausted, so that there is nothing more to be paid under it and all that it required can be seen to have been properly and regularly done.

19 Notwithstanding this, Mr Lord himself, by means of his own notice of motion, seeks an order varying the deed of company arrangement. The amendment appears to be intended to put beyond doubt the construction of the deed on which Mr Lord bases his argument that the deed has been fully performed. That, it seems to me, is enough to warrant a conclusion that the contentions of Mr Minshull concerning the operation of the deed cannot be said to be so devoid of merit as to be virtually unarguable.

20 In the result, therefore,

(a) Mr Minshull should have leave to join Mr Lord as a party to 3962/04; and
(b) Mr Minshull’s claims for declaratory and injunctive relief, or, in the alternative, relief under the Corporations Act in respect of the deed of company arrangement should be added as claims in the substantive proceedings, that is, the proceedings now pleaded in the points of claim filed in this court pursuant to leave granted on 27 September 2004; and
(c) Mr Lord’s claim to have the deed of company arrangement varied should take the form of a cross-claim in 3962/04; and
(d) Proceedings 3962/04 and 5685/04 should be consolidated in an appropriate way;
(e) there should be a preliminary determination in relation to (b) and (c) above, full argument having taken place; but
(f) no step should be taken in relation to any claim against Old Sepa unless and until the question of leave under s.444E of the Corporations Act has been determined; and
(g) no step should be taken in relation to the issue of inconsistency between s.106 of the Industrial Relations Act and Part 5.3A of the Corporations Act until notices under s.78A of the Judiciary Act have been given.

21 On the basis that the proceedings should be reconstituted in the way I have just described (and assuming, for the moment, that they are so reconstituted), I turn to the substance of the respective claims in relation to the deed of company arrangement. In doing so, I must return in more detail to aspects of the deed to which brief reference has already been made.

22 The deed of company arrangement is dated 13 November 2003. The persons expressed to be its parties are Old Sepa (“Company”), Mr Lord (“Administrator”), Mr Meyers, Mrs Meyers and Mrs Minshull (“Secured Creditors”) and New Sepa (“Purchaser”). As I have already mentioned, the deed provides for the sale of the business of Old Sepa to New Sepa and makes provision with respect to creditors of Old Sepa. It is the latter aspect that is relevant for present purposes. It is necessary to quote certain provisions:

23 Clause 1:

“’Administration Fund’ means the fund arising from the Agreement for Sale of Business and the payments due under the Agreement for Sale of Business and this Deed.
’Claim’ means any debt, claim or liability, present or future, or contingent, ascertained or sounding in damages.

…

‘Creditor’ means any person who at the Fixed Date has or had a Claim against the Company. [The ‘Fixed Date’ is 30 September 2003]
…
‘Participating Creditor’ means any creditor whose claim against the Company has been assessed in accordance with clause 16 of this Deed and accepted as such by the Administrator.”

Clause 10.3:
“The Purchaser will guarantee payment in full of the unsecured Creditors (as declared at the Commencement Date being $444,243.00).”

Clause 11.1:
“Payment of Unsecured Creditors will be made by the Purchaser by payment of the sum of $444,243.00 to the Administrator in accordance with the following payment schedules

· Month 1: Payment in full of all creditors with a Proof

of Debt of less than $1,000.00 to be distributed by the Administrator to the Creditors within 2 weeks from receipt of payment from the Purchaser.

· Months 2-3: No payment

· Months 4-9: Six (6) equal monthly payments of

$72,000.00

· The Purchaser may at its discretion and within its ability to

do so:
- make quicker payments to the Administrator.
- make payments directly to SEPA’s creditors, which on receipt of Proof of Payment from that creditor and forwarded to the Administrator by the Purchaser that amount will be deducted from the monthly payments made by the Purchaser to the Administrator.
- The Administrator may make periodic partial payments to all unpaid creditors as funds allow distributions to be made.”

Clause 15.1:
“Subdivisions A, B, C and E of Division 6 of part 5.6 of the Law and Regulations 5.6.11 to 5.6.57 inclusive of the Corporations Regulations apply to claims made under this Deed and any creditors’ meetings convened for the purposes of this Deed, with such modifications as are necessary as if the references to the liquidator were references to the Administrator and as if references to the relevant date contained therein were references to the date of commencement of this Deed.”

Clause 16.1:
“Subject to subclause 17.2 of this Deed, all Creditors whose claims are admissible under clause 16 of this Deed must accept the terms of this Deed and their entitlements in full and final satisfaction of all claims so that upon the declaration of a final dividend to Participating Creditors, all such claims are discharged and extinguished.
If this Deed terminates before payment of a final dividend then all of the Creditors shall be entitled to claim as creditors in any liquidation of the Company for the whole amount of their claims except that they shall give a credit to the Company for any amounts received under this Deed or to the extent that their claim against the company has been discharged in full or in part from other sources.”

Clause 20:
“20.1 This Deed terminates upon the earliest of any of the following:
20.1.1 The Administrator receives all of the payments required by Clause 11 of this Deed and finally distributes the Administration Fund in accordance with Clause 16 of this Deed to Participating Creditors. The Administrator must certify to that effect in writing and must within 28 days lodge with the Commission a notice of termination of this Deed in the following form:
SEPA Waste Water Treatment Pty Ltd (subject to a Deed of Company Arrangement)
I, John Lord as Administrator of the Deed of Company Arrangement executed on …………….. CERTIFY that the Deed has been wholly performed and the execution of the notice terminates this Deed.
20.1.2 On the passing of a resolution for the termination of this Deed at a meeting of creditors convened for that purpose.
20.2 On this Deed terminating pursuant to subclause 20.1.2 of this Deed then in those circumstances the Company shall be deemed to have passed a resolution under section 491 of the Law that it be wound up voluntarily and the Administrator be appointed as Liquidator of the Company and the Administrator accepts such appointment as Liquidator of the Company.”

24 The deed proceeded on the implicit basis that the claims of Unsecured Creditors (a term, by the way, not defined in the deed) would total $444,243.00. That sum is referred to in clauses 10.3 and 11.1. By the former, the Purchaser promised to “guarantee” payment of $444,243.00 to the Unsecured Creditors as “declared” in that amount at the Commencement Date. By the latter, it was provided that payment to the Unsecured Creditors would be made “by the Purchaser by the payment of the sum of $444,243.00 to the Administrator” in accordance with the schedule set out.

25 Mr Lord’s affidavit explains how the sum of $444,243.00 came to be referred to in these two provisions of the deed. Mr Meyers and persons assisting him apparently furnished to Mr Lord several schedules of unsecured creditors with the intention that those creditors and their debts should be covered by the provisions that became clauses 10.3 and 11.1. Mr Lord has not been able to locate all the versions progressively received by him. The earliest versions he refers to are two received on 16 October 2003. One of these reflects a total of $441,559.90 and the other a total of $441,343.49. On 28 October 2003, another version was received. It reflected a total of $452,141.36. The version subsequently received by Mr Lord and referred to by him as “the final version” reflects the same total of $452,141.36. That final version is referred to in Mr Lord’s affidavit as “the Payment Schedule”. He says, in paragraphs 17 and 18 of that affidavit:

“17. Payments were made to the persons whose names appear in the Payment Schedule. Payments were made by cheques. These cheques were received in my office from New Sepa. Staff acting under my direction checked the payment details and recorded the payments on the Payment Schedule and thereafter sent the cheques to the relevant creditors referred to in the Payment Schedule.
18. (The Payment Schedule reflects my determination at the meeting of creditors concerning Mr Minshull’s proof of debt, which comprises exhibit ‘JFL7A’. Although the total amount shown on the Payment Schedule was not updated, nonetheless the full amount for which Mr Minshull was admitted to prove was paid to him.)”

26 There are two entries in the Payment Schedule referring to Mr Minshull. The first refers to a Mastercard bill of $12,468.35. The second is: “POD admit $37,227.93” (“POD” no doubt signifying “proof of debt”). This, as already noticed, is the amount admitted by Mr Lord on 28 October 2003 in response to Mr Minshull’s proof of debt dated 8 October 2003. It is confirmed by paragraph 18 of Mr Lord’s affidavit that this $37,227.93 was paid by New Sepa (the Purchaser) to Mr Minshull in the way described in paragraph 17 of the affidavit.

27 It is necessary to refer, at this point, to the meeting of creditors at which the deed of company arrangement proposal was approved and to events preceding that meeting. The meeting took place on 29 October 2003. Notice of the meeting was given to creditors on 22 October 2003. The notice contained information about the lodgment of proofs of debt, including a statement that any creditor who had already lodged a proof was not required to lodge another. In the context of the Part 5.3A administration as it existed at and immediately before the time of the meeting of creditors on 29 October 2003, the only purpose served by a proof of debt related to voting at that meeting: see Selim v McGrath (2003) 47 ACSR 537 at p.557.

28 The material sent with the notice of meeting included an outline of the deed of company arrangement proposal. This outline referred to the proposed sale of Old Sepa’s business to New Sepa and described one element of the consideration as follows:

“Assume the liability of unsecured creditors, excluding Mr Roger Minshull’s unfair dismissal claim against the Company.”

A form of deed of company arrangement accompanied the report. It does not seem to differ, in any material way, from the document eventually executed. The report was also accompanied by what purported to be a form of agreement for the sale of business but was in reality only a statement of proposed terms. One element of the consideration was expressed as:

“Guarantee payment in full of all unsecured creditors (as declared at this date, for the approximate sum of $444,243.00) so long as the purchaser remains in business.”

29 There was also an item 4.5 “Exclusions” as follows:

“The Purchaser specifically excludes from the Purchase of the Business any potential claims or liability arising from Claims made by Roger Minshull of 71 Glencoe Street, Sutherland NSW 2232 in relation to alleged fraud or unfair dismissal or any other matter.”

30 In a circular to creditors dated 29 October 2003 (the date of the meeting), the administrator referred to changes proposed by the proponents of the deed and the purchase agreement. Item 4.5 “Exclusions” of the agreement was stated as having been altered to be as follows:

“The purchaser agreed to make payment to Mr Roger Minshull under the terms of the Deed the agreed debt due to him as an unsecured creditor plus any unpaid termination leave rightfully due to him. The purchaser specifically excludes from the purchase of the business any potential claims or liability arising from claims made by Roger Minshull in relation to the alleged fraud, or claims for redundancy, or Section 106 claim.”

31 Neither the deed of company arrangement nor the agreement for sale of business, as eventually executed, referred to any explicit exclusion concerning Mr Minshull in terms of either version of item 4.5 “Exclusions”.

32 Insights into the administrator’s views about how the proposed deed would work, if approved by creditors, may be obtained from parts of the debate at the meeting on 29 October 2003. I quote first an interchange between the administrator and Mr Golledge, solicitor, the proxy for Mr Minshull, following questioning as to why the administrator had not attempted to interest third party buyers:

“The Chairman:
That’s exactly right, they don’t have it at the moment. I am also of the view that on the basis that there is a proposal on foot for creditors to be paid 100 cents in the dollar.
Steven Golledge:
Not all creditors, John. The only creditor that is not being offered 100 cents in the dollar is my client. Is that correct?
The Chairman:
That is correct with regards to redundancy claims.
Steven Golledge:
Well, whatever they turn out to be.
The Chairman:
I have already ruled that there is no redundancy claim.”

33 A later part of the dialogue deals with the possibility of claims over and above those taken into account by New Sepa and the question how they would be dealt with:

“Steven Golledge:
What happens under the deed if creditors exceed the amount of $444,000? Do the payments go up? Or does everyone’s dividend come down?
The Chairman:
Dividend will go down.
Steven Golledge:
That is not a point you made in your report.
The Chairman:
That is making an assumption that the claims of creditors will go up.
Steven Golledge:
What if China lodges a claim?
The Chairman:
If China makes a substantial, for example warranty claim, the likelihood of stage 2 of the project proceeding disappears and we go back to deed failing and company being wound up. Where is the detriment to creditors?
Steven Golledge:
There are the possibility of others making a substantial claim, for example, Roger makes a fight it out for his redundancy claim and it is upheld, that would be a proof of debt under the deed. Why was the possibility of the dividend being less not in the report? The report and the deed simply says that everyone gets 100 cents in the dollar. It’s only 100 cents in the dollar provided that the claims do not exceed $442,000.
The Chairman:
The deed states that there is an upper limit of $442,000 and payment is based on known creditors. On the basis that the company in liquidation is zero to creditors, where is the detriment to creditors if under the deed they get a total of $442,000. The recommendation to creditors remains the same as under the deed, based on the numbers available at the moment, it appears that creditors will receive 100 cents in the dollar. There are no other known creditors. The only disputed claim is the redundancy which is about $120,000.
Steven Golledge:
I just want to know what it wasn’t mentioned that creditors aren’t guaranteed 100 cents in the dollar even if the deed works.
The Chairman:
Well if there is an upper limit …”

34 The competing contentions with respect to the deed – that is, the contentions of Mr Minshull in support of the proposition that the deed has not been terminated (or, perhaps, should not have been terminated) and the contentions of Mr Lord in support of the proposition that the deed has run its course and should be varied to put this beyond doubt – must now be addressed. Mr Lord’s thesis is, in essence, that the deed involved an unusual, but intelligible and sensible, system under which New Sepa, in conjunction with its purchase of the business, identified the creditors of Old Sepa, specified the amounts of their debts (or, in the case of Mr Minshull, a sum it was prepared to recognise as sufficient to satisfy his various claims), undertook an obligation to meet the specified amounts in full and put in place a mechanism by which actual payment could be made by New Sepa direct to a particular creditor instead of being met out of a fund in the hands of the administrator constituted by an aggregate payment by New Sepa to the administrator in the first instance. Mr Lord also says that, to the extent that the deed, on its face, provides for a regime of proof of debts and recognition of creditors and amounts accordingly, it does not reflect the underlying intention. Furthermore, it appears to be said that the only claim requiring adjudication of that kind is that of Mr Minshull and that the necessary assessment in that regard was made by Mr Lord in advance of the meeting of creditors and notified by Mr Lord’s letter of 28 November 2003.

35 Mr Minshull approaches the matter differently. He says that the deed incorporated, in the usual way, mechanisms for determining creditors’ claims and that only claims so ascertained ought to have been paid out of the funds that New Sepa agreed to make available for the purpose of meeting unsecured creditors’ debts. The determination notified by the letter of 28 October 2003 in respect of Mr Minshull’s claim cannot possibly represent a determination for the purposes of the deed: it was made before the deed’s mechanisms existed and for the particular and confined purpose of voting at the then imminent meeting of creditors. Discussion at the meeting of creditors made it clear that creditors over and above those expressly identified by New Sepa might emerge and that, in that event, the projected 100 cents in the dollar predicated on the assumption that the $444,243.00 would satisfy all claims would not be achieved.

36 If the matter is looked at in terms of the expressions of intention that may be gathered from the background materials to which I have referred, each point of view can be seen to have a measure of support. On balance, however, I am of the view that the approach for which Mr Lord contends would remove an important aspect to which express reference was made at the meeting, namely, the procedure under which creditors’ claims were to be assessed and might be reviewed.

37 There is nothing in the evidence to suggest that any creditor other than Mr Minshull disputed (or disputes) the amount for which that creditor was recognised in the procedures in fact followed. Indeed, the evidence suggests that New Sepa was keen to keep faith with virtually all creditors, apart from Mr Minshull, because New Sepa would wish to enjoy an ongoing relationship with them. But there cannot be, in any objective sense, any fair measure of certainty that all creditors were identified by the deed administrator who, it appears, did not look beyond what he was told by the proponents of the deed, being the principals of New Sepa.

38 The Corporations Act shows an intention that a process of calling for proofs of debt, assessing resultant claims and, if necessary, appeal to the court should form part of a deed of company arrangement except to the extent that the deed itself “provides otherwise”: see s.444A(5) and the reference to subdivisions A and B of Division 6 of Part 5.6 of the Act in clause 8 of Schedule 8A to the Corporations Regulations. In this case, the deed did not “provide otherwise” – on the contrary, it made exactly the same specification in express terms, at the same time importing regulations 5.6.11 to 5.6.57 which include a mechanism to ensure that persons claiming to be creditors are aware of the deadline for advancing their claims. That, coupled with the fact there was explicit reference at the meeting of creditors to the deed’s accommodating the claims of “others” (that is, persons other than those identified by the proponents), leads to the conclusion that it would be inappropriate for the court to endorse, by s.447A order, the correctness of Mr Lord’s approach.

39 At the same time, it does seem that, in the events that have happened, there is no point in requiring that creditors recognised (and paid) should be required to lodge proofs of debt. What seems to me to be needed is an adjunct to the existing provisions which, first, involves an advertisement of a specially tailored kind to cover the possibility that there are genuine claimants over and above those identified by the deed proponents, second, permits proof by anyone who maintains that that claim has not been satisfied by the steps already taken (this would include Mr Minshull) and, third, provides for assessment and review of such proofs in accordance with the Act. Because this approach would incorporate one aspect of the arrangements as outlined to creditors before voting which was not clearly secured by the deed (I refer to mechanisms for the recognition of claimants beyond those identified by the proponents), it should likewise incorporate the other central matter that was placed before creditors but failed to find its way into the deed, namely, Item 4.5 “Exclusions” as set out in the administrator’s circular of 29 October 2003. A regime of the kind I have outlined could, I think, be implemented by order under s.447A.

40 But there is, of course, no application for such an order before the court. As for the applications that are before the court, I am of the opinion, first, that the s.447A order Mr Lord seeks for the purpose of modifying the deed should not be made because, as I have said, such an order would fail to give weight to the statements made at the meeting of creditors affording a role to the system of proofs Mr Lord seeks to see abolished; and, second, that non-implementation of those aspects of the deed means that “Participating Creditors” have not been determined, so that all events which, in accordance with clause 20.1, go to make up or lead to termination of the deed have not occurred.

41 It is desirable that the parties consider these reasons and seek to formulate appropriate orders with respect to not only the subject matter of the three notices of motion heard by me on 15 November 2004 but also the various procedural matters to which I have referred. If an agreed outcome in those respects can be achieved within 21 days, short minutes may be filed by delivery to my Associate. Otherwise the proceedings will be re-listed for supplementary submissions and directions.

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