AGC v Lawrence (Globe Dye Works) Pty Ltd
[1999] VSC 247
•30 June 1999
SUPREME COURT OF VICTORIA
CAUSES JURISDICTION Do not Send for Reporting Not Restricted
No. 8240 of 1998
| AUSTRALIAN GUARANTEE CORPORATION LIMITED | Applicant |
| v | |
| WILLIAM LAWRENCE (GLOBE DYE WORKS) and | First Respondent |
| GRAHAM JOHN CLARK (as administrator of a Deed of Company Arrangement dated 30 July 1997) | Second Respondent |
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JUDGE: | O'Bryan J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 28 June 1999 | |
DATE OF JUDGMENT: | 30 June 1999 | |
CASE MAY BE CITED AS: | AGC v. Lawrence (Globe Dye Works) Pty Ltd | |
MEDIA NEUTRAL CITATION: | [1999] VSC 247 | |
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Deed of Company Arrangement – Corporations Law – Application to terminate deed – Cross application for declarations to validate deed.
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APPEARANCES: | Counsel | Solicitors |
For the Applicant | Mr G. Bigmore QC with | Corrs, Chambers, Westgarth |
| For the Respondents | Mr M.R. Shatin QC with Mr Currao | S.V. Winter & Co |
HIS HONOUR:
Before the court is a Notice of Motion dated 22 December 1998 filed on behalf of the applicant for orders that a Deed of Company Arrangement dated 30 July 1997 entered into by the respondents be declared void pursuant to s.445G of the Corporations Law of Victoria alternatively, that the said deed be declared invalid pursuant to s.1322(2) of the Corporations Law of Victoria (CLV).
Sections 445D and 445G are both in Part 5.3A of CLV – "Administration of a Company's Affairs With a View to Executing a Deed of Company Arrangement".
Mr Bigmore, one of Her Majesty's counsel, who appeared with Mr Gilbertson for the applicant informed the court that the applicant no longer maintains its application under s.445D of CLV.
Section 445G provides:
"(1)Where there is a doubt, or a specific ground, whether a deed of
company arrangement was entered into in accordance with this Part or complies with this Part, the administrator of the deed, a member or creditor of the company, or the Commission, may apply to the court for an order under this section.(2)On an application, the court may make an order declaring the deed, or a provision of it, to be void, or not to be void, as the case requires, on the ground specified in the application or some other ground.
(3)On an application, the court may declare the deed, or a provision of it, to be valid, despite a contravention of a provision of this Part, if the court is satisfied that:
(a) the provision was substantially complied with; and
(b) no injustice will result for anyone bound by a deed of company arrangement if the contravention is disregarded.
(4) Where the court declares a provision of a deed of company arrangement to be void, the court may by order vary the deed, but only with the consent of the deed's administrator."
Mr Bigmore relied upon procedural irregularities by the appointed administrator as requiring the court to exercise its discretion in favour of making an order declaring the said deed to be void.
Section 1322 provides:
"(1) In this section, unless the contrary intention appears:
(a) a reference to a proceeding under this law is a reference to any proceeding whether a legal proceeding or not; and
(b) a reference to a procedural irregularity includes a reference to;
(i) the absence of a quorum at a meeting of the corporation, at a meeting of directors or creditors of a corporation or at a joint meeting of creditors and members of a corporation; and
(ii) a defect, irregularity or deficiency of a notice or time.
(2) A proceeding under this law is not invalidated because of any procedural irregularity unless the court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the court and by order declares the proceeding to be invalid.
(3) A meeting held for the purposes of this Law, or a meeting notice of which is required to be given in accordance with the provisions of this Law, or any proceeding at such a meeting, is not invalidated only because of the accidental omission to give notice of the meeting or the non‑receipt by any person of notice of the meeting, unless the court, on the application of the person concerned, a person entitled to attend the meeting or the Commission declares proceedings at the meeting to be void.
(4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Law, the court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the court imposes:
(a) An order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Law or in relation to a corporation is not invalid by reason of any contravention of a provision of this Law or a provision of the constitution of a corporation.
(b) Not relevant.
(c) Not relevant.
(d) Not relevant.
(5) An order may be made under paragraph (4)(a) or (c) notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence
(6) The court shall not make an order under s.1322 unless it is satisfied:
(a) in the case of an order referred to in paragraph (4)(a);
(i) that the act, matter or thing, or the proceeding referred to in that paragraph is essentially of a procedural nature;
(ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or
(iii) that it is in the public interest that the order be made;
(b) Not relevant.
(c) and in every case – that no substantial injustice has been or is likely to be caused to any person."
There is also before the court a Summons dated 22 June 1999 filed on behalf of the respondents. It is in the nature of a cross-summons for the relief claimed is pursuant to s.445G of the CLV, or in the alternative, pursuant to s.1322(4)(a).
A declaration and orders are sought by the respondents pursuant to s.445G that the said deed is valid despite any contraventions of Part 5.3A of the CLV and, in particular sections 436E(3) (timing of first meeting of creditors), 439A(1) (convening meetings and informing creditors) and 439A(2) (time for convening a meeting).
A declaration and orders are sought by the respondent pursuant to s.1322(4)(a) that despite any non‑compliance with the provisions of the CLV the said deed is not invalid.
A short narrative of the events giving rise to these proceedings is provided.
On or about 7 September 1997 a Factoring Agreement was entered into between the applicant and the first respondent providing, inter alia, financing facilities for Lawrence including a business loan and chattel mortgage. The loan facility was secured by a debenture charge.
On 8 July 1991 the applicant appointed receivers and managers pursuant to the charge. In December 1992 the receivers and managers reported that as at 16 December 1992 Lawrence owed the applicant $7.032M.
Because Lawrence was hopelessly insolvent the court made an order on 27 May 1992 winding up the company. On 29 August 1994 the liquidation was completed and the liquidator filed his final accounts.
The National Australia Bank was another substantial creditor. On 6 November 1996, NAB assigned the debt owed to it by Lawrence, secured by NAB's Registered Mortgage Debenture, to Kelinga Pty Ltd. The assignment of the Lawrence debt was part of a scheme whereby Kelinga Pty Ltd proposed to fund the liquidator of Lawrence in a proposed proceeding against the applicant for breach of contract.
Mr Bigmore submitted that the assignment of the debt was not effected by the deed but required a further agreement which has not been executed to effect the assignment. If the assignment was ineffectual. Mr Plain, a director of Kerlinga was not entitled to vote at a meeting of creditors of Lawrence held on 15 July 1997 as assignee of Lawrence's debt to NAB.
In my opinion, there is no merit in this submission. The Deed of Assignment in clause 2 states: "The Bank will assign to the Assignee the Lawrence debt on the basis it receives five per cent (5%) of the gross amount of the damages obtained from the action referred to in Recital E." In my opinion, upon the proper construction of the Deed the assignment of the Lawrence debt became effective upon execution of the deed by the parties and did not require a further document. The clear intendment of the parties to the Deed of Assignment was that the instrument when executed be a deed in its own right and to operate as a Deed of Assignment of the Lawrence debt. See: Farrow Mortgage Services Pty Ltd v. Hogg (1995) 64 SASR 450.
On 23 June 1997 the respondents commenced a proceeding in this court (5936 of 1997) against the applicant. The writ was not served until 19 June 1998. Pleadings closed about the end of October 1998. The proceeding is still on foot and is the catalyst for the present proceeding.
Notice of the assignment was given to the Australian Securities and Investments Commission (ASIC) on 8 June 1999.
It is of no concern to the court in this proceeding to consider whether the action on the cause of action in proceeding 5936 of 1997 is, or is not, arguable. The applicant relies on a right of set‑off in respect of the debt incurred under the Factoring Agreement. Presently the Lawrence debt to AGC including interest is approximately $12.5M.
The first respondent was restored to the register of companies on 26 March 1997 for the purpose of enabling a former employee to pursue a claim against Lawrence under the Workers Compensation Act 1958.
On 17 June 1997 the liquidator of Lawrence appointed Mr Graham Clark, an accountant, Administrator for the purposes of Part 5.3A of the CLV.
Section 436E(2) of the CLV required the Administrator to hold the first meeting of Lawrence's creditors by 24 June 1997. By sub‑section (3) of s.436E the Administrator was required (a) to give written notice of the meeting to as many o the company's creditors as reasonably practicable; and (b) to cause notice of the meeting to be advertised in a national newspaper at least two days before the meeting. The meeting was held on 23 June but constraints of time and unavailability of a complete list of creditors and their addresses resulted in notices not being sent to some creditors or being sent to a wrong address. Notices were posted on Thursday 19 June and an advertisement of the meeting was published in "The Age" newspaper on Saturday 21 June, which was less than two business days before the meeting.
The Administrator deposed that it was not reasonably practicable to give written notice of the meeting at least two business days before the meeting. At the meeting on 23 June the creditors present, (the applicant being absent) resolved that a committee of creditors was not required.
Section 439A(2) of the CLV required the Administrator to convene a second meeting of the company's creditors within 21 days of commencement of the administration. The meeting was due on 14 July but was not held until 15 July. The Administrator frankly acknowledged on oath that this lateness, one day, came about by oversight.
The same requirements as to notice to creditors and advertising as applied to the first meeting also applied to the second meeting. The first list of creditors was revised and contained the name and address of the applicant. The following documents: a notice of meeting, a proxy form and a statement by the Administrator as to whether it was in the interests of the creditors for Lawrence to execute a deed of company arrangement (DOCA) or for Lawrence to be wound up, were sent by post to each creditor by the Administrator's secretary on Thursday 10 July 1997. Notice of the second meeting was published in "The Age", also on 10 July, but less than the requisite five business days before the meeting.
The advertisement was published under a heading: "Law Notices" and informed the reader that a meeting of creditors of Lawrence would be held on Tuesday 15 July 1997 at 3.00 p.m. at the address of the Administrator in Balwyn to consider, inter alia, a resolution that the company execute a DOCA.
The applicant, through its manager Legal Services, deposed that it has no record of receiving notice of the second creditors' meeting held on 15 July. However, enquiries concerning the receipt of notices relating to the administration of Lawrence were not made by the deponent until early November 1998 and were most likely to be fruitless. Mr Larkin, the deponent, did not depose as to the practice in the client debtor department of the applicant in July 1997 for receiving and dealing with letters of the kind allegedly posted to the company in July. Nor did Mr Larkin explain the practice and procedures for reading and dealing with Law Notices concerning client debtors and, in particular, very substantial debtors.
The Administrator's secretary examined records kept of the posting of notice of the meeting on 10 July 1997 and was able to inform the Administrator that the letter posted to AGC was not returned unclaimed, as was the case with some letters posted.
I am satisfied that written notice of the meeting was posted to the applicant and was probably received by the applicant in the ordinary course of the post on or about 11 or 12 July. Section 49 of the Interpretation of Legislation Act 1984 provides that where an Act requires a document to be served by post unless the contrary intention appears, be deemed to be effected by properly addressing, prepaying and posting the document as a letter to the person on whom it is to be served and unless the contrary is proved, be deemed to have been effected at the time at which the letter would be delivered in the ordinary course of post.
The evidence of posting to the applicant is strong and proof to the contrary is very weak. In my opinion, service of the written notice required by s.439A(3) should be deemed to have been effected on or about 11 July 1997. A presumption of regularity has not been rebutted by the evidence of Mr Larkin.
If the applicant did not receive the notice in the ordinary course of the post, I consider the applicant is fixed with notice of the meeting by the advertisement in "The Age" newspaper on 10 July.
At the meeting of creditors held on 15 July 1997 four creditors were in attendance, including Kerlinga Pty Ltd represented by Mr Plain and three were present by proxy. The applicant was not present. Minutes of the meeting show that the proposal for a DOCA was accepted by five creditors in favour and one against. The motion was passed by a majority in value of creditors (97%).
The DOCA referred to in the Minutes of the meeting was executed on 30 July 1997.
After the Notice of Motion was filed by the applicant on 22 December 1999 the Administrator concluded that allegations made by the applicant that, misleading or deceptive information had been published in the report or statement accompanying the notice of the meeting held on 15 July 1997, and that the said deed was oppressive or unfairly prejudicial to or unfairly discriminatory against the applicant, required him to call a further meeting of the company's creditors to consider proposed variations to the said deed. A meeting was held on 23 June 1999 pursuant to s.445F of the CLV. In attendance were 42 creditors, including the applicant. The meeting resolved that the said Deed be varied in the manner proposed in the notice convening the meeting. No creditor voted against the resolution but the applicant abstained. As the allegations were dealt with at the meeting no point was raised concerning them by the applicant on 28 June.
Finally, in the narrative, reference should be made to Mr Clark's affidavit of 29 March 1999 and particularly to paragraph 24 in which he explains why the requirements of the CLV were contravened. Mr Clark deposed that the irregularities were not deliberate but resulted from personal problems of a staff member and lack of supervision on his part.
It is abundantly clear that when a creditor of the company applies to the court for an order under s.445G the court has to exercise a discretion whether to make an order declaring a DOCA to be valid or to be void. The court must be satisfied that:
(a) the provision of Part 5.3A not complied with was "substantially complied with"; and
(b) no injustice will result for anyone bound by the deed if the contravention is disregarded,
before it declares the deed to be valid.
I consider that the onus of satisfying the court of the requirements of paragraphs (a) and (b) above lies upon the party seeking an order declaring a DOCA to be valid, in this case the respondents.
The meaning of the word "substantially" in paragraph (a) was considered in Deputy Commissioner of Taxation v. Comcorp Australia (1996) 21 ACSR 590 by Lockhart, Sheppard and Carr JJ. Carr J held that the word "substantially" when used in s.445G(3)(a) involves a matter of the degree of compliance. He adopted an approach similar to that taken by Smithers J in Dandy Power Equipment Pty Ltd v. Mercury Marine Pty Ltd (1982) 64 FLR 238 at 2590260. Carr J said:
"Applying that approach, one assesses what has been lost by each contravention to what would have been if there had been no contravention.
Is the difference between the two such that one cannot fairly say that the provision was 'substantially' complied with.""
The provisions of Part 5.3A not complied with may properly be described as procedural irregularities, not of a serious kind. The contravention of s.436E(3) required notice of the meeting to be given no later than 18 June 1997, it was given on 19 June. Late notice made no impact on the applicant for the applicant's name was not on the computer generated list of creditors used by the Administrator's staff for the purpose of giving notice to creditors of the meeting. The contravention of s.439A (1) and (2) required notice of the meeting to be given no later than 7 July 1997, it was given on 10 July and for convening a meeting on 14 July, not on 15 July.
The late notice and holding of the meeting a day early made no impact on the applicant, for the applicant did not attend the meeting. My earlier finding was that the applicant had actual or imputed notice of the second meeting. The applicant's absence from the meeting was not caused by the procedural irregularities of the respondent; rather it was more likely caused by an inefficiency in its office systems.
Applying the approach articulated by Carr J, I am of the opinion t hat nothing was lost by contraventions of the procedural requirements of the provisions to which reference has been made and there was substantial compliance. I do not consider that injustice will result to anyone bound by the said deed if the contraventions are disregarded.
The consequence of non‑compliance with a procedural irregularity is that the party at fault may apply to the court for an appropriate declaratory order validating the defect or irregularity pursuant to s.1322 of the CLV.
In the circumstances that the only person affected by the said deed is the applicant and that defects in the said deed could be cured by the respondents by starting again I consider no substantial reason has been advanced against the court making he orders sought by the respondents. The applicant would not be better off even were the said deed declared void for the Administrator could begin again. I infer that the applicant's sole purpose in commencing this proceeding was to impede or frustrate the continuance of proceeding 5936 of 1997. It is now clear that the benefit of the rights of set‑off in respect of the Lawrence debt are available to the applicant in proceeding 5936 of 1997: Pearce v. RGM Australia Pty Ltd (1998) 4 VR 888.
There is no evidence of an injustice being suffered by any person, including the applicant, by the court declaring the deed to be valid pursuant to s.445G despite the contraventions mentioned above.
The injustice contemplated by paragraph (b) of s.445G(3) should be related directly to the DOCA in the sense that someone has relied upon the deed or not relied upon the deed to their detriment. The applicant is unable to rely upon an injustice indirectly caused to it by the said deed being declared to be valid, in my opinion.
In determining whether to make an order under s.445G the court must exercise a discretion whether to declare the deed to be void, or not to be void, or to be valid. In addition to the matters specified in s.445G a number of relevant factors must be considered, the primary one being the interests of the creditors. The two principal creditors are NAB and the applicant. NAB assigned the Lawrence debt to Kelinga Pty Ltd, a company controlled by a former director of Lawrence, and will be more affected by an order declaring the said deed void than the applicant will be affected by an order declaring the said deed valid, for a consequence of voidance of the said deed may necessitate the plaintiff in proceeding 5936 of 1997 starting again.
Another relevant factor is delay in bringing this proceeding. The applicant was aware of the said deed on or about 26 June 1998 but it did not initiate proceeding 8240 of 1998 until 22 December 1998. In the interim the parties delivered pleadings in proceeding 5936 of 1997 and costs were incurred by the respondent (plaintiff). No satisfactory explanation was offered on behalf of the applicant to explain and excuse delay.
After taking into consideration the matters specified in s.445G and the factors just mentioned I am of the opinion that the court should order and declare the said deed to be valid despite contraventions of provisions in Part 5.3A of the CLV. An order and declaration will be made accordingly.
In the alternative, the respondents seek orders and declarations pursuant to s.1322(4) of the CLV that notwithstanding any contravention of a provision of Corporations Law (Vic) the said deed is not invalid.
The court is not permitted to make an order under s.1322 unless the following specified matters are satisfied and that no substantial injustice has been or is likely to be caused to any person (sub-s.(6)).
(i) that the act matter or thing done in contravention of a provision of the CLV is essentially of a procedural nature;
(ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or
(iii) that it is in the public interest that the order be made.
The matters specified in sub-paragraphs (i) and (ii) are unarguable. The contraventions of the CLV relied upon by the applicant and admitted by the respondents are all of a procedural nature and not concerned with substantive law. cf DCT v. Comcorp (supra) at 630. The second respondent acted honestly, in my opinion, and no allegation to the contrary was made on behalf of the applicant. It is unnecessary to consider the matter specified in sub-paragraph (iii) above.
The final question is whether a substantial injustice has been or is likely to be caused to any person by the making of the order sought by the respondent. "Substantial injustice" means more than some prejudice and must be real not theoretical or illusory prejudice.
Mr Bigmore, in a very thorough and comprehensive submission, raised a number of matters which he asserted have or are likely to cause substantial prejudice to the applicant. I do not propose to repeat them for they are expressed in paragraphs 15 and 16 of the applicant's written submissions. I consider that the matters Mr Bigmore relied upon are largely illusory and do not prove substantial prejudice has been or is likely to be caused to the applicant. I am not prepared to speculate how parties would have voted at meetings if there had been compliance with the CLV.
I refer again to the claim the applicant wishes to raise in proceeding 5936 of 1997. Whether or not the DOCA is declared valid or void the applicant may rely upon a set-off by way of defence to the claim.
The statutory conditions specified in sub-section (6) of s.1322 have been satisfied, in my opinion, and the court will order and declare pursuant to s.1322(4) that, notwithstanding any non‑compliance with or contravention of provisions of the Corporations Law by the second respondent as Administrator of the company William Lawrence (Globe Dye Works) Pty Ltd (subject to Deed of Company Arrangement) the Deed of Company Arrangement dated 30 July 1997 is not invalid.
With the approval of counsel for each party I made the Orders and Declarations in this proceeding in court on 30 June 1999 and undertook to publish reasons for the orders in due course. I now publish my reasons.
Attached hereto is a record of the orders made in court on 30 June 1999.
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