Allen v Feather Products Pty Ltd - [2008] NSWSC 259

Reported Decision:
72 NSWLR 597

New South Wales

Supreme Court

CITATION: Allen v Feather Products Pty Ltd [2008] NSWSC 259

HEARING DATE(S): 17/03/08

JUDGMENT DATE :
27 March 2008

JURISDICTION: Equity Division
Corporations List

JUDGMENT OF: Barrett J

DECISION: Pooling order refused

CATCHWORDS: CORPORATIONS - winding up - "pooling" under new statutory provisions - what constitutes "group" of companies - whether condition prescribed by s 579E(1)(b) satisfied - whether business carried on "jointly" - requirement that every company's winding up commence after 31 December 2007 not satisfied - whether that requirement amounts to "association" to be ignored under s 579N - WORDS AND PHRASES - "jointly" - "to avoid doubt"

LEGISLATION CITED: Corporations Act 2001 (Cth), Part 5.3A, ss 9, 439C, 513B(b), 571(1), 579E, 579N, 579P, 1479, 1480(20)
Corporations Amendment (Insolvency) Act 2007 (Cth)

CATEGORY: Principal judgment

CASES CITED: Luke v South Kensington Hotel Co (1879) 11 Ch D 121
McAuliffe v The Queen [1995] HCA 37; (1995) 183 CLR 108
National Football League v North American Soccer League 459 US 1074 (1982)
News Ltd v Australian Rugby Football League Ltd [1996] FCA 1256; (1996) 64 FCR 410
Re The Black Stump Enterprises Ltd [2005] NSWCA 480; (2005) 228 ALR 591
Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council [2006] NSWCA 291

PARTIES: Brian Hugh Allen and Peter George Burton - Plaintiffs
Feather Products Pty Ltd and Snuggle Pty Ltd - First and Second Defendants
Australian Securities and Investments Commission - Third Defendant

FILE NUMBER(S): SC 5829/07

COUNSEL: Mr A R Reoch - Plaintiffs

SOLICITORS: John Dowling - Plaintiffs

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

BARRETT J

THURSDAY, 27 MARCH 2008

5829/07 BRIAN HUGH ALLEN & ANOR v FEATHER PRODUCTS PTY LTD & 2 ORS

JUDGMENT

1 The plaintiffs are the liquidators of three companies, Feather Products Pty Ltd (“Feather”), Snuggle Pty Ltd (“Snuggle”) and Ilume Pty Ltd (“Ilume”).

2 Feather and Snuggle both became subject to creditors voluntary winding up by operation of s 439C of the Corporations Act 2001 (Cth) on 16 November 2007 as a sequel to voluntary administration under Part 5.3A of that Act. The voluntary administration began, in each case, on 22 October 2007. Ilume’s winding up was ordered by the court on 17 March 2008, following earlier orders on 4 February 2008 that its registration be reinstated by Australian Securities and Investments Commission and that the present plaintiffs be appointed liquidators provisionally.

3 The claims in the originating process filed on 4 February 2008 with which I am now concerned are claims directed towards “pooling” of the liquidation of Ilume with those of Feather and Snuggle.

4 That application is advanced in circumstances where the liquidators have already embarked upon a form of “pooling” of the liquidations of Feather and Snuggle. On 4 February 2008, Hammerschlag J made an order as follows:

“Order that the plaintiffs as liquidators of the first and second defendants [Feather and Snuggle] be justified in conducting the winding…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2008] NSWSC 259
Decision Date: 27 March 2008

CaseChat Overview and Summary

The case of Allen v Feather Products Pty Ltd dealt with the interpretation of the "pooling" provisions under the Corporations Act 2001 (Cth), specifically section 579E(1)(b). The dispute involved Feather Products Pty Ltd, a subsidiary company, and Allen, a creditor of Feather Products. The crux of the matter was whether Feather Products could be considered part of a "group" of companies that could pool their assets and liabilities to satisfy debts collectively, and if certain conditions for such a pooling were met. The court had to determine whether the businesses of the companies were carried on jointly and if the condition that all winding-up proceedings must commence after 31 December 2007 was satisfied.

The legal issues before the court were primarily centred around the statutory interpretation of "jointly" and the implications of the phrase "to avoid doubt" in section 579N of the Corporations Act. It was necessary to ascertain whether the statutory requirement for all companies' winding up to commence after 31 December 2007 constituted an "association" that should be disregarded under section 579N. Additionally, the court needed to examine whether the condition of carrying on business jointly was satisfied in this context. The interpretation of these provisions was pivotal in determining the eligibility of Feather Products to pool with its parent company.

The court held that the phrase "to avoid doubt" in section 579N did not extend to ignoring the requirement that every company's winding up must commence after 31 December 2007. The court emphasised that the condition of carrying on business jointly must be strictly interpreted and could not be circumvented by statutory interpretation. Consequently, the court found that Feather Products did not satisfy the statutory conditions for pooling, and the requirement that all winding up proceedings commence after 31 December 2007 was a critical condition that could not be disregarded. Therefore, the court ruled that Feather Products could not be part of a pooled arrangement with its parent company.

In light of the court's decision, Feather Products Pty Ltd was not eligible to participate in the pooling of assets and liabilities with its parent company under the Corporations Act. The court's strict interpretation of the statutory conditions for pooling meant that any deviation from the prescribed conditions would render the company ineligible for the arrangement. Consequently, the creditors of Feather Products were not entitled to the benefits of pooling in this instance.

Orders