Aloridge Pty Ltd v Christianos

[1994] FCA 123

ALORIDGE PTY LIMITED (PROVISIONAL LIQUIDATOR APPOINTED) v. GEORGE CHRISTIANOS
and ANOTHER
No. NG 3213 of 1993
FED No. 123/94
Number of pages - 4
Corporations
(1994) 13 ACSR 99

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
BURCHETT J

CATCHWORDS

Corporations - administration under Part 5.3A - object - discretionary power of the Court to end an administration - validity of charge under which administrator was appointed was in dispute, effect of that dispute - effect of prior submission of the dispute to curial determination - discretion of the Court whether to decide on the validity of the charge now or to end the administration pending such a decision - inference drawn on the facts that the appointment was not made for the purposes of the Corporations Law, but to wrest control of the company away from its provisional liquidator.

Corporations Law, ss. 435A, 436C and 447A

Argyle Art Centre Pty. Ltd. v. Argyle Bond and Free Stores Co. Pty. Ltd. (1976) 1 NSWLR 377

Brinds Ltd v. Offshore Oil N.L. (No. 3) (1985) 10 ACLR 419

Re Q.B.S. Pty. Ltd. (1967) Qd R 218

Australian Mid-Eastern Club Limited v. Elbakht (1988) 6 ACLC 958

Ocean City Ltd (rec and mgr apptd) v. Southern Oceanic Hotels Pty Ltd (1993) 10 ACSR 483

HEARING

SYDNEY, 9 August 1993
#DATE 17:3:1994

Counsel for the Applicant: Mr D.P.F. Officer QC with

Mr D.L. Warren

Solicitors for the Applicant: Messrs N.G. Cassim and Company

Counsel for the Respondents: Mr G.K. Downes QC with

Mr J.B. Simpkins

Solicitors for the Respondent: Messrs Phillips Fox

ORDER

THE COURT ORDERS THAT the first respondent George Christianos pay the costs of the provisional liquidator of Aloridge Pty Limited on an indemnity basis.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

BURCHETT J This is an application, under s. 447A of the Corporations Law, upon which I made an order that the administration of the applicant Aloridge Pty Ltd (Provisional Liquidator appointed) end. I reserved my reasons, which I now deliver, and I reserved my decision in respect of the question whether Aloridge, as I shall call it, is entitled to an order for costs on an indemnity basis against the first respondent.

1. On 5 August 1993 the first respondent, Mr Christianos, purporting to be a "person who is entitled to enforce a charge on the whole, or substantially the whole, of the company's property" within the meaning of s. 436C of the Corporations Law, appointed the second respondent, Mr Putnin, to be administrator of Aloridge. Mr Christianos is a director of Aloridge. Aloridge, which disputes the validity of the alleged charge, brought the present proceeding in order to free itself of the administration, so that its provisional liquidator might continue to control its affairs. Counsel for Aloridge submitted that the administration should end, or that it should be stayed pending the court's determination of the validity of the charge. Counsel further contended that the object of the appointment of Mr Putnin was quite apparently to frustrate action being taken by the provisional liquidator of Aloridge, Mr Blackwell, whose powers were thereby suspended. The pursuit of this object was said to amount, in the circumstances, to a perversion of the statutory power.

2. Some background matters are relevant to these submissions. On 22 September 1992, in equity proceedings no. 2694 of 1992 in the Supreme Court of New South Wales, Mr Christianos sought and obtained the appointment of Mr Blackwell as provisional liquidator of Aloridge. Since then, a number of disputes have arisen between Mr Blackwell and Mr Christianos. They include proceedings no. G3114 of 1993 in this Court in which Aloridge seeks to set aside an issue of shares to Mr Christianos in West Australian Gem Explorers Pty Ltd (WAG), of which Mr Christianos and his mother are directors and Aloridge a shareholder; the dispute about the alleged charge which arises by way of cross claim filed by Mr Christianos in G3114 of 1993; a dispute over title to a quantity of chrysoprase (a precious stone) allegedly purchased by Aloridge from WAG; and proceeding no. G3216 of 1993 in this court in which Aloridge seeks the removal of Mr Putnin as administrator of WAG.

3. The provisions of the Corporations Law dealing with administration of a company fall under Part 5.3A. This Part, which commenced on 23 June 1993, is entitled "ADMINISTRATION OF A COMPANY'S AFFAIRS WITH A VIEW TO EXECUTING A DEED OF COMPANY ARRANGEMENT". Its object is specified in s. 435A as being:
   

"to provide for the business, property and affairs of an insolvent company to be administered in a way that:

(a) maximises the chances of the company, or as much

as possible of its business, continuing in existence; or

(b) if it is not possible for the company or its

business to continue in existence - results in a

better return for the company's creditors and members

than would result from an immediate winding up of the

company."

Both the heading of the Part and s. 435A show that it has quite special and particular purposes. That is also confirmed by perusal of the Report of the Australian Law Reform Commission (No. 45) General Insolvency Inquiry (1988) vol. 1 (see pp. 29-64), which seems to have led to the enactment of the Part.

1. Section 436C, the section under which Mr Christianos appointed Mr Putnin administrator of Aloridge, provides:
   

"(1) A person who is entitled to enforce a charge on the whole, or substantially the whole, of a company's property may by writing appoint an administrator of the company if the charge has become, and is still, enforceable.

(2) Subsection (1) does not apply to a company that is

already being wound up."

While the company is under administration, the administrator has control of the company's affairs (s. 437A), including the bringing and defending of proceedings (s. 442A), to the exclusion of other "officers" of the company such as a provisional liquidator, or even a liquidator (s. 437C).

1. But these immense powers are held in check in some ways. The administrator must comply with various statutory requirements designed to have the effect of putting a term to the administration: see ss. 435C, 439A, 439B, 439C. The most important control, at least for present purposes, over the administrator is the jurisdiction of the Court. By s. 447A, the Court is given broad discretionary power to make orders "as it thinks appropriate about how this Part is to operate in relation to a particular company":
   

"(2) For example, if the Court is satisfied that the

administration should end:

(a) because the company is solvent; or

(b) because provisions of this Part are being abused; or

(c) for some other reason;

the Court may order under subsection (1) that the

administration is to end."

1. In support of its submission that the administration should end, or be stayed pending resolution of the cross-claim in proceedings G3114 of 1993, counsel for Aloridge referred to Argyle Art Centre Pty. Ltd. v. Argyle Bond and Free Stores Co. Pty. Ltd. (1976) 1 NSWLR 377 at 386, which states the rule that a party who elects to pursue a remedy curially ought not to be permitted to seek to enforce it by other and more direct means. That was a landlord and tenant case. But company law itself provides illustrations of situations in which the Court has preserved the status quo pending a decision upon a disputed liability. There are the cases where creditors' winding up applications have been restrained because the existence of the alleged debts remained to be determined as the subject of litigation. As regards cases of that kind, in Brinds Ltd v. Offshore Oil N.L. (No. 3) (1985) 10 ACLR 419 at 424, the Privy Council held:
   

"It is a matter for the discretion of the judge whether a winding up order should be made on a disputed debt, and it is also a matter of discretion whether he decides the

substantive question of debt or no debt."

Their Lordships went on to cite, from an earlier decision of the Board, the proposition that

"the general rule is, no doubt, that no order will be made on a petition founded on such debts. But each case must

depend upon its own circumstances and it is a question for the discretion of the judge ... ."

1. The decision of the Privy Council in Brinds Ltd is in accord with the views expressed by Gibbs J (as he then was) in Re QBS. Pty. Ltd. (1967) Qd R 218 at 225, and has been followed by the Court of Appeal of New South Wales in Australian Mid-Eastern Club Limited v. Elbakht (1988) 6 ACLC 958. See also Ocean City Ltd (rec and mgr apptd) v. Southern Oceanic Hotels Pty Ltd (1993) 10 ACSR 483.

2. In my opinion, s. 447A confers upon the Court a similarly wide discretion. In a particular case, it would be open to the Court to determine, in proceedings under s. 447A, whether an alleged entitlement under s. 436C did or did not exist. But in a case of genuine dispute, I think it would generally be appropriate to follow the same course which the Privy Council in Brinds Ltd thought appropriate, as a general rule, in relation to winding up petitions.

3. In the present case, the appointment of the administrator was made at a time when a provisional liquidator was actively pursuing a number of disputes on behalf of the company. He had been appointed by the Supreme Court of New South Wales at the request of Mr Christianos. The charge on which Mr Christianos sought to rely, in making the appointment of an administrator, was in dispute in proceedings between the company in provisional liquidation and Mr Christianos. There was no question about the existence of the dispute, and no evidence has been placed before me to suggest that the company in provisional liquidation did not genuinely raise that dispute. Mr Christianos has not chosen to give evidence. In the circumstances, I infer that the appointment of an administrator was made, not in pursuit of the purposes for which the Corporations Law makes provision for such an appointment, but in order to wrest control of the affairs of the company away from the provisional liquidator in the hope that the administrator might prove more compliant. I hasten to add that no submission was put at the hearing of this matter to suggest the administrator would in fact have shown himself to be partial.

4. In my opinion, it would have been most undesirable for the administration of the affairs of the company in provisional liquidation to have been allowed to be taken away from the hands of the person appointed by the Supreme Court of New South Wales. No reason why that course should have been regarded as desirable was put before me. No interests other than the litigious interests of Mr Christianos appear to me to have been likely to have been served by the appointment of the administrator. At the least, those interests are likely to have been served by the disruption which would inevitably have attended a change of administration of the company. In the circumstances, I exercised my discretion under s. 447A by ordering that the administration was to end. I did so for the reasons I have now given.

5. The remaining question concerns the costs of the application. Those costs should follow the event, as against the first respondent, and in my opinion, having regard to the findings I have made, the costs should be on an indemnity basis. I order accordingly.