AMR Hewitts Printpackaging Pty Ltd v Easy Food Limited
[2011] VSC 317
•9 March 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
LIST E
S CI 2010 6933
IN THE MATTER of EASY FOOD LIMITED (ACN 123 864 979)
| AMR HEWITTS PRINTPACKAGING PTY LTD (ACN 006 394 814) | Plaintiff |
| v | |
| EASY FOOD LIMITED (ACN 123 864 979) | Defendant |
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JUDGE: | Gardiner AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 9 March 2011 | |
DATE OF JUDGMENT: | 9 March 2011 | |
CASE MAY BE CITED AS: | AMR Hewitts Printpackaging Pty Ltd v Easy Food Limited | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 317 | |
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CORPORATIONS ― Administrators appointed to company shortly before first return of winding up application ― Adjournment of winding up application sought pursuant to s 440A(2) of Corporations Act 2001 until after second meeting of creditors to be convened under s 439A of the Corporations Act 2001 - Whether evidence put in support of such adjournment constituted persuasive evidence such that court should order that company continue in administration rather than be wound up ― Application for adjournment refused and winding up order made.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Barber | Heydon + O’Loghlen Lawyers |
| For the Defendant | Mr P Lithgow | AJH Lawyers |
HIS HONOUR:
On 19 November 2010, the plaintiff served a statutory demand on the defendant which was not complied with. On 21 December 2010 the plaintiff filed an originating process seeking the winding‑up order against the defendant based on non‑compliance with that demand which was returnable on 16 February 2011.
On 1 February 2011, a receiver was appointed over the assets of the defendant. A week later and one week before the return of the winding‑up application, administrators were appointed to the defendant.
On 16 February 2011, on the first return of the originating process seeking the winding‑up order, Efthim AsJ made orders by consent adjourning the proceeding to 23 February 2011.
On 23 February 2011, I ordered a further adjournment of the matter to yesterday to enable the creditors of the defendant to consider the s 439A report which was to be prepared by the administrators for the second meeting of creditors.
The administrators seek a further adjournment of the winding up application until 16 May 2011 pursuant to s 440A (2) of the Corporations Act 2001. That subsection provides:
The Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interest of the company’s creditors for the company to continue under administration rather than be wound up.
Mr Barber of Counsel for the plaintiff says that the administrators (who are represented by the same solicitors currently representing the directors of the defendant), have not produced “persuasive evidence” to the standard described by the Court of Appeal of the Supreme Court of Queensland in Deputy Commissioner of Taxation v Creevey[1] such that the Court should order that the company continue in administration rather than be wound up.
[1](1996) 19 ACSR 456 at 457.
Mr Barber says that the Court cannot be satisfied that the requirements of s 440A(2) have been achieved for two reasons: first, the alleged advantages of the proposed deed of company arrangement are elusive and amount only to “optimistic speculation”;[2] secondly, winding up of the defendant has potentially greater advantages to creditors than stated by the administrators.
[2]See Santow J in Waste Recycling and Processing Services of New South Wales v Local Government Recycling Co‑operative Limited (1999) 32 ACSR 194 at 195.
Mr Barber also submitted that there is an element of public interest involved but in my view that submission is at odds with the terms of s 440A(2) which specifically requires consideration only of the interests of the company’s creditors.
The administrators, rather than recommending one or other of the proposed courses of action generally available to the creditors at s 439A meetings (that is, winding up, ending the administration or entry into a deed) will be recommending to the meeting proposed to be conducted tomorrow that the meeting be adjourned until 16 May 2011. At that time it is said, according to a director of the company, Paul Francis Grogan in his affidavit of 10 March 2011, he will be in a position to provide confirmation to the administrators of behalf of the related parties and the secured creditor that they will not be a party to the deed pursuant to the deed of company administration. By that time, it is also envisaged that those supporting the defendant will be able to garner sufficient security to support the payments detailed in the proposed deed of company arrangement.
Mr Grogan also speaks of proposed litigation against the receivers and managers, who have sold the assets of the company to an entity called Flavour Makers. The exact relevance of that transaction to the administration process is unclear and it was not able to be explained to me by either counsel appearing. One intriguing aspect of the proposed litigation is that the solicitors instructed by the administrators are also acting for Mr Grogan in and about that litigation. In my view, if there is not already a conflict of interest in the solicitors so acting there is every potential for there to be one in the near future. Solicitors for administrators are routinely required to advise administrators as to the merits of voidable transaction proceedings, related party transactions and insolvent trading. It is inappropriate for those solicitors to be concurrently acting for the directors of the company.
Mr Barber points to several features of the report as to affairs (“RATA”) which warrant explanation. These include reference to forgiveness of considerable debts owing to the defendant by related parties.
The RATA reveals an apparent writing off of a debt of $1,118,000 owed by Easy Food India Pty Ltd, a related party to the Defendant. There was no explanation for this transaction. In addition, the RATA reveals what appears to be a preferential payment of $622,811.24 to another related company, Opti Pharm Pty Ltd, for which there is no elaboration.
The report to creditors speaks of the administrator’s assessment of insolvent trading claims against the directors of amounting to $64,938.16. Mr Barber says this is a low figure in the light of the fact that there had been turnover for the financial year ending 30 June 2010 of $2,512,000.
In addition, the administrators speak of unidentified offences which may have been committed by the directors at paragraph 17 of the administrator’s report but such matters are not elaborated upon in the report.
Mr Barber’s client is owed only $27,000, a relatively insignificant sum when it is considered that the total liabilities of the company are of the order of $2,142,723.26.
At the hearing yesterday I asked Mr Lithgow, counsel for the administrators, what the attitude of the other creditors was to the application before the Court today and to the administration generally. He was not able to obtain instructions in that regard yesterday and the matter was adjourned until today in order for enquiries to be made in this regard. He was only able to indicate that certain of the creditors approached would be attending the meeting. Their attitude about the administration continuing were not clear.
While accepting the submissions and criticisms which Mr Barber has of the report and the factual background generally, the question I have to consider is whether there is persuasive evidence of the standard required. As Santow J observed in the Waste Recycling case, “To grant such an adjournment there must be a sufficient possibility, as distinct from mere optimistic speculation, that such a deferment for the envisaged time is in the interest of creditors”. In Lubavitch Mazel v Yeshiva Properties (No. 1)[3] it was stated that if the evidence pointed to nothing more than “mere optimistic speculation” that a proposal might emerge, the case for adjournment would not be made out.
[3](2004) 22 ACLC 735.
The administrators seek an adjournment of the winding up application for a lengthy period of time in order that certain quite vital elements of the proposal to creditors can be put in place. The proposal in general terms has been mooted since 18 February 2011. It requires security for the payment under the deed which is still yet to be provided, and subordination of related party debts which are still not agreed to. On 3 March 2011, the solicitors for the administrators (and, as I have said the directors, it seems in their capacity as the solicitors for the directors, although this is not clear), stated in correspondence to the administrators that the directors’ offer will be put “back on the table” if the litigation with the receivers results in damages being available to the directors. This is a most curious and unsatisfactory state of affairs.
The scenario under consideration in my view amounts to nothing more than optimistic speculation that the proposal will emerge and I am not persuaded that the hearing of the winding up application should be adjourned for the period of time sought or indeed at all.
A winding‑up application was served on the company in late December last year and the defendant has been granted two adjournments in order to implement the administration procedure. The administrators will not be recommending the entry into a deed at the meeting but merely seeking an adjournment in order to explore the possibility of securing the proposal as outlined.
The application for an adjournment is refused and I shall proceed to make a winding up order.
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