Ausino International Pty Ltd v Apex Sports Pty Ltd

[2007] NSWSC 289

Reported Decision: 61 ACSR 532
(2007) 25 ACLC 415

New South Wales

Supreme Court

CITATION:	Ausino International Pty Ltd v Apex Sports Pty Ltd [2007] NSWSC 289 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	28/02/07, 01/03/07
JUDGMENT DATE :	30 March 2007
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Order to be made under Corporations Act, s.600C(3)(a) that resolution that deed of company arrangement be terminated and company be wound up is taken to have been passed at meeting
CATCHWORDS:	CORPORATIONS - deed of company arrangement - meeting of creditors considers proposed resolution that deed be terminated and company be wound up - majority in number and by value not obtained either for or against - chairperson declined to exercise casting vote - chairperson stated two reasons for this - first, doubts about whether voting entitlements of creditors properly recognised - second, pendency of these proceedings - whether these were considerations relevant to decision whether casting vote should be exercised - chairperson also stated, giving reasons, an inclination otherwise to exercise casting vote against continuation of deed - whether such reasons relevant and rational - whether chairperson should have exercised casting vote in accordance with stated inclination
LEGISLATION CITED:	Corporations Act 2001 (Cth), ss.9, 444B(6), 444D, 444E, 445D, 445F, 445G, s.446A 600A, 600C Corporations Act Regulations 2001 (Cth), regs 5.6.21(3), 5.6.21(4), 5.6.23(2)(d), 5.6.26
CASES CITED:	Ausino International Pty Ltd v Apex Sports Pty Ltd (2006) 24 ACLC 1236 Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612 Cresvale Far East Ltd v Cresvale Securities Ltd (2001) 37 ACSR 39 Environmental & Earth Sciences Pty Ltd v Vouris (2006) 57 ACSR 629 Ex parte Lloyd; Re Peters (1882) 47 LT 64 Global Realty Development Corp v Dominion Wines Ltd (2005) 56 ACSR 474 J Aron Corp v Newmont Yandal Operations Pty Ltd [2005] NSWSC 238 Kirwan v Cresvale Far East Ltd (2002) 44 ACSR 21 Leon v York-O-Matic Ltd [1966] 1 WLR 1450 Metal Manufactures Ltd v ACN 063 086 126 Pty Ltd [2001] QSC 106 Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544 R v Bradford City Metropolitan Council; Ex parte Corris [1990] 2 QB 363 Re Coaleen Pty Ltd [2000] 1 QdR 245 Re Frond Pty Ltd; P Aker Flowerbulbs Pty Ltd v Livadaras (2004) 49 ACSR 86 Re Martco Engineering Pty Ltd (1999) 32 ACSR 487 Re Mineral Securities Australia Ltd [1973] 2 NSWLR 207 Re Oriel Homes Pty Ltd [1998] 1 QdR 652 Re Teller Home Furnishings Pty Ltd [1967] VR 313 Selim v McGrath (2003) 47 ACSR 537 Spiteri v Lindholm [2003] VSC 42 Vincent, White & Associates Pty Ltd v Vouris (1998) 28 ACSR 93 Young v Sherman (2002) 170 FLR 86
PARTIES:	Ausino International Pty Ltd - Plaintiff Apex Sports Pty Ltd - First Defendant Ronald John Dean-Willcocks - Second Defendant Adam Shepard - Third Defendant Jack Anthony Barry - Fourth Defendant
FILE NUMBER(S):	SC 3883/05
COUNSEL:	Mr A.G. Bell SC/Mr N. Kabilafkas - Plaintiff Mr C.R.C. Newlinds SC/Ms V.E. Whittaker - First, Second and Third Defendants Mr A.P. Coleman - Fourth Defendant
SOLICITORS:	Henry Davis York - Plaintiff Abbott Tout - First, Second and Third Defendant Kemp Strang - Fourth Defendant

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

BARRETT J

FRIDAY, 30 MARCH 2007

3883/05 AUSINO INTERNATIONAL PTY LIMITED v APEX SPORTS PTY LIMITED

JUDGMENT

1 The question for decision is whether the court should make an order that has the effect of displacing or overturning a deed of company arrangement executed by Apex Sports Pty Ltd on 27 June 2005. The application for such relief is made by Ausino International Pty Limited (“Ausino”), the major creditor by value. The application is advanced on the basis of ss.445D, 445G, 447A, 600A and 600C of the Corporations Act 2001 (Cth).

2 Ausino’s application came before the court for final hearing on 21 September 2006. On that occasion, Apex Sports and the deed administrators (Mr Dean-Willcocks and Mr Shepard) sought an adjournment, conceding that certain material that had been before creditors of Apex Sports when considering the proposal that the deed of company arrangement be executed was materially misleading. Apex Sports and the deed administrators sought (and were granted) the adjournment on terms that the deed administrators should call a further meeting of creditors to consider whether the deed of company arrangement should continue or be terminated; and on the footing that correcting and updating material would be placed before creditors for the purposes of that decision-making: see Ausino International Pty Ltd v Apex Sports Pty Ltd (2006) 24 ACLC 1236.

3 The deed administrators prepared a further report to creditors on 10 November 2006 and, in accordance with s.445F, convened a further meeting of creditors, as envisaged by the terms on which the proceedings were adjourned. The meeting was held on 20 and 21 November 2006.

4 At that meeting, the following resolutions were submitted for determination in the following order:

“That the deed of company arrangement dated 27 June 2005 is confirmed by creditors.”
“That the deed of company arrangement be terminated and the company be wound up.”

5 On a poll on the first resolution, 23 creditors (representing value of $1,268,598.33) voted in favour and three creditors (representing value of $3,407,571.83) voted against. The chairperson (Mr Shepard, one of the deed administrators) did not exercise the casting vote made available by regulation 5.6.21(4) of the Corporations Act Regulations 2001 (Cth). On a poll on the second resolution, the voting was the reverse of this, that is, three creditors (representing value of $3,407,571.83) in favour and 23 creditors (representing value of $1,268,598.33) against. Again, the chairperson did not exercise the casting vote. In each case, therefore, the outcome was that the resolution was not carried (see regulation 5.6.21(3)) and that position was not altered pursuant to regulation 5.6.21(4). In summary, neither resolution was passed and the position pertaining before the meeting (that is, that the deed of company arrangement was operative) continued.

6 At the time of declining to exercise the casting vote on the first resolution, the chairperson said:

“In relation to exercising my casting vote I have taken legal advice. As creditors are aware this meeting arose out of court proceedings which are currently pending before the Supreme Court. The purpose of this meeting was to update creditors regarding the property, undertaking and financial affairs of Apex Sports and to ascertain the views of creditors in relation to the continuation or termination of the Deed in light of information contained in the Administrators further report.
Since the adjournment I have received letters from the lawyers for Jack Barry and Ausino International. Ausino International’s lawyers have disputed my decision regarding the admission of certain creditors for voting purposes. Barry’s lawyers dispute my decision to admit Lindy Barry for the amount only of $687,567. They also dispute the claim made by Saucony for royalties in the amount of approximately $425,800. I further note that a major creditor Shanghai Knitwear has abstained from voting but has advised me they are still considering their position concerning the Deed but will not be able to express a view one way or the other until at least 12:30 pm today.
Creditors will note that in my report to creditors I was of the opinion that the Deed of Company Arrangement was in the interest of creditors as outlined at 2.4.2 of my further report dated 10 November 2006 and they are as follows:

· ordinary unsecured creditors are likely to receive a higher dividend under the DOCA as opposed to an uncertain and likely nil dividend in liquidation;

· amount of $369,299 being held in a controlled monies account by Kemp Strang Lawyers will be paid to the Deed Administrators after Ausino International’s proceedings have been dismissed allowing for the declaration of the dividend to unsecured creditors shortly thereafter;

· ordinary unsecured creditors are likely to receive a dividend within three months of the Ausino International proceedings being dismissed as opposed to an uncertain and likely possible time frame of greater than 2 years in the event of litigation;

· litigation funders have advised they do not wish to fund potential actions, only likely prospect from litigation funder (Australian Litigation Fund) is a possible examination into net worth of Jack and Linda Barry;

· Ausino International have stated they have no intention of funding litigation in the event that we are liquidators of Apex Sports;

· our Solicitors Abbott Tout have written to the solicitors for Ausino International requesting to be advised if Ausino International will fund litigation against Jack Barry and related parties in full in the event another liquidator was appointed we have not received a response in this regard to date;

· no other creditor has expressed interest in funding litigation;

· without litigation funding it is unlikely that recovery proceedings would commence and accordingly recoveries from same would be nil;

· continued trading of the Apex group and hence continued employment of various employees in the Apex group;

· the Australian Securities and Investment Commission have advised they intend to take no further action after review of our report to same pursuant to Section 438D of the Act;

· claims arising post administration would also be admissible in a winding up which will reduce any potential dividend;

· there is a likelihood of a Receiver being appointed to the company if it is wound up;

· actions regarding voidable preferences may be limited in other entities in the Apex group who have propounded and effectuated DOCAs.

However, I am mindful that all of the major external creditors who have voted have voted against the resolution and only minor creditors and related parties have voted in favour of the resolution.
As matters stand, I would be inclined to exercise my casting vote against the resolution and my reasons are as follows:

· Lindy Barry secured creditor is only entitled to vote for $687,000 and her likely contribution/indemnity claim would be approximately $522,000;

· I have spoken to the Australian Taxation Office, they advised if they did vote they would vote for liquidation;

· After allowing for liens and ROT’s highest non related creditor voting in favour is AKI $58,000

· Non related creditors voting in favour represent only approximately 7% of total value and same includes Storeline for an amount of some $100,000

· In relation to the Saucony debt I have been advised that same is now disputed and such dispute would likely delay the distribution to unsecured creditors under the terms of the Deed of Company Arrangement

· And for the matters generally contained in my report in relation to potential actions and assets.

However, given that there are court proceedings on foot which have been listed for directions tomorrow and given that there are significant objections that have been raised concerning the rights and entitlements of certain creditors to vote and the amounts for which those creditors should be admitted for voting purposes which would effect my decision in exercising any casting vote I believe the most appropriate course is to not exercise my casting vote and to leave it to the Court’s determination whether the DOCA should be set aside.”

7 When Ausino’s application came back before the court on 28 February 2007, the deed administrators filed a submitting appearance. This followed abandonment by Ausino of an allegation of actual bias against the deed administrators. The matter was then adjourned so that the fourth defendant (Mr Barry, the sole director and shareholder of Apex Sports) could consider his position. Upon resumption the following morning, 1 March 2007, a submitting appearance was also filed for the fourth defendant. There was some doubt about whether the deed administrators or Mr Barry spoke for Apex Sports itself but, in the end, no one sought to participate in the hearing on its behalf. The situation was therefore one in which no party offered active opposition to Ausino and the proceedings continued in such a way that evidence was adduced and submissions were made on behalf of Ausino only. The legal representatives of the other parties were granted leave to withdraw and the hearing proceeded in their absence.

8 Ausino’s primary contention is that the matter can and should be disposed of on a narrow ground related to the meeting of 21 and 22 November 2006. Ausino points to the clear statement by Mr Shepard that, for reasons clearly articulated by him, he “would be inclined” to exercise the casting vote against the resolution confirming the deed of company arrangement (and therefore, by clear implication, in favour of the resolution that the deed be terminated), but desisted from that course because, first, these proceedings were on foot and were listed for directions the following day and, second, there were “significant objections” concerning certain creditors’ voting entitlements and the amounts for which they should be admitted for voting purposes.

9 In these circumstances, Ausino submits, the chairperson abdicated a legal responsibility to exercise the casting vote and the court should remedy that failure by exercising its power under s.600C of the Corporations Act. That section is as follows:

“(1) This section applies if, because the person presiding at the meeting exercises a casting vote, or refuses or fails to exercise such a vote, a proposed resolution is not passed at a meeting of creditors of a company held:
(a) under Part 5.3A or a deed of company arrangement executed by the company; or

(b) in connection with winding up the company.

(2) A person may apply to the Court for an order under subsection (3), but only if:
(a) the person voted for the proposed resolution in some capacity (even if the person voted against the proposed resolution in another capacity); or
(b) a person voted for the proposed resolution on the first-mentioned person's behalf.

(3) On an application, the Court may:
(a) order that the proposed resolution is taken to have been passed at the meeting; and
(b) if it does so--make such further orders, and give such directions, as it thinks necessary.

(4) If an order is made under paragraph (3)(a), the proposed resolution:
(a) is taken for all purposes (other than those of subsection (1)) to have been passed at the meeting; and
(b) is taken to have taken effect:
(i) if the order specifies a time when the proposed resolution is taken to have taken effect--at that time, even if it is earlier than the making of the order; or
(ii) otherwise--on the making of the order. “

10 This submission makes it necessary to consider the duties to which a chairperson is subject in deciding whether or not to exercise the casting vote made available by regulation 5.6.21(4). There are, for present purposes, two relevant aspects of the duties to be considered. The first concerns a decision whether or not to exercise the casting vote at all. The second (relevant only where a decision to exercise the vote has been, or ought to have been, made) goes to the actual manner of exercise of the casting vote, that is, whether it is exercised in a positive way or a negative way.

11 The nature and purpose of a casting vote have been considered in a number of cases. Some are discussed in the judgment of Young CJ in Eq in the Court of Appeal in Kirwan v Cresvale Far East Ltd (2002) 44 ACSR 21 at pp.99-100. His Honour referred to American authority stating that the purpose of a casting vote is to allow the presiding officer to “untie” the “knot” represented by a “tie”. He also referred to the statement of Neill LJ in R v Bradford City Metropolitan Council; Ex parte Corris [1990] 2 QB 363 at p.371 that a person given a casting vote “is clearly under a duty to exercise it honestly and in accordance with what he believes to be the best interests of those who may be affected by the vote”. Young CJ in Eq himself referred to “a general duty to act honestly and in the best interests of the relevant community”.

12 The matter also received the attention of the Court of Appeal in Young v Sherman (2002) 170 FLR 86 where, at pp.99-100, Sheller JA referred to the above extract from Bradford City Metropolitan Council and continued:

“In Re Martco Engineering Pty Ltd (Administrator Appointed); Deputy Commissioner of Taxation v Martco Engineering Pty Ltd (1999) 32 ACSR 487 at 489 Santow J quoted from the Explanatory Statement to the Corporations Regulations (Amendment), Statutory Rule 1993, No 135, para95, where the point is made that the casting vote in this context effectively decides between the interests of the creditors with the preponderance in numbers and the interests of the creditors with the preponderance in value. Santow J said:
‘If the effect of the poll is that only one of the two conditions for the resolution being carried is fulfilled, this is deemed to be a situation where “no result is reached”. That in turn gives rise to the administrator having the discretion to exercise a casting vote, though any creditor may apply to the court for a review of such outcome and appropriate orders: see Re Bartlett Researched Securities Pty Ltd (Admin Apptd) (1994) 12 ACSR 707.
This means that instead of such a voting result representing a vote against, as would ordinarily be expected, it is to be taken as a situation akin to deadlock where casting votes are not infrequently allowed. However, it does not follow that the Court would automatically accept the exercise of such a casting vote as appropriate. This will depend on factors such as whether the administrator has properly exercised the casting vote in the interests of creditors as a whole, such as in circumstances where the vote or votes which prevent one of the two conditions being fulfilled would represent an outcome unfair to the remaining creditors if not reversed by a casting vote.’”

13 There is thus, in Santow J’s judgment in Re Martco Engineering Pty Ltd (1999) 32 ACSR 487, recognition of the reality that any exercise of the casting vote must be consistent with the interests of creditors as a whole. Likewise, any decision not to exercise the casting vote must be consistent with the interests of creditors as a whole (see also Re Coaleen Pty Ltd [2000] 1 QdR 245).

14 In Global Realty Development Corp v Dominion Wines Ltd (2005) 56 ACSR 474 at p.483, I attempted to summarise the applicable principles:

“The correct approach to the exercise of the casting vote was considered by the Court of Appeal in both Young v Sherman (2002) 170 FLR 86; [2002] NSWCA 281 and Kirwan v Cresvale Far East Ltd (in liq) (2002) 44 ACSR 21; [2002] NSWCA 395. Several propositions emerging from those cases may be briefly mentioned. First, there is no general rule that the chairperson should use the casting vote to prefer the majority in value over the majority in number. The suggestion to the contrary in submissions on behalf of the plaintiff should be rejected. Second, the correct approach is for the chairperson to proceed according to what the chairperson believes to be in the best interests of those affected by the vote. Third, the objectives of Pt 5.3A must be considered in making the decision. Fourth, a distinction is to be drawn between propriety and wisdom, the latter probably being non-justiciable. Fifth, the court’s decision on a challenge under s 600B should be made in the light of all the material the chairperson had.”

15 It must also be remembered that the administrator of a deed of company arrangement executed by a company is, in terms of the definition in s.9 of the Corporations Act, an “officer” of the company. Such an administrator is accordingly subject to the duties imposed by ss.180 and 181, that is, a duty to act with care and diligence and a duty to exercise powers and discharge duties in good faith in the best interests of the company (which, in an insolvency setting, must predominantly be the interests of the general body of creditors) and for a proper purpose.

16 It is clear from the judicial statements I have quoted that a casting vote is intended to be a means by which a tie or deadlock is resolved so that a decision is reached, one way or the other; also that a deed administrator is subject to the duties of an “officer” in making decisions with respect to the casting vote, including the duty to act for a proper purpose. It would be going too far to say that a person to whom a casting vote is entrusted must always exercise it. Clearly, there is a discretion. But the discretion cannot be regarded as unfettered. I am of the opinion that the person should proceed to exercise the casting vote and resolve the deadlock (thereby resorting to the power for the purpose for which it exists) unless there is some good reason to refrain from doing so; also that failure to exercise the casting vote for some irrational or irrelevant reason is inconsistent with the person’s duty. That person plays, in the context, an administrative decision-making role attracting a duty to take into account relevant matters and to leave out of account irrelevant matters – with questions of relevance determined according to the purpose for which the power exists and the context in which it becomes exercisable.

17 Against that background, I return to the submission that the chairperson of the meeting held on 20 and 21 November 2006 abdicated a legal responsibility to exercise the casting vote. In approaching that submission, I must consider the two reasons stated by the chairperson for not acting upon his inclination regarding exercise of the casting vote (that is, the inclination to use the casting vote to overturn the deed of company arrangement). I take the reasons in reverse order and consider first the chairperson’s reservation based on the existence of “significant objections” to recognition of voting entitlements and the values for which some creditors should be admitted for voting purposes.

18 This, to my mind, is a consideration foreign to a decision whether to exercise the casting vote made available by regulation 5.6.21(4). The chairperson of a meeting to which regulations 5.6.12 to 5.6.57 apply has certain duties with respect to assessment, admission and rejection of proofs of debt for voting purposes. It is not necessary to go into the details of those duties here. They have been examined in a number of cases: see, for example, Vincent, White & Associates Pty Ltd v Vouris (1998) 28 ACSR 93, Re Oriel Homes Pty Ltd [1998] 1 QdR 652, Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612, Kirwan v Cresvale Far East Ltd (above), Spiteri v Lindholm [2003] VSC 42, Selim v McGrath (2003) 47 ACSR 537, J Aron Corp v Newmont Yandal Operations Pty Ltd [2005] NSWSC 238 and Environmental & Earth Sciences Pty Ltd v Vouris (2006) 57 ACSR 629. The important point, for present purposes, is that decisions on proofs of debt for the purposes of voting must be made and completed before any question of the exercise of a casting vote by the chairperson arises. Indeed, they must be completed before the activity which determines whether the casting vote will become available to be exercised, that is, voting by creditors. Having made those decisions and allowed voting by creditors to proceed on the basis of them, the chairperson’s functions in that respect are fully performed. Each decision regarding admission or rejection of a proof of debt for voting purposes is final and unimpeachable unless it becomes the subject of an appeal to the court within 14 days. This is the effect of regulation 5.6.26.

19 It is no part of the chairperson’s function, when addressing the question whether to exercise the casting vote, to act on the footing that decisions on admission or rejection of voting proofs made by the chairperson in accordance with the regulations are questionable or may be wrong. The regulations expressly cater for the case where “the chairperson is in doubt whether a proof of debt or claim should be admitted or rejected” for voting purposes. The regulations compel a particular course of action in such a case – a course of action which, so far as the chairperson is concerned, becomes complete before there is any occasion to consider whether or not to exercise the casting vote. The course of action that the chairperson is legally obliged to adopt in such a case is that specified in regulation 5.6.26(2): “… he or she must mark that proof as objected to and allow the creditor to vote, subject to the vote being declared invalid if the objection is sustained”.

20 Because of the existence of these explicit provisions dealing with doubt as to the admissibility of a proof of debt for voting purposes, I regard the existence of objections to recognition of voting entitlements as irrelevant to the proper discharge of the chairperson’s functions with respect to the question whether to exercise the casting vote.

21 The same reasoning applies, in my view, where the doubt goes not to creditor status but to the amount or value for which the creditor should be recognised. In a case where the value of the creditor’s debt is “not established” (to use the words in regulation 5.6.23(2)(d)), a “just estimate of its value” must be made in accordance with regulation 5.6.23(2). As Young CJ in Eq pointed out in Kirwan v Cresvale Far East Ltd (above), a “just estimate” may, in cases of particular doubt or difficulty, be the token sum of $1.00 which assures ability to vote on the head count. In a context such as the present, it is clear enough that it is the chairperson who is to make that estimate.

22 In relation to any doubt about amount or value for voting purposes, the legislation itself again sets out in clear terms how the chairperson is to resolve the matter. And again, in my view, completion of that task marks the end of the steps that the chairperson may properly take because of the doubt, with the result that that doubt plays no proper part in the decision whether to exercise the casting vote or to refrain from doing so – if and when creditor voting subsequently undertaken is, in terms of regulation 5.6.21(4), such that “no result is reached under subregulation (2) or (3)”.

23 It is pertinent to note, in any event, that a decision not to exercise the casting vote is not a rational response to doubts about the correct assessment of voting proofs, whether as to admissibility or as to value. If (contrary to the view I have expressed) such doubts were a matter properly to be taken into account in deciding whether to exercise the casting vote, they would indicate exercise rather than non-exercise. The situation would be one in which the chairperson had formed a view that, because of the doubts on matters of admissibility or value calculation, the voting result actually obtained did not (or might not) represent the result that would have been obtained had all issues of admissibility and value calculation been correctly determined. That view would ground a genuine apprehension that the true will of the constituency, correctly measured, was not reflected by the voting result. That, in turn, would indicate a need for action to counter the actual or potential distortion, rather than inaction allowing the distortion to prevail.

24 The second matter that, according to the chairperson, caused him to refrain from exercising the casting vote was the pendency of these proceedings. He apparently took the view that he should hold off because to do otherwise would be to encroach upon territory that the court was about to enter. That, it seems to me, overlooks or misconstrues the reason why the court granted an adjournment in November 2006. The objective of the court, at that point, was to allow the question of the future of the deed of company arrangement to be decided in the very arena in which the decision to adopt the deed been made in the first place – but with correcting and updating material in the hands of decision-makers to enhance adequately informed decision-making. A meeting of creditors convened and held in accordance with the legislation is the decision-making organ. The casting vote mechanism is an integral part of the decision-making process for which the legislation makes provision. And the chairperson in whose hands the legislation places the casting vote has a specific role to play in that decision-making process. Exercise or non-exercise of the casting vote according to circumstances actually arising at and in relation to the meeting is just as much part of the process as the casting of creditors’ votes.

25 There was no reason to think that the court did not envisage renewed decision-making by means of the totality of the prescribed decision-making process, so that, if exercise of the casting vote one way or the other was indicated in a situation where occasion for the exercise of the casting vote had arisen, the chairperson would exercise it accordingly.

26 It was therefore irrelevant to the making of a proper decision whether or not to exercise the casting vote for the chairperson to take into account the fact that the court was about to entertain the application with which I am now dealing.

27 Because irrelevant considerations were, in the two ways I have mentioned, central to the chairperson’s decision whether or not to exercise the casting vote, the result based on the absence of any casting vote must be reviewed. There is, of course, a statutory basis for such review. It is contained in s.600C of the Corporations Act (see paragraph [9] above).

28 The circumstances to which I have already referred concerning considerations I regard as irrelevant operate, as it were, to provide access to s.600C, in the sense of making the failure or refusal to exercise the casting vote one which should be reviewed by the court. It then becomes necessary to decide whether the court should make an order under s.600C(3)(a) deeming a resolution to have been passed. In the present case, the resolution in respect of which any such order would be made is the second resolution, that is, the resolution that the deed of company arrangement be terminated and the company wound up. I say this because non-exercise of the casting vote on the first resolution (the resolution confirming the deed) left the status quo intact. Indeed, there is a question as to what a negative voting result in relation to the first resolution would actually have achieved. A decision that a deed of company arrangement not be confirmed does not, without more, lead anywhere since, in the statutory context, the concept of confirmation or non-confirmation cannot disturb or modify the statutory consequences of execution of such a deed: see, for example, s.444B(6), 444D and 444E.

29 Decided cases suggest criteria to be applied in assessing, for s.600C purposes, the refusal or failure of a chairperson to exercise a casting vote. In Metal Manufactures Ltd v ACN 063 086 126 Pty Ltd [2001] QSC 106 Wilson J said (at [17]):

“As I have already said, in the circumstances Ms Carter might have exercised a casting vote. She was under no obligation to do so. There is no allegation that she acted fraudulently in not doing so. It could not be said that her conduct in not doing so was so unreasonable that no reasonable liquidator would have so acted. (See Network Exchange at 551.) It is impossible to know how she would have exercised such a casting vote. I am not prepared to make an order deeming the resolution to appoint Mr Fletcher to have been passed.”

30 Her Honour’s reference to “Network Exchange” is a reference to the decision of Hayne J in Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544 and, in particular, to the following passage at p.551:

“I consider that McDermott, in the circumstances which arose, did have power to exercise a casting vote, but I consider that he was not bound to do so. Perhaps it is unfortunate that in the circumstances he chose not to do so but, not having done so, I cannot say that he acted in a way that no reasonable administrator could have acted. It would follow that, even if an appeal were to be instituted against his decision to refrain from exercising his casting vote, that appeal would not succeed: see, for example, Lyon v York-o-matic Ltd [1966] 1 WLR 1450 at l454, Re Mineral Securities Australia Ltd [1973] 2 NSWLR 207 at 230, Re Teller Home Furnishings Pty Ltd [1967] VR 313 at 318. In any event, nice questions may have arisen about what order, if any, should have been made, even were I of the view that the decision not to cast a casting vote was wrong.”

31 On the analogous s.600B (dealing with a case where exercise of the casting vote causes a resolution to be passed and it is sought, in effect, to have the resolution disallowed), Hodgson JA said in Young v Sherman (above) at p.106:

“In so far as the appellant sought a review pursuant to s600B of the Corporations Act of the exercise of the casting vote, there is a question as to the role of the Court. However, whether the role extends to reconsideration of matters of commercial judgment, or is limited to intervention if some other serious error is detected, I am inclined to think that the Court should have available to it all the material that was available to the administrator in deciding how to exercise the casting vote. In this case, that included the instructions given by the directors as to the facts alleged to give rise to the cause of action, the legal advice on which the administrator acted, and (if known) the terms of the proposed litigation funding. However, I note that this point was not taken either below or on appeal, and could not have been give effect to in this decision.”

32 In Re Frond Pty Ltd; P Aker Flowerbulbs Pty Ltd v Livadaras (2004) 49 ACSR 86, Mandie J entertained an application under s.600B to override the casting vote actually cast in favour of the appointment of certain persons as liquidators and an application under s.600C to cause to be passed a resolution on which no casting vote was exercised, being a resolution for the appointment of Mr Rathner as liquidator. His Honour said (at p.92):

“Importantly, there is here no suggestion of bias, or the appearance of bias, or any allegation of actual or threatened misconduct by the appointed liquidators. Indeed it was conceded that they were well-qualified to perform their duties and there is no reason to expect or to suspect that they will not do so in a proper manner. I accept the submission of counsel for the plaintiffs that they may have been disadvantaged in obtaining Mr Rathner’s appointment as a result of their inability to canvass the initially unlisted creditors for their support or for their proxies. The position of Manie Pty Ltd also causes me some unease. However I do not think that any disadvantage suffered by the plaintiffs is a ground for removal of the present liquidators when there is no basis for contending that their appointment is, or even might be, contrary to the interests of the creditors as a whole, or of the plaintiffs in particular. Apart from the issue of funding, there is no evidence that the appointment of the present liquidators will or may cause the plaintiffs any prejudice, or, at this juncture, that their replacement by Mr Rathner would make any material difference to the conduct of the liquidation.”

33 I refer finally to the observations of Austin J in relation to s.600B at first instance in Cresvale Far East Ltd v Cresvale Securities Ltd (2001) 37 ACSR 394 at p.416:

“In my opinion, the court's power under s 600B, to set aside or vary a resolution passed because of the exercise of the casting vote, permits it to review the administrator's reasons for the exercise of the casting vote. The court need not confine itself to the question whether the administrator has acted honestly as chairman, because it is given a specific statutory power to hear an application to set aside or vary the resolution. As Santow J said in Re Martco Engineering , the court does not automatically accept the (honest) exercise of the casting vote as an appropriate one. The court's attitude will ‘depend on factors such as whether the administrator has properly exercised the casting vote in the interests of creditors as a whole, such as in circumstances where the vote or votes which prevent one of the two conditions being fulfilled [approved by numerical majority and by value of debts] would represent an outcome unfair to the remaining creditors if not reversed by a casting vote’: at 489.

34 The judgment of Mandie J in Re Frond Pty Ltd suggest that ss.600B and 600C are provisions allowing broad-based merit review. The other cases seem to concentrate more on the quality of the decision-making. There are references to “fraud”, “serious error” and the tests typically applied on appeal against liquidators’ decisions on matters other than rejection of proofs of debt. Those tests are based variously on whether the decision was such that no reasonable liquidator “could” or “would” or “should” have made it – in other words, the test of manifest unreasonableness referred to by Street CJ in Eq in Re Mineral Securities Australia Ltd [1973] 2 NSWLR 207 at p.231 (after referring to Ex parte Lloyd; Re Peters (1882) 47 LT 64, Re Teller Home Furnishings Pty Ltd [1967] VR 313 and Leon v York-O-Matic Ltd [1966] 1 WLR 1450):

“It is, of course, clear enough that the court does not simply
sit on appeal from decisions of a liquidator. A party challenging a decision may well bear an onus varying in inverse proportion to the importance of the decision sought to be called in question. But whether the decision be important, or trifling, the course of the winding up machinery imposes upon the liquidator the responsibility for making it, and he is recognized as having both the qualifications and the access to the multiplicity of information which may be necessary in order to make the commercial decisions in the winding up. I note the slight divergence between Jessel M.R.'s words that the court will not interfere unless the trustee acts in a manner in which ‘no reasonable man would so act’, and Plowman J.'s words that he was not satisfied that the
liquidator had acted in a way in which ‘no reasonable liquidator could have acted’. At the risk of descending to semantics, my own inclination would be to prefer the word ‘should’ to either ‘would’ or ‘could’ in those phrases.

Ultimately every challenge must probably come back to some more broadly-stated question, such as whether the liquidator's action has such importance, and can be seen to have such defects, as to justify the court exercising its supervisory power.”

35 In the Metal Manufactures case, there is an indication that knowledge of how the chairperson would have exercised the casting vote is a relevant consideration in a case of non-exercise.

36 In the present case, there is no suggestion at all of fraud. And there is a clear indication of how the casting vote would have been exercised – in the form of the express statement of inclination, supported by an express statement of reasons for that inclination. The question is therefore whether it was manifestly unreasonable for the chairperson to have failed to exercise the casting vote according to the expressly stated inclination. That, in turn, entails two inquiries – first as to the matter already addressed (that is, whether the decision not to exercise the casting vote was unreasonable in the relevant sense); and, second, whether it would have been unreasonable in the relevant sense for the chairperson to exercise the casting vote according to the stated inclination.

37 For the reasons already stated, I am of the opinion that the decision not to exercise the casting vote was the product of irrelevant considerations and was therefore manifestly unreasonable. In relation to the stated inclination, I am of the opinion that the statement of supporting reasons shows that the inclination was well based and rational, with the result that, once the decision not to exercise the casting vote is seen to have entailed a miscarriage of discretion, effect should have been given to the inclination – or, more accurately, perhaps, that it was manifestly unreasonable for the casting vote not to have been exercised in accordance with the stated inclination.

38 I should explain my conclusion that the statement of supporting reasons shows the stated inclination to have been well based and rational. Several of the reasons, taken together, refer to particular influences either at work or not at work within the voting constituency. One aspect of the stated reasons (concerning Mrs Barry and “related” creditors) emphasises that the support for the deed of company arrangement, according to numbers of creditors voting, was largely attributable to persons with relatively modest claims who could be regarded as influenced by extraneous considerations relevant to the interests of Mr Barry as the deed proponent and sole director rather than the interests involved in the objective welfare of creditors. That is a factor properly regarded as tending to undermine the strength of the vote on a head count. There is also a reference to the preferred position of one significant creditor (Australian Taxation Office) which had apparently not lodged documents necessary to enable it to vote. That creditor’s preference for liquidation rather than the deed of company arrangement is a factor to which regard would properly be had in deciding whether the actual result of creditor voting (that is, deadlock leading to retention of the deed as the status quo) should be allowed to stand.

39 These comments by the chairperson, coupled with his statement that he was “mindful that all of the major external creditors who have voted have voted against the resolution [to confirm the deed] and only minor and related parties have voted in favour of the resolution”, evidence a view of the chairperson that the vote was not an objectively valid reflection of the best interests of unrelated creditors with appreciable claims.

40 The next matter mentioned in the statement of supporting reasons is one concerning likely delay in distributions under the deed. That too is something that would properly be taken into account in deciding whether the actual result of creditor voting should be allowed to stand.

41 In addition, there was reference to the important matter of “potential actions and assets” – obviously enough, a reference to recovery possibilities for creditors’ benefit (including, in particular, recoveries from Mr Barry) that would be available in case of winding up but would be denied if the deed of company arrangement remained in place. That is without doubt something that would properly be taken into account in deciding whether the actual result of creditor voting should be allowed to stand – the more so in the light of evidence calling seriously into question Mr Barry’s statements that he had no assets of any substance. The possibility that assets ostensibly owned by Mrs Barry might accrue to Mr Barry seems real. These are matters that a liquidator could usefully investigate, particularly in light of the commitment of Ausino to provide some funding for such investigations.

42 I am, as I have said, satisfied that the chairperson’s statement of reasons for the expressed inclination to exercise the casting vote against continuation of the deed of company arrangement was both well-based and rational. The chairperson demonstrated that he had formed a cogent preference, in the interests of creditors, to see the deed overturned. That being so, it would not have been unreasonable for the chairperson to exercise the casting vote against the first resolution and in favour of the second resolution. Indeed, the fact that he held that preference and had formed it on rational grounds made it manifestly unreasonable, in the circumstances, to refrain from giving effect to the preference by exercise of the casting vote in favour of the second resolution.

43 For these reasons, I am satisfied that Ausino has made out a case for the making of an order under s.600C(3)(a) that the second resolution is taken to have been passed at the meeting of creditors held on 20 and 21 November 2006. By virtue of such an order, termination of the deed would occur by force of s.445C(b) and, because the resolution also approved winding up, transition to the form of winding up referred to in s.446A would occur by force of s.446A(1)(c). These conclusions are sufficient to dispose of the proceedings. I therefore do not consider the remaining matters upon which Ausino relies.

44 The order that the court should make is to the following effect:

Order pursuant to s.600C(3)(a) of the Corporations Act 2001 that the following proposed resolution:
“That the deed of company arrangement be terminated and the company be wound up”
is taken to have been passed at the meeting of creditors of Apex Sports Pty Ltd on 21 November 2006.

45 It may be that some ancillary or consequential order under s.600C(3)(b) or s.600C(4)(b) will be considered desirable to cater for the circumstance that a period of more than four months will have elapsed between the date of the meeting and the date of the making of the order producing the statutory deeming. I will therefore arrange for the proceedings to be listed so that attention may be given to the precise form of the orders and to questions of costs.

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04/04/2007 - Incorrect name - Paragraph(s) Para 2, 2nd sentenceShould be: "On that occasion, Apex Sports and the deed administrators ..."