Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd

[2014] WASC 89

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   AUSTRALIAN GYPSUM INDUSTRIES PTY LTD -v- DALESUN HOLDINGS PTY LTD [2014] WASC 89

CORAM:   LE MIERE J

HEARD:   11 SEPTEMBER 2013

DELIVERED          :   21 MARCH 2014

FILE NO/S:   CIV 1963 of 2013

BETWEEN:   AUSTRALIAN GYPSUM INDUSTRIES PTY LTD

First Plaintiff

BGC (AUSTRALIA) PTY LTD
Second Plaintiff

LISSON NOMINEES PTY LTD
Third Plaintiff

BUCKRIDGE NOMINEES PTY LTD
Fourth Plaintiff

AND

DALESUN HOLDINGS PTY LTD
Defendant

Catchwords:

Corporations - Deed of company arrangement - Whether deed of company arrangement extinguished plaintiffs' claims made under deeds of guarantee and indemnity

Whether claims are caught by the deed of company arrangement - Corporations Act 2001 (Cth) s 444D(1) and s 553 - Claims arose on or before date specified in deed of company arrangement

Whether plaintiffs were 'secured creditors' - Whether secured creditors are bound by deed of company arrangement - Future or contingent claims arising pursuant to guarantees are not prevented from being extinguished by Corporations Act 2001 (Cth) s 444D(2)

Whether deed of company arrangement releases company from debt arising under guarantee or indemnity - Corporations Act 2001 (Cth) s 444J and s 444H - Defendant's liability under deed of guarantee not prevented from being extinguished

Legislation:

Corporations Act 2001 (Cth), s 444D, s 444H, s 444J, s 553
Corporations Amendment (Insolvency) Act 2007 (WA)
Trade Practices Act 1974 (Cth), s 52

Result:

Defendant's deed of company arrangement operates so as to bind and bar the plaintiffs' claims

Category:    B

Representation:

Counsel:

First Plaintiff                :     Mr D R Chandler

Second Plaintiff            :     Mr D R Chandler

Third Plaintiff               :     Mr D R Chandler

Fourth Plaintiff             :     Mr D R Chandler

Defendant:     Mr J C Vaughan

Solicitors:

First Plaintiff                :     K&L Gates

Second Plaintiff            :     K&L Gates

Third Plaintiff               :     K&L Gates

Fourth Plaintiff             :     K&L Gates

Defendant:     GV Lawyers

Case(s) referred to in judgment(s):

Brash Holdings Ltd (Administrator appointed) v Katile Pty Ltd [1996] 1 VR 24

Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279

Community Development Pty Ltd v Engwirda Construction Co [1969] HCA 47; (1969) 120 CLR 455

Lam Soon Australia Pty Ltd (administrator appointed) v Molit (No 55) Pty Ltd (1996) 70 FCR 34

Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd [2011] NSWSC 1567

Lehman Bros Holdings Inc v City of Swan [2010] HCA 11; (2010) 240 CLR 509

Re Walker [2007] NSWSC 1470; (2007) 215 FLR 428

Sons of Gwalia Ltd v Margaretic [2007] HCA 1; (2007) 231 CLR 160

Thiess Infrico (Swanston) Pty Ltd, Re; National Express Group Australia (Swanston Trams) Pty Ltd v Smith [2004] FCA 1155; (2004) 209 ALR 694

1. LE MIERE J:  The issue for determination is whether the defendant's deed of company arrangement extinguished claims made by the plaintiffs under deeds of guarantee.

The claims

1. The plaintiffs are members of the BGC group of companies.  They manufacture and sell building products and services.  The plaintiffs and Newglen Nominees Pty Ltd (Newglen) entered into agreements by which the plaintiffs gave Newglen a 30 day credit account.  There were three agreements.  The first was an agreement between Newglen and the second and third plaintiffs.  The second was an agreement between Newglen and the fourth plaintiff.  I will refer to the first and second agreements collectively as the BGC Agreement.  The third was an agreement between Newglen and the first plaintiff (AGI Agreement).  Each of the agreements is in materially the same terms.  In order to guarantee the performance of the terms and conditions of each of the credit account agreements the defendant, Dalesun Holdings Pty Ltd (Dalesun), entered into two deeds of guarantee and indemnity in favour of the plaintiffs.  The first deed of guarantee was a guarantee by the defendant of the performance of the terms and conditions of the BGC Agreement by the second, third and fourth plaintiffs.  The second deed of guarantee is a guarantee by the defendant of the obligations of the first plaintiff under the AGI Agreement.  Each deed of guarantee and indemnity is in materially the same terms.  For convenience I will refer to the AGI Agreement and the deed of guarantee under which the defendant guaranteed the performance of the obligations of Newglen under the AGI Agreement.

2. The terms of the AGI Agreement include the following.  Upon the plaintiff supplying goods or services to Newglen, the plaintiff must provide Newglen with a monthly statement setting out the price of all goods or services purchased pursuant to the credit facility less amounts paid by or credited to Newglen relating to the respective previous statement.  Goods and services purchased by Newglen during a month must be paid by the last working day of the following month.

3. The terms of the deed of guarantee include the following.  The defendant guarantees the performance of the terms and conditions of the AGI Agreement by Newglen.  The guarantee is irrevocable and continuing.  The liability of the defendant is not limited or affected by the fact that monies payable by Newglen to the plaintiff may not be recoverable or may cease to be recoverable or the fact that the defendant shall come under external administration.  The defendant must indemnify the plaintiff against all costs and expenses incurred by the plaintiff in respect of any breach by Newglen of the terms and conditions of the AGI Agreement.  The deed of guarantee includes a charging clause by which the defendant charges all land owned or in the future acquired by the defendant to secure payment of all moneys which are or may become owing under the AGI Agreement and/or the deed of guarantee.

The Dalesun DOCA

1. On 21 March 2011 creditors of the defendant resolved that the defendant execute a deed of company arrangement.  The defendant executed a deed of company arrangement (Dalesun DOCA).  On 13 June 2011 the Dalesun DOCA was terminated on the basis that the arrangement had achieved its purpose.

2. The terms of the Dalesun DOCA include the following. The deed binds in accordance with and subject to s 444D of the Corporations Act2001 (Cth) all persons having a Claim, which means any debt which arose before the Appointment Date (3 December 2010) owing, whether then, presently, in the future or contingently, by, or a claim subsisting against, the defendant including a debt or claim arising pursuant to any guarantee. Except for any debts or Claims which are specifically preserved under the Deed and subject to exceptions not relevant, upon termination of the Deed, all Claims are extinguished except to the extent that a creditor with an admitted claim has the right to participate in the distribution of the trust fund in accordance with the terms of the trust deed. It is common ground that the plaintiffs are not Secured Creditors as specified in the deed.

Newglen acquires goods and services

1. Between November 2011 and February 2012, that is, after termination of the Dalesun DOCA, Newglen acquired goods and services from the plaintiffs on credit.

2. On 1 February 2012 Ian Francis and Michael Ryan were appointed as joint and several administrators of Newglen (the Newglen administrators).  On 8 March 2012 creditors of Newglen resolved that Newglen execute a deed of company arrangement.  Newglen executed a deed of company arrangement (the Newglen DOCA).  The plaintiffs were secured creditors of Newglen and each received a cheque in various amounts from the Newglen Administrators in their capacity as deed administrators of the Newglen DOCA.  On 28 March 2012 the Newglen deed of company arrangement was terminated on the basis that the arrangement had achieved its purpose.

3. The plaintiffs now claim from the defendant the balance owing by Newglen for the goods and services provided by the plaintiffs to Newglen after the Dalesun DOCA was terminated.

The preliminary question

1. The court is determining the following preliminary issue:

   Does the Dalesun DOCA operate so as to bind and bar the claims of the first, second, third and fourth plaintiffs made under:

   (i)the deed of guarantee and indemnity dated 8 January 2008 between the defendant and the first plaintiff; and

   (ii)the deed of guarantee and indemnity dated 9 May 2007 between the defendant and the second, third and fourth plaintiffs?

2. For convenience I will consider and refer to the issue of whether the Dalesun DOCA operates so as to bind and bar the claims of the first plaintiff, AGI, made under the deed of guarantee and indemnity dated 8 January 2008 between the defendant and AGI.  The issues in relation to the claims of the second, third and fourth plaintiffs made under the deed of guarantee and indemnity dated 9 May 2007 between the defendant and the second, third and fourth plaintiffs are the same and need not be considered separately.

The issues

1. The Dalesun DOCA by its terms purports to bind the plaintiffs and to extinguish their claims.  In answer to the preliminary issue the plaintiffs say their claims against the defendant are not extinguished by the Dalesun DOCA for three reasons.  These reasons are summarised by the plaintiffs in their written submissions as follows:

   First, at the relevant time, the plaintiffs were secured creditors of Dalesun that did not vote in favour of the Dalesun DOCA.  Dalesun does not dispute that the plaintiffs did not vote in favour of the Dalesun DOCA, and that by the terms of the deeds of guarantee and indemnity it granted to the plaintiffs charges over all of its land.  A DOCA cannot prevent a secured creditor that did not vote in favour of the DOCA from 'realising or otherwise dealing with [their] security interest' (s 444D(2) of Corporations Act).  A 'security interest' must be construed so as to include any debt for which the security was provided.  If 'security interest' is construed so as to not include any debt, then there is no proper basis upon which the secured creditor can '[realise] or otherwise [deal] with the security'.  Further, if a 'security interest' does not include any debt, then the 'secured creditor' is not a 'creditor'.

   Secondly, s 444J of the Corporations Act specifically states that the release of a company's debts under a DOCA 'does not affect a creditor's rights under a guarantee or indemnity'. The plaintiffs were creditors of Dalesun at the time relevant to the operation of the Dalesun DOCA so, by operation of s 444J, their rights under the deeds of guarantee and indemnity on which they rely in this action were not affected by the Dalesun DOCA. There is nothing in the clear terms of s 444J that precludes it from operating with respect to a guarantee or indemnity given by a DOCA company. This section codifies the general principle that a surety cannot be discharged by operation of law, but only by a voluntary act of a creditor.

   Thirdly, the claims made by the plaintiffs in this action concern the provision by them of goods from November 2011 for which the first payments by the principal debtor (Newglen) were due on 31 December 2011, approximately twelve months after the relevant 'claims date' in the Dalesun DOCA and six months after the termination of the DOCA.  A DOCA cannot operate so as to bar claims of creditors arising from a company's conduct after the operation of a DOCA.  If the plaintiffs' claims are barred, this must mean the Dalesun DOCA had the effect of terminating the deeds of guarantee and indemnity executed by Dalesun.  This cannot have occurred because the termination would have been unilaterally effected by Dalesun and would be contrary to the express terms of the deeds, which provide that their operation is irrevocable and continuing, and that the plaintiffs' rights remain enforceable notwithstanding that Dalesun has come under external administration.

2. In their first argument in their written submissions the plaintiffs refer to 'security interest'. In oral argument counsel for the plaintiffs informed the court that at the relevant time s 444D(2) referred to 'security' not 'security interest'. However, counsel maintained that that did not affect the plaintiffs' argument.

Plaintiffs' claims subsequent to the Dalesun DOCA

1. The plaintiffs' primary argument is that their claims the subject of these proceedings arose after the termination of the Dalesun DOCA and are not caught by the Dalesun DOCA.  That is the third argument summarised by the plaintiffs in their written submissions referred to above.

2. Corporations Act s 444D(1) provides that a deed of company arrangement binds all creditors of the company so far as concerns claims arising on or before the day specified in the deed. In Brash Holdings Ltd (Administrator appointed) v Katile Pty Ltd [1996] 1 VR 24 the Appeal Division of the Supreme Court of Victoria held that the 'claims' to which s 444D(1) refers are debts or claims which would be admissible for proof for the purposes of s 553 of the Corporations Act if the company were being wound up, and the date referred to in s 444D(1) was the relevant date for the purposes of s 553. Under s 553 all debts payable by, and all claims against the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company in winding up. It follows that a deed of company arrangement may bind all creditors, not only so far as concerns debts which had become due and payable as at the specified date, but also as concerns future or contingent claims, the circumstances giving rise to which occurred before that date.

3. In Lam Soon Australia Pty Ltd (administrator appointed) v Molit (No 55) Pty Ltd (1996) 70 FCR 34 the Full Court of the Federal Court held that the right to future instalments of rent under an existing lease is an existing right and not a mere expectancy. Accordingly, a claim for rent payable under a lease in existence on the day specified in the DOCA, which is due after that day, was a claim which had arisen on or before that day and was accordingly caught by the DOCA. Thus, where future payments are due under a pre‑existing contract, such debts are caught by the DOCA. Such debts could be thought of as debts that exist at the time of the appointment but which are not payable until after the appointment. In relation to future breaches of lease covenants, the Full Court of the Federal Court stated in obiter:

   A right to sue for damages for a particular future breach of that covenant, however, is we think, looked at before the breach occurs, not even a contingent claim:  it is the mere expectancy and could not be the subject of proof (44).

   The court said that, as at the date of the appointment, a covenant in a lease is not a right to be paid under the contract.  The right to payment arises only when the lease is breached, which is a date after the appointment.  Accordingly, the claim did not arise on or before the date of appointment and is not caught by the DOCA.

4. In Thiess Infrico (Swanston) Pty Ltd, Re; National Express Group Australia (Swanston Trams) Pty Ltd v Smith [2004] FCA 1155; (2004) 209 ALR 694 Finkelstein J referred to the obiter opinion of the Full Federal Court in Lam Soon that a right to sue for damages for a future breach of a contract when looked at before the breach is not a contingent claim and is a mere expectancy and therefore not provable.  Finkelstein J declined to apply that dictum, stating at [16] that it is contrary to both the purpose of the legislation and authority.

5. In Sons of Gwalia Ltd v Margaretic [2007] HCA 1; (2007) 231 CLR 160 the High Court considered whether certain claims fell within the expression 'debts or claims the circumstances giving rise to which occurred before the relevant date' in the Corporations Act s 553(1). An investor had bought shares in a company a few days before administrators were appointed to the company. The company subsequently entered into a deed of company arrangement. The investor claimed that by failing to notify the ASX that its gold reserves were insufficient to meet its delivery contracts and that it could not continue as a going concern, the company had contravened the prohibition of misleading or deceptive conduct in Trade Practices Act 1974 (Cth) s 52 and claimed damages as a creditor of the company. The deed administrators applied for a declaration that the investor's claim was not provable under the deed of company arrangement. The court held that the claim fell within the expression 'debts or claims the circumstances giving rise to which occurred before the relevant date' in s 553(1) and thus was admissible to proof in a winding up. Hayne J said:

   In construing the temporal limit that is imposed by s 553, it is important to recognise the generality of other expressions used in s 553 in defining what debts and claims are to be admissible to proof. The section speaks of 'all debts payable by, and all claims against, the company'.  It amplifies those expressions by the parenthetical reference:  'present or future certain or contingent, ascertained or sounding only in damages'.  If the words of the section were not wholly sufficient (as they are) to indicate an intention to define provable claims very widely, the Report of the Australian Law Reform Commission on the General Insolvency Inquiry (the Harmer Report), read with the Explanatory Memorandum for the Bill that became the 1992 Act, puts the point beyond any doubt.  The Harmer Report identified a basic aim of insolvency laws as being 'to deal comprehensively with all of the debts and liabilities of the insolvent' and said that, '[i]n the case of a company, the aim is to deal with all the claims against a company so that its affairs can be fully wound up or so that it can resume trading' (emphasis added). The Harmer Report concluded that '[t]he categories of claims which are admissible should be as wide as possible so that the financial affairs of the insolvent are dealt with comprehensively'. Otherwise, as the Harmer Report pointed out, 'if the creditors are unable to make their claims in the insolvency, they are unable to recover at all (unless they have a basis for action against either directors of the company or a guarantor of the company's debts or unless the winding up is stayed).' The Explanatory Memorandum for the Bill that became the 1992 Act said that the reforms embodied in the new provisions of ss 553 ‑ 553E 'reflect[ed] the recommendations of the Harmer Report' [172]. (footnotes omitted)

6. Hayne J said that the investor's claim was a present claim and not a future or contingent claim or debt and cited with apparent approval a passage from the judgment of Kitto J in Community Development Pty Ltd v Engwirda Construction Co [1969] HCA 47; (1969) 120 CLR 455, 459 concerning what is a contingent claim:

   Not much assistance is to be gained, I think, from observations that are to be found in reported cases as to the impact of the word 'contingent', and I shall refer to one only.  In In re William Hockley Ltd Pennycuick J suggested as a definition of 'a contingent creditor' what is perhaps rather a definition of 'a contingent or prospective creditor', saying that in his opinion it denoted 'a person to whom, under an existing obligation, the company may or will become subject to a present liability upon the happening of some future event or at some future date'.  The importance of these words for present purposes lies in their insistence that there must be an existing obligation and that out of that obligation a liability on the part of the company to pay a sum of money will arise in a future event, whether it be an event that must happen or only an event that may happen.  A building contract creates, as soon as it is entered into, an obligation upon the building owner to pay the contract price, either as a whole upon a future event or, more usually, by progress and final payments each of which is to be made on a future event.  The event or events may not happen, but if and when one of them does happen the building owner, by force of the contractual obligation, must pay the builder a sum of money.  It is, I think, nothing to the point that the event may be complex, as where the payment is agreed to be made when the whole or some part of the work has been done to the satisfaction of an architect as expressed in a certificate or to the satisfaction of an arbitrator as expressed in an award:  the building owner is bound from the time the contract is made to pay money to the builder upon a contingency; and that in my opinion makes the builder a contingent creditor of the owner.

1. In Re Walker [2007] NSWSC 1470; (2007) 215 FLR 428 Barrett J in the Supreme Court of New South Wales considered whether certain credit balances of customers of a telecommunications services company which arose before the relevant date are provable in the company's winding up under s 553(1). Barrett J observed:

   An important element is the nature of the contract in question as one involving the company's continuing obligation to supply or perform an ongoing service or benefit.

   In Re Thiess Infraco (Swanston) Pty Ltd and Smith (2004) 209 ALR 694, Finkelstein J (at [15]) drew attention to observations of Cotton LJ in Re Asphaltic Wood Pavement Co (1885) 30 Ch D 216 concerning a claim based on work unperformed by a construction company at the date of its winding up. The company there under consideration had, before the onset of winding up, entered into a construction contract. The work had not been completed. Cotton LJ said:

   It is argued that this is not a liability at the time because there was no breach.  At the time when the company commenced its liquidation, it was under a contract which implied a liability to maintain the streets if it were required.  It is now rendered impossible by the winding up of the company to do that … That is properly a liability the damages for which are capable of being proved.

   Authorities dealing with 'the circumstances' which may give rise to a debt or claim, not infrequently refer to some act (or omission) on the part of the company which 'carries within it the seed' of the eventual claim, or provides its 'genesis'.  Thus in McDonald v Deputy Commissioner of Taxation (2005) 58 ATR 418; 187 FLR 461, a claim under a costs order resulting from the post liquidation dismissal of a prior winding up application by another creditor was not admissible to proof under s 553 (see, in particular, at [44]) [20] ‑ [22].

2. In Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd [2011] NSWSC 1567 Hammerschlag J considered the probability of a costs award made after a company went into administration. After referring to previous authorities, Hammerschlag J referred to the test to be applied in determining whether particular circumstances have given rise to a particular claim. His Honour said:

   In my view, whether particular circumstances have given rise to a claim requires identification of the elements of the substantive obligation which the claim represents and an assessment of whether those circumstances reveal the existence of a basal fact necessary to bring that substantive obligation into being.

   Hence, as Barrett J further pointed out in Re Walker at [20] to [21], in a case of a liability under a contract, it is not necessary that the breach or other event giving rise to the claim must have occurred before the relevant date. A claim which is triggered by an event that occurs after the relevant date is admissible to proof provided that the contract existed at the relevant date. His Honour had regard to the nature of the contract in question which involved the company's continuing obligation to supply or perform an ongoing service or benefit. The existence of that contract was undoubtedly a basal fact necessary to bring the substantive contractual obligation comprising the claim into being.

   It is also necessary to bear in mind that, as Hayne J pointed out in Sons of Gwalia v Margaretic (2007) 231 CLR 160 at [172], the words of the section indicate an intention to define provable claims widely [57] ‑ [59].

3. Thus Hammerschlag J considered that the existence of a 'basal fact' necessary to bring the obligation into being will be sufficient and it is not necessary for the event giving rise to the claim to have occurred before the relevant date.

4. The AGI deed of guarantee provides that the defendant guarantees the performance of the terms and conditions of the contract by Newglen.  Clause 4 of the deed of guarantee provides that the defendant must indemnify and keep indemnified AGI against all costs and expenses incurred by AGI in respect of any breach by the Debtor Newglen of the AGI contract.  The deed of guarantee created, as soon as it was entered into, an obligation upon the defendant to pay the price of the goods or services provided by AGI to Newglen upon the goods and services being provided and Newglen failing to pay for them.  The payment is to be made on a future event, that is, the provision of the goods and services and Newglen failing to pay for them.  The event or events may not happen, but if and when they do the defendant, by force of the obligation created by the guarantee, must pay AGI a sum of money.  The deed of guarantee generated a contingent liability to pay upon AGI providing goods or services to Newglen on credit.  That event relevantly occurred after the date specified in the Dalesun DOCA but the 'basal fact' necessary to bring the obligation into being was the making of the deed of guarantee by the defendant.  The making of the deed of guarantee by the defendant was the basal fact necessary to bring the defendant's obligation into being.  At the specified date under the Dalesun DOCA there was an existing obligation, and out of that obligation a liability, on the part of the defendant to pay a sum of money that would arise in a future event, whether that was an event that must happen or only an event that may happen.  The execution of the deed of guarantee gave rise to contingent or future claims.  As that occurred before the date specified in the deed, all debts or claims under the deed of guarantee were provable under the Dalesun DOCA.

5. The plaintiffs' claims arising under the deed of guarantee are claims arising on or before the date specified in the Dalesun DOCA.  The plaintiffs are bound by the Dalesun DOCA.  The effect of Corporations Act s 444H is that the Dalesun DOCA releases the defendant from any claims by the plaintiffs which arise under the deed of guarantee.

Secured creditors and s 444D(2)

1. A deed of company arrangement binds all creditors of the company so far as concerns claims arising on or before the day specified in the deed:  Corporations Act s 444D(1). However, s 444D(2) provides that the deed does not prevent a secured creditor who did not vote in favour of the deed from realising or otherwise dealing with the security unless the court so orders. The plaintiffs submit that the security held by the plaintiffs includes the debts which are secured by the security and hence s 444D(2) permits the plaintiffs to recover those debts notwithstanding that the plaintiffs are otherwise bound by the Dalesun DOCA.

2. The word 'security' is not defined in the Corporations Act.  Counsel for the plaintiffs, Mr Chandler, did not submit that the deed of guarantee is a security.  Mr Chandler submitted that 'the plaintiffs were secured creditors because of the charge'.  In my view Mr Chandler is correct in that respect.  The word 'security' may have different meanings according to the context in which it is found.  The normal meaning of security is a right to resort to some property or fund to assure payment:  Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279, 341 (Ormiston J). That is the meaning of security in s 444D(2).

3. The plaintiffs proceed, in my view erroneously, to equate the security with the liability of the defendant under the deed of guarantee. In their written submissions the plaintiffs submitted that the proper construction of s 444D(1) must be that a deed of company arrangement cannot bar 'secured creditors' from making claims to recover the debt by which they have come to be 'creditors', by realising or dealing with their 'security'. The plaintiffs submitted that the debt cannot be separated or excluded from the security and that the security cannot properly be realised without first making and proving a claim for the debt. The plaintiffs then submit that there is no basis on which it can properly be said that s 444D and the Dalesun DOCA affect any terms of the AGI deed of guarantee in the absence of express terms to that effect in the Dalesun DOCA, which are not there, and the plaintiff voting in favour of the execution of the Dalesun DOCA, which did not happen.

4. I do not accept the plaintiffs' arguments. Section 444D(1) applies to all creditors, including secured creditors. In Lehman Bros Holdings Inc v City of Swan [2010] HCA 11; (2010) 240 CLR 509 Heydon J said:

   The words 'secured creditor' identify a sub‑class within the class referred to in s 444D(1) ‑ 'all creditors of the company' [70].

5. Section 444D(2) does not have the effect that a secured creditor is not bound by a deed of company arrangement. Section 444D(2) protects a secured creditor by providing that s 444D(1) does not prevent a secured creditor who does not vote for the deed from realising or otherwise dealing with the security unless the court so orders. Section 444H provides that a deed of company arrangement releases the company from a debt only insofar as the deed provided for the release and the creditor concerned is bound by the deed. In this case the plaintiffs are creditors and are bound by the Dalesun DOCA insofar as the Dalesun DOCA provides for the release. The effect of cl 3 of the Dalesun DOCA, together with its definition of 'Claim' is to release the defendant from the claims of the plaintiffs. Notwithstanding that release, s 444D(2) has the effect that the defendant can enforce its security, that is, the charge created by the deed of guarantee. However, counsel for the defendant, Mr Vaughan, submits that nothing in s 444D(2) purports to preserve ongoing obligations outside the security which might ripen into future monetary liabilities. I agree. Section 444D(2) preserved the plaintiffs' rights at the date specified in the Dalesun DOCA to realise or otherwise deal with the security, in this case the charge. Those rights were confined to the present claims the plaintiffs then had against the defendant at that time. The future or contingent claims of the plaintiffs arising pursuant to the guarantees are not prevented from being extinguished by s 444D(2).

Corporations Act s 444J

1. The plaintiffs' third argument is that Corporations Act s 444J has the effect that a deed of company arrangement does not release the company from a debt arising under a guarantee or indemnity. Sections 444H and 444J are as follows:

   SECTION 444H EXTENT OF RELEASE OF COMPANY'S DEBTS

   444H A deed of company arrangement releases the company from a debt only in so far as:

   (a)the deed provides for the release; and

   (b)the creditor concerned is bound by the deed.

   SECTION 444J GUARANTEES AND INDEMNITIES

   444J Section 444H does not affect a creditor's rights under a guarantee or indemnity.

2. The plaintiffs say that on its proper construction s 444J has the effect that a guarantor is not discharged by its own deed of company arrangement unless the deed expressly provides for this with the consent of the creditor. The plaintiffs say there is nothing in the text of s 444H and s 444J to support the proposition that s 444J does not apply to a guarantee or indemnity given by the company that executed the deed of company arrangement.

3. The defendant says that on the proper construction of s 444J, read in context and having regard to the purpose of pt 5.3A, the reference to a guarantee is a reference to a third party guarantee not a guarantee of the company that executed the deed of company arrangement.

4. The context of s 444J is the provisions of the Corporations Act dealing with deeds of company arrangement. Section 444D provides that a deed of company arrangement binds all creditors subject to the qualification that it does not prevent a secured creditor from realising or otherwise dealing with the security unless the secured creditor voted in favour of the deed or the court orders otherwise. The object of pt 5.3A is to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence or if that is not possible to produce a better return for the company's creditors and members than would result from an immediate winding up of the company. Interpreting 'a guarantee' in s 444J to refer to a third party guarantee would best achieve the purpose or object of the Act and is to be preferred to the plaintiffs' interpretation which would make it more difficult for the company to continue in existence because the deed of company arrangement would only apply to some of the claims against the company.

5. Corporations Act s 444J was inserted into the Corporations Act by the Corporations Amendment (Insolvency) Act 2007. It is clear from the Corporations Amendment (Insolvency) Bill 2007 Explanatory Memorandum and the June 1998 report of the Legal Committee of the Companies and Securities Advisory Committee on 'Corporate Voluntary Administration' (CAMAC Report 1998) that s 444J was inserted to make it clear that creditors' rights under a third party guarantee or indemnity are unaffected by a deed of company arrangement. The relevant part of the explanatory memorandum is:

   Third party guarantees

   Background

   7.8A DOCA releases the company from a debt in so far as the deed provides for the release and the creditor concerned is bound (section 444H of the Corporations Act). In this way, it is said that the company's debt is extinguished by the deed.

   7.9Third parties may act as guarantors or indemnify a creditor against loss for various debts owed by the company to creditors.

   7.10A possible view is that the acceptance of a DOCA extinguishes the liability of guarantors for debts of the company, by extinguishing the debt that is being guaranteed.  This argument would not apply to an indemnity, however, as the person in that case guarantees against loss and the creditor would have suffered a loss by the non‑payment of debt.

   7.11There is authority that supports the position that creditors' adoption of a DOCA does not affect their rights against third parties, including their rights under guarantees. Recommendation 34 of the CAMAC Report (1998) stated that the Corporations Act should be amended to deal with this issue.

   Key changes

   7.12Certainty in this area is desirable.  The law will be amended to unequivocally state that when creditors resolve to execute a DOCA, creditors' rights under a guarantee or indemnity are unaffected.

   Notes on items

   7.13Item 30 will insert new section 444J of the Corporations Act that makes it clear that creditors' rights under a guarantee or indemnity are unaffected where a debt is released by acceptance of the terms of a deed of company arrangement (per section 444H of the Corporations Act).

6. The relevant part of the CAMAC Report 1998 is:

   Third party guarantees

   5.57  The Legal Committee in its Discussion Paper noted a possible view that the acceptance of a deed of company arrangement extinguishes the liability of guarantors for debts of the company, by extinguishing the debt that is being guaranteed.  The Discussion Paper proposed that the law should make it clear that creditors' adoption of a deed of company arrangement does not affect their rights against third parties, including their rights under guarantees or indemnities.

   5.58  Most submissions supported the proposal.  Only the Law Council expressly disagreed on the ground that whether the extinguishment of the principal debt from the company prejudices the enforcement of a guarantee or indemnity is a matter of construction of the particular guarantee or indemnity and appears to be adequately resolved by the general law.

   5.59  The Legal Committee considers that certainty in this area is desirable.  Creditors should be able to enforce a guarantee, provided that its terms permit them to do so in the event that the company (the principal debtor) goes into voluntary administration.

   Recommendation 34.  It should be made clear that a debt which is extinguished by entry into a deed of company arrangement, and which by its terms would have otherwise survived, is deemed not to have been extinguished for the purpose of enforcing a related guarantee or indemnity.

7. Corporations Act s 444J does not apply to a guarantee given by the company that executed the deed of company arrangement. Corporations Act s 444J does not prevent the liability of the defendant under the deed of guarantee being extinguished by operation of Corporations Act s 444H and the Dalesun DOCA.

Conclusion

1. It follows from my reasons that the question for determination should be answered:

   The Deed of Company Arrangement (Commencement Date 8 April 2011) of the defendant operates so as to bind and bar the claims of the plaintiffs made under:

   (i)the deed of guarantee and indemnity dated 8 January 2008 between the defendant and the first plaintiff; and

   (ii)the deed of guarantee and indemnity dated 9 May 2007 between the defendant and the second, third and fourth plaintiffs.