Brown, M.R. v Carpet Design Group P/L

[1994] FCA 325

MARTIN RUSSELL BROWN v CARPET DESIGN GROUP PTY LIMITED
No. NG3204 of 1994
FED No. 325/94
Number of pages - 6
Corporations
(1994) 12 ACLC 448
(1994) 13 ACSR 621
(1994) 122 ALR 513

COURT

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

CATCHWORDS

Corporations - administration - resolution by creditors that company be wound up - appointment of administrator as liquidator - pending application to wind company up in insolvency - effect of pending application upon appointment of liquidator

Corporations Law: ss. 439C, 446A, 490, 491.

HEARING

SYDNEY, 16 May 1994
#DATE 26:5:1994

Counsel and solicitors Mr C.R.C. Newlinds
for the applicant: instructed by Kemp Strang and

Chippindall

Solicitor for the Mr P.J. Macnish
fifth respondent: of Harwood Andrews

Solicitor for the Intervener, Mr C. Dellit
The Australian Securities Commission:

ORDER

THE COURT DECLARES THAT:
1 The resolution of the creditors of Carpet Design Group Pty Limited ("the Company") passed pursuant to s. 439C of the Corporations Law ("the Law") on 20 April 1994, pursuant to which the Company was wound up ("the resolution"), is valid.

2. Leave of the Court pursuant to s. 490 of the Law was not required before the passage of the resolution.

3. Martin Russel Brown is and has been since 20 April 1994, the liquidator of the Company.
AND THE COURT ORDERS THAT:
The costs of the applicant and of the fifth respondent of the application be paid by the first respondent as a cost and expense of the winding up.

JUDGE1

GUMMOW J What follows are the reasons for the declarations and order made by the Court on 16 May 1994, upon an amended application filed 12 May 1994.

1. The Court declared that:
   

"1. The resolution of the creditors of Carpet Design Group Pty Ltd ("the Company") passed pursuant to s. 439C of the Corporations Law ("the Law") on 20 April 1994, pursuant to which the Company was wound up ("the resolution"), is valid.

2. Leave of the Court pursuant to s. 490 of the Law was not required before the passage of the resolution and,

3. Martin Russell Brown is and has been since 20 April 1994, the liquidator of the Company."

Mr Brown is an official liquidator registered under s. 1283 of the Law. He is the applicant. The Court also ordered that the costs of the applicant and the fifth respondent of the application be paid by the Company as a cost and expense of the winding up.

1. The case is concerned with matters of statutory construction. The facts are not in dispute. The Court has been much assisted by submissions for the Australian Securities Commission, which intervened pursuant to s. 1330 of the Law.

2. On 15 March 1994, the fifth respondent, a creditor of the Company, filed an application in the Victoria District Registry of this Court for an order that the Company be wound up. One ground of the application was that the Company was an insolvent company. The application was listed at Melbourne for 2 May 1994. Thus, the succeeding events which led, by another route, to the appointment of the applicant as liquidator occurred at times when an application for the Company to be wound up in insolvency had been filed and was pending.

3. Section 490 of the Law states:
   

"490. Except with the leave of the Court, a company cannot resolve that it be wound up voluntarily if:

(a) an application for the company to be wound up in insolvency has been filed; or

(b) the Court has ordered that the company be wound up in insolvency, whether or not the order was made on such an application."

A provision to this effect first entered Australian company law as s. 276 of the 1961 uniform legislation. Section 276 stated:

"276. Where a petition has been presented to the Court to wind up a company on the ground that it is unable to pay its debts the company shall not without leave of the Court resolve that it be wound up voluntarily."

1. In Re North Western Fruitgrowers Pty Limited (1965) VR 306 at 308, Adam J said that s. 276 was a new provision and appeared to have no counterpart in the legislation in Britain, Canada, New Zealand or South Africa. His Honour pointed out that prior to the enactment of s. 276 there had been no bar placed by statute on a company resolving to wind up voluntarily at a time when a creditor's petition had been presented but before a winding up order had been made. Adam J continued (at 308-9):
   

"Unless it was intended, even although the creditor's petition was presented first, to give preference to a voluntary winding up over a winding up by the Court, it is not surprising that the legislature should recognise the rights of a creditor who had petitioned before there was a voluntary winding up, to prevent, save with leave of the Court, a voluntary winding up supervening before his petition was heard. This, I would think, was what was behind s. 276."

1. Part 5.3A (ss. 435A-451D) was inserted in the Law with effect 23 June 1993, by s. 56 of the Corporate Law Reform Act 1992 ("the 1992 Act"). Sections 109H and 109J of the Law were inserted, with effect 18 December 1990, by paragraph 7(a) of the Corporations Legislation Amendment Act 1990. Section 109H of the Law states:
   

"109H. In the interpretation of a provision of this Law, a construction that would promote the purpose or object underlying the Law (whether that purpose or object is expressly stated in the Law or not) is to be preferred to a construction that would not promote that purpose or object."

1. In respect of Part 5.3A, such an object is stated in direct terms. Section 435A provides:
   

"435A. The object of this Part is to provide for the business, property and affairs of an insolvent company to be administered in a way that:

(a) maximises the chances of the company, or as much as possible of its business continuing in existence; or

(b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company."

Section 109J applies where material not forming part of the Law is capable of assisting in "working out" the meaning of a provision of the Law, for example, to determine its meaning where the provision is ambiguous or obscure. The material to which I have been referred confirms what, in any event, also is apparent on the face of Part 5.3A, as to the objective sought to be attained where it becomes apparent an administration will not be effective. This is that there be an efficient transition from administration to winding up.

1. I return to the facts of the present case. Section 436A provides that a company may appoint an administrator if the board has resolved to the effect that, in the opinion of the directors voting for the resolution, the company is insolvent or likely to become insolvent at some future time, and an administrator should be appointed. Significantly, the section is expressed not to apply to a company that is already being wound up.

2. On 18 March 1994, Mr Gavin Thomas was appointed administrator of the Company pursuant to s. 436A. Section 436E obliged the administrator to convene a meeting of the Company's creditors. At such a meeting the creditors may, by resolution, remove the administrator from office and appoint someone else as administrator of the Company. On 25 March 1994, at a meeting convened under s. 436E, the creditors resolved to remove Mr Thomas as administrator and appointed the applicant, Mr Brown, in his place. A report as to the affairs of the Company as at 25 March 1994 shows an estimated net deficiency of $776,422. There is no challenge to the proposition that at the times relevant for the present application the Company has been insolvent.

3. The directors of the Company, Mr and Mrs Green, are transferees of a registered charge formerly held by the State Bank of New South Wales over the assets and undertakings of the Company. They took the benefit of the charge by deed of assignment dated 30 March 1994. On that day the second respondent, Mr Silvia, was appointed, under the security, as receiver and manager of the Company. The Company is one of a group of companies including C.D.G. (Melbourne) Pty Limited, C.D.G. (Canberra) Pty Limited, and Modular Design Group Pty Limited. Mr Silvia is also receiver and manager of these three companies. Mr Gavin Thomas is the liquidator of the three companies.

4. Section 439A obliged the administrator to convene a meeting of the creditors of the Company to consider such matters as whether it would be in the interests of the creditors to execute a deed of company arrangement, to end the administration, or for the Company to be wound up. Section 439C states:
   

"439C. At a meeting convened under section 439A, the creditors may resolve:

(a) that the company execute a deed of company arrangement specified in the resolution (even if it differs from the proposed deed (if any) details of which accompanied the notice of meeting); or

(b) that the administration should end; or

(c) that the company be wound up."

At a meeting of creditors held on 20 April 1994 it was resolved, pursuant to s. 439C, that the Company be wound up. It was the applicant's belief that, as the administrator, he thereupon became liquidator of the Company. This certainly appeared to be the effect of s. 446A. The text of that provision is set out later in these reasons.

1. The pending application to wind up the Company came before this Court at Melbourne on 2 May 1994. The applicant informed the Court of the appointment of Mr Brown as liquidator. The application to wind up the Company was then struck out. This was on the footing that Mr Brown had been appointed liquidator on 20 April 1994 and was still in office.

2. However, a doubt has since arisen as to the effectiveness of the appointment of Mr Brown. The cause of the doubt is, as I understand it, the absence of leave of the Court before the events of 20 April 1994. It will be recalled that sub-s. 490(1) provides that "except with the leave of the Court" a company "cannot" resolve that it be wound up voluntarily if an application for it to be wound up in insolvency has been filed. That provision, of course, on its face has no application to the events leading to the appointment of Mr Brown. The perceived difficulty arises from the interrelation between s. 490, following provisions (which deal with voluntary winding up by special resolution of the company) and s. 446A, which provides a mechanism whereby in certain cases the administrator becomes the liquidator.

3. Section 446A is so cast as to draw into procedures involving decisions made at a meeting of creditors, provisions designed to protect the interests of creditors in a voluntary winding up initiated by special resolution of the Company. It does so by deeming certain steps to have been taken. In such a case it is important to consider the purpose for which these steps are to be considered as having been taken: Hunter Douglas Australia Pty Ltd v Perma Blinds (1970) 122 CLR 49 at 65-7, per Windeyer J.

4. It is appropriate now to turn to the text of s. 446A. So far as is relevant, this provides:
   

"446A(1) This section applies if:

(a) the creditors of a company under administration resolve at a particular time under paragraph 439C(c) that the company be wound up; or

(b) .......; or

(c) ........

(2) The company is taken:

(a) to have passed, at the time referred to in paragraph 1(a) or (b) or subparagraph 1(c)(ii), as the case may be, a special resolution under section 491 that the company be wound up voluntarily; and

(b) to have done so without a declaration having been made and lodged under section 494.

(3) Section 497 is taken to have been complied with in relation to the winding up.

(4) For the purposes of subsection 449(1):

(a) the company is taken to have nominated:

(i) if paragraph (1)(a) or (b) of this section applies - the administrator of the company; or

(ii) ........ ....... to be liquidator for the purposes of the winding up;

(b) the creditors are taken not to have so nominated anyone.

(5) The liquidator must:

(a) within 7 days after the day on which the company is taken to have passed the resolution, lodge a written notice stating that the company is taken because of this section to have passed such a resolution and specifying that day; and

(b) cause a notice of that kind to be published, within 21 days after that day:

(i) in a national newspaper; or

(ii) in each jurisdiction in which the company has its registered office or carries on business, in a daily newspaper that circulates generally in that jurisdiction.

(6) Section 482 applies in relation to the winding up as if it were a winding up in insolvency or by the Court.

(7) An application under section 482 as applying because of subsection (6) may be made:

(a) despite subsection 499(4), by the company pursuant to a resolution of the board; or

(b) by the liquidator; or

(c) by a creditor; or

(d) by a contributory." (Emphasis supplied)

1. Section 482 deals with stays. Section 494 deals with the provision on a proposed voluntary winding up of a declaration of solvency by a majority of the directors. Section 497, referred to in sub-s. 446A(3), obliges the Company to cause to be convened a meeting of creditors for the day, or the day next following the day, on which there is to be held the meeting at which the resolution for voluntary winding up is to be proposed. Section 499 provides that at their respective meetings the Company shall, and the creditors may, nominate a liquidator; if different persons are nominated, the nominee of the creditors shall be the liquidator.

2. Section 446A is designed to fit into this structure in a particular fashion. If, as in the present case, the creditors of a company under administration resolve at a meeting convened under s. 439A that the Company be wound up then s. 446A applies (para. 446A(1)(a)). Four steps are then to be considered as having been "taken". First, the Company is taken to have passed, at the time of the passage of the resolution of the creditors of the Company that it be wound up, a special resolution under s. 491 that the Company be wound up voluntarily (para. 446A(2)(a)). Secondly, the Company is taken to have done so without a declaration of solvency having been made and lodged under s. 494 (para. 446A(2)(b)). Thirdly, the requirements of s. 497 as to the convening of a meeting of creditors is to be taken to have been complied with in relation to the winding up (sub-s. 446A(3)). Fourthly, at their respective meetings, the Company is taken to have nominated the administrator to be the liquidator for the purposes of the winding up, and the creditors are taken not to have so nominated anyone (sub-s. 446A(4)).

3. Further, the liquidator has obligations imposed upon him to be discharged within periods fixed by reference to the day on which the Company is taken by sub-s. 446A(2) to have passed the special resolution under s. 491 that it be wound up voluntarily. Within 7 days it must lodge a written notice and within 21 days cause a notice to be published in a national newspaper or in a daily newspaper that circulates generally in each jurisdiction in which the Company has its registered office or carries on business (sub-s. 446A(5)).

4. Taken together, these provisions, in a case such as the present, further support what already is indicated by sub-s. 446A(2). This is that by reason of the passing of the resolution of the creditors that the Company be wound up, the Company is "taken", that is to say to be treated as if, there had been passed by the Company a special resolution under s. 491 that it be wound up voluntarily. In the face of s. 446A it is not to the point that in the particular circumstances the Company itself could not have resolved that it be wound up voluntarily, except with the leave of the Court. As a statutory consequence of the resolution of the creditors that it be wound up, the Company is taken to have passed, at the time of the passage of the resolution of the creditors, a special resolution which is effective under s. 491. That is to say, any conditions precedent to such a special resolution by the Company are deemed to have been satisfied.

5. The matter may further be considered by asking what, in the circumstances of the present case, would be the terms and effect of any leave of this Court under s. 490. The effect of such leave would be to remove a barrier or satisfy a condition precedent to the passage of an effective resolution by the Company that it be wound up voluntarily. In the present case, such leave would be in aid of a step which was not contemplated and has not occurred. What has occurred is that by force of s. 446A, in its operation by reason of the resolution of the creditors that the Company be wound up, the Company is taken to have passed at the time of that resolution by the creditors, a special resolution which is effective under s. 491 to place the Company in voluntary liquidation. Section 490 has no place in the operation of that statutory mechanism. That is not surprising, given the general purpose of s. 490 to preserve the position of creditors against the initiation of a voluntary winding up whilst there is pending an application that the Company be wound up in insolvency.

6. If the matter is looked at in this way, as in my view it should be, then there is no substance in any suggestion that there was a legislative oversight in the omission of s. 490 from express reference in the statutory mechanism set in operation by the creditors' resolution for winding up.

7. It is for these reasons that the Court made the declarations and order on 16 May 1994.