Decon Australia Pty Ltd v TFM Epping Land Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Decon Australia Pty Ltd v TFM Epping Land Pty Ltd [2020] FCA 1085

File number: NSD 817 of 2020
Judge: STEWART J
Date of judgment: 28 July 2020
Catchwords: CORPORATIONS – companies in voluntary administration – deeds of company arrangement (DOCAs) to be proposed at imminent second meetings of creditors – pre-existing pending applications to wind-up the companies – interim relief sought to restrain the creditors meetings and the execution of DOCAs pending application to terminate administrations of companies pursuant to s 447A of the Corporations Act 2001 (Cth) and/or setting aside resolutions and DOCAs pursuant to ss 447A and 445D and winding-up the companies – whether administrators have failed to properly investigate and consider the companies’ affairs – whether administrators furnished misleading information to creditors – whether administrators denied plaintiff its proper voting rights – serious questions to be tried – whether balance of convenience favours interim relief – remedies available to plaintiff if the resolutions are adopted and the DOCAs executed – limited prejudice to plaintiff – balance of convenience does not justify Court’s intervention – interim relief refused
Legislation:

Building and Construction Industry Security of Payments Act 1999 (NSW) s 15

Corporations Act 2001 (Cth) ss 91, 438A, 439C, 440D, 444C, 445D, 447A, 459C

Cases cited:

Aloridge Pty Ltd v Christianos [1994] FCA 123; 13 ACSR 99

Australian Securities and Investments Commission v Midland Hwy Pty Ltd (admin apptd) [2015] FCA 1360; 110 ACSR 203

Blacktown City Council v Macarthur Telecommunications Pty Ltd [2003] NSWSC 883; 47 ACSR 391

Chief Commissioner of State Revenue (NSW) v Rafferty’s Resort Management Pty Ltd (in liq) [2008] NSWSC 452; 217 FLR 230

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

Mighty River International Ltd v Hughes [2018] HCA 38; 265 CLR 480

Re Recycling Holdings Pty Ltd [2015] NSWSC 1016; 107 ACSR 406

Re Ten Network [2017] NSWSC 1247

Vannella Pty Ltd Atf Capitalist Family Trust v TFM Epping Land Pty Ltd [2020] NSWSC 659
Date of hearing: 27 July 2020
Registry: New South Wales
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 44
Counsel for the Plaintiff: J Giles SC with E Ball
Solicitor for the Plaintiff: Piper Alderman
Counsel for the Defendants: R Scruby SC
Solicitor for the Defendants: Henry Williams Lawyers

ORDERS

NSD 817 of 2020
BETWEEN:

DECON AUSTRALIA PTY LTD ACN 078 021 333

Plaintiff
AND:

TFM EPPING LAND PTY LTD ACN 605 600 253

First Defendant

KATOOMBA RESIDENCE INVESTMENT PTY LTD ACN 606 106 405

Second Defendant

STEPHEN JOHN MICHELL (and another named in the Schedule)

Third Defendant

JUDGE:

STEWART J

DATE OF ORDER:

28 JULY 2020

THE COURT ORDERS THAT:

1.Pursuant to s 440D of the Corporations Act 2001 (Cth), the plaintiff has leave to commence this proceeding against the first and second defendants.

2.The relief sought in order 6 of the originating process is adjourned…

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Details
Case
[2020] FCA 1085
Decision Date

CaseChat Overview and Summary

Decon Australia Pty Ltd sought interim relief to restrain meetings of creditors and the execution of Deeds of Company Arrangement (DOCA) in relation to TFM Epping Land Pty Ltd and KRI Constructions Pty Ltd. The plaintiff claimed that the administrators of the defendant companies had failed to properly investigate and consider the companies' affairs, had provided misleading information to creditors, and had denied the plaintiff its proper voting rights. The court was required to determine whether the administrators had breached their duties under the Corporations Act 2001 (Cth), and whether the balance of convenience favoured granting interim relief to the plaintiff. The court found that the plaintiff had raised serious questions to be tried, but that the balance of convenience did not justify the court's intervention at that stage. The court noted that the administrators had determined to admit the plaintiff's claims against each of TFM and KRI for only $1 for the purpose of voting, which was surprising. However, the court found that the cross-claim by the companies against the plaintiff did not prevent the debt owed being immediately due and payable. The court also found that the plaintiff had not demonstrated that it would suffer significant prejudice if the creditors meetings went ahead and the DOCAs were executed. The court therefore dismissed the plaintiff's application for interim relief, but ordered that the matter be brought back for urgent case management to determine the plaintiff's final relief with expedition.
The court also noted that the relief sought in order 6 of the originating process, which was to say the relief dealing with the provision of documents, was not required to be dealt with immediately. The court found that the parties had not made oral submissions in relation to this relief, and that it could be adjourned to be dealt with at a later date. The court reserved the costs of the application for interim relief, noting that the outcome of the creditors meetings and the final relief may have a bearing on them. The court listed the matter for case management at 4:15pm on 29 July 2020, and noted that entry of orders was dealt with in Rule 39.32 of the Federal Court Rules 2011.

Orders

Orders of the court

1. Pursuant to s 440D of the Corporations Act 2001 (Cth), the plaintiff has leave to commence this proceeding against the first and second defendants.

2. The relief sought in order 6 of the originating process is adjourned for future determination.

3. The interim relief sought in the originating process is otherwise dismissed.

4. The costs of the hearing for interim relief are reserved.

5. The matter is listed for case management at 4:15pm on 29 July 2020.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Orders 1 and 2 can be made by consent. Also, it was accepted by the plaintiff that if it was to be granted interim relief, either in the form of orders 3 and 4 restraining the holding of the meetings of creditors or order 5 restraining the entering into of DOCAs, fairness would require that the hearing of its winding-up application against the companies (which is in proceeding NSD684/2020) be adjourned. If that was to occur, then the winding-up application and the application for other final relief in this case would be heard together.Background TFM and KRI are the developers of a 99-unit residential project in Epping. TFM and KRI entered into a construction contract with the plaintiff for the plaintiff to build the Epping development. An interim occupation certificate for the Epping development was issued in August 2018, and a strata plan was registered in September 2018. About half the units in the Epping development have been sold. In June 2019, the plaintiff served a payment claim on TFM and KRI pursuant to the Building and Construction Industry Security of Payments Act 1999 (NSW) (SOPA) in the amount of $6,355,352.42. That TFM and KRI are liable to pay the plaintiff the money the subject of that claim has now been established beyond question in proceedings in the Supreme Court of NSW, including in the Court of Appeal. Not only were TFM and KRI unsuccessful in appealing against a judgment against them in the stated amount, but they were also unsuccessful in appealing against the refusal of a stay of that judgment. The last appeal judgment was on 19 June 2020. It was the next business day that the plaintiff applied to wind-up the defendant companies. The bases upon which the winding-up applications are made is that TFM and KRI have admitted, through their legal representatives, that they are insolvent, and each is presumed to be insolvent under s 459C(2)(b) of the Corporations Act 2001 (Cth) as writs executed by the Sheriff were returned wholly unsubstantiated. As indicated, on 30 June 2020 the sole director of each of TFM and KRI resolved to place the companies under voluntary administration and appoint the administrators. The first reports to creditors in the voluntary administrations were issued on 2 July 2020, and the first creditors meetings were held on 10 July 2020. At the first creditors meetings, the administrators determined to admit the plaintiff’s claims against each of TFM and KRI for only $1 for the purpose of voting while admitting all other creditors to vote for the amounts which they claimed. I accept the submission on behalf of the plaintiff that that decision, which is reflected in the reports to creditors, is surprising. The reason stated by the administrators for valuing the plaintiff’s claim at $1 is that a cross-claim by the companies against the plaintiff may exceed the plaintiff’s claim. The cross-claim, however, does not prevent the debt owed being immediately due and payable (s 15 of SOPA). The analysis by Stevenson J in the stay application, on the evidence before his Honour merely a few months ago, reveals the cross-claim to be somewhat speculative and, at least at that time, unsubstantiated. See Vannella Pty Ltd Atf Capitalist Family Trust v TFM Epping Land Pty Ltd [2020] NSWSC 659 at [62], [63] and [78]-[85].

Evidence

Evidence Before The Court

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Decision

Reasons for decision

There are considerations weighing against that course. First, the fact of execution of the DOCAs being restrained may itself weigh in the creditors’ consideration of whether or not to adopt the resolutions. That will have the effect of the court interfering in the process of the creditors meetings contrary to the principles discussed in Re Ten Network and Mighty River at [66]. Secondly, mere resolution at the meetings that the companies execute the DOCAs has legal impacts on what creditors can then do (s 444C of the Act). Thus, restraining the execution of the DOCAs but leaving the creditors to adopt the resolutions will create unjustifiable uncertainty.Conclusion In the circumstances, I am not satisfied that the prejudice to the plaintiff and the balance of convenience is such as to justify the Court intervening at this stage to prevent the creditors meetings going ahead or to restrain the execution of any DOCAs which may or may not be approved at the meetings. I will, however, bring the matter back for urgent case management tomorrow so that if the resolutions are adopted a programme can be put in place to have the plaintiff’s final relief determined with considerable expedition. I am not satisfied that order 6, which is to say the relief dealing with the provision of documents, is required to be dealt with immediately. Indeed, in view of time constraints the parties did not make oral submissions in relation to this relief. It can be adjourned to be dealt with at a later date. The costs of the application for interim relief should be reserved as the outcome of the creditors meetings and the final relief may have a bearing on them.

Ratio Decidendi

Legal Principle Established

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