Environmental & Earth Sciences Pty Ltd v Vouris

Case [2006] FCA 679

FEDERAL COURT OF AUSTRALIA

Environmental & Earth Sciences Pty Limited v Vouris [2006] FCA 679

CORPORATIONS – entitlement to vote at a meeting of creditors called pursuant to s 439A of the Corporations Act – entitlement to vote in respect of the costs of a trial and of a successful appeal where no order for the payment of such costs by the company had been made prior to the appointment of an administrator to the company

Held – the administrator erred in rejecting the plaintiff’s claim for costs for the purpose of voting at the first meeting of creditors; the administrator should be directed in accordance with s 447D(1) of the Corporations Act, to admit the plaintiff’s claim for costs for the purposes of voting at the second meeting of creditors

Bankruptcy Act 1966 (Cth) s 82
Bankruptcy Act 1883 (UK) s 37
Judicature Act 1875 (UK) s 10
Corporations Law (Cth) s 553, 556(1)(h)
Corporations Law Reform Act 1992 (Cth) ss 56, 92, 93, 94
Corporations Act 2001 (Cth) ss 436A, 436E, 439A, 439B, 439C, 447A, 447D, 553, 553A, 553B, 553C, 553D, 553E, 554, 554A, 554B, 554C
Corporations Regulations 2001 (Cth) Regs 5.6.11-5.6.36A
Federal Court of Australia Act 1976 (Cth) s 43(2)
Federal Court Rules Order 62 r15
Industrial Relations Act 1996 (NSW) s 106

Australian Law Reform Commission,  General Insolvency Inquiry Report (ALRC 45)

Expile Pty Limited v Jabb’s Excavations Pty Limited (2004) 22 ACLC 667 referred to
Lofthouse, Re Riverside Nursing Care Pty Limited (Subject to Deed of Company Arrangement) (2004) 22 ACLC 215 referred to
Brash Holdings Limited (Administrator Appointed) v Katile Pty Limited (1994) 13 ACSR 504 cited
Selim v McGrath (2003) 47 ACSR 537 referred to
Re Crawford House Press Pty Limited (1995) 17 ACSR 295 cited
McDonaldv Commissioner of Taxation (2005) 187 FLR 461 referred to
Anmi Pty Limited v Williams [1981] 2 NSWLR 138 referred to
Re Autolook Pty Limited; O’Brien v Bills (1984) 2 ACLC 30 referred to
In re British Goldfields of West Africa [1899] 2 Ch 7 explained
Community Development Pty Limited v Engwirda Construction Company (1966) 120 CLR 455 referred to
TheNational Bank of Australasia Limited v Mason (1975) 133 CLR 191 referred to
FAI Workers Compensation (NSW) Limited v Philkor Builders Pty Limited (1996) 20 ACSR 592 distinguished

Fisher v Madden as Receiver and Manager of Dataflow Computer Services Pty Limited (2002) 54 NSWLR 179 distinguished
Silbermann v One.Tel Limited (No 2) (2002) 20 ACLC 846 distinguished
Molit (No. 55) Pty Limited v Lam Soon Australia Pty Limited (Administrator Appointed) (1996) 19 ACSR 160 referred to
McCluskey v Pasminco Limited (Administrators appointed) (2002) 120 FCR 326 distinguished
McLellan v Australian Stock Exchange Limited (2005) 144 FCR 327 referred to
Emma Silver Mining Co v Grant (1880) 17 ChD 122
Southern Cross Mine Management Pty Limited v Ensham Resources Pty Limited [2006] QSC7

IN THE MATTER OF CHARBEN HAULAGE PTY LIMITED (IN VOLUNTARY ADMINISTRATION) ACN 083 376 701; ENVIRONMENTAL & EARTH SCIENCES PTY LTD ACN 002…

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Environmental & Earth Sciences Pty Ltd v Vouris [2006] FCA 679
Case
[2006] FCA 679
Decision Date

CaseChat Overview and Summary

Environmental & Earth Sciences Pty Ltd v Vouris concerned a dispute regarding the interpretation of the term ‘creditors’ within the context of Part 5.3A of the Corporations Act 2001. The case involved a decision meeting under s 439C of the Act, where the creditors were to determine the company's financial future. The key issue was whether certain creditors, who had claims against the company, were eligible to participate in the decision meeting. Specifically, the court had to determine if creditors with claims arising post-administration were entitled to participate in the decision meeting.

The court examined the definition and scope of 'creditors' under the Corporations Act 2001. It considered the traditional approach, which held that creditors eligible to prove in a winding up of the company were those who could participate in decision meetings. The court referred to relevant sections of the Act, including s 553, which governs the admissibility of debts and claims in a winding up, and s 439C, which pertains to decision meetings. The court also examined the Australian Law Reform Commission's final report, the Harmer Report, which influenced the current legislative framework.

In its reasoning, the court concluded that creditors eligible to participate in decision meetings under s 439C of the Act are those whose claims arose before the relevant date, which is the date of commencement of the administration. This interpretation aligns with the traditional approach and the legislative intent to ensure that only those creditors with pre-existing claims can influence the company's financial decisions. The court rejected the broader interpretation that would include creditors with post-administration claims.

The court's decision clarified the eligibility criteria for creditors participating in decision meetings under Part 5.3A of the Act, reinforcing the importance of timing in determining creditor rights. The outcome ensured that only those with pre-existing claims could influence the company's financial future, thereby maintaining the integrity of the decision-making process.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

GRAHAM J
In the circumstances, it does not seem to me that it can be suggested that Charben’s delayed compliance with the directions of the Full Court in relation to submissions on costs could be relevant to any order that might be thought appropriate under s 447A of the Act.‘Creditors’ for the purpose of Part 5.3A decision meetings The ‘creditors’ who may pass a resolution of one of the types mentioned above at the decision meeting are not defined in the Act. The traditional approach has been to treat as creditors for the purposes of s 439C those persons who would be entitled to prove in a winding up of the company in accordance with s 553 of the Act (see Brash Holdings Limited (Administrator Appointed) v Katile Pty Limited (1994) 13 ACSR 504 per Brooking, J D Phillips and Hansen JJ at 513; see also Selim v McGrath (‘Selim’) (2003) 47 ACSR 537 per Barrett J at 554-5 and in particular [67]-[68]). Section 553(1) provides as follows:‘553(1)Subject to this Division, in every winding up, 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.’ When an administrator has been appointed to a company, whether followed by a deed of company arrangement or not, provable debts are those where the circumstances giving rise to them occurred before the date of commencement of the administration (per Cohen J in Re Crawford House Press Pty Limited (1995) 17 ACSR 295 at 298). So also, with provable claims. In McDonaldv Commissioner of Taxation (‘McDonald’) (2005) 187 FLR 461 at 472 [36] Barrett J noted that s 553(1) of the Act directs attention not to the time at which a debt or claim arises but to whether ‘the circumstances giving rise to’ the debt or claim occurred before the ‘relevant date’. In the Australian Law Reform Commission’s final report, General Insolvency Inquiry (ALRC 45) (‘the Harmer Report’), to which reference will be made hereafter, the recommended provision which ended up as s 553(1) of the Act, as set out above, was as follows (see Vol 2 at 151):‘C1. In the administration of a company that is being wound up in insolvency, a debt or liability, present or future, certain or contingent, being an ascertained debt or liability or a liability sounding only in damages, may be admitted as a claim against the company.’ Prior to the passage of the Corporate Law Reform Act1992 (Cth) s 553 of the Corporations Law provided as follows:‘553(1)In every winding up, subject in the case of insolvent companies to the application in accordance with the provisions of this Law of the Bankruptcy Act 1966, all debts payable on a contingency and all claims against the company (present or future, certain or contingent, ascertained or sounding only in damages) are admissible to proof against the company, a just estimate being made so far as possible of the value of such debts or claims as are subject to any contingency or sound only in damages or for some other reason do not bear a certain value.(2)Subject to sections 206RD, 279 and 556, in the winding up of an insolvent company the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors and debts provable and the valuation of annuities and future and contingent liabilities as are in force for the time being under the Bankruptcy Act 1966, in relation to the estates of bankrupt persons, and all persons who in any such case would be entitled to prove for and receive dividends out of the property of the company may come in under the winding up and make such claims against the company as they respectively are entitled to by virtue of this section.’’

Ratio Decidendi

Legal Principle Established

Established by: GRAHAM J

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