Federation Group Ltd (ACN 007 532 827), in the matter of Federation Group Ltd (ACN 007 532 827)
[2005] FCA 817
•24 MAY 2005
FEDERAL COURT OF AUSTRALIA
Federation Group Ltd (ACN 007 532 827), in the matter of Federation Group Ltd (ACN 007 532 827) [2005] FCA 817
CORPORATIONS – external administration – letter of request to Supreme Court of British Columbia to act in aid of, and be auxiliary to, Federal Court – declaration as to surrounding circumstances and purpose of Part 5.3A of Corporations Act 2001 (Cth) – declarations made and letter issued
Corporations Act 2001 (Cth) ss 580, 581(4)
Corporations Regulations 2001 reg 5.6.74
AFG Insurances Ltd, Re (2002) 43 ACSR 60 followed
IN THE MATTER OF FEDERATION GROUP LTD (ACN 007 532 827)
FEDERATION GROUP LTD (ACN 007 532 827) (Subject to Deed of Company Arrangement) and BRYAN KEVIN HUGHES and VINCENT ANTHONY SMITH AS DEED ADMINISTRATORS OF THE FEDERATION GROUP LTD DEED OF COMPANY ARRANGEMENT
WAD 119 of 2005NICHOLSON J
24 MAY 2005
PERTH
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAD 119 OF 2005
IN THE MATTER OF s 580(c) and s 581(4) of the Corporations Act 2001 (Cth)
IN THE MATTER OF FEDERATION GROUP LTD
(ACN 007 532 827) (Subject to Deed of Company Arrangement)FEDERATION GROUP LTD (ACN 007 532 827)
(Subject to Deed of Company Agreement)
First PlaintiffBRYAN KEVIN HUGHES
VINCENT ANTHONY SMITH
AS DEED ADMINISTRATORS OF
THE FEDERATION GROUP LTD
DEED OF COMPANY ARRANGEMENT
Second PlaintiffsJUDGE:
NICHOLSON J
DATE OF ORDER:
24 MAY 2005
WHERE MADE:
PERTH
THE COURT DECLARES THAT:
1.On 23 October 2003, the first plaintiff (‘Company’) commenced under external administration pursuant to Pt 5.3A of the Corporations Act (Cth) (‘Act’).
2.On 23 October 2003, Bryan Kevin Hughes and Vincent Anthony Smith were appointed joint and several voluntary administrators of the Company pursuant to Pt 5.3A of the Act, with such powers and functions as conferred on them by Pt 5.3A of the Act.
3.On 10 December 2003, the Company and the second plaintiffs executed a deed of company arrangement, pursuant to the provisions of Pt 5.3A of the Act and that the second plaintiffs became the joint and several deed administrators of that deed.
4.Part 5.3A of the Act has its objects set out in section 435A of the Act, namely, to provide for the business, property and affairs of an insolvent company to be administered in a way that:
4.1.maximises the chances of the company, or as much of its business, continuing in existence; or
4.2.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.
AND THE COURT ORDERS THAT:
5.The Registrar sign, seal and dispatch to the proper officer of the Supreme Court of British Columbia, a letter of request in the following terms:
‘The Federal Court of Australia hereby requests the Supreme Court of British Columbia to assist this Court by making orders, to the extent the Supreme Court of British Columbia has jurisdiction so to order, as follows:
(1)Orders recognising and giving effect to the declarations made by the Federal Court of Australia on 24 May 2005 as follows:
(a) A declaration that on 23 October 2003, the first plaintiff (‘Company’) commenced under external administration pursuant to Pt 5.3A of the Corporations Act (Cth) (‘Act’).
(b) A declaration that on 23 October 2003, Bryan Kevin Hughes and Vincent Anthony Smith were appointed joint and several voluntary administrators of the Company pursuant to Pt 5.3A of the Act (‘Administrators’), with such powers and functions as conferred on them by Pt 5.3A of the Act.
(c) A declaration that on 10 December 2003, the Company and the Administrators executed a deed of company arrangement, pursuant to the provisions of Pt 5.3A of the Act, and that the Administrators thereby became the deed administrators of that deed.
(d) A declaration that Pt 5.3A of the Act has its objects set out in section 435A of the Act, namely, 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 of its business, continuing in existence; or
·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.
(2)Such orders as it would be open to the Federal Court of Australia to make within its jurisdiction applying and giving effect to the statutory provisions set out in sections 444A, 444B, 444D, 444E and 444F of Pt 5.3A of the Act or orders applying and giving effect to such comparable Canadian statutory provisions in respect of such protections, entitlements, transactions or dealings as would have had application to the Company had it been made subject to an administration order or similar order under Canadian insolvency law.
(3)Such orders as it would be open to the Federal Court of Australia to make within its jurisdiction to assist the Administrators in the exercise of their powers and the discharge of their functions as deed administrators appointed pursuant to Pt 5.3A of the Act.
(4)Such further and other orders as the Supreme Court of British Columbia may consider just.’
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAD 119 OF 2005
IN THE MATTER OF s 580(c) and s 581(4) of the Corporations Act 2001 (Cth)
IN THE MATTER OF FEDERATION GROUP LTD
(ACN 007 532 827) (Subject to Deed of Company Arrangement)FEDERATION GROUP LTD (ACN 007 532 827)
(Subject to Deed of Company Agreement)
First PlaintiffBRYAN KEVIN HUGHES
VINCENT ANTHONY SMITH
AS DEED ADMINISTRATORS OF
THE FEDERATION GROUP LTD
DEED OF COMPANY ARRANGEMENT
Second Plaintiffs
JUDGE:
NICHOLSON J
DATE:
24 MAY 2005
PLACE:
PERTH
REASONS FOR JUDGMENT
By way of originating process, an application is brought seeking a letter of request to be sent to a court of a country other than Australia, to act in aid of, and be auxiliary to, this Court in an external administration matter. The application is brought in reliance on s 581(4) of the Corporations Act 2001 (Cth).
That section appears in Div 9 of Pt 5.7 of the Corporations Act. Section 580 defines an external administration matter to mean a matter relating to, relevantly, ‘(c) the insolvency of a body corporate or a Part 5.7 body’. The form of the proposed letter of request seeks for the court of the other country, being the Supreme Court of British Columbia, to give effect to such comparable Canadian statutory provisions to identified provisions in the Corporations Act, Pt 5.3A in respect of such protections, entitlements, transactions or dealings as would have application to the company, had it been made subject to an administration order or similar order under Canadian insolvency law. In reliance upon Re AFG Insurances Ltd (2002) 43 ACSR 60 at [7], I consider that the proposed form of request establishes identifiable matter in relation to which the Canadian court would be asked to act in aid of, and be auxiliary to, this Court.
The terms of s 581(4) relevantly provide that the Court may request ‘a court … of country other than Australia … to act in aid of, and be auxiliary to, it in an external administration matter’. The Supreme Court of British Columbia clearly is such a court of which this Court may make such a request: s 580 of the Corporations Act and reg 5.6.74 of Corporations Regulations 2001. The subsection also is directed to that court having jurisdiction in the external administration matters to act in aid of, and to be auxiliary to it, in an external administration matter - the ‘it’ referring to this Court. That requires this Court to turn to the terms of the Canadian legislation.
Before the Court is an affidavit of Mr Zappia sworn on 24 May 2005. In that affidavit, he makes apparent how he has located and sought to verify the applicable Canadian legislation. I was taken to the relevant provisions of the Bankruptcy and Insolvency Act (R.S. 1985, c. B-3) of Canada. In particular, I was taken to s 268. Subsection (1) of that section provides:
‘For the purposes of [Pt XIII of the Act dealing with international insolvencies] where a bankruptcy, insolvency or reorganisation or like order has been made in respect of a debtor in a foreign proceeding, a certified or exemplified copy of the order to that effect is, in the absence of evidence to the contrary, proof that the debtor is insolvent and proof of the appointment of the foreign representative made by the order.’
That is not the position here. The position here is that the deed administrators seek to investigate a matter relevant to the insolvency in pursuance of their powers. That therefore brings into focus subs (3) of s 268 of the Bankruptcy and Insolvency Act, which provides:
‘The court may, in respect of a debtor, make such orders and grant such relief as it considers appropriate to facilitate, approve or implement arrangements that will result in co-ordination of proceedings under [the] Act with any foreign proceeding.’
In addition, I was taken to s 271(2) which provides:
‘On application by a foreign representative in respect of a foreign proceeding commenced for the purpose of effecting … a scheme of arrangement in respect of a debtor or in respect of the bankruptcy of a debtor, the court may grant a stay of proceedings against the debtor or the debtor's property in Canada on such terms and for such period as is consistent with the relief provided for under sections 69 to 69.5 in respect of a debtor in Canada who files a notice of intention or a proposal or who becomes bankrupt in Canada …’
Powers of a court are also dealt with in subs (3) of s 271.
I am also directed to s 267 and to the definition of ‘foreign proceeding’ which is there defined to mean:
‘a judicial or administrative proceeding commenced outside Canada in respect of a debtor, under a law relating to bankruptcy or insolvency and dealing with the collective interests of creditors generally’
In this proceeding the debtor is arguably the first plaintiff.
In my view, by reference to those provisions and to the other materials provided in the affidavit of Mr Zappia in support of the application, I am entitled to be satisfied that the court to which it is proposed to direct the letter of request would be able to act in external administration matters of this character in aid of, and be auxiliary to, this Court in relation to it.
The declarations which it is sought for the Court to make are themselves explicative of the facts at issue here. The first declaration sought is to the effect that on 23 October 2003 the first plaintiff commenced under external administration pursuant to Pt 5.3A of the Corporations Act. I have sighted the instrument of appointment of administrators to that effect, which is exhibited to the affidavit of Mr Hughes, sworn on 24 May 2005 on behalf of himself and Mr Smith, the administrators of the deed of company arrangement. In my view the evidence supports the making of that declaration.
The second declaration sought is that on 23 October 2003 Mr Hughes and Mr Smith were appointed joint and several voluntary administrators pursuant to Pt 5.3 of the Corporations Act, with such powers and functions as conferred on them by that Part. This is the corollary of the matter dealt with in the proposed first declaration. It is supported by the same evidence.
The third declaration sought is that on 10 December 2003 the company and the administrators executed a deed of company arrangement pursuant to the provisions of Pt 5.3A of the Corporations Act and that the administrators thereby became the deed administrators of that deed. Again, the evidence in the affidavit of Mr Hughes supports the making of that declaration.
A fourth declaration is sought, namely, that Pt 5.3A of the Corporations Act has the object set out in s 435A of the Corporations Act which reads:
‘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.’
The reason for that declaration being sought is to make evident to the court to whom the letter of request is proposed to be directed that the powers which the declarations refer to in the Corporations Act are ones referrable to the issue of insolvency. That particularly becomes desirable in view of the differences between the provisions in the Corporations Act and the provisions in the Canadian legislation to which I have briefly referred.
I am persuaded by the plaintiffs’ submission that while it may be unusual for the Court to declare what Parliament itself has stated as the purpose of Pt 5.3A of the Corporations Act, such declaration would make apparent the true nature and character of the preceding declarations.
In the letter of request it is proposed to also invite the Canadian court to make such other orders within its jurisdiction which would apply and give effect to the statutory provisions set out in ss 444A, 444B, 444D, 444E and 444F of Pt 5.3A of the Corporations Act, or orders applying and giving effect to such comparable Canadian statutory provisions in respect of such protections, entitlements, transactions or dealings as would have application to the company had it been made subject to an administration order or similar order under Canadian insolvency law. It is appropriate in my view that the letter of request should so provide. As previously stated, that is the manner in which the court to whom the letter is addressed would act in aid of and be auxiliary to this Court in external administration matter.
I should add that the evidence discloses that in carrying out their investigations into the affairs of the first plaintiff the second plaintiffs have formed the view that the first plaintiff was insolvent at, and had been insolvent for a significant time prior to, the date of their appointment as administrators.
It should also be stated that the matter becomes relevant, that is the external administration matter, because the first plaintiff is the holder of five million shares in a listed Canadian company listed on the Toronto Exchange. Those shares in that corporation are subject to various escrow provisions which if not met within the next five years will result in the shares being surrendered for cancellation. In addition, an offer has been received from the president of that corporation for the payment of a sum of money to the first plaintiff to facilitate the cancellation of the shares.
The company has instituted action against the first plaintiff in the Supreme Court of Canada to recover the sum of C$205 000 together with interest. All these matters make appropriate the direction of a letter of request. It is material to the determination of the issue of insolvency that the issue in relation to the shareholding be dealt with and dealt with according to law. Were the shares held within the jurisdiction of this Court it is clear that the Court would be called upon to exercise such powers as it had in order to address the issues which it is sought would be addressed by the external administration matter.
One of the goals sought by the issue of the letter of request is to prevent the position where the Canadian company would gain a financial benefit to the detriment of the body of the first plaintiff's unsecured creditors as a whole, if it is proved on investigation that the first plaintiff is indeed insolvent.
For those reasons, I consider that the circumstances support and the evidence justifies the making of the declarations in the terms sought by the plaintiffs, and a further order that the District Registrar sign, seal and dispatch, to the proper officer of the Supreme Court of British Columbia, a letter of request in the form appearing in the originating process.
I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholson. Associate:
Dated: 20 June 2005
Counsel for the Plaintiffs: TO Coyle Solicitor for the Plaintiffs: Phillips Fox Date of Hearing: 24 May 2005 Date of Judgment: 24 May 2005
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