Forest v Virgin Blue Airlines Pty Ltd - [2007] FCA 92

FEDERAL COURT OF AUSTRALIA
Palmer and Collis and Terraplanet Limited (in liquidation), in the matter of Terraplanet Limited (in liquidation) [2007] FCA 2092
CORPORATIONS – application by liquidators under s 436B(2) of Corporations Act 2001 (Cth) for leave to appoint themselves as administrators of the company – considerations relevant to exercise of discretion – main consideration whether liquidators appropriate persons to be appointed – whether order should be made under s 447A of Act dispensing with holding of first meeting of creditors under s 436E of Act in circumstances in which there had been a committee of inspection in the liquidation all the members of which supported the present application
Held: orders made as sought under ss 436B(2) and 447A of the Act.
Corporations Act 2001 (Cth) ss 436B(2), 436E, 447A
Deputy Commissioner of Taxation v Foodcorp Pty Ltd (1994) 13 ACSR 796 cited
Re Cobar Mines Pty Ltd(rec and mgr apptd) (in liq) (1998) 30 ACSR 125 cited
John R Turk & Sons (Artarmon) Pty Ltd v Newmont Television Pty Ltd [1999] NSWSC 622 cited
Re Nardell Coal Corporation PtyLtd(recs and mgrs apptd) (in liq) (2003) 47 ACSR 122 cited
Re Data Homes Pty Ltd (in liq) [1972] 2 NSWLR 22 cited
Re Depsun Pty Ltd (1994) 13 ACSR 644 cited
CHRISTOPHER JOHN PALMER AND BRYAN PATRICK COLLIS AND TERRAPLANET LIMITED (IN LIQUIDATION) (ACN 088 749 008)
NSD 2445 OF 2007
LINDGREN J
28 DECEMBER 2007
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 2445 OF 2007

IN THE MATTER OF TERRAPLANET LIMITED (IN LIQUIDATION) (ACN 088 749 008)

BETWEEN:

CHRISTOPHER JOHN PALMER AND BRYAN PATRICK COLLIS
First Plaintiffs

TERRAPLANET LIMITED (IN LIQUIDATION)
(ACN 088 749 008)
Second Plaintiff

JUDGE:

LINDGREN J

DATE OF ORDER:

21 DECEMBER 2007

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.Pursuant to s 436B(2) of the Corporations Act 2001 (Cth) (the Act), the first plaintiffs have leave to appoint themselves as administrators of the second plaintiff.
2.Pursuant to s 447A of the Act, the first meeting of creditors to be held pursuant to
s 436E of the Act be and is hereby dispensed with.
3.The application for the remaining relief sought in the Originating Process is adjourned to 6 February 2008 at 9:30am.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 2445 OF 2007

IN THE MATTER OF TERRAPLANET LIMITED (IN LIQUIDATION) (ACN 088 749 008)

BETWEEN:
AND:

CHRISTOPHER JOHN PALMER AND BRYAN PATRICK COLLIS
First Plaintiffs

TERRAPLANET LIMITED (IN LIQUIDATION)
(ACN 088 749 008)
Second Plaintiff

JUDGE:

LINDGREN J

DATE:

28 DECEMBER 2007

PLACE:

SYDNEY

REASONS FOR JUDGMENT
INTRODUCTION

The first plaintiffs (the Liquidators) are the liquidators of the second plaintiff (Terraplanet). The Liquidators have applied for leave under s 436B(2) of the Corporations Act 2001 (Cth) (the Act) to appoint themselves as administrators of Terraplanet. On 21 December 2007 I granted that leave.…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2007] FCA 92
Decision Date: 7 February 2007

CaseChat Overview and Summary

This case involved an application by liquidators of Terraplanet, a company in liquidation, to be appointed as administrators of the company under Section 436B of the Corporations Act 2001 (Cth). The liquidators sought leave to dispense with the requirement for a first meeting of creditors under Section 436E of the Act and for the matter to be adjourned. The primary legal issue before the court was whether the liquidators were appropriate persons to be appointed as administrators of the company. The court also considered whether it would be wasteful for the liquidators to convene the first meeting of creditors, given the circumstances of the case.

The court found that the liquidators were appropriate persons to be appointed as administrators, as they were familiar with the history of the company and there was no suggestion of anything offensive to commercial morality in the proposed deed of company arrangement. The court noted that the members of the committee of inspection in the liquidation had unanimously supported the proposal, in general, and in particular, the re-appointment of the liquidators as administrators for the purpose of advancing it. The court also found that it would be wasteful for the liquidators to convene the first meeting of creditors, as the requirement for such a meeting was dispensed with under Section 447A of the Act. The court referred to previous cases in which similar orders had been made.

The court granted leave under Section 436B(2) of the Act for the liquidators to appoint themselves as administrators of the company and dispensed with the requirement for a first meeting of creditors under Section 436E of the Act. The application for the remaining relief sought in the originating process was adjourned to 6 February 2008 at 9:30am.

Orders

Orders of the court

1. Pursuant to s 436B(2) of the Corporations Act 2001 (Cth) (the Act), the first plaintiffs have leave to appoint themselves as administrators of the second plaintiff.

2. Pursuant to s 447A of the Act, the first meeting of creditors to be held pursuant to

s 436E of the Act be and is hereby dispensed with.

3. The application for the remaining relief sought in the Originating Process is adjourned to 6 February 2008 at 9:30am.

Background

Background to the litigation

Section 436B falls within Pt 5.3A of the Act which deals with the administration of a company’s affairs with a view to its executing a deed of company arrangement (DOCA). Section 436B(1) provides that a liquidator or provisional liquidator of a company may by writing appoint an administrator of the company if he or she thinks that the company is insolvent, or is likely to become insolvent at some future time. However, a liquidator or provisional liquidator may appoint himself or herself as an administrator under that provision only with the leave of the Court.BACKGROUND FACTS Terraplanet carried on business as a publisher of magazines, graphic design and pre-press service provider, internet web site designer and developer and related businesses. It was admitted to the Official List of the Australian Stock Exchange (ASX) on or about 12 May 2000. However, Terraplanet’s securities were suspended from being traded on the ASX in November 2002. On 3 December 2002, Terraplanet and two subsidiary companies, Terraplane Press Pty Ltd (Press) and Terraplane Imaging Pty Ltd (Imaging), by resolutions of their respective boards of directors, appointed the Liquidators as administrators of the respective companies pursuant to s 436A of the Act. The Liquidators, in their then capacity as administrators, negotiated a contract for sale of most of the business assets of Terraplanet and Press. The sale was completed on 6 January 2003. The sale price was $951,000 plus GST, of which $682,321 was paid to the secured creditor, Quality Web Australia Pty Ltd (Quality). On the following day, 7 January 2003, at the meeting of the creditors of Terraplanet convened under s 439A of the Act, the creditors resolved under s 439C(c) of the Act that Terraplanet be wound up. The creditors also resolved that a committee of inspection be appointed. By the operation of s 446A(4) of the Act, Terraplanet was taken to have nominated the Liquidators to be liquidators for the purposes of the winding up, and the creditors were taken not to have so nominated anyone. In their capacity as liquidators, the Liquidators sought, under s 588FF of the Act, to recover as an unfair preference an amount of $509,871 from the Deputy Commissioner of Taxation (DCT). DCT joined the directors of Terraplanet as parties to the proceeding pursuant to s 588FGA of the Act. The proceeding was settled in December 2005 for $272,000, on the basis that each party bear its own costs. DCT released the directors from any potential claims for insolvent trading. The Liquidators also launched a proceeding against Quality in relation to payments made to Quality totalling $445,754. Quality had been granted a fixed charge over assets of Terraplanet on 15 November 2002 (not long before the appointment of the Liquidators as administrators). Apparently, the dispute concerned pre-charge payments made by Terraplanet to Quality. The proceeding was settled in November 2005 for $70,000, on the basis that each party bear its own costs.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

LINDGREN J

It would be wasteful to put the Liquidators to that effort and expense, having regard to the fact that the members of the committee of inspection in the liquidation have unanimously supported the Proposal, in general, and, in particular, the re-appointment of the Liquidators as administrators for the purpose of advancing it. For this reason I made the order sought under s 447A of the Act. I note that such an order has been made in somewhat similar circumstances in Re Cobar Mines Pty Ltd (rec and mgr apptd) (in liq) (1998) 30 ACSR 125; John R Turk & Sons (Artarmon) Pty Ltd v Newmont Television Pty Ltd [1999] NSWSC 622 and Re Nardell Coal Corporation Pty Ltd (rec and mgr apptd) (in liq) (2003) 47 ACSR 122.CONCLUSION For the above reasons, I granted leave under s 436B(2) of the Act and dispensed with the requirement under s 436E of the Act for the convening of a first meeting of creditors. I stood the proceeding over, provisionally to 6 February 2008 for the making of such further orders as may be appropriate, having regard to the fact that the Liquidators anticipate that the meeting of creditors under s 439A of the Act to consider the proposed DOCA will take place at the end of January 2008.

Ratio Decidendi

Legal Principle Established

Established by: LINDGREN J

Mr Collis states that he is not aware of any reason why he and Mr Palmer, the other Liquidator, should not be appointed as administrators of Terraplanet, and that no complaint or objection has been received by either of them from any creditor in the course of the winding up in respect of any action taken by them as liquidators.CONSIDERATION The present application does not call for a detailed discussion of the principles that govern the exercise of the Court’s discretion under s 436B(2) of the Act. The reason is that, in my view, on any approach, the discretion should be exercised in favour of the granting of leave for the Liquidators to appoint themselves as administrators. The main question under s436B(2) of the Act is whether the Court is satisfied that the liquidator is an appropriate person to be appointed as administrator. After all, a liquidator is at liberty under s 436B(1) of the Act to appoint another person as administrator without the necessity of leave: see Deputy Commissioner of Taxation v Foodcorp Pty Ltd (1994) 13 ACSR 796 (Foodcorp); Re Cobar Mines Pty Ltd (rec and mgr apptd) (in liq) (1998) 30 ACSR 125; John R Turk & Sons (Artarmon) Pty Ltd v Newmont Television Pty Ltd [1999] NSWSC 622; Nardell Coal Corporation Pty Ltd (recs and mgrs apptd) (in liq) (2003) 47 ACSR 122. It has been suggested, however, that the Court should also have in mind considerations of commercial morality: see Re Data Homes Pty Ltd (in liq) [1972] 2 NSWLR 22; Re Depsun Pty Ltd (1994) 13 ACSR 644; Foodcorp at 798-9. I am satisfied that the Liquidators are appropriate persons to become administrators. They are familiar with the history of Terraplanet. Moreover, there is no suggestion of anything offensive to commercial morality in the proposed DOCA. There is not, for example, evidence of a relationship between Dalgety and the directors of Terraplanet (or the Liquidators), which might suggest that the reversion to a voluntary administration is being used in some way to benefit them. Dalgety, a party at arm’s length from both those associated with Terraplanet and the Liquidators, has, no doubt in pursuit of its own interests, proposed a DOCA which Terraplanet’s creditors should have the opportunity of considering and, if they think fit, accepting. The Liquidators also sought an order under s 447A of the Act to the effect that Pt 5.3A of the Act should operate on the basis that the requirement contained in s 436E of the Act for an initial meeting of creditors be dispensed with. Section 436E of the Act provides for an administrator of a company under administration to convene a meeting of the company’s creditors so that they can, amongst other things, determine whether to appoint a committee of creditors and, if so, who are to be its members. It would be wasteful to put the Liquidators to that effort and expense, having regard to the fact that the members of the committee of inspection in the liquidation have unanimously supported the Proposal, in general, and, in particular, the re-appointment of the Liquidators as administrators for the purpose of advancing it. For this reason I made the order sought under s 447A of the Act. I note that such an order has been made in somewhat similar circumstances in Re Cobar Mines Pty Ltd (rec and mgr apptd) (in liq) (1998) 30 ACSR 125; John R Turk & Sons (Artarmon) Pty Ltd v Newmont Television Pty Ltd [1999] NSWSC 622 and Re Nardell Coal Corporation Pty Ltd (rec and mgr apptd) (in liq) (2003) 47 ACSR 122.CONCLUSION

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2445 OF 2007

BETWEEN:	CHRISTOPHER JOHN PALMER AND BRYAN PATRICK COLLIS First Plaintiffs TERRAPLANET LIMITED (IN LIQUIDATION) (ACN 088 749 008) Second Plaintiff
JUDGE:	LINDGREN J
DATE OF ORDER:	21 DECEMBER 2007
WHERE MADE:	SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2445 OF 2007

JUDGE:	LINDGREN J
DATE:	28 DECEMBER 2007
PLACE:	SYDNEY