Graham v GT Capital Partners
[2023] WASC 163
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: GRAHAM -v- GT CAPITAL PARTNERS [2023] WASC 163
CORAM: HILL J
HEARD: 15 MAY 2023
DELIVERED : 15 MAY 2023
PUBLISHED : 19 MAY 2023
FILE NO/S: COR 73 of 2023
BETWEEN: COLIN JAMES GRAHAM
Plaintiff
AND
GT CAPITAL PARTNERS
First Defendant
SIMON GUY THEOBALD AND ROBERT SCOTT DITRICH AS DEED ADMINISTRATORS OF GT CAPITAL PARTNERS PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT)
Second Defendant
ANTHONY JOHN DALE
Third Defendant
BRUCE JOHN FIELDING
Fourth Defendant
M2 ASSETS PTY LTD
Interested Party
Catchwords:
Corporations - Insolvency - Deed of company arrangement - Application for interlocutory application to prevent effectuation of deed of company arrangement - Whether serious question to be tried that deed of company arrangement should be terminated - Balance of convenience - Effect of delay - Injunction refused
Legislation:
Corporations Act 2001 (Cth), s 436B, s 447A, s 445D, s 445G, s 446AA, sch 2, s 90-15
Result:
Plaintiff's application for injunction refused
Category: B
Representation:
Counsel:
| Plaintiff | : | In Person |
| First Defendant | : | F F Xue |
| Second Defendant | : | J Black |
| Third Defendant | : | F F Xue |
| Fourth Defendant | : | F F Xue |
| Interested Party | : | W C J Zappia |
Solicitors:
| Plaintiff | : | In Person |
| First Defendant | : | CX Law |
| Second Defendant | : | Norton Rose Fulbright |
| Third Defendant | : | CX Law |
| Fourth Defendant | : | CX Law |
| Interested Party | : | McNally & Co |
Cases referred to in decision:
Britax Childcare Pty Ltd v Infa Products Pty Ltd [2016] FCA 848; (2016) 115 ACSR 322
Fleet Broadband Holdings Pty Ltd v Paradox Digital Pty Ltd [2005] WASC 261; (2005) 228 ALR 598
Habrok (Dalgaranga) Proprietary Limited v Gascoyne Resources Limited [2020] FCA 1395
Hamilton v National Australia Bank Ltd (1996) 66 FCR 12
Jaddcal Pty Ltd v Minson [2011] WASC 28
Lam Soon Australia Pty Ltd (Administrators Appointed) v Molit (No 55) Pty Ltd [1996] FCA 899; (1996) 70 FCR 34; 22 ACSR 169
Shafston Avenue Construction Pty Ltd v McCann [2019] FCA 1426; (2019) 138 ACSR 299
Traivelog Pty Ltd v Electro Metals Technologies Ltd (Subject to a Deed of Company Arrangement) [2015] QSC 27
HILL J:
(This judgment was delivered extemporaneously and has been edited from the transcript.)
On 15 May 2023, the plaintiff filed an originating process and an interlocutory process against GT Capital Partners Pty Ltd (subject to Deed of Company Arrangement) (GT Capital), the deed administrators of GT Capital, Mr Anthony Dale and Mr Bruce Fielding. In his originating process, the plaintiff seeks orders under s 445D, s 445G, s 447A and s 446AA of the Corporations Act 2001 (Cth) (Act), further and alternatively s 90-15 and s 90-20 of the Insolvency Practice Schedule (Corporations) Schedule 2 to the Act terminating a deed of company arrangement (DOCA) entered into on 15 February 2023 and seeks orders that GT Capital Partners be wound up.
The interlocutory process seeks orders extending the effectuation date of the DOCA until these proceedings have been heard and determined, restraining the second defendants from executing or causing the company to execute the creditors' trust deed or from implementing the trust deed.
The interlocutory process came on for hearing before me today on an urgent basis. The basis for the urgent hearing was that unless it was heard and determined by 4.30 pm today, the DOCA will effectuate, and the application will be rendered nugatory.
The basis for the application, as set out in the plaintiff's affidavit filed 15 May 2023, is that the plaintiff contends:[1]
(a)the DOCA is unfairly discriminatory to certain unsecured creditors;
(b)there are material omissions from the deed administrators report in relation to the use of the proposed creditors' trust structure;
(c)the DOCA allows for the issue of shares without shareholder consent, a resolution of shareholders or an order of the court;
(d)the DOCA permits an apparently insolvent company to continue to trade; and
(e)the DOCA is contrary to public interest and offends commercial morality.
[1] Affidavit of Colin James Graham filed 15 May 2023 [11].
During the course of the hearing, the plaintiff supplemented these grounds and raised the following additional matters:
(a)the provisional liquidator had delegated the power to appoint an administrator under s 436A of the Act to Mr Turco;[2]
(b)the information given to creditors was not accurate as it did not adequately distinguish between the creditors and their respective interests; and
(c)there was no evidence which supported the basis on which the 10 million shares were issued to the third and fourth defendants.
[2] Note that this should be a reference to s 436B of the Act.
The plaintiff filed and relied on two affidavits in support of his application: an affidavit sworn on 11 May 2023 and a supplementary affidavit sworn on 15 May 2023.
The application was opposed by each of the defendants, who appeared by counsel at the hearing. I also gave leave to Mr Zappia, who appeared for M2 Corporate (M2) to be heard on the application.
Factual Background
The plaintiff is a former director of GT Capital. He is also a shareholder of GT Capital, being entitled to 80 shares in the company. The company extract of GT Capital discloses the current share capital is more than 10 million shares.
The factual background to this matter is somewhat complex.
Originally GT Capital had two directors and shareholders: the plaintiff and Mr Mace Turco. GT Capital is a litigation funder who is currently funding a number of claims.
During 2022, the relationship between the two directors and shareholders broke down and on 24 August 2022, Mr Turco filed proceedings in this court for orders winding up GT Capital.
On 21 September 2022, Mr Dudley and Mr Mohen of RSM were appointed as provisional liquidators of GT Capital by Strk J. On 6 December 2022, the provisional liquidators appointed Mr Theobald and Mr Ditrich as voluntary administrators of GT Capital pursuant to s 436B of the Act.
A second meeting of creditors was originally convened by the administrators for 20 January 2023. At this meeting, the creditors resolved to adjourn the meeting until 24 January 2023. Prior to any vote, the creditors had access to three reports which were issued by the administrators.[3] Each report recommended the creditors accept the DOCA proposed by the plaintiff.
[3] Affidavit of Colin James Graham filed 15 May 2023, 'CJG-77', 'CJG-78', 'CJG-82'.
At the second creditors' meeting held 24 January 2023, the creditors resolved that the company execute a DOCA on the terms proposed by Lex Funding Pty Ltd (Lex Funding), a proponent associated with Mr Turco.
On 27 January 2023, the plaintiff sent an email to the deed administrators setting out his concerns in relation to the second creditors' meeting.[4]
[4] Affidavit of Colin James Graham filed 15 May 2023, 'CJG-89'.
On 15 February 2023, the deed administrators, Lex Funding and GT Capital entered into the DOCA.[5]
[5] Affidavit of Colin James Graham filed 15 May 2023, 'CJG-2'.
On 28 February 2023, the solicitors for the plaintiff wrote to the solicitors for the deed administrators directing them to convene a meeting to consider a variation of the DOCA.[6] The proposed variation included a substitution of the current proponent of the DOCA. On 28 March 2023, a further direction was given to the deed administrators by JBC Corporate.[7] Once again, the proposed variation included the substitution of the current proponent of the DOCA.
[6] Affidavit of Colin James Graham filed 15 May 2023, 'CJG-91'.
[7] Affidavit of Colin James Graham filed 15 May 2023, 'CJG-96'.
The deed administrators have refused to convene a meeting of creditors in respect of either of these directions and advised the plaintiff of this on 24 March 2023 in respect of the first direction,[8] and 31 March 2023 in respect of the second direction.[9]
[8] Affidavit of Colin James Graham filed 15 May 2023, 'CJG-93', 'CJG-94B'.
[9] Affidavit of Colin James Graham filed 15 May 2023, 'CJG-97'.
From at least 27 April 2023, the plaintiff has informed the defendants' solicitors he intends to bring an application to set aside the DOCA.[10] On 1 May 2023, the plaintiff informed the defendants it would be filed within the next 48 hours and by no later than 5 May 2023.[11] On 2 May 2023, the deed administrators agreed to provide the plaintiff with 24 hours' notice of the effectuation of the DOCA.[12] This notice was provided on 12 May 2023.[13]
[10] Affidavit of Colin James Graham filed 15 May 2023, 'CJG-100'.
[11] Affidavit of Colin James Graham filed 15 May 2023, 'CJG-102'.
[12] Supplementary affidavit of Colin James Graham filed 15 May 2023, 'CJG-109'.
[13] Supplementary affidavit of Colin James Graham filed 15 May 2023, 'CJG-123'.
Statutory regime
In considering the statutory regime that governs this application, I have had regard to the relevant sections in pt 5.3A of the Act. Relevantly, s 445D of the Act gives the court the power to make an order terminating the DOCA on several grounds. In the plaintiff's submissions filed in support of the application, it appears the plaintiff relies on:
(a)s 445D(1)(a) to (c) (whether the information provided to creditors is misleading);
(b)s 445D(1)(f) (the DOCA is oppressive or unfairly prejudicial to or unfairly discriminatory against creditors, or contrary to the interests of the creditors as a whole); and
(c)s 445D(1)(g) (the DOCA be terminated for some other reason).
On an application under s 445D of the Act, the plaintiff bears the onus of proof in establishing there is a basis under this section to set aside the DOCA and that the court should exercise its discretion to do so.[14] It is not in doubt that this section must be construed and applied taking account of the objects of pt 5.3 of the Act, which are set out in s 435A of the Act.
[14] Britax Childcare Pty Ltd v Infa Products Pty Ltd [2016] FCA 848; (2016) 115 ACSR 322 [91].
Section 445D involves a two-stage process. The first stage is to determine whether one of the grounds referred to in s 445D(1) has been established and, if it has, the second stage is to decide whether to exercise the discretion to terminate the DOCA based on that ground.[15]
[15] Britax Childcare Pty Ltd v Infa Products Pty Ltd[90] (Burley J); Shafston Avenue Construction Pty Ltd v McCann [2019] FCA 1426; (2019) 138 ACSR 299, 336 [130] (Reeves J).
In Habrok (Dalgaranga) Proprietary Limited v Gascoyne Resources Limited,[16] Beach J summarised the court's discretion under s 445D(1)(g) of the Act. In essence, this section gives the court the discretion to terminate the DOCA if it considers that 'for some other reason' this should occur. For example, the court may terminate a DOCA under this subsection if it is contrary to the public interest, which includes notions of commercial morality and the interests of the public at large. His Honour noted that:[17]
[G]enerally speaking, one should not terminate a DOCA and order a company to be wound up if the DOCA will restore the company to financial health and the DOCA does not have the purpose or effect of unjustifiably quarantining third parties from investigation. If the company is trading and it is likely that its business will continue, then unless there are real public interest concerns, termination of a DOCA and causing a company to be wound up are inappropriate outcomes. The interests of creditors should be the primary consideration, but they may be outweighed if the DOCA has a fraudulent or wrongful purpose.
[16] Habrok (Dalgaranga) Proprietary Limited v Gascoyne Resources Limited [2020] FCA 1395 [409].
[17] Habrok (Dalgaranga) Proprietary Limited v Gascoyne Resources Limited [410].
Disposition
I turn then to consider the interlocutory application filed by the plaintiff. In considering whether orders should be made in terms of the interlocutory process, I am required to consider two matters. The first is whether there is a serious question to be tried and, second, where the balance of convenience lies.
Serious question to be tried
First, in respect of the s 436A claim concerning the appointment of the administrator by the provisional liquidator,[18] there is no evidence before me to support the plaintiff's allegation that the provisional liquidator delegated this responsibility to M2's solicitors and counsel. The plaintiff emphasised that there were meetings between M2's solicitors and counsel and the administrators. However, in my view, this does not support an inference being drawn that the provisional liquidator delegated his power to appoint an administrator to M2. I note that in the Australian Securities and Investment Commission (ASIC) extract of GT Capital,[19] it is apparent that the relevant form appointing the administrator was lodged with ASIC. However, that form is not in evidence before me.
[18] Note that this should be a reference to s 436B of the Act.
[19] Affidavit of Colin James Graham filed 15 May 2023, 'CJG-1'.
In his oral submissions, the plaintiff raised a number of matters as to whether the information provided to creditors was misleading. These included whether the administrators had considered the plaintiff's concerns about the accuracy of the books and records of the companies, whether funding agreements have already been novated to subsidiary companies, instead of Lex Funding, and the returns that could be available to creditors on a winding up as opposed to a DOCA. From a review of the administrators' reports provided to creditors,[20] each of these matters was raised by the plaintiff and considered by the administrators. The plaintiff's primary complaint appears to be that his version of events was not accepted by the administrators.
[20] Affidavit of Colin James Graham filed 15 May 2023, 'CJG-77', 'CJG-78', 'CJG-82'.
In my view, the plaintiff has not raised a sufficient basis on which the court could conclude these reports were misleading or that this had an impact on the outcome of the meeting. The evidence is that at the meeting of creditors, the creditors overwhelmingly voted in favour of the Lex Funding DOCA,[21] notwithstanding the recommendation of the administrators. It is not clear from the plaintiff's submissions how it is contended the information provided to creditors was materially misleading or that if different information had been provided it would likely have led to a different outcome.
[21] Affidavit of Colin James Graham filed 15 May 2023, 'CJG-88'.
On the issue of shares to the third and fourth defendants, for two primary reasons, I do not consider this is a ground on which the court would exercise its discretion to set aside the DOCA. First, this is a term of the DOCA which was apparent to creditors who voted to approve entry into the DOCA. Second, there is no evidence that it was not within the power of the administrators to cause this to occur.
In relation to the alleged differential treatment of creditors, courts have previously held that differential treatment of creditors in a DOCA may be permissible, provided that the creditors who are less favourably treated receive more than they would receive in a liquidation and there is a proper basis for the discrimination.[22] It is generally more difficult to establish unfair discrimination where creditors are better off under a DOCA than in a liquidation.[23] Courts have not treated discrimination between continuing and non-continuing creditors and between larger and smaller creditors as contrary to the provisions of the Act, at least where a commercial justification exists for it.[24]
[22] Lam Soon Australia Pty Ltd (Administrators Appointed) v Molit (No 55) Pty Ltd [1996] FCA 899; (1996) 70 FCR 34; 22 ACSR 169.
[23] Fleet Broadband Holdings Pty Ltd v Paradox Digital Pty Ltd [2005] WASC 261; (2005) 228 ALR 598 [62].
[24] Hamilton v National Australia Bank Ltd (1996) 66 FCR 12, 38; Traivelog Pty Ltd v Electro Metals Technologies Ltd (Subject to a Deed of Company Arrangement) [2015] QSC 27, [32].
The information provided to creditors prior to the second creditors' meeting was that the return on either of the DOCAs proposed (including that proposed by the plaintiff) was superior to that under the winding up. While there is some differential treatment of creditors under the DOCA, I do not consider that there is a serious question to be tried as to whether the court would set aside the DOCA on this basis.
Balance of convenience
The evidence before me is that the DOCA was signed on 15 February 2023. It was a specific term of the DOCA that within 21 days after the commencement date, as defined under cl 2.1, that Lex Funding was required to use its best endeavours to either procure the novation of the funding agreements from GT Capital to the proponent or enter into replacement funding agreements.[25]
[25] DOCA, cl 7.5 (Affidavit of Colin James Graham filed 15 May 2023, 'CJG-2', p 71).
The evidence before me is that the DOCA is ready to be effectuated.[26] On that basis, I draw the inference that either the funding agreements have been novated or alternatively, replacement funding agreements have been entered into.
[26] Supplementary affidavit of Colin James Graham filed 15 May 2023, 'CJG-123'.
The defendants say the balance of convenience does not favour the injunction being granted.
In particular, the defendants emphasised the significant delay between the date on which the DOCA was signed (on 15 February 2023) and the date on which the plaintiff commenced these proceedings, which is a period of three months. No sufficient explanation was provided by the plaintiff for this significant delay. While I accept that there has been activity during this period, including the proposals that the deed administrators convene creditors meetings to consider a variation of the deed, no steps were taken by the plaintiff until today to set aside the DOCA that was entered into.
As Le Miere J observed in Jaddcal Pty Ltd v Minson:[27]
Excess delay, whilst not fatal, is a factor that weighs against the court not granting an interlocutory injunction.
[27] Jaddcal Pty Ltd v Minson [2011] WASC 28 [63].
In this case, while I accept that unless an injunction is granted, the plaintiff will lose any ability to have his originating process heard and determined, this is due in significant part to the delay by the plaintiff in commencing these proceedings. No adequate explanation was provided by the plaintiff for the delay of three months in commencing these proceedings.
Even if I were satisfied that there was a serious question to be tried on the matters raised by the plaintiff, I would decline to exercise my discretion to grant any relief because of the plaintiff's significant delay in seeking relief.
Conclusion
For these reasons, it is my view that the plaintiff's interlocutory application should be dismissed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
JN
Associate to the Honourable Justice Hill
19 MAY 2023
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