Holbrook v Professional Services of Australia Pty Ltd

[2012] WASC 444

HOLBROOK -v- PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD [2012] WASC 444

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2012] WASC 444
Case No:	COR:205/2011	Heard:	6 NOVEMBER 2012
Coram:	SIMMONDS J	Delivered:	6/11/12
No of pages:	12	Judgment Part:	1 of 1
Result:	Orders made in terms of the plaintiff's minute, including for termination of the deed of company arrangement
Category:	B
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Parties:	KIM DAVID HOLBROOK as Administrator of PROFESSIONAL SERVICES OF AUSTRLIA PTY LTD PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD (Subject to a Deed of Company Arrangement) BANNING HOLDINGS PTY LTD
Catchwords:	Corporations Deed of company arrangement Termination of deed of company arrangement under Corporations Act 2001 (Cth) s 447A Termination where purposes of deed effectuated in all the circumstances Terms of orders
Legislation:	Corporations Act 2001 (Cth), s 435C, s 436A, s 439A, s 445D, s 447A, s 449E
Case References:	Australian Securities & Investments Commission v Lanepoint Enterprises Pty Ltd [2006] FCA 1493; (2006) 64 ATR 524 Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (in liq) [2006] NSWSC 434 Commonwealth of Australia v Rocklea Spinning Mills Pty Ltd [2005] FCA 902; (2005) 145 FCAR 220 Computer Accounting & Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133 (S) Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2010] WASC 2 Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [No 5] [2012] WASC 382 Cresvale Far East v Cresvale Securities [No 2] [2001] NSWSC 791; (2001) 39 ACSR 622 Deputy Commissioner of Taxation v Wellnora Pty Ltd [2007] FCA 1234; (2007) 163 FCR 232 F & G Nominees Pty Ltd v Coxon [2007] WASC 113; (2007) 34 WAR 55 Korda v Silkchime Pty Ltd [2010] WASC 155; (2010) 243 FLR 269 Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183 QBI Corporation Pty Ltd v Plantation Rise Pty Ltd [2010] QSC 102; (2010) 77 ACSR 573 Re Bartlett Researched Securities Pty Ltd (1994) 12 ACSR 707 Wellnora Pty Ltd v Fiorentino [2008] NSWSC 483; (2008) 66 ACSR 229

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA CITATION : HOLBROOK -v- PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD [2012] WASC 444 CORAM : SIMMONDS J HEARD : 6 NOVEMBER 2012 DELIVERED : 6 NOVEMBER 2012 FILE NO/S : COR 205 of 2011 BETWEEN : KIM DAVID HOLBROOK as Administrator of PROFESSIONAL SERVICES OF AUSTRLIA PTY LTD

Plaintiff

AND

PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD (Subject to a Deed of Company Arrangement)
First Defendant

BANNING HOLDINGS PTY LTD
Second Defendant

Catchwords:

Corporations - Deed of company arrangement - Termination of deed of company arrangement under Corporations Act 2001 (Cth) s 447A - Termination where purposes of deed effectuated in all the circumstances - Terms of orders

Legislation:

Corporations Act 2001 (Cth), s 435C, s 436A, s 439A, s 445D, s 447A, s 449E

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Result:

Orders made in terms of the plaintiff's minute, including for termination of the deed of company arrangement

Category: B

Representation:

Counsel:

Plaintiff : Mr J C Vaughan
First Defendant : Mr T R Stephenson
Second Defendant : Mr T R Stephenson

Solicitors:

Plaintiff : Hotchkin Hanly Lawyers
First Defendant : Eastwood Sweeney Law
Second Defendant : Eastwood Sweeney Law

Case(s) referred to in judgment(s):

Australian Securities & Investments Commission v Lanepoint Enterprises Pty Ltd [2006] FCA 1493; (2006) 64 ATR 524
Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (in liq) [2006] NSWSC 434
Commonwealth of Australia v Rocklea Spinning Mills Pty Ltd [2005] FCA 902; (2005) 145 FCAR 220
Computer Accounting & Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133 (S)
Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2010] WASC 2
Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [No 5] [2012] WASC 382
Cresvale Far East v Cresvale Securities [No 2] [2001] NSWSC 791; (2001) 39 ACSR 622
Deputy Commissioner of Taxation v Wellnora Pty Ltd [2007] FCA 1234; (2007) 163 FCR 232
F & G Nominees Pty Ltd v Coxon [2007] WASC 113; (2007) 34 WAR 55

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Korda v Silkchime Pty Ltd [2010] WASC 155; (2010) 243 FLR 269
Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183
QBI Corporation Pty Ltd v Plantation Rise Pty Ltd [2010] QSC 102; (2010) 77 ACSR 573
Re Bartlett Researched Securities Pty Ltd (1994) 12 ACSR 707
Wellnora Pty Ltd v Fiorentino [2008] NSWSC 483; (2008) 66 ACSR 229


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SIMMONDS J:

Introduction

1 This is an application by originating process pursuant to Corporations Act 2001 (Cth) s 447A, for an order to terminate a Deed of Company Arrangement (the application for the termination of the DOCA). The application for the termination of the DOCA is by the administrator of the DOCA (the plaintiff).

2 By programming orders I had made the application for the termination of the DOCA was to be heard with a claim for compensation under, and applications for discharge of, undertakings given for the purposes of freezing and ancillary orders I had made (the other applications) in another matter, CIV 2265 of 2006. One of the other applications was by the plaintiff, who had provided one of the undertakings.

3 On 30 August 2012, the other applications came before me for what became a two-day hearing. At that hearing, on its second day, the application for the termination of the DOCA was reached when, after a brief consideration of a number of aspects of it, the application for the termination of the DOCA was adjourned, pending the determination of the other applications.

4 The determination of the other applications has since been made: Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [No 5] [2012] WASC 382 (CAT [No 5] WASC 2012), delivered 16 October 2012. One of the determinations in CAT [No 5] WASC 2012 was that the undertakings should be discharged, possibly subject to a saving for any liability to compensate an innocent third party. In the event, orders were made at the delivery of judgment in broadly those terms.

5 In these reasons I first provide the background to the application for the termination of the DOCA, before describing that application and its supporting materials, as well as certain other materials put before me.

6 I then review the applicable principles and apply them.

7 The final section of these reasons is my conclusion.

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Background to the application for the termination of the DOCA

8 None of the following is in contest before me. It is taken for the most part from the affidavits relied upon by the plaintiff in support of the application for the termination of the DOCA. I list those affidavits below.

9 On 7 November 2008 the first defendant was placed into voluntary administration pursuant to Corporations Act s 435C(1)(a), read with s 436A.

10 On 27 November 2008 the plaintiff was appointed administrator of the first defendant, to succeed the first administrator.

11 On 20 March 2009, a Deed of Company Arrangement (the DOCA) was executed. The effect of the execution of the DOCA was to bring the administration of the first defendant to an end: Corporations Act s 435C(1)(b), read with s 435C(2)(a).

12 The DOCA was between the plaintiff, the first defendant, the second defendant and Baystar Holdings Pty Ltd (Baystar). Under the DOCA, the second defendant paid funds into a fund (the Fund) established by the plaintiff, one of the purposes for which was to enable the plaintiff to pay identified entities which were the creditors of the first defendant the debts payable to, or claims by, whom arose from circumstances which occurred on or before 7 November 2008 (the pre-administration creditors). One of the pre-administration creditors was Computer Accounting and Tax Pty Ltd (CAT). CAT was a pre-administration creditor in respect of the judgment debt plus interest (the Judgment Sum) under the judgment following the trial, plus the taxed costs, of the action in CIV 2265 of 2006.

13 CIV 2265 of 2006 was an action for damages by CAT against the first defendant and the late Martin Paul Banning. Donald Campbell-Smith (Mr Campbell-Smith) is the executor of his estate. Under the DOCA, to facilitate the payments to the pre-administration creditors, the second defendant and Baystar agreed to waive all their claims over a piece of real property of the first defendant.

14 On 6 May 2009, for the reasons I gave in Computer Accounting & Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133 (S) (CAT WASC 2008 (S)), a decision in CIV 2265 of 2006), I made costs orders, including special costs orders, in relation to the proceedings in that matter (the WASC costs orders of 6 May 2009).

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15 In June 2009, as a result of payments made by the second defendant, an amount of $1,165,661.54 was paid to CAT. See Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2010] WASC 2 [6] (Simmonds J), a judgment in CIV 2265 of 2006. It was not in contest that that amount was all or almost all of the Judgment Sum to the date of that payment.

16 On 24 June 2009, at a meeting of creditors of the first defendant, the DOCA was amended. It would appear that no other amendments to the DOCA have since been made. All references to the DOCA henceforth are to the DOCA as so amended.

17 On 23 October 2009, the Court of Appeal delivered its decision in the appeal from the trial judgment in CIV 2265 of 2006. See Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183 (PSA [No 2] WASCA).

18 Following the decision in PSA [No 2] WASCA the Court of Appeal made orders, dated 16 December 2009 (the WASCA costs orders of 16 December 2009), to the effect that the Judgment Sum be substantially reduced, and that CAT pay the first defendant and Mr Campbell-Smith certain amounts including amounts in respect of the taxed costs of the appeal. The amounts concerned were the sum of $716,188.45, plus interest; $59,634.27 plus interest; and those costs. None of those amounts has yet been paid. CAT is presently in insolvent liquidation.

19 The WASCA costs orders of 16 December 2009 also included an order setting aside the WASC costs orders of 6 May 2009 and remitting to me for reconsideration the question of the costs of the trial, such reconsideration to be in the light of the reasons of the Court of Appeal. No hearing for such reconsideration has yet taken place.

20 On 28 May 2010 the High Court refused special leave to appeal against the decision in PSA [No 2] WASCA.

21 All the payments to the pre-administration creditors payment of which was provided for in the DOCA have been made. This is except for the payment of the amount, if any, due to CAT in respect of such costs as may be determined to be payable to it on the reconsideration referred to.

22 I further note that there may be payments to be made by the first defendant to Baystar and the second defendant for any debts to or claims by them arising out of circumstances before 7 November 2008. And I also note that there may be payments to be made, by the plaintiff or the

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first defendant, to those parties and others arising from circumstances which occurred on or after that date. Those others would appear to include the plaintiff himself, as well as the directors of CAT, Mr Hartmut Hubert Josef Frigger and Mrs Angela Cecilia Theresa Frigger, and the receiver of a share in the second defendant, Mr Graeme Trevor Lean. Those with such claims I will call post-administration creditors.

23 I turn now to the application for the termination of the DOCA, together with the supporting materials relied upon by the plaintiff as well as certain other materials that have been put before me.

The application for the termination of the DOCA

24 The application for the termination of the DOCA is dated 23 December 2011 and seeks the following principal orders:

2. Subject to the Undertaking being discharged, pursuant to s 447A of the Corporations Act ..., the [DOCA] be terminated.

3. Subject to the plaintiff's entitlement to retain a fund sufficient to meet the plaintiff's entitlement to be indemnified from the assets of the Fund under the [DOCA] for properly incurred fees, costs, expenses and other liabilities (including any liability that may arise as a consequence of an application for costs made against the Applicant in [CIV 2265 of 2006]), such retention fund being fixed in an amount determined by the Court, the assets of the Company held by the plaintiff for the purposes of the Deed be returned to the control of the directors of the company.

4. The parties have liberty to apply as to the retention fund maintained by the plaintiff.

25 In support of the application for the termination of the DOCA the plaintiff relied on the affidavit of the plaintiff sworn 16 December 2011 (the plaintiff's affidavit of 16 December 2011); the affidavit of the plaintiff sworn 23 February 2012 (the plaintiff's affidavit of 23 February 2012); the affidavit of Gilbert Alexander Flynn sworn 28 May 2012 (the affidavit of Mr Flynn of 28 May 2012); the affidavit of the plaintiff sworn 28 May 2012 (the plaintiff's affidavit of 28 May 2012); and the affidavit of Mr Flynn sworn 16 October 2012 (the affidavit of Mr Flynn of 16 October 2012). Mr Flynn is the solicitor for the plaintiff.

26 There is also an affidavit of Mr Campbell-Smith sworn 15 February 2012 (Mr Campbell-Smith's affidavit of 15 February 2012). In Mr Campbell-Smith's affidavit of 15 February 2012 he deposes he is a director of both the first defendant and the second defendant, and swears

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the affidavit on behalf of both. He is also the sole shareholder and director of Baystar.

27 I was also provided with written submissions for the plaintiff dated 3 April 2012, as well as supplementary written submissions for the plaintiff dated 2 November 2012. These were the only written submissions with respect to the application for the termination of the DOCA with which I was provided.

28 I was also provided with various minutes of proposed orders, both from the plaintiff and from the defendants. In the event, shortly before the hearing of 6 November 2012, I was provided with the plaintiff's minute of proposed orders dated 6 November 2012 (the plaintiff's minute). I was informed at the same time that the defendants did not oppose the making of orders in those terms. I consider the plaintiff's minute to be the only one that I need to refer to from this point forward.

29 At the hearing of 6 November 2012 counsel for the plaintiff appeared. Counsel for the defendants also appeared, but pursuant to a watching brief only.

30 I turn now to the applicable principles and their application in this matter.

The applicable principles and their application

31 There can be no question as to my power to set aside a deed of company arrangement on the application of an 'interested' person: see Corporations Act s 447A(1) and the authorities of Re Bartlett Researched Securities Pty Ltd (1994) 12 ACSR 707 and QBI Corporation Pty Ltd v Plantation Rise Pty Ltd [2010] QSC 102; (2010) 77 ACSR 573 [46].

32 'Interested' person is to be interpreted widely: cf on Corporations Act s 445D 'interested person' Commonwealth of Australia v Rocklea Spinning Mills Pty Ltd [2005] FCA 902; (2005) 145 FCAR 220 [20] (Finkelstein J). Rocklea [20] confirms that a person whose material rights or economic interests may be affected by a deed of company arrangement is an 'interested person'. There can be no question on that approach that the administrator of a deed of company arrangement is an interested person, given the rights of such a person under a deed of company arrangement which I consider below.

33 The originating process here is not, however, an application to set aside the DOCA, but rather to terminate it. By termination I would

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understand to be meant the prospective termination of the operation of the DOCA: see Deputy Commissioner of Taxation v Wellnora Pty Ltd [2007] FCA 1234; (2007) 163 FCR 232 [167] (Lindgren J). By setting aside I would understand to be meant invalidation of a deed of company arrangement ab initio, as was the result in Bartlett and QBI Corporation of setting aside the resolutions of creditors for the execution of the deeds of company arrangement in those cases. At the same time, Corporations Act s 447A confers 'wide' powers (see QBI Corporation [44]); and it seems to me that it is quite sufficient to confer power to terminate in the sense that I have described. QBI Corporation [46] appears to support this view.

34 This conclusion means it is unnecessary for me to consider the application of Corporations Act s 445D(1)(g), which confers an express power to terminate.

35 I note that it is common ground in this matter that the effect of termination of the DOCA would be to permit the first defendant to carry on its business under the management of its directors without monitoring by the plaintiff, but subject to all rights conferred and obligations imposed by the DOCA on the first defendant and other persons. This appears to be the law: see Austin RP and Ramsay IM, Ford's Principles of Corporations Law (14th ed, 2009) [27.140].

36 It is not in dispute that the position of the creditors of the first defendant, being both pre-administration creditors and post-administration creditors, is relevant. In particular, it is not in dispute that if there are any pre-administration creditors with claims which are unsatisfied, their interests should be especially considered. Creditors have standing to apply for termination of the deed: see Corporations Act s 445D(2)(a). It is such persons whose interests entry into a deed of company arrangement is to serve: see s 439A(4)(b)(i). Post-administration creditors are not creditors to the purposes of s 445D(2)(a), however: see Rocklea [18] (Finklestein J).

37 As I have previously noted all pre-administration creditors have been paid in full, with exceptions. In particular, there was one unsecured creditor, CAT, which has claims for its taxed costs of the litigation in CIV 2265 of 2006, subject to my reconsideration of those claims. However, it is said that any such claim is likely to be exceeded by CAT's liability to pay the sums under the Court of Appeal's costs orders of 16 December 2009 and other liabilities. I agree, on the information presently to hand.

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38 In any event, the defendants, as well as Mr Campbell-Smith and the solicitors representing the liquidator of CAT, have had notice of the application for the termination of the DOCA, and none except the first and the second defendants have sought to be heard on the orders to be made. In particular, the liquidator of CAT has indicated that it has no wish to intervene, and will abide the result. In addition, Mr Campbell-Smith has not indicated any interest in intervening.

39 Further, all of the post-administration creditors I have specifically referred to have had notice of these proceedings, and none sought to be heard on the orders to be made, with the same exceptions.

40 Finally, the first and the second defendants did not oppose orders being made in terms of the plaintiff's minute, and did not seek to appear at the hearing on 6 November 2012 at which the plaintiff's minute fell to be considered.

41 The plaintiff's case for the termination of the DOCA is that I should be satisfied that the purposes of the DOCA have been wholly effectuated in all the circumstances. This is to be seen by reference to the position of the pre-administration creditors as already described, both in respect of the payment of them with the exceptions noted and of the failure of those not fully paid to take any greater part in the application for the termination of the DOCA than that described. In Mr Campbell-Smith's case, that is the swearing of affidavits in relation to the application for the termination of the DOCA, as well as his failure to intervene in the proceedings.

42 I agree. I consider that it is appropriate to make suitable orders for the termination of the DOCA.

43 The plaintiff's minute, proposed order 1, reads as follows:

1. Subject to:

(a) no appeal against the order of The Honourable Justice Simmonds made 16 October 2012 releasing the Plaintiff from his undertaking dated 16 December 2009 given in Supreme Court Action CIV 2265 of 2006 ('Order') being instituted within the time prescribed for the making of such an appeal; or

(b) any appeal (including any appeal from any decision made [on] an appeal) against the Order being finally determined with the effect that the Order is maintained,


the [DOCA] be terminated.

(Page 11)

44 I consider plaintiff's minute, proposed order 1, is a suitable order. I would make it.

45 The plaintiff's minute also contains a proposed order 2, as follows:

2. The Plaintiff be entitled to retain a fund sufficient to meet the Plaintiff's entitlement to be indemnified from the assets of the First Defendant held by the Plaintiff pursuant to the [DOCA] for the plaintiff's properly incurred fees, costs, expenses and other liabilities (including any liability that may arise as a consequence of an application for compensation or costs made against the plaintiff in Supreme Court of Western Australia action CIV 2265 2006) in an amount of $246,500.00.

46 I note that DOCA cl 19 provides a right of indemnity for the plaintiff for his remuneration and costs and expenses (see cl 18) and claims, demands, debts, actions, proceedings, suits, costs, charges, expenses, damages, losses and other liabilities other than a claim by the first defendant against the plaintiff arising out of or in connection with or incidental to the plaintiff's administration of the DOCA.

47 Further, there is a substantial body of authority that an administrator of a deed of company arrangement has an equitable right to an indemnity out of and a lien over property realised in the course of the administration to recover the administrator's remuneration and expenses. See Cresvale Far East v Cresvale Securities [No 2] [2001] NSWSC 791; (2001) 39 ACSR 622 [70]; Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (in liq) [2006] NSWSC 434 [48]; Wellnora Pty Ltd v Fiorentino [2008] NSWSC 483; (2008) 66 ACSR 229 [24].

48 There are also a number of authorities in which courts have recognised the entitlement of controllers and receivers of a company to retain funds to cover the costs of defending litigation in relation to the performance of their duties and functions as controllers or receivers. See eg Australian Securities & Investments Commission v Lanepoint Enterprises Pty Ltd [2006] FCA 1493; (2006) 64 ATR 524 [49]; F & G Nominees Pty Ltd v Coxon [2007] WASC 113; (2007) 34 WAR 55 [23] - [27]; and Korda v Silkchime Pty Ltd [2010] WASC 155; (2010) 243 FLR 269 [76] - [83]. Two of those authorities founded the retention entitlement they identified on the equitable lien of an insolvency practitioner. See Lanepoint Enterprises [47] - [49]; and F & G Nominees [22] - [24], [27].

49 On the basis of those authorities, I consider the court should recognise the right of the plaintiff to a retention fund of the kind in

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plaintiff's minute proposed order 2. See in particular Korda [76] - [77] and the authorities there cited (on the position of a receiver). See also in this regard DOCA cl 5.1.2(v) making the fees, costs and disbursements of the plaintiff payable under cl 18.1 in priority as cl 5.1.2(v) provides.

50 As to the amount of the retention fund shown in the plaintiff's minute proposed order 2, I note the support for that amount in the plaintiff's affidavit of 28 May 2012. I further note the facility provided for by the next proposed order.

51 The plaintiff's minute proposed order 3 provides as follows:

3. The parties have liberty to apply as to the retention fund maintained by the Plaintiff.

52 I believe this order should also be made so as to accommodate any disputes as to the amounts the plaintiff could properly claim.

53 The plaintiff's minute proposed order 4 provides as follows:

4. Pursuant to s 447A(1) of the Corporations Act ..., Part 5.3A of the Act is to operate in relation to the First Defendant as if s 449E of the Act continued to apply notwithstanding any termination of the [DOCA].

54 Corporations Act s 449E concerns the power of the court to determine the remuneration of the administrator under a deed of company arrangement. That power includes the power to review the remuneration, as well as to confirm, increase or reduce it.

55 I consider it is appropriate to make this order also, pursuant to the broad power granted by Corporations Act s 447A.

56 Finally, I note that the plaintiff's minute proposed order 5 provides as follows:

5. There be no order as to the costs of this application.

57 In all the circumstances, I consider it appropriate to make this order.

Conclusion

58 As will be apparent from the foregoing, I concluded it was appropriate to make orders in terms of the plaintiff's minute.