In the matter of Bero Admin Services Pty Limited

[2015] NSWSC 2097

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Bero Admin Services Pty Limited [2015] NSWSC 2097
Hearing dates:	4 August 2015
Date of orders:	04 August 2015
Decision date:	04 August 2015
Jurisdiction:	Equity - Corporations List
Before:	Brereton J
Decision:	Appeal dismissed.
Catchwords:	APPEALS – appeal from decision of registrar – where registrar refused to adjourn winding up – whether “appeal” or “review” of registrar’s decision – where final winding up order must be impugned to challenged interlocutory order not to adjourn winding up – leave to appeal in company’s name – appeal by way of rehearing – availability of fresh evidence; CORPORATIONS – winding up – adjournment of winding up – (CTH) Corporations Act 2001, s 440A – whether in interests of creditors that administration continues – where administrator’s s 439A report expresses preference for deed of company arrangement over liquidation – where company has no assets and is no longer trading – where no evidence of ability to fund payments to creditors under proposed deed – where payments partly guaranteed – where greater likely return to creditors from winding up – held, appeal against decision not to grant adjournment dismissed.
Legislation Cited:	(NSW) Civil Procedure Act 2005, s 67, s 135 (CTH) Corporations Act 2001, s 435A, s 439A, s 440A(2), s 471A, s 471A(1), s 482(1), Pt 5.3A (NSW) Supreme Court Act 1970, s 75A (NSW) Supreme Court (Corporations) Rules 1999, r 16.1 (NSW) Uniform Civil Procedure Rules 2005, Pt 49 Div 3
Cases Cited:	Brolrik v Sambah [2001] NSWSC 1171; (2001) 40 ACSR 361; 21 ACLC 1,948; 154 FLR 91 Vynotas Pty Ltd v Mystic Crystals Franchises (Australia) Pty Ltd [1999] QCA 473
Category:	Principal judgment
Parties:	Deputy Commissioner of Taxation (plaintiff/respondent) Bero Admin Services Pty Limited (defendant) Peter Gatens (applicant)
Representation:	Counsel: C D Wood (defendant/applicant) K Metlej (solicitor) (plaintiff/respondent)   Solicitors: Beazley Boorman Lawyers (defendant/applicant) Craddock Murray Neumann Lawyers Pty Ltd (plaintiff/respondent)
File Number(s):	2015/167600

Judgment (ex tempore)

1. HIS HONOUR: On 3 August 2015, the Registrar made an order that the defendant company Bero Admin Services Pty Ltd be wound up in insolvency and a liquidator appointed, having refused an application for an adjournment of the winding up application pursuant to (CTH) Corporations Act 2001, s 440A(2). By an interlocutory process foreshadowed yesterday and filed in Court today, the applicant Peter Gatens, the director and shareholder of the company, purports to apply for a review of the registrar's decision; a stay of the winding up pursuant to Corporations Act, s 482(1); and consequential orders.

2. The fundamental complaint that the applicant seeks to agitate pertains to the Registrar's declining an adjournment pursuant to s 440A. That said, the order that must be impugned to give the applicant the result he seeks is the winding up order itself. (NSW) Supreme Court (Corporations) Rules 1999, r 16.1, provides for an appeal to the Court from a winding up order made under the Corporations Act by a registrar, and makes (NSW) Uniform Civil Procedure Rules 2005, Pt 49 Div 3, applicable to such an appeal, those being the provisions that otherwise apply to an appeal from a decision of an associate judge. This means that the proper remedy for a party who seeks to impugn a winding up order made by the registrar is such an appeal, and not a "review."

3. On an appeal from a final order, any interlocutory order that affects the final order can also be the subject of appeal. Thus, on an appeal from the winding up order, the refusal of an adjournment under s 440A can be impugned. It seems to me that that is the correct way in which the Registrar’s decision on the application for an adjournment under 440A is to be challenged.

4. Under Corporations Act, s 471A, directors of a company are precluded from exercising functions or powers as an officer of a company which has been wound up in insolvency, except with the written approval of the liquidator under s 471A(1)(c) or of the Court under s 471A(1)(d). The Court may allow an appeal from a winding up order to be prosecuted in the name of the company at the instance of the directors, pursuant to s 471A(1)(d) [see Brolrik v Sambah [2001] NSWSC 1171; (2001) 40 ACSR 361; 21 ACLC 1,948; 154 FLR 91, [24]-[25] (Barrett J); Vynotas Pty Ltd v Mystic Crystals Franchises (Australia) Pty Ltd [1999] QCA 473].

5. If it is necessary in order to allow an appeal of the kind to which I have referred to be prosecuted, I would grant leave under s 471A(1)(d) permitting or approving the bringing of the appeal in the name of the company. In that light, the present application might be treated as an application for a stay of the winding up order under the rules of Court [see (NSW) Civil Procedure Act 2005, s 67 and s 135] pending the hearing of the appeal, or as the hearing of the appeal itself. As there did not appear to be any opposition to the view that this should be treated as the final hearing of the appeal, and as it seems improbable in the extreme that there would be any other material to be put before the Court on the hearing of an appeal, I propose to deal with it as the hearing of the appeal.

6. Such an appeal is one within (NSW) Supreme Court Act 1970, s 75A, and proceeds by way of rehearing, in which fresh evidence may be adduced. Generally speaking, a more liberal view is taken to fresh evidence on an appeal from an associate judge on an interlocutory question than in the Court of Appeal after a final contested hearing. The only fresh evidence sought to be adduced before me was an affidavit of the administrator of 4 August 2015 which, except for one paragraph, was received without objection. In those circumstances, it is not necessary to trouble further about the scope of any further evidence, and I should decide the case on the evidence now before the Court. The question is whether, had the evidence now before the Court been before the Registrar, the Registrar would have erred in making the decision she made to refuse the adjournment under s 440A.

7. As the real argument was whether the requirement of Corporations Act, s 440A – that is, of demonstrating that it was in the interests of creditors that the company continue in administration – was satisfied, so that an adjournment under that section was mandatory, it is not really an appeal from a discretionary decision, and the Court's function is to decide whether, on the evidence now before it, it was or was not established to be in the interests of creditors that the company continue under administration rather than be wound up.

8. The administrator's s 439A report opines that it is in the interests of creditors for the company to execute a deed of company arrangement (“DOCA”), as the DOCA proposal made by the director is likely to provide creditors with a greater return than a winding up of the company, and that it is not in the interests of creditors for the company to be wound up because the administrator had not identified any assets which may be recovered and realised for the benefit of creditors by a liquidator. Preliminary investigations had not identified voidable transactions or claims with sufficient value to be pursued by a liquidator that would generate a return in excess of that likely to be received from the DOCA, and even if such claims were identified following further investigations, there was a degree of uncertainty involved with the pursuit of voidable transactions and insolvent trading claims.

9. The company appears to have no assets, at least so far as the evidence goes. It ceased trading on 30 June 2015. It appears from the administrator's report that it may have priority employee creditors amounting to $9,571 and ordinary unsecured creditors of $967,467, of which the company's lawyers represent a little over $9,000, its accountant about $6,500, a trade creditor apparently $1,768, and the plaintiff in the proceedings, who opposes the present application, the Deputy Commissioner of Taxation, $940,391.

10. There is said to be a dispute as to approximately $431,000 of the Deputy Commissioner's claim, being that component which relates to the superannuation guarantee charge and penalties associated therewith. However, those liabilities are apparently the subject of an assessment which is, as is well-established, conclusive unless and until set aside in review proceedings. Notably, therefore, the plaintiff represents some 97% of the unsecured creditors.

11. The administrator's opinion that it is in the interests of creditors to require the company to execute a proposed DOCA is founded on a deed proposal received from the company's director, Mr Gatens. That proposal involves the establishment of a deed fund to be distributed, first, in payment of the administrator's liabilities and remuneration; secondly, in payment of the deed administrator's liabilities and remuneration; thirdly, in payment of priority creditors, including eligible employee creditors; and finally, in payment of all other claims of admitted creditors.

12. The claims of related parties (being Mr Gatens and his wife) are to be subordinated, postponed and made subject to the claims of all admitted creditors. However, it is not apparent what if any sacrifice on their part that involves, as there is no evidence that the company owes them anything. The deed fund is to comprise the proceeds of a payment by Mr Gatens of $10,000 upon execution of the DOCA, further payments of $10,000 per month for 23 months thereafter, and a final payment of an amount which would enable the payment of all priority claims in full (including the deed administrator's fees and expenses) and the payment of a dividend of 50 cents in the dollar for all admitted and unsecured claims against the company.

13. If the creditors remain as presently listed and there is not a successful review of the superannuation guarantee liability, then the achievement of a 50% dividend for unsecured creditors as well as payment in full of the priority creditors and deed administrator's expenses would require a deed fund of, it seems to me, not less than $500,000. That implies that the final payment in some two years' time would have to be of some $260,000.

14. When the matter was before the registrar, there was no evidence as to Mr Gatens' capacity to fund the payments provided for in the deed proposal. Before me there is evidence that another company controlled by Mr Gatens, namely Yatala Formwork Pty Ltd, will guarantee payment of $10,000 per month for 24 months, totalling $240,000. A balance sheet and profit and loss statement for that company apparently produced from MYOB records indicates that it has a surplus of assets over liabilities of $1.6 million. However, of its assets, work-in-progress comprises more than $1.8 million.

15. While Yatala proffers a guarantee of the 24 monthly payments, it does not offer to guarantee the final balloon payment.

16. The object of administration under Pt 5.3A is, as stated in s 435A, 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 as possible of its business continuing in existence, or if that is not possible results in a better return for creditors and members than would result from an immediate winding up.

17. As I have said, the company has ceased business, so the object of preserving its business is no longer attainable. The matter then reduces itself to providing a better return for creditors than a winding up.

18. As things stand, it seems likely that the return in a winding up may be nil. While a preference payment to the plaintiff has been identified which may prove to be recoverable, and there is some prospect (according to the administrator's report) of establishing that the director traded the company while insolvent, there is doubt as to his ability to meet any judgment in that respect. As to the deed proposal, there is a prospect that in two years' time the ordinary creditors will receive a dividend of 50 cents in the dollar. That prospect depends on payments being made on a monthly basis for that two year period – of which there may be some comfort because of the Yatala guarantee – but also on the final balloon payment. In circumstances where it is said to be doubtful that the director has the capacity to meet a judgment for insolvent trading, one can have no confidence in that final balloon payment being made. That is a telling factor, because it detracts from much of the potential benefit of the DOCA.

19. It is also important that one of the creditors – the plaintiff – has clearly formed a commercial judgment that it prefers liquidation to the proposed DOCA, where that creditor represents, as things presently stand, some 97% in volume of the creditors. A DOCA could not be approved at a creditors' meeting over the opposition of the Commissioner, unless the majority by number of creditors were to vote in favour of the DOCA and the deed administrator were to exercise his casting vote in favour of the majority by number and against a majority of 97% by value.

20. That course would almost inevitably invite an application to the Court for review of the administrator's decision as to the use of his casting vote. While one cannot foretell what would happen on such a review, at first sight there would have to be a significant prospect that either the administrator at the outset, or the Court on reviewing his decision, would treat the overwhelming interest by quantum of the creditors as the dominant consideration.

21. As the director puts forward a position that he is unlikely to be able to meet an insolvent trading judgment as a consideration that weighs in favour of the DOCA, but is nonetheless able to source, through Yatala, a means of providing some funds, though with, it seems to me, slight prospects of the balloon payment ever being made, a question also arises as to considerations of public policy in these circumstances. This company has become insolvent owing, on any view, a large amount to the Commissioner, and relatively very small amounts to other creditors, most of them associated in one way or another with it. In those circumstances, where there is no business to be preserved, great weight should be given to the view of an unrelated third party creditor, particularly one who represents at present 97% of the creditors by value, and even on the most favourable view to the company would still represent a very high percentage indeed.

22. In light of the view of 97% by value of the creditors, the absence of evidence as to Mr Gatens' capacity to find the DOCA and in particular the final balloon payment, and the two-year period for implementation of the DOCA, I am not satisfied that it is in the interests of the creditors for the company to continue under administration rather than be wound up. Accordingly, the appeal will be dismissed.

23. The Court therefore orders that:

1. the appeal, which I take to have been instituted by the interlocutory process, filed 3 August 2015, be dismissed;

2. the applicant, Peter Gatens, pay the respondent plaintiff's costs of the interlocutory process, fixed in the sum of $500.

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Decision last updated: 08 September 2016