In the matter of Emu Group Pty Ltd

[2020] NSWSC 602

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Emu Group Pty Ltd [2020] NSWSC 602
Hearing dates:	15 May 2020
Date of orders:	15 May 2020
Decision date:	15 May 2020
Jurisdiction:	Equity - Corporations List
Before:	Rees J
Decision:	Refuse to restrain second meeting of creditors.
Catchwords:	CORPORATIONS – voluntary administration – second meeting of creditors – largest proof of debt lodged by plaintiff in building defect proceedings – proof admitted for $1 for voting purposes – plaintiff wishes to replace administrator – proxies indicate administrator will be appointed liquidator but not replaced – balance of convenience – plaintiff can replace external administrator in due course – important to appoint liquidator sooner rather than later
Legislation Cited:	Corporations Act 2001 (Cth), Schedule 2 Insolvency Practice Schedule (Corporations), Section 90-35(1)
Cases Cited:	IRM Home Loans v Superwoman Financial Solutions Group [2007] NSWSC 604 MCCA Asset Management Ltd v Kamata Homes Pty Ltd [2019] VSC 512
Category:	Principal judgment
Parties:	The Owners – Strata Plan 97986 (Plaintiff) Emu Group Pty Limited (First Defendant) Andre Lakomy (Second Defendant) Alan Walker (Third Defendant)
Representation:	Counsel: Mr A Rogers (Plaintiff) Mr D Pritchard SC (Defendants)   Solicitors: Alexander Richards Lawyers (Plaintiff) Kazi Portolesi Lawyers (Defendants)
File Number(s):	2020/143881

ex tempore Judgment

1. HER HONOUR: This is an application by the plaintiff, The Owners - Strata Plan 97986, for an order restraining Andre Lakomy and Alan Walker, the administrators of Emu Group Pty Ltd, from conducting the second meeting of creditors. The meeting is due to take place in one hour’s time.

2. Emu Group was the developer of a property in Fairfield. On 12 December 2018, the plaintiff commenced proceedings in the Technology and Construction List of this Court against Emu Group in respect of defective building work. In September 2019, the plaintiff served its evidence, including an expert report quantifying rectification costs in respect of the building defects at $4,235,802. Emu Group has not filed any evidence in response.

3. On 1 April 2020, Mr Lakomy and Mr Walker were appointed as voluntary administrators of Emu Group. On 3 April 2020, the administrators sent a circular to creditors but, due to an oversight, did not send the circular to the plaintiff. This was not a good start.

4. On 28 April 2020, on becoming aware that the plaintiff was a creditor, the administrators informed the plaintiff's solicitor of their appointment and requested that the plaintiff submit a proof of debt. The plaintiff's solicitor has since provided the administrators with a large amount of material in support of a proof of debt in the sum of $4,235,802, in particular, the pleadings and evidence filed in the Technology and Construction List proceedings. If the proof of debt is admitted, then the plaintiff will be the largest creditor of Emu Group. In addition, the plaintiff's solicitor has provided the administrators with material supporting concerns expressed by the plaintiff as to the transfer of property by Emu Group to related parties and preferential payments. Since 1 May 2020, the plaintiff has also expressed a wish to appoint its own administrator in place of the current administrators. The current administrators have advised that they will not be withdrawing as administrators.

5. On 7 May 2020, the administrators circulated a report to creditors in advance of the second meeting of creditors scheduled today, 15 May 2020, at 11:00 am. On 8 May 2020, the plaintiff's solicitor sought confirmation from the administrators that the plaintiff's proof of debt had been accepted for the purposes of the second meeting of creditors. On 11 May 2020, the administrators replied that, as the plaintiff's claim was the subject of ongoing legal proceedings, the plaintiff's claim would be admitted for $1 only for voting purposes at the meeting. On 12 May 2020, the plaintiff's solicitor inquired as to the administrators’ decision in respect of the proof of debt completed by a director of Emu Group about whom the plaintiff had expressed concerns. The plaintiff does not appear to have received a response.

6. Yesterday, on 14 May 2020, the plaintiff commenced these proceedings seeking orders restraining the second meeting of creditors. Orders for short service were made by Black J. This morning, the administrators filed in Court an affidavit of Mr Lakomy, who described the tasks he has undertaken as administrator and addressed some of the criticisms made by the plaintiff. Further, Mr Lakomy deposed that, given the proxies which have been received from creditors including the plaintiff, it is inevitable that a liquidator will be appointed to Emu Group at the second meeting of creditors: no deed of company arrangement has been put forward; and creditors have indicated by their proxies that they all wish to have a liquidator appointed.

7. The plaintiff nonetheless seeks that the second meeting of creditors be restrained because, as matters presently stand, the proxies do not support replacement of the external administrator and, as the plaintiff’s debt is only admitted for $1 for voting purposes, the plaintiff’s resolution to replace the external administrator will fail. The plaintiff wishes to obtain leave to proceed against Emu Group in the Technology and Construction List proceedings and then judgment to thereby prove its debt and then replace the administrators with its own nominee.

8. There is no doubt that the Court has power to restrain the second meeting of creditors if considered appropriate: IRM Home Loans v Superwoman Financial Solutions Group [2007] NSWSC 604 at [18]-[19] per White J, see also MCCA Asset Management Ltd v Kamata Homes Pty Ltd [2019] VSC 512 at [29]-[30] per McDonald J in respect of a like application to restrain administrators from giving effect to a deed of company arrangement. The usual considerations arise of a serious issue to be tried and the balance of convenience.

9. Assuming without deciding that there is a serious issue to be tried as to whether the second meeting of creditors should be delayed to permit the plaintiff to be in the best position to replace the external administrator, the balance of convenience tells against the relief sought. First, Mr Lakomy deposed that money will be wasted if the second meeting has to be reconvened. Second, there is nothing to prevent the plaintiff seeking to replace the external administrator in due course. Section 90-35(1) of the Insolvency Practice Schedule (Corporations), Schedule 2 to the Corporations Act 2001 (Cth) provides:

90-35   Removal by creditors

Creditors may remove external administrator and appoint another

(1)   The creditors may:

(a)   by resolution at a meeting, remove the external administrator of a company; and

(b)   by resolution at the same or a subsequent meeting, appoint another person as the external administrator of the company.

10. Third, whatever advantage the current administrators might enjoy in resisting such a course by dint of having been in the role for a period of time will be the same whether they remain in the role as administrators until a delayed second meeting or remain in the role as administrators until today and thereafter as liquidators. Finally, and most importantly, it seems to me that if it is inevitable that a liquidator will be appointed to the company, then this should occur sooner rather than later.

11. For these reasons I make the following orders and directions:

1. Dismiss prayer 2 of the Originating Process.

2. Reserve all questions of costs.

3. Stand the matter over to the Corporations List on 15 June 2020 at 10.00 am.

4. Grant the parties liberty to apply by email to the Chambers of Rees J in respect of any costs order for these proceedings, which the parties agree may be determined on the papers.

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Decision last updated: 25 May 2020