In the matter of First Debenture Limited

[2015] NSWSC 1808

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of First Debenture Limited [2015] NSWSC 1808
Hearing dates:	11 September 2015
Date of orders:	11 September 2015
Decision date:	11 September 2015
Jurisdiction:	Equity - Corporations List
Before:	Brereton J
Decision:	Administration declared to have ended; interlocutory process dismissed.
Catchwords:	CORPORATIONS – voluntary administration – where appointment of provisional liquidator brought administration to an end – application for orders under (CTH) Corporations Act 2001, s 447A, that Pt 5.3A applies such that appointment of provisional liquidator did not operate to bring administration to an end – whether administration should be revived – whether unnecessary duplication of work should provisional liquidator take over – whether revival of administration preserves right of creditors to decide – whether administrators exposed to personal liability in liquidation – held, insufficient reasons to revive administration.
Legislation Cited:	(CTH) Corporations Act 2001, s 435C(1), s 435C(2), s 435C(3), s 436A, s 439A(6), s 447A, Pt 5.3A
Cases Cited:	Australasian Memory Pty Limited v Brien [2000] HCA 30; (2000) 200 CLR 270 Re Rildean Pty Ltd; Ex parte TJF Scaffolding Maintenance and Hire Pty Ltd [2002] NSWSC 631
Category:	Procedural and other rulings
Parties:	James Photios (plaintiff) Michael Charles Unicomb (first defendant) Jeffrey Douglas Dawson (second defendant) Cuneyt Kilicoglu (third defendant) William Paul Cotter and William Roland Robson (fourth defendants) First Debenture Ltd (administrator appointed) (provisional liquidator appointed) (ACN 105 577 017) (fifth defendant)
Representation:	Counsel: A Friedlander (solicitor) (plaintiff) T Orlizki (solicitor) (second defendant) S Burchett (applicant/administrators) P Harkin (solicitor) (provisional liquidator)   Solicitors: O’Neill Partners (plaintiff) Kent Attorneys (second defendant) Lillas Loel Lawyers Pty Ltd (fourth defendants) Colin Biggers & Paisley Pty Ltd (fifth defendant)
File Number(s):	2015/227816

Judgment (ex tempore)

1. HIS HONOUR: On 23 July 2015, a purported meeting of shareholders of the company First Debenture Limited purported to resolve to vacate all positions on the board of directors and to appoint certain other persons as directors. Those persons then purported to resolve, as directors, pursuant to (CTH) Corporations Act 2001, s 436A, to appoint William Paul Cotter and William Roland Robson as voluntary administrators of the company. By originating process filed on 4 August 2015, the plaintiff Mr Photios, who was one of the directors purportedly removed on 23 July, claims declarations that the purported shareholders' meeting was not validly or properly requisitioned, that its resolutions were invalid and of no effect, and that the appointment of the voluntary administrators was also invalid and of no effect. By interlocutory process filed on 7 August 2015, the administrators sought orders pursuant to Corporations Act, s 447A, in effect validating their appointment.

2. On 10 August 2015, the Court by consent ordered that the validity of the 23 July shareholders' meeting and of the resolutions purportedly passed at that meeting be determined as a separate question before the other issues in the proceedings, and fixed that separate question for hearing on 18 September 2015.

3. The matter came before the Court on 14 August 2015, when there were appearances on behalf of the plaintiff, the second defendant Mr Dawson, and the fourth defendant administrators. The parties asked the Court to make consent orders in these proceedings, and in related proceedings brought by One Group Management against the company (in which One Group sought an order that the company be wound up). The administrators had, in these proceedings, sought the appointment of a provisional liquidator, so that there was someone with undisputed legal authority to act for the company pending the resolution of the dispute as to the validity of the administrators’ appointment. However, doubt attended the standing of the administrators to apply for the appointment of a provisional liquidator, and instead the Court was asked, by consent, to, and did, make orders in the proceedings brought by One Group Management (proceedings 2015/199062) that Peter Krejci be appointed liquidator of the company provisionally. In these proceedings, the Court made an order pursuant to Corporations Act, s 439A(6), extending the convening period for the second meeting of creditors.

4. Although it has been suggested on behalf of the plaintiff that it may subjectively have been of a different view, in my view it is manifest that the intent of the parties to the consent orders, objectively ascertained, was to install a provisional liquidator in order that there be a person with undisputed authority to bind the company for the time being, but that the administration continue. Although, as the transcript reveals, there was some discussion about the interrelationship of the administration and the provisional liquidation, it would seem that the parties, with the possible exception of the plaintiff, did not advert to Corporations Act s 435C(3)(g), and the Court certainly did not do so.

5. Corporations Act, s 435C(1) provides that the administration of a company ends on the happening of whichever event of a kind referred to in subsection (2) or (3) happens first after the administration begins. While subsection (2) provides that the normal outcome of an administration is execution of a Deed of Company Arrangement or a resolution that the administration should end or a resolution that the company be wound up, subsection (3) provides that the administration of a company may also end because, inter alia:

(g)    The Court appoints a provisional liquidator of the company, or orders that the company be wound up.

6. Although it was submitted that the use of the word "may" in s 435C indicates that the administration does not necessarily end because of the events listed in that subsection, in my view, once subsection (3) is read in the context of subsections (2) and (1)(b), it is manifestly clear that an order appointing a provisional liquidator brings the administration to an end. Accordingly, although it was not the intention of the parties in entering into the consent orders, nor the intention of the Court when making the order by consent appointing a provisional liquidator, the effect of that order is that upon its being made, the administration ended.

7. By interlocutory process filed on 4 September 2015, after the possibility that that was so had been raised between the parties, the administrators applied for a declaration that the administration had not ended by reason of the appointment of a provisional liquidator or otherwise, and alternatively an order pursuant to s 447A to the effect that Corporations Act, Pt 5.3A, operates in relation to the company in such a way as to treat the appointment of a provisional liquidator as not bringing the administration of the company to an end. It is that interlocutory process that is before the Court today.

8. It follows from what I have already said that the declaration sought in claim 1 of the interlocutory process cannot be made, the appointment of a provisional liquidator having already brought the administration to an end. The question is whether the Court should make an order under s 447A that has the effect of reviving the administration, so as to give effect to the intention that actually informed the orders made on 14 August.

9. I do not doubt that, although such an order would be made in respect of or based on past events, as it would operate in futuro, it would be within s 447A [see Australasian Memory Pty Limited v Brien [2000] HCA 30; (2000) 200 CLR 270 at [17], [26] – [32]], nor that s 447A extends to authorise an order permitting or preserving an administration during a provisional liquidation [Re Rildean Pty Ltd; Ex parte TJF Scaffolding Maintenance and Hire Pty Ltd [2002] NSWSC 631]. I should observe that although reference was made in some of the submissions to s 437C(1) as governing the position, it is clear that that section is intended to capture and address the situation where an administrator has been appointed after the provisional liquidator – that is to say, pursuant to s 436B – and does not apply to the present circumstances.

10. Ordinarily, the case for making an order under s 447A in the present circumstances, given what I find to be the clear objective intent of the parties, would be a very strong one. The argument that, given the appointment of the administrators, the creditors should decide the fate of the company, has its attractions. In addition, the administrators have undertaken a significant amount of work by way of investigation towards the preparation of the s 439A report.

11. Against that, the second defendant, who essentially is representative of the board that purported to appoint the administrators, while formally submitting that the dual administrations should continue, recognises as a matter of practicality that doing so is likely to incur additional costs and protract some disputes that would be resolved if control of the company were to pass to an independent provisional liquidator. The plaintiff, who in the substantive proceedings seeks in effect to have the administration avoided, is naturally content to achieve that result indirectly by the appointment of a provisional liquidator and the consequent effect of s 435C. The provisional liquidator is agnostic.

12. The only persons who vigorously seek to support the revival of the administration are the administrators themselves. They do so essentially on two grounds: first, that they have already done a substantial amount of work which may, to some extent, be wasted or duplicated if a provisional liquidator is to take over; secondly, that the opportunity for creditors to make a decision should be preserved; and thirdly, that the validity of their acts may be liable to be challenged and their entitlement to remuneration questioned, coupled with potential exposure to personal liability if their acts are not validated.

13. As to the first, it seems to me that in circumstances where, in any event, the provisional liquidator is going to be the person with authority to bind the company for the time being, and even if the administration is revived, the administrators' function would be limited to investigation and preparation for the s 439A report and meeting, there is going to be some duplication. There is no reason why the work undertaken to date by the administrators could not be of use to a provisional liquidator or liquidator. There will no doubt be some duplication, but it seems to me there will be some duplication in any event if there are two concurrent administrations. Some of that duplication will indeed be avoided if there is only one.

14. As to the second, the decision to appoint a voluntary administrator is of course not that of creditors but of directors. In this case, it was of persons who purported to act as directors and may or may not ultimately be found to have been validly appointed as directors. There is no implicit right of creditors to decide that the company should proceed in administration rather than by liquidation. Courts of course can order that an administration end for a myriad of reasons. Very frequently, where winding up proceedings are on foot, courts give primacy to the winding up proceedings rather than the administration. In my view, the second reason is not a strong one for preserving duplicate administrations.

15. As to the third, protection of the administrators from exposure to personal liability or protection of their remuneration is no basis for maintaining an administration on foot. If they desire that protection, there are applications that they can make under the Corporations Act for the requisite relief.

16. Thus, in the context of this case, while, as I have said, I am clearly of the view that the original intent of the parties was to preserve the administration on foot, as a matter of discretion, it seems to me that, the administration having come to an end, there is insufficient reason in the interests of the company and of creditors and in the public interest to revive that administration. I take into account, in that respect, that its revival would simply protract litigation and dispute and incur further time and expense in arguing over the validity of the appointment and the meetings which culminated in it, whereas the alternative outcome would, it seems, bring those matters to a close and, to that extent, preserve assets of the company.

17. Accordingly, the Court declares that:

1. Upon the true construction of the orders made on 14 August 2015 and in the events which have happened, the administration of the fifth defendant company First Debenture Limited ended pursuant to Corporations Act, s 435C(3)(g) on 14 August 2015.

The Court orders that:

2. the interlocutory process filed on 4 September 2015 be otherwise dismissed.

3. The fifth defendant pay the applicant's costs of the interlocutory process.

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Decision last updated: 09 February 2016