In the matter of Frenchy's Bread Pty Ltd

[2015] NSWSC 2031

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Frenchy’s Bread Pty Ltd [2015] NSWSC 2031
Hearing dates:	1 June 2015
Date of orders:	01 June 2015
Decision date:	01 June 2015
Jurisdiction:	Equity - Corporations List
Before:	Brereton J
Decision:	Orders pursuant to (CTH) Corporations Act 2001, s 447A.
Catchwords:	CORPORATIONS – voluntary administration – deeds of company arrangement – where deed terminates of its own force due to default – where default promptly remedied – application to revoke termination of deed – whether power to revoke termination of deed found in (CTH) Corporations Act 2001, s 447A – held, default would not have affected outcome of creditors meeting; deed should not terminate.
Legislation Cited:	(CTH) Corporations Act 2001, s 445C, s 447A
Cases Cited:	Farnsworth v ASIC [2007] NSWSC 866
Category:	Procedural and other rulings
Parties:	Alan John Hayes in his capacity as the former deed administrator of Frenchy’s Bread Pty Ltd t/as Autolyse (ACN 161 661 703) (plaintiff)
Representation:	Counsel: P Newtown (plaintiff)   Solicitors: Colin Biggers & Paisley (plaintiff)
File Number(s):	2015/160173

Judgment (ex tempore)

1. HIS HONOUR: The company Frenchy's Bread Pty Limited went into voluntary administration on 6 March 2015. At a second meeting of creditors held on 22 April 2015, the creditors resolved that the company execute a Deed of Company Arrangement ("DOCA"). Of the company's 168 creditors, 32 attended that meeting in person or by proxy and only one voted against the resolution, although the evidence does not disclose the effect of that in terms of value as distinct from number of creditors. In those circumstances, and where no creditor has applied to terminate the deed or to have the resolution approving it set aside or sought to intervene in these proceedings, I do not think I should allow my initial concern – that there appeared to be precious little in this deed for ordinary unsecured creditors – to cloud my consideration of the issues that are tendered by the present application.

2. The deed required, inter alia, the constitution of a deed fund by contributions from funders, including one of the directors, totalling $300,000, and the execution and provision of evidence to the administrators of the execution of a shareholders' agreement, an agreement to lease in respect of the premises occupied by the company, an agreement for the repayment of the loan due to ACT Pty Limited, and a general security agreement to secure that loan, all by 13 May 2015. Clause 10(a)(iii) provided that if those agreements – called the “essential agreements” – were not provided to the administrators by that time, the DOCA would terminate. Provision was also made for the DOCA to terminate in the event of breach of a material provision, which included making the contributions to which I have referred.

3. One of the sources from which the director was intending to raise part of his contribution of $200,000 fell through at short notice and, as a result, the contributions were not made on 13 May 2015, nor were the essential agreements executed and evidence of them provided to the administrators by that date. Accordingly, although the DOCA had been executed as required, it terminated on 13 May pursuant to (CTH) Corporations Act 2001, s 445C. The contributions were, however, paid two days later on 15 May 2015, and the essential agreements were executed and evidence thereof provided to the administrators also on 15 May.

4. By originating process, leave to file which in court is sought today, the deed administrators seek orders pursuant to Corporations Act, s 447A, to the effect of revoking the termination of the DOCA so that it stays on foot, and consequential orders.

5. In Farnsworth v ASIC [2007] NSWSC 866, Hammerschlag J utilised s 447A to make orders to similar effect. As it seems to me, while the scope of s 447A may not be so broad as is sometimes suggested, and while, in my view, it must generally involve a modification of the operation of Pt 5.1 in the particular case, nonetheless, there are indications which support its use to make an order to the effect that a deed not terminate, when it otherwise would have terminated. Indeed, the specific reference in the examples contained within s 447A to using the section to make an order that the deed terminate when it otherwise would not, is suggestive of a similar power to order that it not terminate when it otherwise should. On that basis, I am satisfied the orders sought can be made under s 447A.

6. In this case, there was a hiccup in the funding arrangements for the deed which, I have to say, I am not convinced were correctly described by Mr Ngyuen when he represented to one creditor that "there was a defect in the deed", or "just a bit of a cock up", as described by Mr Hayes. Nonetheless, it seems to me that it would be within the general intent of what can be deduced from the creditors' meeting that an omission to comply with the time stipulation, which was rectified within two days, would not have changed in any material way the attitudes of the creditors who participated in the meeting and voted on that occasion.

7. Accordingly, it seems to me appropriate that that temporal lacuna should not be allowed in the circumstances of this case to cause the termination of the DOCA, in circumstances where all creditors having been given notice of the intention to make the present application, none has expressed any opposition to it.

8. Accordingly, upon the undertaking of Heather Collins, solicitor, to pay the appropriate filing fees, I grant leave to Allan Hayes, in his capacity as former deed administrator of Frenchy's Bread Pty Limited, to file an originating process in the form initialled by me, dated this day and placed with the papers. I direct the originating process be returned instanter. I dispense with further service of the originating process.

9. The Court orders that:

1. Pursuant to Corporations Act, s 447A(1) and (3), Part 5.3A of the Act is to operate in relation to the Company in the following manner:

1. Notwithstanding s 445C (c) of the Act and the DOCA having terminated by reason of the failure to comply with clause 10(a)(iii) of the DOCA which required the execution and evidence of the Essential Agreements (referred to in clause 10(a)(iii)) by midnight on 13 May 2015, the DOCA is not terminated;

2. The sum of $300,000 received by the plaintiff on 15 May 2015 for the contributions required by clause 6(b) and 6(c) of the DOCA forms part of the Deed Property (as defined in the DOCA);

3. Creditors (as defined in the DOCA) shall be dealt with in accordance with clauses 5, 7 and 8 of the DOCA and the Deed Property shall be distributed to Participating Creditors (as defined in the DOCA);

4. The plaintiff is entitled to be paid or reimbursed for the Administrators Remuneration and Costs (as defined in the DOCA) in accordance with clause 14 of the DOCA and indemnified in accordance with clause 15 but the Administrators Remuneration and Costs are not to include remuneration and costs incurred in connection with this application;

5. The plaintiff is entitled to convene meetings of Creditors of the Company pursuant to s 445F of the Act to approve:

1. any further Administrators’ Remuneration and Costs (as defined in the DOCA) but the Administrators Remuneration and Costs are not to include remuneration and costs incurred in connection with this application;

2. any variation of the DOCA regarding Administrators Remuneration but the Administrators Remuneration and Costs are not to include remuneration and costs incurred in connection with this application; and

3. any variation to the DOCA to ensure it reflects these orders.

6. In all other respects the DOCA continues to apply on its terms subject to Corporations Act; and

7. The DOCA shall terminate upon the plaintiffs certifying that the DOCA has been wholly effectuated or as provided for under the DOCA.

2. Leave be reserved to any creditor of the company to apply to set aside or vary these orders.

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Decision last updated: 18 February 2016