In the matter of Habibi Waverton Pty Ltd (in liquidation) (administrator appointed)

[2021] NSWSC 1443

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Habibi Waverton Pty Ltd (in liquidation) (administrator appointed) [2021] NSWSC 1443

Hearing dates:

18 October 2021

Date of orders:

18 October 2021

Decision date:

18 October 2021

Jurisdiction:

Equity - Corporations List

Before:

Rees J

Decision:

Operation of s 444GA(1) Corporations Act modified to apply to administrator. Leave to transfer shares without member’s consent. Interested party to pay liquidator’s costs.

Catchwords:

CORPORATIONS – company operates profitable business in leased premises – shareholders in dispute – voluntary liquidator appointed – liquidator advertises business for sale – one shareholder has “very strong relationship” with landlord – landlord proposes to terminate lease and grant new lease to shareholder – shareholder makes offer for plant and equipment only – company likely insolvent due to unlodged BAS – liquidator appointed as administrator – moratorium on landlord – shareholders submit competing DOCAs – other shareholder submits better offer – approved by creditors – conditional on transfer of shares – shareholder will not consent – s444GA, Corporations Act – principles at [26]-[33] – only applies to administrators under a DOCA – s447A(1), Corporations Act – principles and application at [44]-[56] – modification of operation of s 444GA to apply to administrator – transfer ordered.

COSTS – r. 2.13(2) Supreme Court (Corporations) Rules – whether interested party should pay costs – application strenuously opposed – substantial evidence irrelevant or abandoned – hearing prolonged – in interests of creditors – shareholder ordered to pay liquidator’s costs.

Legislation Cited:

Corporations Act 2001 (Cth), ss 437F, 444GA, 447A, Pt 5.3A

Insolvency Practice Schedule, s 75-41

Supreme Court (Corporations) Rules 1999 (NSW), r 2.13

Cases Cited:

Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; [2000] HCA 30

Carr v Western Australia (2007) 232 CLR 138; [2007] HCA 47

Gjergja & Atco Controls Pty Ltd v Cooper [1987] VR 167

In the matter of Black Oak Minerals Ltd [2019] FCA 293; (2019) 134 ACSR 472

In the matter of Centennial Mining Ltd (Subject to Deed of Company Arrangement) [2019] WASC 441

In the matter of Diverse Barrel Solutions Pty Ltd (Subject to a Deed of Company Arrangement) [2014] FCA 53

In the matter of DSHE Holdings Limited (receivers and managers appointed) (in liq) [2018] NSWSC 275

In the matter of Elite Logistics Holdings Pty Ltd (subject to deed of company arrangement) [2017] NSWSC 1830

In the matter of Maria’s Farm Veggies Pty Ltd (admins apptd) [2016] NSWSC 1899

In the matter of Mirabela Nickel Ltd (subject to DOCA) [2014] NSWSC 836

In the matter of MROC Car Wholesalers Pty Ltd [2017] NSWSC 287

In the matter of Nexus Energy Ltd (Subject to Deed of Company Arrangement) [2014] NSWSC 1910; (2014) 105 ACSR 246

In the matter of Shield Mercantile Pty Ltd [2020] NSWSC 1545

In the matter of Virgin Australia Holdings Ltd (Administrators Appointed) (No 9) [2020] FCA 1652; (2020) 148 ACSR 648

MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167; [2004] NSWCA 451

Weaver v Noble Resources Ltd (2010) 41 WAR 301; [2010] WASC 182

Category:

Procedural rulings

Parties:

Michael Billingsley (Plaintiff)
Zahir Salie (First Interested Party)
Michael Cthurmer (Second Interested Party)

Representation:

Counsel:
Mr J Anderson (Plaintiff)
Mr R Size (First Interested Party)
Mr D Weinberger (Second Interested Party)

Solicitors:
Watson Mangioni Lawyers (Plaintiff)
Pure Legal (First Interested Party)
John Lloyd & Co (Second Interested Party)

File Number(s):

2021/272293

ex tempore Judgment

1. HER HONOUR: This is an application by Michael Billingsley, who is both administrator and liquidator of Habibi Waverton Pty Ltd, for:

1. an order under section 447A of the Corporations Act 2001 (Cth) varying the operation of Part 5.3A of the Act such that section 444GA (transfer of shares) applies to a voluntary administrator as opposed to an administrator of a deed of company arrangement (DOCA); and

2. leave, under section 444GA(1)(b), to transfer shares in the company without the consent of a shareholder, in order to implement a DOCA approved by creditors.

2. Zahir Salie and Michael Cthurmer are the two directors and shareholders of the company. On 27 September 2021, Black J granted leave under rule 2.13 of the Supreme Court (Corporations) Rules 1999 (NSW) to both to be heard in the proceedings without becoming a party. Both were represented today by counsel.

3. In support of the application, Mr Billingsley relied on two affidavits by himself, together with an affidavit by Vivien Botsikas, who deposed that the Australian Securities and Investments Commission has been served with this application and does not wish to intervene. Mr Billingsley was cross‑examined. No issues of credit arose. In addition, Mr Salie relied on his affidavit.

FACTS

4. Habibi Waverton was incorporated in 2017. Mr Salie and Mr Cthurmer were appointed directors; each hold 50 shares in the company. In 2018, the company entered into a lease of premises in Waverton from which the company operates a bakery and cafe. The initial term of lease is five years with three options each for a further five year term. According to Mr Salie, the cafe has operated profitably since it opened; the annual turnover of the company has increased each year.

5. In early 2021, Mr Salie and Mr Cthurmer decided that they did not wish to be in business together anymore. Discussions ensued as to who would buy out the other. Both were represented by solicitors. In May 2021, Mr Billingsley was approached to be appointed as a liquidator to the company, as the shareholders could not agree. On 20 May 2021, Mr Salie's wife informed Mr Billingsley that they wished to continue at the premises, noting:

We have a very strong relationship with the landlord …

They have indicated to us that they are strongly opposed to signing a lease with Michael Cthurmer and are not willing to participate in business with him going into the future.

6. On 28 May 2021, Mr Cthurmer's solicitors wrote to Mr Salie's solicitors, referring to discussions about Mr Salie purchasing Mr Cthurmer's shares “based on a value of the business of $600,000.00”. Mr Salie's solicitors responded, “I note that no agreement has been reached as to the value of any business.” And no agreement was reached.

7. On 30 June 2021, the directors completed a declaration of solvency and, on 1 July 2021, appointed Mr Billingsley as a voluntary liquidator of the company. On 5 July 2021, Mr Billingsley informed shareholders about a sale process then underway for the company’s business: Mr Billingsley intended to advertise the business for sale at the end of the week, with offers to be submitted the following week; he invited the directors to make an offer. Mr Salie's solicitor replied to Mr Billingsley:

Our client has been informed by the landlord that they have decided to terminate the lease of the premises such that there appears little prospect of a sale of business. As such, there appears to be little point in seeking a valuation of the business.

My client is however prepared to purchase the assets of the company and would like to arrange a meeting with the liquidator next week to discuss.

8. The landlords also contacted the liquidator’s office, asking about the process then underway. Although the company was not in arrears of rent, the appointment of a liquidator was an event of default entitling the landlord to re-enter the premises: clause 14.1(e).

9. It will be immediately appreciated that the company's rights under the lease were a valuable asset of the company. The company had traded profitably for three years from the leased premises, with its plant and equipment, staff and custom. Under the lease, the company had a right to continue to occupy the premises for another two years and, if the options were exercised, for a further 15 years. Sale of the company’s business as a going concern with the benefit of the lease was likely to be more attractive and realise a higher price than if the company sold its assets without the benefit of the lease, and thus without premises from which to operate its successful business.

10. On 8 July 2021, Mr Billingsley advertised the business for sale. Mr Billingsley received approaches from five parties. In addition, on 14 July 2021, Mr Cthurmer made an offer to purchase the business. On the same day, Mr Salie enquired why the liquidator was still advertising the business when there was said to be no lease and therefore no business to be sold.

11. On 14 July 2021, Nick Lavan of Mr Billingsley’s office wrote to the landlords, updating them on the sale process and advising that the liquidators would like to seek their consent to assign the lease to the liquidator’s preferred buyer in accordance with clause 12 of the lease. The landlords replied that they were only interested in assigning the lease to Mr Salie, saying:

… at this point we have no interest in any other offers or interested parties and do not give our consent … to assign the leas[e] to your preferred buyer.

12. On 15 July 2021, Mr Salie made an offer to pay $67,000 for the plant and equipment, conditional upon a new lease agreement with the owners being “locked in” and the debt to the secured creditors being “finalised” by the liquidators. As explained by Mr Salie, he envisaged that he would become responsible for the monies owed to the two secured lenders to the business, which finance I understand related to plant and equipment. Mr Salie did not make an offer to purchase the business or the shares as he understood the lease would be terminated by the landlord and there could be no trading operations without the lease. This was the only offer which the liquidator received for the business which was capable of acceptance.

Administration

13. The liquidator’s staff were then undertaking a review of the company's tax position. Although the company was in credit with the Australian Taxation Office, it became apparent that the company had not lodged its last four Business Activity Statements. Mr Billingsley formed the view that the company was or would soon become insolvent; it was appropriate for an administrator to be appointed as an administrator would be better able to preserve the lease, receive proposals for a DOCA and secure a better outcome for creditors than in an immediate winding up.

14. On 21 July 2021, Mr Billingsley filed an originating process with this Court seeking orders that he be appointed as an administrator. Those orders were made by Black J. This imposed a moratorium on the landlord’s ability to take possession of the leased premises: section 440B, Corporations Act. Mr Billingsley continued to trade from the leased premises, with post-appointment creditors paid from trading receipts. Mr Billingsley arranged for an accountant to prepare and lodge outstanding Business Activity Statements, with the consequence that the company owed some $195,000 to the Australian Taxation Office. The company was, in Mr Billingsley’s view, insolvent and may have been insolvent from earlier this year.

DOCA proposals

15. Mr Salie and Mr Cthurmer submitted DOCA proposals. Mr Billingsley engaged with both proponents to seek to improve their offers. Mr Billingsley issued reports to creditors, setting out a detailed comparison and analysis of the DOCA proposals. Mr Billingsley also expressed a concern that Mr Salie may have breached his director’s duties by seeking to inhibit a possible assignment of the lease to anyone other than himself, thereby impeding the administrator’s ability to obtain the best value for the company’s business and gaining a potential financial advantage for himself. The second meeting of creditors was adjourned to permit the proponents to consider their positions and improve their offer where possible, and for the creditors to consider the DOCA proposals.

16. Mr Salie’s proposal, which he said was the limit of his personal financial resources, involved $300,000 paid on entry into a DOCA with a further $50,000 paid within 12 months. Mr Salie's proposal envisaged that the lease would be transferred to a company associated with Mr Salie, as would the other assets of the business.

17. Under Mr Cthurmer's proposal, $350,000 would be provided on entry into a DOCA. The offer was conditional upon this Court granting leave to transfer Mr Salie’s shares in the company to him for $1.00. Under Mr Cthurmer’s proposal, the business would continue to operate at the leased premises with existing staff.

18. Mr Billingsley said that the proposal put forward by Mr Cthurmer gave an enhanced return to creditors and had several other advantages including the likelihood of more prompt distribution to priority (employee) creditors and ordinary unsecured creditors, the likelihood of eligible employee entitlements being paid in full, the continuation of employment of the company’s employees and the continuation of the company’s business in its existing form as opposed to a sale of assets and wind down in liquidation or an asset sale under Mr Salie’s DOCA proposal. Mr Billingsley considered Mr Cthurmer’s DOCA proposal would maximise the chances of the company and its business continuing in existence and was in the best interests of the creditors of the company. Mr Billingsley recommended Mr Cthurmer's DOCA proposal to creditors.

19. Under either DOCA proposal or in a liquidation scenario, there would be no residual funds available for distribution to shareholders. Thus, Mr Billingsley considered that the shares in the company had no value on any view.

20. On 10 September 2021, Mr Billingsley chaired the resumed second creditors’ meeting. A majority of creditors in both number and value resolved that the company execute a DOCA in accordance with Mr Cthurmer’s DOCA proposal. Mr Cthurmers provided the $350,000 to Mr Billingsley and paid the $1 into his solicitor’s trust account for Mr Salie’s shares.

21. Mr Salie advised that he did not consent to the transfer of his shares, suggesting that Mr Cthurmer had offered $600,000 for his shares in June 2021, presumably a reference to the correspondence referred to at [6]. Mr Billingsley encouraged Mr Salie to consent to the transfer given Mr Billingsley’s view that the shares had no value and given the additional cost involved in the administrator seeking the leave of the Court. Mr Salie did not change his mind.

22. On 14 September 2021, the landlords advised that they regarded events as entitling them to terminate the lease once the administration had concluded and the moratorium provided by section 440B is lifted. More specifically, “our client hereby gives notice of his intention to exercise his rights to terminate the Lease immediately upon the execution of a Deed of Company Arrangement.” The landlords also asserted that the company was in arrears of rent as, although it had received payment, payment was said to have been made by Mr Cthurmer, who was not a party to the lease. “Our client is not obliged to, and does not, accept payment by a third party and will therefore be repaying the amount … in full to Mr Cthurmer.”

23. Mr Salie said that he has received an offer to buy his shares in the company for $100,000. Mr Salie tendered a letter from Ed Seaford of Eseaford Pty Ltd of 3 October 2021, which states:

This letter has been submitted by Ed Seaford, Director of Eseaford with the intent to purchase your full interests in Habibi Waverton Pty Ltd, trading as Grumpy Baker Waverton (“Habibi Waverton”), which equals to 50% of the total share allocation of Habibi Waverton.

Having reviewed your shareholder agreement, constitution, the financial information made available to me and also the current situation, I am satisfied with where it is at this date. In consideration of the circumstances, I propose a discounted offer of $100,000 to purchase your full interests in Habibi Waverton, payment made 28 days after execution.

I’m happy to keep this offer open until the end of the month. Thank you Zahir for considering this offer and I look forward to hearing back from you.

24. The letter is a little curious. The liquidator thinks so too. At no time during his trading of the company’s business or his marketing campaign for the sale of the company’s business was Mr Billingsley contacted by Mr Seaford expressing interest in purchasing the business. Mr Billingsley does not know who Mr Seaford is, what his financial capacity is, what financial information was made available to him as referred to in his letter, what information has been provided to him regarding the “current situation” or what other information has been provided to Mr Seaford about the company’s business and affairs, including the current status of the external administration and the existence of these proceedings.

25. The date of the letter also gives me some cause for concern, being after the commencement of these proceedings on 27 September 2021, when Black J granted Mr Salie leave to be heard and listed the administrator’s application for hearing and, on 28 September 2021, extended the time for execution of Mr Cthurmer’s DOCA to 30 October 2021. It begs the question why Mr Salie has not accepted Mr Seaford’s offer and sought the consent of the administrator to the transfer of shares under section 437F of the Corporations Act. Having regard to these and the matters raised by the liquidator, I attach no weight to the letter.

26. As to the current position, Mr Billingsley advises that the company continues to trade at the premises and presently has significant liabilities. If the orders sought are not made, then the company will go into liquidation, when it is expected that the landlord will re‑enter the premises and terminate the lease. The company will cease to trade and the employment of some 20 full‑time and part‑time employees will be terminated.

TRANSFER OF SHARES

27. Section 444GA of the Corporations Act provides: (emphasis added)

Transfer of shares

(1)   The administrator of a deed of company arrangement may transfer shares in the company if the administrator has obtained:

(a)   the written consent of the owner of the shares; or

(b)   the leave of the Court.

(2)   A person is not entitled to oppose an application for leave under subsection (1) unless the person is:

(a)   a member of the company; or

(b)   a creditor of the company; or

(c)   any other interested person; or

(d)   ASIC.

(3)   The Court may only give leave under subsection (1) if it is satisfied that the transfer would not unfairly prejudice the interests of members of the company.

28. As Black J noted in In the matter of Elite Logistics Holdings Pty Ltd (subject to deed of company arrangement) [2017] NSWSC 1830 at [14]:

… s 444GA of the Corporations Act was introduced by the Corporations Amendment (Insolvency) Act 2007 (Cth) and reflected a recommendation of the Legal Committee of the Companies and Securities Advisory Committee Report on Corporate Voluntary Administration (June 1998) that the law should grant deed administrators the ability to compulsorily transfer company shares where necessary for the purposes of implementing a deed of company arrangement under which payment of creditors’ debts was dependent upon such a transfer occurring. …

29. While the Court has power to give leave to the administrator of a DOCA to transfer Mr Salie’s shares without his consent, Mr Billingsley is presently a voluntary administrator and will only become an administrator of a DOCA on execution of the DOCA proposed by Mr Cthurmer. Entry into the DOCA is conditional upon a transfer of Mr Salie’s shares to Mr Cthurmer, for which leave of this Court is sought. As Mr Billingsley described the position, it is something of a “sequencing problem”.

30. It is perhaps helpful to first consider whether it is appropriate to grant leave if Mr Billingsley was the administrator of a DOCA. This depends on whether the Court is satisfied that the transfer would not unfairly prejudice the interests of members of the company, being a precondition to the exercise of its power to grant leave and on which the administrator bears the onus: Weaver v Noble Resources Ltd (2010) 41 WAR 301; [2010] WASC 182 at [72] per Martin CJ; In the matter of Nexus Energy Ltd (Subject to Deed of Company Arrangement) [2014] NSWSC 1910; (2014) 105 ACSR 246 at [30] per Black J. Any member who claims to be unfairly prejudiced bears the onus to establish facts relevant to that prejudice: Nexus Energy at [27]; In the matter of Virgin Australia Holdings Ltd (Administrators Appointed) (No 9) [2020] FCA 1652; (2020) 148 ACSR 648 at [30] and [35] per Middleton J.

29. Whether a transfer is unfairly prejudicial must be determined having regard to all the circumstances of the case and the policy of the legislation: Nexus Energy at [19]; In the matter of Diverse Barrel Solutions Pty Ltd (Subject to a Deed of Company Arrangement) [2014] FCA 53 at [19] per White J; Virgin Australia Holdings at [30]. The word “prejudice” is used in the sense of disadvantage: Gjergja & Atco Controls Pty Ltd v Cooper [1987] VR 167 at 173 per McGarvie J; Weaver v Noble Resources at [78]; Nexus Energy at [22]. Whether the transfer is “unfair” only arises once prejudice has been established: Weaver v Noble Resources at [79]; Diverse Barrel Solutions at [22]; Nexus Energy at [22]. The mere transfer of shares without compensation cannot on its own establish unfair prejudice: Weaver v Noble Resources at [80]; Diverse Barrel Solutions at [22]-[23]. The members are unlikely to suffer prejudice where the company has no residual value: Weaver v Noble Resources at [79]; Diverse Barrel Solutions at [19] and [22].

30. As Vaughan J noted in In the matter of Centennial Mining Ltd (Subject to Deed of Company Arrangement) [2019] WASC 441, “one relevant consideration is whether a full and accurate description of the proposal has been given to shareholders and whether shareholders have been given a full opportunity to appear in opposition to the application”: at [19]. Further, an assessment that there is no residual value in the shares might not be sufficient to allay concerns about unfair prejudice to members where there may be a potential benefit to shareholders from further investigations by a liquidator: Centennial Mining Ltd at [22], referring to In the matter ofBlack Oak Minerals Ltd [2019] FCA 293; (2019) 134 ACSR 472 at [64] and [67] per Banks-Smith J.

31. In considering whether to grant leave, the Court should undertake a comparison of the position in which the members would be if leave is granted with the position in which they would be if leave is denied: Diverse Barrel Solutions at [19]; Nexus Energy at [23]. If the only alternative to granting leave is that the company be wound up, the question of unfair prejudice must be determined by comparing the position of the members where leave is granted with their position on a winding up: Nexus Energy at [24]. However, if there are other alternatives, the question must be determined by considering the prospects of the shares obtaining further value within a reasonable time and the steps or measures necessary to realise the value: Diverse Barrel Solutions at [19]; Nexus Energy at [23].

32. Mr Salie submitted that the transfer of the shares would not advance the policy of the legislation where Mr Billingsley was said to have undervalued the value of the business. Mr Salie pointed to earlier offers made by Mr Cthurmer for his half interest in the company (again, see [6]) and the offer from Mr Seaford. As there was said to be no reason to doubt that these offers were genuine, the Court may take them into account when determining the value of the Company: MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167; [2004] NSWCA 451 at [81]-[103] per Spigelman CJ (Mason P and Hodgson JA agreeing). Further, Mr Salie submitted that the landlord intended to terminate the lease. As the company and its business had no prospects of continuing in existence without a lease, and any greater return to creditors under Mr Cthurmer’s proposal was liable to be reduced by the costs of the remainder of the external administration, it was said to be hard to see how the DOCA could secure a better return for the creditors than a winding up.

33. Mr Salie also relied on Gjergja v Cooper, where McGarvie J said of the phrase “unfairly prejudice” in a similar provision at 173:

I consider that the adjective “unfairly” conveys that an order which prejudices a person is only to be made if upon taking into account the various circumstances and considerations which it is proper to consider in the exercise of a discretion, the order is regarded by the Court as providing the fair and just solution. Usually the exercise of a discretion prejudices someone. The governing consideration in the exercise of a discretion is what the justice of the case requires… In other words, the order to be made is that which the judge regards as the fairest order, having regard to the various interests to be reconciled and the considerations relevant to the exercise of the discretion.

36. Martin CJ approved of those observations in Weaver at [78]-[79], which Black J in turn quoted in Nexus Energy at [22]. It was submitted that the “fair and just solution” was not to grant leave to Mr Billingsley to transfer the shares belonging to the owner who was said to have built the business to the owner whose contribution was said to be limited to allowing the business to become insolvent. I cannot determine on an application such as this whether Mr Salie’s characterisation of events is accurate or not. Suffice to say, the Court’s focus is more keenly on how to proceed such that the company is in the best position to pay its creditors as much as possible, rather than determining who is the villain of the piece and making sure they do not end up with the company, even if creditors receive less as a consequence.

37. Mr Salie submitted that his interests were also affected by any leave as, if the company goes into liquidation, he will not have the opportunity to purchase the assets of the company from the liquidator. That does not seem, to my mind, to be a relevant interest to which I should have regard. The section requires me to look at the interests of members of the company, not at the interests of people who may wish to bid on the assets of a company in liquidation.

38. Finally, Mr Salie submitted that the competing DOCAs were not fairly presented to creditors as Mr Billingsley did not explain that, if they accepted Mr Cthurmer’s proposal, creditors would be put to the cost of funding an application to the Court for leave to transfer the shares. In reply, Mr Billingsley submitted that no application had been made by Mr Salie to set aside the resolution of creditors to execute a DOCA in accordance with Mr Cthurmer’s proposal, being a course available to Mr Salie under section 75-41 of the Insolvency Practice Schedule. Having regard to Mr Billingsley's reports to creditors (being an initial report, first supplementary report and second supplementary report), I am satisfied that a full and accurate description of the competing proposals was given. Nor were the costs of the present application before the Court a compulsory element of Mr Cthurmer’s DOCA proposal, as these costs would only be incurred in the event that Mr Salie did not ultimately consent, when asked, to the transfer of his shares.

39. As already noted, I place no weight on Mr Seaford’s letter. Whilst the figures discussed by the shareholders earlier this year may indicate value, there does not appear to have been any agreement on these figures, such figures being posited before appointment of a liquidator. Given the events which have since occurred, including the risk that the company’s leasehold interest may be lost, these figures provide little assistance as to the company’s current value. Further, the real question is not what someone is prepared to pay for the company’s business but what the members can expect to receive from that price after payment of the company’s debts. As calculated by Mr Billingsley, and not relevantly contradicted by Mr Salie, there will be nothing left for the members.

40. Aside from the fact that Mr Billingsley is not an administrator under a DOCA, this is a suitable case for a grant of leave under section 444GA of the Act as the shares have no residual value. There will be a shortfall for unsecured creditors under each of the competing DOCA proposals, and in a liquidation of the company. As such, Mr Salie will not be prejudiced, or unfairly prejudiced, by a compulsory transfer of his shares. The comparison of possible outcomes is therefore as summarised by Black J in In the matter of Mirabela Nickel Ltd (subject to DOCA) [2014] NSWSC 836 at [34]: (emphasis added)

It must be recognised, however, that the legislature has conferred power upon the Court to grant leave for a transfer of shares that does not unfairly prejudice the interests of members of Mirabela, under s 444GA of the Corporations Act; and, second, that the position in which shareholders will find themselves if that leave is granted must be compared, not with the position if Mirabela continues as an ongoing concern with their shareholdings intact, since the evidence plainly establishes that there is no realistic prospect of that occurring, but with the result in a liquidation of Mirabela which would be even less favourable to them.

41. The evidence does not identify any potential benefit to shareholders that might follow from further investigations by a liquidator.

MODIFICATION OF THE OPERATION OF SECTION 444GA

42. Section 447A(1) provides that the “Court may make such order as it thinks appropriate about how [Part 5.3A] is to operate in relation to a particular company”. As the High Court observed in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; [2000] HCA 30, “the powers under s 447A are wide but they do not compel the conclusion that they are entirely without limit”: at [20]; see likewise In the matter of MROC Car Wholesalers Pty Ltd [2017] NSWSC 287 at [30]. Some potential limitations were identified in Australasian Memory at [20]:

Some particular limitations, suggested in the course of argument, must be examined: first, that s 447A does not permit a court to make an order altering the times fixed by those provisions of Pt 5.3A which contain express provision for variation of the time so fixed; second, that it permits only orders having prospective effect; third, that it does not permit the making of orders affecting vested rights; and, fourth, that it does not apply unless there is a continuing administration (or, presumably, an extant deed of company arrangement).

43. Further, as Black J observed in In the matter of Maria’s Farm Veggies Pty Ltd (admins apptd) [2016] NSWSC 1899 at [21]:

The overriding requirement for an order under that section is that any order made and any directions given must be designed to achieve the objective of Part 5.3A as expressed in s 435A of the Corporations Act, and … must have a nexus with how Part 5.3A is to operate in relation to the particular company: Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd [2004] FCA 130; (2004) 49 ACSR 1 at 15; Correa v Whittingham [2013] NSWCA 263; (2013) 278 FLR 310 at [4].

44. Mr Billingsley seeks an order under section 447A of the Act to modify the operation of Part 5.3A such that section 444GA is available during the voluntary administration and prior to the entry into the DOCA. Whilst Mr Billingsley was unable to find a case where such an order had been made, the evidence established a proper basis for the order as it will overcome the “sequencing difficulty” which flows from the terms of the DOCA proposal and thereby further the objective of Part 5.3A. Mr Billingsley submitted that it was a problem of form over substance where the contribution has already been paid by Mr Cthurmer and structuring the transaction this way assisted in preserving the company’s valuable asset by avoiding the risk that the landlord would exercise rights which cannot be exercised until the company transitions from voluntary administration into administration under a DOCA.

45. Mr Salie submitted that, whilst there is no doubt that the Court should have regard to the objective of Part 5.3A as expressed in s 435A, there are limits to the usefulness of purpose as a guide to statutory interpretation. As Gleeson CJ said in Carr v Western Australia (2007) 232 CLR 138; [2007] HCA 47 at [5]:

Legislation rarely pursues a single purpose at all costs. Where the problem is one of doubt about the extent to which the legislation pursues a purpose, stating the purpose is unlikely to solve the problem. For a court to construe the legislation as though it pursued the purpose to the fullest possible extent may be contrary to the manifest intention of the legislation and a purported exercise of judicial power for a legislative purpose.

46. Thus, in the present case where the application seeks to modify the operation of section 444GA, Mr Salie submitted the Court must have regard to both the broad object of Part 5.3A and the terms of section 444GA, which gives a deed administrator an extraordinary power to force the transfer of property belonging to one person to another in circumstances where the person is guilty of no wrongdoing or disentitling behaviour. The placement of the section in Division 10 and its express terms contemplate that leave may only be granted where a DOCA has been executed and does not intrude upon the rights of shareholders beyond that circumstance. Accordingly, although section 447A confers a broad discretion upon the Court to alter the operation of Part 5.3A, Mr Salie submitted that the Court should not rely upon section 447A to expand the narrow limits of the already extraordinary power contained in section 444GA.

47. Part 5.3A is entitled “Administration of a company’s affairs with a view to executing a deed of company arrangement”. That is precisely the position in which the company presently finds itself, being in administration with a view to executing a DOCA. In Part 5.3A, Division 1, the object is stated at the outset in section 435A:

Object of Part

The object of this Part … is to provide for the business, property and affairs of an insolvent company to be administered in a way that:

(a)   maximises the chances of the company, or as much as possible of its business, continuing in existence; or

(b)   if it is not possible for the company or its business to continue in existence—results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.

48. The Divisions of Part 5.3A follow the life cycle of a company in administration until entry into a DOCA or, failing that or perhaps following that, a winding up, with which the next part, Part 5.4 is then concerned. Division 1, “Preliminary” addresses the object of Part 5.3A and defines when an administration begins and ends. Division 2 is concerned with the appointment of the administrator and the first meeting of creditors. Divisions 3 and 4 concern the administrator’s tasks of assuming control of, and investigating, the company’s affairs. Division 5 concerns the first meeting of creditors. Division 6 and 7 concerns how the administration affects the rights of third parties. Division 8 and 9 concern the administrator’s powers and liabilities.

49. Division 10, “Execution and effect of deed of company arrangement” concerns the mechanism of executing a DOCA and its effect. Within this division, section 444GA permits the administrator of a DOCA to transfer shares in the company with the consent of the owner of the shares or, failing consent, the leave of the Court. Divisions 11, 11AA and 12 concern variation, termination and avoidance of a DOCA and transition to a creditor’s voluntary winding up.

50. Finally, Division 13, “Powers of court” contains section 447A, permitting the Court to make such orders as it thinks appropriate about how Part 5.3A is to operate. It is apparent that the Court’s power may be exercised in respect of each of the Divisions of Part 5.3A. As the authorities suggest, and the layout of Part 5.3A itself indicates, whether it is appropriate to make an order will likely be confirmed by whether it advances, or detracts from, achieving the objects of Part 5.3A.

51. As there has not been a case where an order has been made under section 447A in the terms now sought, it is a matter of statutory construction. The draftspersons of section 444GA have specifically provided a mechanism by which an administrator of a DOCA may transfer shares. The draftspersons and parliament have not created this opportunity where the applicant is a voluntary administrator. So far as counsel have been able to identify, the secondary material does not point to any particular reason to quarantine a section 444GA from an order under section 447A, to permit it to operate in the context now sought.

52. None of the limitations identified by the High Court in Australasian Memory apply. Accepting that making an order in the terms sought will increase the administrator’s ability to transfer a shareholder’s asset without their consent, the expansion of power is not as wide as suggested where the Court must otherwise be satisfied that the transfer will not unfairly prejudice the interests of members of the company.

53. It seems to me that the touchstone must necessarily remain what the aims of section 444GA and Part 5.3A endeavour to achieve, which is to maximise the chances of a company either continuing in existence or, if that is not possible, ensuring the best return to creditors. There can be no doubt, on the evidence before the Court, that the way in which the voluntary administrator wishes to proceed is squarely focussed on achieving those objectives. It is unsurprising in the circumstances of this case that Mr Cthurmer is reluctant to fund a DOCA without the condition to which he has made his proposal subject. His DOCA proposal will permit this company to continue to operate its business in its leased premises with its employees and provide the greatest return to creditors, which is the primary concern of Part 5.3A of the Act. Having regard to these matters, I consider it appropriate to grant the relief sought.

54. It may be that instances in which such an order would be made are rare as the circumstances which occurred here may arise infrequently. Here, the “sequencing problem” arose where a member, perhaps without appreciating the import of his actions, jeopardised the company’s major asset and the ability to sell the company’s business for the best price. To countervail these efforts, Mr Billingsley utilised the moratorium imposed by an administration to preserve the value of this asset. But Mr Billingsley cannot achieve a better return to creditors inherent in the DOCA proposal without transferring the shares of that member to the successful DOCA proponent, over the member’s objection.

COSTS

55. The liquidator seeks an order that Mr Salie pay his costs of the application, noting that the liquidator’s solicitors put Mr Salie on notice of an application for a costs order by letters of 5 October 2021 and 8 October 2021, to which the liquidator’s solicitor did not receive a response. The application for a costs order was joined by the other interested party, Mr Cthurmer.

56. Rule 2.13(2) of the Supreme Court (Corporations) Rules provides:

If the Court considers that the attendance of a person to whom leave has been granted under subrule (1) has resulted in additional costs for any party, or the corporation, which should be borne by the person to whom leave was granted, the Court may:

(a)    direct that the person pay the costs, and

(b)    order that the person not be heard further in the proceeding until the costs are paid or secured to the Court's satisfaction.

57. The basis of both applications is that the length of the hearing today and the preparatory steps have been substantially increased by the opposition to the orders sought. In particular, the liquidator relied upon the decision of Black J in In the matter of DSHE Holdings Limited (receivers and managers appointed) (in liq) [2018] NSWSC 275 at [11]:

[The interested parties] submit that the usual position is that a person heard in proceedings under rule 2.13 will neither be awarded costs nor have an order for costs made against them: Re TEN Network Holdings Ltd (admin apptd) (recs & Mgrs apptd) [2017] NSWSC 1359 at [15]. However, that position is not invariable, and will depend upon the extent to which that person’s intervention is justified and the extent to which he or she adopts the role of an opponent to the application. For example, in Yeo v Australian Securities and Investments Commission [2018] FCA 37 at [15], Gleeson J ordered that an intervening party pay the costs of an application where he chose to take an active contradicting position in opposition to the application, and his position was “analogous to an unsuccessful litigant who, in the ordinary course, is ordered to pay the costs of his unsuccessful opposition”.

58. The application for a costs order was opposed by Mr Salie on the basis that his stance was understandable where the orders sought by the liquidator were unusual. Evidence was said to have been abandoned in the interests of an efficient trial. Mr Salie relied upon the decision of Black J in In the matter of Shield Mercantile Pty Ltd [2020] NSWSC 1545, although I note that the interested party’s participation in that application involved little more than submitting a set of written submissions, the application for leave being necessary in any event: at [21].

59. The length of the hearing today and preparatory steps do appear to have been substantially increased by reason of Mr Salie’s opposition to the orders sought by the liquidator. A large portion of Mr Salie’s affidavit and exhibit was rejected as irrelevant. Expert evidence served by Mr Salie was not ultimately relied upon, nor an affidavit by Mr Salie’s wife nor further affidavits served by Mr Salie and the landlord last night. As a consequence, a responsive affidavit prepared by Mr Cthurmer was not read nor, by and large, was a responsive affidavit sworn by Mr Billingsley.

60. Mr Salie, although only given leave to be heard, has opposed the application strenuously. Whilst the liquidator would have had to bring this application if Mr Salie had declined to provide his consent, it would have been a much simpler matter and would have taken less of the Court’s time. The parties would also have been put to less cost in preparing for the hearing today.

61. My focus here remains on the company and its creditors. I am reluctant to make an order that Mr Salie pay the costs of the other interested party, but I am minded to order that he pay the plaintiff's costs of the application because I do not wish to see the assets of the company depleted any further than need be, given that it is an external administration.

62. For these reasons, I make the following orders:

1. Grant leave to the plaintiff to file in Court the affidavit of Vivien Botsikas sworn 18 October 2021.

2. Order pursuant to section 447A of the Corporations Act 2001 (Cth) that Part 5.3A of the Act is to operate in relation to Habibi Waverton Pty Ltd (in liquidation) (administrator appointed) (the Company) such that section 444GA of the Act applies to the voluntary administration of the Company and its administrator as if the reference to “The administrator of a deed of company arrangement” in section 444GA(1) were a reference to “The administrator”.

3. Pursuant to section 444GA(1)(b) of the Corporations Act 2001 (Cth), grant leave to transfer all shares in the Company held by Zahir Salie to Michael Cthurmer.

4. Order that the interested party, Zahir Salie, pay the plaintiff’s costs of Prayers 1 and 2 of the Amended Originating Process dated 27 September 2021.

5. Direct the plaintiff to file and serve any further evidence in respect of Prayer 3 of the Amended Originating Process (termination of liquidation) by 4.00 pm on 21 October 2021.

6. Stand the matter over to the Corporations List at 9.15am on 25 October 2021 with a view to hearing the application to terminate the winding up that day.

7. Grant liberty to apply.

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Decision last updated: 12 November 2021