In the matter of Interchase Corporation Ltd (In Provisional Liquidation) and sections 460 & 461 of the Corporations Law Re Kelly, G.P.

INTERCHASE CORPORATION LIMITED (IN PROVISIONAL LIQUIDATION) AND SECTIONS 460
AND 461 OF THE CORPORATIONS LAW; GREGORY PAUL KELLY and RICHARD ANTHONY
BARBER
No. NG3018 of 1991
FED No 629
Number of pages - 9
Companies
(1993) 11 ACLC 849
(1993) 117 ALR 267, (1993) 11 ACSR 569
(1993) 44 FCR 501

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
DRUMMOND J

CATCHWORDS

Companies - Liquidators' remuneration - Court has no power under Corporations Law to fix liquidators' remuneration unless a properly convened meeting of creditors has failed to pass a resolution fixing the remuneration.

Companies - Liquidators' remuneration - company's only remaining creditors are unsecured noteholders - Deed governing the issue of the notes vests title to the debts in the Trustee for the noteholders - Trustee is the only "creditor" for the purpose of Corporations Law s. 473 - Trustee formally expressed approval for the remuneration claimed - Trustee expressly waived requirement notice and advertising necessary to formally convene a meeting of creditors under Corporations Law s. 473 - declaration that approval constituted a meeting of creditors - application for directions as to the method of approving future claims by liquidators for remuneration refused.

Corporations Law - s. 473; regulations 5.6.12, 5.6.16

Uniform Companies Act 1961 - s. 232

Re Molyneux Aluminium Pty. Ltd. (1970) VR 456

Re Norfolk Island Airlines Pty. Ltd. (1991) 9 ACLC 1024

Re Sectam Pty. Ltd. (1990) 8 ACLC 476

Re Spedley Securities (Supreme Court of New South Wales, Kearney J, unreported, 25 November, 1991)

HEARING

BRISBANE, 26 August and 7 September 1993

#DATE 10:9:1993

Counsel for the applicants: R. Traves

Solicitors for the applicants: Feez Ruthning

ORDER

THE COURT ORDERS THAT:

1. The costs of the application are costs in the liquidation.

THE COURT DECLARES THAT:

1. The provisions of s. 473(3)(b)(i) of the Corporations Law, as it stood prior to the Corporate Law Reform Act 1992, have been satisfied by the actions of Permanent Nominees (Aust.) Ltd. to the extent that that company, as sole creditor of Interchase Corporation Limited (in liquidation), has approved the liquidators' remuneration for the period 20 October, 1992 to 19 April, 1993.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

DRUMMOND J The hearing concluded on 7 September, 1993. I then made certain orders. My reasons for making those orders follow.

This matter came before me on 26 August as an application by the joint liquidators of Interchase Corporation Limited for an order under s. 473(3)(b)(ii) of the Corporations Law. It is that provision in the form in which it stood prior to the commencement of s. 57 of the Corporation Law Reform Act 1992 that governs the matter. See s. 1383(2) of the Corporations Law.
Section 473(3) then provided:

"A liquidator is entitled to receive such remuneration by way of percentage or otherwise as is determined:

(a) if there is a committee of inspection - by agreement between the liquidator and the committee of inspection; or

(b) if there is no committee of inspection or the liquidator and the committee of inspection fail to agree:

(i) by a resolution passed at a meeting of creditors by a majority of the creditors present and voting, either in person or by proxy, being a majority whose debts against the company that have been admitted to proof amount in the aggregate to at least 75% of the total amount of the debts of the creditors of the company present and voting, either in person or by proxy, that have been admitted to proof; or

(ii) if no such resolution is passed - by the Court."

The liquidators seek an order fixing their remuneration for the period 20 October, 1992 to 15 May, 1993 in the sum of $135,777.70. Their administration remains on foot, although much has been done. The assets of Interchase, save for the determination of possible claims the company may have against others, have been realised for in excess of $200,000,000. The secured creditors have been paid out. So have all the unsecured creditors, except for two groups. The first group comprises a small number of persons who have made claims on Interchase, which total less than $400,000; they have lodged proofs of debt, but the liquidators have not yet either accepted or rejected them. They would not therefore be entitled to participate in any meeting of creditors held pursuant to s. 473(3)(b)(i). The second group comprises the subordinated unsecured convertible noteholders. By May 1993 the noteholders had been paid a total of $19,000,000 out of nearly $154,000,000 owing to them by way of principal and interest that had accrued up to May last. Prima facie, therefore, it is only the noteholders who would be entitled to take part in a s. 473(3)(b)(i) meeting.
It appears that all funds in the hands of the liquidators, save for $3,000,000 which they have retained for the purpose of carrying on the administration, have now been disbursed to creditors. The liquidators are conducting extensive investigations in relation to a number of matters, including possible legal action arising from the prospectus issued when Interchase was floated, the valuations compiled in relation to the shopping centre, which was the company's major asset, before and after it commenced operations, and other matters. If the liquidators decide to commence legal proceedings in relation to these matters, their administration could well continue for a number of years.
No committee of inspection has been appointed, nor have the liquidators made any attempt to convene a meeting of noteholders to consider their claim to remuneration. They have applied to the Court to fix their remuneration because they say the cost of convening and holding meetings of noteholders is not justified: there are over 440 of them, including institutional and individual investors, residing in all States of Australia as well as overseas. Meetings of noteholders were convened in Sydney and in Brisbane during the course of the provisional liquidation, which lasted for a considerable time, but only a handful of persons attended each meeting. The liquidators also rely upon the fact that on 5 July last, they sent to Mr. Hall, the responsible officer of Permanent Nominees (Australia) Limited ("Permanent Nominees"), the trustee for the noteholders, a statement of all receipts and expenses in the administration, concluding with those incurred during the period 20 October, 1992 to 19 April, 1993 and, on 7 July, details of the amount of the remuneration the subject of the present application. Save that for some reason which is not apparent, they did not send to Mr. Hall a statement of their receipts and expenditure for the period 20 April, 1993 to 15 May, 1993, Mr. Hall was thus given all the information which s. 473(4) requires a liquidator to give to each creditor when he convenes a meeting of creditors for the purposes of s. 473(3)(b)(i). This information, was, however, conveyed to Mr. Hall under cover of a letter advising of the liquidators' intention to make the application to the Court that is now before me for an order fixing their remuneration. It was not suggested that the liquidators have formally convened a meeting of creditors sufficient for the purposes of s. 473(3)(b)(i): their letter to Mr. Hall cannot be read as a notice to that effect. Prior to the matter coming before me on 26 August, the liquidators had not done anything else which could be so regarded.
However, as a result of subsequent contacts between Mr. Hall and the solicitors for the liquidators, Permanent Nominees wrote to those solicitors on 25 August, 1993 as follows:

"Further to our letter to the liquidator of 22 July 1993, we confirm that Permanent Nominees (Aust.) Limited, as Trustee for the subordinated unsecured convertible note holders hereby approves your remuneration for the period 20 October 1992 to 15 May 1993 in the above administration in the sum of $135,770.70.

As stated in our previous letter, we also support the liquidators' application that the Court be asked pursuant to section 473(3)(b)(ii) of the Corporations Law for an order fixing your remuneration in this sum."

It was submitted that even though there has never been a committee of inspection in this administration and even though there has not been a meeting of creditors convened for the purpose of considering whether to determine the amount of the liquidators' remuneration, the Court has a discretion under s. 473(3)(b)(ii), in the circumstances, to itself fix their remuneration. Reliance is placed upon Re Molyneux Aluminium Pty. Ltd. (1970) VR 456; Re Sectam Pty. Ltd. (1990) 8 ACLC. 476; Re Norfolk Island Airlines Pty. Ltd. (1991) 9 ACLC 1024 and Re Spedley Securities (Supreme Court of New South Wales, Kearney J, unreported, 25 November, 1991).
I am not prepared to accept this submission. I do not think the Court has any power under the section to do that, in the circumstances that exist here.
The foundation for the applicant's argument that the Court has such a power was Re Molyneux Aluminium Pty. Ltd.. That was a decision on the precursor of s. 473(3) of the Corporations Law, namely, s. 232(3) of the Uniform Companies Act 1961. It provided:

"(3) A liquidator other than the Public Curator shall be entitled to receive such salary or remuneration by way of percentage or otherwise as is determined -

(a) by agreement between the liquidator and the committee of inspection (if any);

(b) failing such agreement or where there is no committee of inspection by a resolution passed at a meeting of creditors by a majority of not less than three-fourths in value and one-half in number of the creditors present in person or by proxy and voting at the meeting and whose debts have been admitted to proof, which meeting shall be convened by the liquidator by a notice to each creditor to which notice shall be attached a statement of all receipts and expenditure by the liquidator and the amount of remuneration sought by him; or

(c) failing a determination in a manner referred to in paragraph (a) or paragraph (b) of this subsection, by the Court."

In Re Molyneux Aluminium Pty. Ltd., Lush J said:

"The question I have to decide is what is meant by the introductory words of paragraph (c), 'failing a determination in the manner referred to in paragraph (a) or

(b) ...'"

Quite different expressions appear in s. 473(3) of the Corporations Law.
His Honour referred to the decision in Re an Arbitration between Wilson and Son. and Eastern Counties Navigation and Transport Co. Ltd. (1882) 8 TLR 264, a case involving the interpretation of a clause in a construction contract nominating an arbitrator and "failing him" a person to be named by another to be arbitrator in his place. A matter had arisen that required urgent resolution by the arbitrator. He had gone overseas. The Court of Appeal held that even though there was no evidence to suggest that the arbitrator initially appointed would not return from overseas, for practical purposes he was not available for the task required of him and the situation therefore fell within the description of the words "failing him", in the clause. Lush J said:

"The significance of this decision is that the Court did not confine itself to questions of possibility, but extended its consideration to what was practicable in the situation ... In my opinion, supported by the authority of the case cited, the introductory words of paragraph (c) extend not only to situations in which attempts to obtain a determination under paragraph (a) and (b) have failed or in which such a determination is impossible, but also extend to cases in which the obtaining of a determination under those paragraphs can be described as impracticable. The words do not, however, extend to situations in which the obtaining of a determination under paragraph (b) is practicable but for some reason or reasons does not appear an appropriate course to follow." (my emphasis)

His Honour, nevertheless, declined the application made to the Court to fix the liquidator's remuneration even though it was quite clear that the creditors entitled to be given an opportunity to consider the claim for remuneration would, apart from the one creditor who alone had any prospect of obtaining any payment in the winding up and who indicated it regarded the remuneration claimed as reasonable, have no real interest in the proposal and that the expenditure of limited funds available to convene a meeting of creditors was inappropriate. His Honour said:

"(H)owever, this inappropriateness does not create a situation falling within the words 'failing the determination in the manner referred to in paragraph (a) or

(b)'."

This decision was relied on in Re Sectam Pty. Ltd., a decision on s. 373(3) of the Companies (Western Australia) Code 1981 of Master White in the Western Australian Supreme Court, as authority for the proposition that: "in the case where there is no committee of inspection, the liquidator is not ... entitled to by-pass the reference to a meeting of creditors, unless to refer to such a meeting would not be reasonably practicable in the circumstances". It was also relied on in Re Norfolk Island Airlines Pty. Ltd., a decision of Master Horton in the Queensland Supreme Court on s. 473 of the Corporations Law, in the same form in which I have to consider it for the proposition: there is "the need to demonstrate special circumstances in order to persuade a court to exercise its power to fix remuneration in the absence of the calling of a creditor's meeting." In neither case was any attention directed to what I regard as the significant differences in the wording of s. 232(3) of the 1961 Act considered by Lush J and the corresponding provisions of the 1981 legislation, which is in identical terms to those of s. 473(3) of the Corporations Law as it stood at the time presently relevant. Lush J invited the legislature's attention to the need to amend s. 232(3)(c) to give the Court a wider power than that which he held it had; amendments reflecting his views were made to the 1961 Act in 1975, but the legislature reverted in the 1981 Act to a provision that very much limited the power of the Court to fix a liquidator's remuneration. The same legislative approach is reflected in s. 473(3) of the Corporations Law, as it now stands.
In Re Spedley Securities Kearney J rejected a submission made on behalf of the liquidators, who were seeking an order of the Court determining their remuneration pursuant to s. 473(3)(b)(ii) of the Corporations Law, that it would be impracticable for the liquidators to go to a meeting of creditors in the circumstances of that case, that Re Sectam should be followed and that the Court should act for itself, saying:

"It does seem to me to be a substantial inroad upon the statutory procedure to entertain the present application."

Although his Honour went on to dispose of the application by the liquidators on the ground that he was not satisfied it would not be reasonably practicable to hold a meeting of creditors, I think his Honour's decision must be understood as one which proceeded on the basis that he assumed, without deciding, that the Court could in a proper case deal with such an application where even though a meeting had not been convened it was impracticable to hold a meeting of creditors, but went on to hold that impracticability had not been shown in the circumstances of the case before him.
It was submitted that under both s. 232 of the 1961 provision and s. 473 of the provision now relevant, it is the absence of a resolution passed at a meeting of creditors fixing the liquidator's remuneration that is the pre-condition to the Court having power to act and that consequently, the current provision should be given the same interpretation as that given by Lush J to s. 232 of the earlier provision. But the foundation for Lush J's decision was that the expression in s. 232(3)(c) "failing a determination in a manner referred to in paragraph (a) or paragraph (b)" enabled him to hold that the pre-condition to the Court being empowered to act would be satisfied, not only when a meeting of creditors has been convened in an unsuccessful attempt to procure the passage of such a resolution, but also where the convening of a meeting for that purpose was impracticable. The wording of the current provision admits of no such flexibility: it is only if no resolution is passed at a meeting of creditors that the Court is empowered to act. Subject to question of waiver, this pre-condition cannot be satisfied in my view unless the liquidator has convened a meeting. Only if that has occurred, but it has not resulted in the passage of a necessary resolution, can it be said to be a case in which "no such resolution is passed".
In my opinion, s. 473(3) operates as follows: subject to question of waiver, the remuneration of a liquidator must be determined firstly, by agreement between the liquidator and the committee of inspection, or, secondly, if agreement cannot be reached or there is no such committee, by resolution passed at a meeting of creditors by the prescribed majority. It is only if no such resolution is passed at a properly convened meeting of creditors that the Court is empowered to fix the liquidator's remuneration.
It is therefore essential, before the Court can have any power to act under s. 473(3)(b)(ii), that the liquidator has first acted in accordance with s. 473(4) to convene a meeting of creditors for the purpose of fixing his remuneration. If no creditor attends either in person or by proxy, or if a meeting actually takes place but the prescribed resolution is not passed, the pre-condition to the Court being empowered to act will be satisfied. But unless that occurs the Court, in my opinion, has no power to fix the liquidator's remuneration. The apparent deliberateness of the amendments made to the provisions that replaced s. 232(3) in the 1981 Uniform Codes and in the Corporations Law in my opinion admits of no other conclusion.
There is nothing inappropriate in s. 473(3) being given this construction. So construed, it serves to emphasise the importance of the role creditors play in a winding up. The extent to which the pool of funds available for distribution in the winding up is to be diminished by payment of the liquidator's remuneration, often substantial, is a matter on which the creditors are entitled to the opportunity of considering for themselves. The statement in McPherson's Law of Company Liquidation, 3rd Ed. at pp 230-231 made in relation to the 1981 legislation is, in my view, equally applicable to the present legislation. It reads as follows:

"The statement in s. 431 (see now s. 547 of the Corporations Law) that the Court may have regard to the wishes of creditors and contributories may be regarded as a statutory expression of the policy that underlines the Companies Act 1981, namely, that in all matters relating to winding up, the persons who are financially interested in the outcome of the liquidation are entitled to be consulted whenever it is practically feasible to do so ... (T)he general policy of consultation and self-determination permeates the whole of the proceedings in winding up, and, although s. 431 is in terms directory only and not mandatory, and although the liquidator is required to exercise his own discretion in discharging his duties, neither he nor the Court, is entitled to disregard a resolution by the majority on a matter falling within the control of creditors or contributories."

I therefore ruled, on 26 August last, that I would not be prepared to make an order under s. 473(3)(b)(ii) determining the remuneration of the liquidators as sought by their application.
My attention was directed in argument to provisions of the Deed between Interchase and Permanent Nominees which provided for the raising of funds by Interchase by the issue of unsecured notes and for Permanent Nominees "to act as trustee of this Deed for the benefit of the noteholders under the terms herein contained": recital E. I was directed to various provisions of the Deed governing the issue by the company of notes, the power of the trustee to approve or reject proposals by the company to issue notes for the purpose of ensuring, within the criteria fixed by the Deed, that the holders of such notes would be adequately secured and to provisions investing the trustee with authority to represent the noteholders in any investigation, negotiation, action, transaction or proceeding touching their interests generally, in the affairs of the company, or in the enforcement of their rights. I was referred to clause 16(b) of the Deed, which provides that in representing the noteholders in such matters, the trustee shall have an absolute discretion "to act or to refrain from acting".

There is nothing in the Deed, as is only to be expected, sufficient to amount to an authorisation of the trustee by the noteholders to act as their agent at a meeting convened for the purposes of s. 473(3)(b)(i). However, I was also referred to clause 3 of the Deed, which provides:

"Acknowledgment of Indebtedness

(a) The Company hereby acknowledges its indebtedness to the Trustee in respect of the Principal Moneys for the time being outstanding and interest thereon.

(b) The Noteholders are to be regarded as the beneficial owners of the Notes held by them respectively."

The term 'principal moneys' is defined in clause 1 to mean the total amount for the time being paid up on the notes. Clause 10 of the Deed provides:

"Payment of Principal, Repayment of Interest

(a) As and when the Notes or any part thereof ought to be redeemed or paid off in accordance with the provisions of its issue or of this Deed the Company will pay to the Trustee the principal amount of the Notes which ought to be redeemed or paid off, together with any premium payable thereon in accordance with the conditions on which such Notes are held.

(b) Until any Notes are redeemed or paid off the Company will pay to the Trustee interest thereon in accordance with the conditions upon which such Notes are held. ..."

Although clause 10 goes on to permit the company to make payments direct to the noteholders on account of principal moneys and interest payable under these provisions to the trustee, any such payments are declared to "operate as payment to the trustee in satisfaction of the company's obligations in that behalf": see clauses 10(c) and (d).
It follows from these provisions that, as between Interchase, the trustee and the noteholders, it is only the trustee who has any entitlement at law to make any claim on Interchase for payment of moneys due by it by way of principal and interest in respect of the notes. In other words, it is the trustee itself rather than the noteholders who is Interchase's creditor within the meaning of that term in s. 473(3)(b)(i).
There being, as I have said, no other class of persons entitled to attend or vote at a meeting called under the provision, the position is that although the liquidators sought an order of the Court determining their remuneration, they have given to the company's only creditor entitled to attend any meeting convened under s. 373(3)(b)(i) all the information required by statute to be given to creditors in that respect, at least so far as concerns their claim to remuneration for the period 20 October, 1992 to 19 April, 1993. It is also apparent from the letter from Permanent Nominees of 25 August, 1993, to which I have already referred, that sole creditor, after receipt of that information from the liquidators, has been prepared to indicate its approval of their remuneration in the sum claimed.
I therefore acceded to a request on behalf of the liquidators that their notice of motion be amended to include a claim for a declaration that the provisions of s. 473(3)(b)(i) for determining the liquidators' remuneration have been sufficiently complied with. I accordingly adjourned the further hearing of the motion to enable service of the material to be effected on the trustee.
The matter is now back before me.
I am satisfied by the evidence of Mr. Jenkins that Permanent Nominees has expressly waived its right to be given the notice referred to in s. 473(3)(b)(i) in the manner required by regulation 5.6.12(1)(a) and has also expressly waived the requirement for advertising the meeting imposed by regulation 5.6.12(1)(b), as it, as sole creditor, is entitled to do, pursuant to regulation 5.6.12(7).
There can be a meeting for the purposes of s. 473(3)(b)(i) even though only a single person is entitled to attend and vote, as is the case here: see regulation 5.6.16(2)(b) and cf. also s. 251(1) of the Corporations Law.
I am also satisfied, from its letter to the liquidators of 2 September, 1993, that Permanent Nominees, as the sole creditor of Interchase, has formally determined to approve the liquidators' claim for remuneration for the period covered by the statement of receipts and expenditure provided to it by the liquidators, i.e., for the period 20 October, 1992 to 19 April, 1993.
I think that the occasion on which Permanent Nominees so determined to approve the liquidators' claim, a determination that has been communicated to the liquidators, can be regarded as a meeting for the purposes of s. 473(3)(b)(i) and that determination can be regarded as a resolution by Permanent Nominees approving the claim. Cf. East v Bennett Brothers, Limited (1911) 1 Ch. 163 at 170.
I am therefore prepared to declare that the approval by Permanent Nominees of the liquidators' claim for remuneration for the period 20 October, 1992 to 19 April, 1993 recorded in its letter to the solicitors for the liquidators dated 2 September, 1993 records a determination of the liquidators' entitlement to that remuneration sufficient for the purposes of s. 473(3)(b)(i) of the Corporations Law in the form in which that section stood prior to the commencement of s. 57 of the Corporations Law Reform Act 1992.
The liquidators, by their amended notice of motion, also sought a direction that in respect of approval of the liquidators' remuneration on future occasions the provisions of s. 473(3)(b)(i) of the Corporations Law will have been sufficiently complied with upon the liquidators forwarding a statement of receipts and expenses in the administration, together with a statement of the remuneration claimed, to the Executive - Corporate Trusts for the time being of Permanent Nominees, as trustee for the subordinated convertible noteholders of Interchase, and upon the liquidators obtaining the consent of the said trustee to such remuneration.
The procedure the liquidators must follow to obtain an entitlement to future remuneration is set out in s. 473(3) of the Corporations Law. I have indicated in these reasons what is involved. Permanent Nominees is the only person at present entitled to attend and vote at a meeting held pursuant to s. 473(3)(b)(i). But if the claims of the other persons I have referred to are admitted to proof, they too will be entitled to notice of, and to attend and vote at, any such future meetings. I do not think the direction sought can properly be given so long as there exists the possibility that there may in the future be creditors additional to Permanent Nominees who will be entitled to attend and vote at such meetings, even though such potential creditors could never, on the material before me, have sufficient voting power to override a decision by Permanent Nominees with respect to claims for remuneration by the liquidators. Even if these other claims are never admitted to proof and Permanent Nominees remains the only person entitled to attend and vote at such a meeting, it is that company who alone has the right to waive the requirements of the Corporations Law and Regulations which the liquidators must otherwise comply with if they should in the future seek approval of further claims for remuneration. The Court has no power wide enough to allow it to dispense with the liquidator's obligations to comply with these provisions. I do not think it would be proper to give a direction purporting to deprive Permanent Nominees of its statutory entitlements in these respects.

[1993] FCA 629

10 SEPTEMBER 1993