In the matter of Robust Construction Services Pty Ltd (in liquidation) and Robust Construction Services 2 Pty Ltd (in liquidation)

[2023] NSWSC 1156

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Robust Construction Services Pty Ltd (in liquidation) and Robust Construction Services 2 Pty Ltd (in liquidation) [2023] NSWSC 1156

Hearing dates:

11 September 2023

Date of orders:

26 September 2023

Decision date:

26 September 2023

Jurisdiction:

Equity - Corporations List

Before:

Williams J

Decision:

See below at [29]

Catchwords:

CORPORATIONS — Creditors voluntary winding up of two companies — Where validity of resolutions appointing administrators, and by extension resolutions passed at second creditors’ meeting to wind up companies in question — Application by liquidators for validation of administrators appointment under s 447A of the Corporations Act 2001 (Cth) — Making of orders under s 447A consistent with the objectives of pt 5.3A of the Act

Legislation Cited:

Corporations Act 2001 (Cth) ss 435A, 436A, 439C(c), 446A, 447A, 447A(4)(f), 588FF, 596A, 596B, Pts 5.3A, 5.5, 5.6

Cases Cited:

Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd (2004) 49 ACSR 1; [2004] FCA 130

Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; (2000) 74 ALJR 991; (2000) 172 ALR 28; (2000) 34 ACSR 250; (2000) 18 ACLC 500; [2000] HCA 30

Darin re Palamedia Limited) [2010] NSWSC 451

Foodora Australia Pty Ltd (Administrators Appointed) [2018] NSWSC 1426

Frisken, in the matter of NPH Group Pty Ltd (in liq) [2021] FCA 1155

Hayes v Doran [No 2] [2012] WASC 486 (S)

Hutton, in the matter of Big Village Australia Pty Ltd (Administrators Appointed) [2023] FCA 48

In the matter of AMJ Transport NSW Pty Ltd (in liquidation) ACN 164 981 837 [2019] NSWSC 818

Re One.Tel Ltd (2002) 171 FLR 206; (2002) 43 ACSR 305; [2002] NSWSC 1081

ReWoodParsonsPtyLtd (in liquidation) (2002) 43 ACSR 257; (2002) 21 ACLC 111; [2002] NSWSC 1058

Singleton v 24 Hr Cranes Pty Ltd [2003] NSWSC 1156

Texts Cited:

N/A

Category:

Principal judgment

Parties:

Philip Campbell-Wilson and John Edgar McInerney in their capacity as liquidators of Robust Construction Services Pty Ltd (in liquidation) ACN 621 362 196 and Robust Construction Services 2 Pty Ltd (in liquidation) ACN 623 302 367 (Plaintiffs)

Representation:

Counsel:
Mr J Hynes (Plaintiffs)

Solicitors:
Holman Fenwick Willan Australia (Plaintiffs)

File Number(s):

2020/274041

Publication restriction:

N/A

Judgment

Introduction

1. By interlocutory process filed on 4 September 2023, the liquidators of Robust Construction Services Pty Ltd (in liquidation) ACN 621 362 196 (Robust 1) and Robust Construction Services 2 Pty Ltd (in liquidation) ACN 623 302 367 (Robust 2) (together, the Companies) seek orders under s 447A of the Corporations Act 2001 (Cth) validating resolutions passed (or purportedly passed) by the sole director of each of the Companies under s 436A and the consequential appointment of administrators to each of the Companies on 11 July 2019, and validating the resolutions subsequently passed (or purportedly passed) at the second meeting of the creditors of each of the Companies on 16 August 2019 that each of the Companies be wound up and that they be appointed as liquidators.

2. The application was heard in the Corporations Motions list on 11 September 2023. It became apparent during that hearing that creditors of the Companies and other interested persons had been notified of the application only a short time prior to the hearing, and there was no appearance at the hearing by any creditor or interested person. I permitted the hearing to proceed, but made directions that the transcript be provided to those persons, and reserved judgment for a period of time during which those persons were granted liberty to apply in the event that they wished to be heard in relation to the applications. No creditor or other interested person exercised that liberty to apply.

Salient facts

3. Robust 1 was incorporated on 29 August 2017. Robust 2 was incorporated on 7 December 2017. The Companies operated a labour hire and payroll services business which had only one client, Titan Cranes and Rigging Pty Ltd (Titan Cranes). According to the records maintained by the Australian Securities and Investments Commission (ASIC), Mr Andrew Florian Heymans was the sole director and shareholder of the Companies at all relevant times.

4. On 2 July 2019, Mr Thomas Russell, solicitor, of Piper Alderman, sent an email to Mr Sule Arnautovic. Mr Russell’s email stated that he acted for Mr Heymans, whom Mr Russell described as the director of the Companies. Mr Russell sought a time to meet to discuss the potential voluntary administration of the Companies. Following an exchange of emails about a suitable time and place for the meeting, Mr Russell sent a further email to Mr Arnautovic confirming the meeting for 11:00am on Thursday, 4 July 2019, and requesting that Mr Arnautovic “have appointment documents prepared and ready for signature”. All of these emails were copied to [email protected]. Mr Arnautovic replied that he would have draft voluntary administration documents available at the meeting, and requested that Mr Heymans provide for each of the Companies the aged payables list, receivables list, year to date profit and loss report, year to date balance sheet, and the ATO Portal/Running Balance Account statement.

5. On 4 July 2019, Mr Arnautovic sent an email to Mr Russell, copied to Mr Heymans’ email address referred to above, which read (emphasis in original):

“Hi Thomas

Good to meet you and Andrew today.

Please find attached VA appointment documents for your reference.

Please note:

# I now hold a copy of Andrew Heymans drivers’ licence.

# Trent Devine and I will sign our consents to act when Andrew Heymans pays $25,000 for each of the Companies into our firm’s trust account ($50k Total); and

# We hold signed appointment documents in escrow from Andrew Heymans. These documents to only be activated when you advise us to do so on behalf of Andrew Heymans.”

6. At 5:22pm on 11 July 2019, an email was sent to Mr Arnautovic from the email address for Mr Heymans requesting that Mr Arnautovic “initiate va appointment as of today’s date”. The email referred to a directors’ meeting of the Companies that had been held at 4:00pm on that day.

7. The plaintiffs tendered:

1. a consent to act as administrator in respect of each of the Companies, signed by Mr Arnautovic and Mr Devine and bearing a handwritten date 11 July 2019;

2. a document addressed to Mr Arnautovic and Mr Devine in respect of each of the Companies, stating that it had been resolved that the company is insolvent or likely to become insolvent within the foreseeable future, and that Mr Arnautovic and Mr Devine be appointed as joint and several administrators pursuant to s 436A. Each document was signed—or appears on the face of it to have been signed—by Mr Heymans, and bears the handwritten date 11 July 2019; and

3. a copy of that resolution for each of the Companies that was signed—or appears on the face of it to have been signed—by Mr Heymans as sole director, bearing the handwritten date 11 July 2019.

8. Mr Arnautovic and Mr Devine appear to have proceeded on the basis that they had been validly appointed. There is no evidence of any reason for them to have questioned the validity of their appointment. In their report to creditors dated 8 August 2019, the Administrators reported that the known asset and liability position was a net asset deficiency of approximately $13,477,538 for Robust 1 and a net asset deficiency of approximately $2,067,366 for Robust 2. The Australian Taxation Office (ATO) was the single largest creditor of each of the Companies. At the second meeting of creditors of the Companies on 16 August 2019, it was resolved that each of the Companies be wound up and that Mr McInerney and Mr Campbell-Wilson be appointed as the joint and several liquidators. According to the minutes, Mr Heymans attended that meeting in person. The minutes do not record Mr Heymans asking any questions about why the Companies were in administration, or disputing that he had appointed the administrators.

9. The Liquidators’ investigations following their appointment established that the Companies were likely insolvent at all material times.

10. In relation to Robust 1, Mr McInerney has given evidence in his affidavit sworn on 4 September 2023 that:

1. the profit and loss statement and balance sheet for the period ending 30 June 2018 disclosed a net loss and net asset deficiency of $81,222;

2. the company failed to report its pay as you go (PAYG) withholding tax liabilities from as early as July 2018;

3. following an apparent settlement between Robust 1 and Titan Cranes by a Deed of Settlement and Release dated June 2019 (Titan Settlement Deed), the business of the company appears to have ceased entirely, and to have had “no income, nominal assets and significant liabilities” thereafter;

4. by the commencement of the winding up, the company had outstanding debts of approximately $15,540,632 (being primarily taxation debts); and

5. Mr McInerney’s reconstruction of the company’s asset and liability position as at date of commencement of the winding up has revealed a net asset deficiency of approximately $16,551,104.

11. In relation to Robust 2, Mr McInerney has given evidence in his affidavit sworn on 4 September 2023 that:

1. no financial statements for the company were provided to the liquidators, despite several requests made of the company’s director;

2. the company failed to report its PAYG withholding tax liabilities from as early as July 2018;

3. by the commencement of the winding up, the company had outstanding debts of approximately of $2,444,911 (being primarily taxation debts); and

4. Mr McInerney’s reconstruction of the company’s asset and liability position as at date of commencement of the winding up has revealed a net asset deficiency of approximately $2,462,210.

12. In their statutory report issued to creditors of the Companies on 15 November 2019, the liquidators reported that, in their view, each of the Companies was insolvent from the date of its incorporation.

13. Following the release of that statutory report, the liquidators conducted further investigations into potentially voidable transactions, obtained an order extending the time for commencement of any proceedings under s 588FF of the Corporations Act in respect of the Companies, and conducted public examinations pursuant to ss 596A and 596B of the Corporations Act.

14. During the liquidators’ public examination of Mr Heymans on 7 December 2020, Mr Heymans gave evidence that Titan Cranes had paid him the sum of $1,000 per month for acting as the director of the Companies, that he had never made any decisions in his capacity as a director of either of the Companies, that he had never authorised either of the Companies entering into any agreement or transaction, that he had no recollection of the occasion on which the administrators were appointed to the Companies, that he had taken no steps to put the Companies into administration, and that he first became aware that the companies had gone into administration when “Jim” had asked him to go and see the lawyers or the liquidators in about July 2019. Mr Heymans gave evidence that he did not know who had taken the necessary steps to put the Companies into administration.

15. Mr McInerney has given evidence that it was not apparent to him at the time that this raised an issue requiring investigation concerning the validity of the administrators’ appointments and, by extension, the validity of his and Mr Campbell-Wilson’s appointments as joint and several liquidators of the Companies.

16. On 8 July 2022, the liquidators caused Robust 1 to commence proceedings against Titan Cranes seeking relief that includes a declaration that the Titan Settlement Deed is void and unenforceable, and relief under s 588FF of the Corporations Act.

17. On 24 May 2023, the solicitors for Titan Cranes wrote to the liquidators’ solicitors raising questions about the validity of the appointment of the administrators to the Companies, referring to Mr Heyman’s evidence during his public examination. The letter stated:

“If it is true that Mr Heymans did not appoint administrators to [Robust 1], it follows that the former administrators were not validly appointed, the second meeting of creditors of [Robust 1] was never validly convened and that [the liquidators] were never validly appointed as liquidators. It would also follow that [the liquidators] do not have standing to bring the Proceedings nor authority to cause [Robust 1] to bring the Proceedings.”

18. The liquidators then investigated the circumstances surrounding the appointment of the administrators. The administrators provided the liquidators with the July 2019 email correspondence and the documents referred to above. It appears on the face of those documents that the administrators had been appointed by the sole director of the Companies, with whom Mr Arnautovic had met in person and identified by his drivers licence, and that the sole director had attended the second meeting of creditors of the Companies, apparently without raising any question or complaint about the fact that the companies were in administration.

19. The liquidators subsequently filed the interlocutory process seeking relief under s 447A of the Corporations Act on 4 September 2023.

Applicable legal principles

20. Section 447A of the Corporations Act confers on the Court power to “make such order as it thinks appropriate about how [Part 5.3A] is to operate in relation a particular company.” The overriding requirement for an order made under s 447A is that it must be designed to achieve the objective of Part 5.3A as expressed in s 435A, and that the order has a nexus with how Part 5.3A is to operate in relation to the particular company.[1] Section 435A provides that the object of Part 5.3A 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”.

    1. Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd (2004) 49 ACSR 1; [2004] FCA 130 at [55]-[56] (Goldberg J); Foodora Australia Pty Ltd (Administrators Appointed) [2018] NSWSC 1426 at [7] (Black J) (Foodora).

21. The power under s 447A has been applied in numerous cases to make orders validating the appointment of administrators that would otherwise be invalid, or dispelling uncertainty that would otherwise exist about the validity of the administrators’ appointment. [2] As the liquidators submitted, it is no bar to the making of an order under s 447A validating the administrators’ appointment that the administration has come to an end, and that the company is now in liquidation as a result of resolutions under s 439C(c) passed at the second meeting of the creditors convened by the administrators whose appointment has been called into question. Such an order takes effect from the time of its making to remedy the alleged irregularities affecting the administrators’ appointment, which then affects each act subsequently taken by the administrators—including their convening of the meetings at which the creditors resolved under s 439C(c) to wind up each company and appoint the liquidators. That, in turn, affects the validity of each act done by the liquidators acting or purporting to act as such. In those circumstances, an order under s 447A is an order about how Part 5.3A is to operate, because it is by virtue of the deeming provisions in s 446A within Part 5.3A that the provisions of Parts 5.5 and 5.6 with respect to voluntary winding up apply to the company. [3] In such circumstances, the liquidators have standing to apply for orders under s 447A(4)(f) as interested persons.

    2. For example, Re Wood Parsons Pty Ltd (in liquidation) (2002) 43 ACSR 257; (2002) 21 ACLC 111; [2002] NSWSC 1058 (Austin J); Darin re Palamedia Limited [2010] NSWSC 451 (Barrett J) (Darin); Foodora (Black J); In the matter of AMJ Transport NSW Pty Ltd (in liquidation) ACN 164 981 837 [2019] NSWSC 818 (Emmett AJA); Frisken, in the matter of NPH Group Pty Ltd (in liq) [2021] FCA 1155 (Cheeseman J) (Frisken); Hutton, in the matter of Big Village Australia Pty Ltd (Administrators Appointed) [2023] FCA 48 (Anderson J) (Hutton).

    3. Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; (2000) 74 ALJR 991; (2000) 172 ALR 28; (2000) 34 ACSR 250; (2000) 18 ACLC 500; [2000] HCA 30 at [16]-[33] (Gleeson CJ, McHugh, Gummow, Hayne, and Callinan JJ); Re One.Tel Ltd (2002) 171 FLR 206; (2002) 43 ACSR 305; [2002] NSWSC 1081 at [42]-[56] (Barrett J).

22. Most of the cases in which orders having been made under s 447A validating the appointment of administrators have involved appointments that are either invalid or of uncertain validity by reason of doubts about whether the appointment and resolutions required by s 436A were made by the requisite majority of the company’s directors, or doubts about whether those directors had been validly appointed as directors, or doubts about whether notice had been given to all directors of the meeting at which the appointment and s 436A resolutions were made. Counsel for the liquidators identified one previous case involving an allegedly forged appointment of voluntary administrators. In Singleton v 24 Hr Cranes Pty Ltd,[4] the instrument of appointment had apparently been signed by the sole director of the company. [5] However, that person had sworn an affidavit deposing that he had refused to be appointed as a director of the company, that he had not been appointed, and that the signature appearing to be his signature on the instrument of appointment was not in fact his signature. [6] Hamilton J proceeded on the basis that the power under s 447A could be exercised to address the invalidity of an appointment by reason of forgery in the same way that it could be used to address other causes of invalidity. [7] In my opinion, that is correct as a matter of principle, although it will be relevant to the exercise of the discretion under s 447A in cases of forgery that no person holding or ostensibly holding the office of director of the company has made the necessary assessment of the company’s solvency and determined to appoint an administrator. [8]

    4. [2003] NSWSC 1156 (Hamilton J).

    5. Supra at [2] (Hamilton J).

    6. Supra.

    7. Supra at [4] (Hamilton J).

    8. Darin at [8] (Barrett J).

23. The factors relevant to the exercise of the discretion include:[9]

    9. Frisken at [22]-[23] (Cheeseman J), citing Hayes v Doran [No 2] [2012] WASC 486 (S) at [279] (Kenneth Martin J); Hutton at [33] (Anderson J).

1. the likely insolvency of the company;

2. whether the administrators made inquiries to confirm the validity of their appointments, including by seeking external legal advice;

3. the potential disruption that may be caused by a future challenge to the validity of the administrators’ appointment and, in the present case, a consequential challenge to the liquidators’ appointment;

4. the conduct of the directors prior to the administrators’ appointment, and whether it would be wrong to give the imprimatur of the Court to that conduct by validating that appointment;

5. the work carried out by the administrators—and, in the present case, by the liquidators—on the assumption that their appointments were valid;

6. whether substantial injustice would be occasioned to any person by the validation of the appointment of the administrators and, in the present case, by the consequential effect of such validation on the validity of the appointment of the liquidators; and

7. whether the proposed orders under s 447A are otherwise consistent with the objectives of Part 5.3A of the Corporations Act.

Consideration and determination

24. The emails and other contemporaneous documents referred to at [4]-[7] above indicate that the documents appointing the administrators were signed at a meeting attended by Mr Arnautovic, by a person whom Mr Arnautovic identified as Mr Heymans by his drivers’ licence. That casts doubt on the reliability of Mr Heymans’ evidence given during his public examination referred to at [14] above. However, I accept the liquidators’ submission that Mr Heymans’ evidence raises some doubt about the validity of the administrators’ appointment and, by extension, the validity of the liquidators’ appointment, albeit that the liquidators did not appreciate this at the time of the public examination. The letter from the solicitors acting for Titan Cranes referred to at [17] above has brought the issue into sharp focus, as it indicates the potential for any persisting doubt to disrupt the conduct of the proceedings that the liquidators have commenced, and that they have caused Robust 1 to commence, against Titan Cranes.

25. In my view, the evidence referred to at [4]-[7] above shows that the administrators took appropriate steps at the time of their appointment to confirm the validity of that appointment, including by verifying the identity of the person who signed their appointment documents as the sole director of the Companies. As I have said at [8] above, the financial information available to the administrators gave them no reason to question the bona fides of the resolutions that the Companies were insolvent or likely to become insolvent within the foreseeable future. If Mr Heymans’ evidence in the public examination is to be believed, he did not pass that resolution or sign any appointment documents. In that scenario, it is likely that this was done, in Mr Heymans’ name, by the unidentified person who Mr Heymans said was in fact making decisions and transactions on behalf of the Companies—a shadow director. There is no other plausible alternative scenario. I therefore infer that the resolutions were passed either by Mr Heymans, or by a shadow director of the Companies, who in fact formed the opinion stated in the resolutions. The subsequent investigations by the administrators and liquidators confirmed that the Companies were indeed insolvent. The liquidators concluded that they were insolvent from the time of their incorporation, as referred to at [12] above.

26. In the circumstances of the present case, the making of orders validating the administrators’ appointments under s 447A of the Corporations Act would not involve giving the imprimatur of the Court to Mr Heymans’ lack of involvement in the management of the Companies (as he described in his public examination) or to any other conduct of either Mr Heymans or the shadow director.

27. As counsel for the liquidators submitted, the administrators and the liquidators have carried out substantial work on the assumption that their appointments were valid. The work carried out by the liquidators has included conducting the public examinations, successfully applying for extensions of time to commence s 588FF proceedings, and commencing the proceedings against Titan Cranes with a view to recovering funds for the ultimate benefit of creditors. In my view, the liquidators should have questioned that assumption at the time of Mr Heymans’ public examination. However, I accept Mr McInerney’s evidence that the need to do so was not apparent to him at that time. This does not detract from all of the other factors that weigh overwhelmingly in favour of making the validating orders.

28. There is no evidence that substantial injustice would be caused to any person as a result of the validation of the appointment of the administrators. No creditor of the Companies or other interested person has sought to be heard against the making of the validation orders sought by the liquidators. As counsel for the liquidators submitted, any obstruction to the continuation of the external administration would not be in the interests of the Companies’ creditors, who stand to benefit from any recoveries in the proceedings against Titan Cranes.

29. For all of those reasons, I am satisfied that, in all the circumstances of this case, the Court should exercise its discretion to make the orders sought by the liquidators, which are consistent with the objectives of Part 5.3A of the Corporations Act.

30. The orders of the Court are as follows:

1. Pursuant to section 447A of the Corporations Act 2001 (Cth), Part 5.3A of the Act is to operate in relation to Robust Construction Services Pty Ltd (in liquidation) ACN 621 632 196 and Robust Construction Services 2 Pty Ltd (in liquidation) ACN 623 302 367 (the Companies) as if:

1. the resolutions purportedly passed by Andrew Heymans on 11 July 2019 as sole director of the Companies were valid resolutions under section 436A of the Corporations Act 2001 (Cth); and

2. the appointment of Sule Arnautovic and Trent Andrew Devine on 11 July 2019 pursuant to those resolutions were valid appointments as joint and several administrators of the Companies.

2. Pursuant to section 447A of the Corporations Act 2001 (Cth), Part 5.3A of the Corporations Act 2001 (Cth) is to operate in relation to the Companies as if:

1. the resolutions purportedly passed at meetings of the Companies’ creditors on 16 August 2019 that the Companies be wound up under section 439C(c) of the Corporations Act 2001 (Cth) were valid resolutions; and

2. the appointment of Philip Campbell-Wilson and John Edgar McInerney on 16 August 2019 pursuant to those resolutions were valid appointments as joint and several liquidators of the Companies.

3. The costs of the Interlocutory Process be costs in the liquidation of the Companies.

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Endnotes

Decision last updated: 26 September 2023