In the matter of TLC Marketing Worldwide Pty Limited (subject to a Deed of Company Arrangement)

Case •

[2018] NSWSC 454

•

14 February 2018

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: In the matter of TLC Marketing Worldwide Pty Limited (subject to a Deed of Company Arrangement) [2018] NSWSC 454
Hearing dates: 14 February 2018
Decision date: 14 February 2018
Jurisdiction:Equity - Corporations List
Before: Black J
Decision:

The deed of company arrangement dated 26 July 2017 is valid and effective for all purposes of the Corporations Act 2001 (Cth). The non-inclusion in the deed of company arrangement of a provision in the terms otherwise required by s 444DA(1) of the Act is approved.

Catchwords:

PRACTICE AND PROCEDURE – where hearing of challenge to validity of deed of company arrangement not completed – where creditors have voted to support the deed of company arrangement knowing of the prior challenge – whether deed of company arrangement is valid and effective for all purposes of the Corporations Act 2001 (Cth)

PRACTICE AND PROCEDURE – where provision of deed of company arrangement required by s 444DA(1) of the Corporations Act was not included – whether non-inclusion of the provision would be likely to result in the same or a better outcome for employee creditors than would result from immediate winding up of the company – whether Court will approve the non-inclusion of such a provision pursuant to s 444DA(5) of the Corporations Act
Legislation Cited: - Corporations Act 2001 (Cth) ss 444DA, 444F, 447A, 556, 560, 561
Cases Cited: - Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 95 FCR 114
Category:Procedural and other rulings
Parties: Optus Administration Pty Ltd (Plaintiff)
Bruce Gleeson in his capacity as joint and several voluntary administrator of TLC Marketing Worldwide Pty Limited (subject to deed of company arrangement) (First Defendant)
Daniel Robert Soire in his capacity as joint and several deed administrator of TLC Marketing Worldwide Pty Ltd (subject to deed of company arrangement) (Second Defendant)
TLC Marketing Worldwide Pty Limited (subject to deed of company arrangement) (Third Defendant)
TL Marketing France Sarl (Fourth Defendant)
Bruce Gleeson and Daniel Soire (Applicants to Amended Interlocutory Process)
TLC Marketing Worldwide Pty Ltd (subject to Deed of Company Arrangement) (Applicant to Interlocutory Process)
Representation:

Counsel:
S Golledge (First and Second Defendants/Applicant to Amended Interlocutory Process)
M Condon SC (Third Defendant/Applicant to Interlocutory Process)

  Solicitors:
Roser Lawyers (First and Second Defendants/Applicant to Amended Interlocutory Process)
Squire Patton Boggs (Third Defendant/Applicant to Interlocutory Process)
File Number(s): 2017/218847

Judgment – ex tempore (revised 21 february 2018)

Nature of the applications

  1. By Amended Interlocutory Process filed on 12 February 2018, the Applicants, Messrs Gleeson and Soire, the deed administrators (“Deed Administrators”) of TLC Marketing Worldwide Pty Ltd (subject to a deed of company arrangement) ("Company") seek an order under s 447A of the Corporations Act 2001 (Cth) or a direction under s 90-15 of the Insolvency Practice Schedule (Corporations) to the effect that a deed of company arrangement dated 26 July 2017 (“DOCA”) is valid and effective for the purposes of the Corporations Act, notwithstanding certain matters alleged by Optus Administration Pty Limited (“Optus”) in the substantive proceedings in which that Interlocutory Process is brought. The Deed Administrators also seek an order under s 444DA(5) of the Corporations Act for approval of the DOCA notwithstanding the non-inclusion in the DOCA of a provision required by s 444DA(1) of the Act. I am satisfied that such an order should be made, for the reasons that I will indicate below.

  2. By an Interlocutory Process filed on the same date, the Company, which has been returned to the management of its directors pursuant to the DOCA, seeks orders under s 447A of the Act in respect of the requirements of s 444DA of the Act, or otherwise to validate the DOCA. It will also ultimately not be necessary to make orders under s 447A of the Act, where I will make such orders under s 444DA(5) of the Act. I will indicate below that I would have done so, had it been necessary to do so.

Background

  1. By way of background, by Statement of Claim filed on 16 August 2017, Optus sought a declaration that the DOCA was invalid or void or should be set aside, relying both on the issue under s 444DA of the Act to which I will refer, and on a question whether incentives had been given to certain creditors of the company to vote in favour of the DOCA. The disputes between Optus, the Company and its associated companies extended beyond the position in Australia to the position in the United Kingdom, where Optus served applications for the winding up of entities within the TLC Group, which will also be compromised as a result of the settlement in these proceedings. That is of some significance in determining questions of public policy to which I refer below. In the course of the hearing before me, at least a settlement in principle was reached between Optus, the Company and its holding company. In the result, the evidence led by the Defendants in the hearing before me was not completed, and no findings can be reached as to the merits of Optus' allegations. Accordingly, as a matter of procedural fairness, I proceed on the basis that those are allegations as to which the Court has reached no findings and which will now not be determined.

  2. Detailed evidence has been led and detailed submissions made in this application. I will refer to that evidence in broad terms and, in light of the urgency of the proceedings and the desirability of a prompt judgment, will outline my conclusions in a relatively broad way.

  3. The Deed Administrators rely on the affidavit of Mr Soire dated 10 November 2017, initially read in the substantive proceedings, which outlines the steps which were taken in the administration and which led to the deed administration. A second affidavit of Mr Soire dated 7 December 2017 deals with the terms of the proposal for a DOCA, and the arrangements which it involved for ongoing employment of employees of the Company. Mr Soire there acknowledges that a separate meeting of eligible employees was not held in respect of the treatment of employees, as s 444F(1) of the Corporations Act required, because he did not then realise such a meeting was necessary. In the event, further disclosure has now been made to employees and a meeting of such employees has been held, albeit after the event, which has unanimously approved the proposed arrangements.

  4. A third affidavit of Mr Soire dated 13 February 2018 deals with the meetings which have subsequently been held of creditors and of employees, which disclosed the matters alleged in the proceedings brought by Optus, identified in broad terms the structure of the proposed settlement, analysed the financial implications of that settlement, and of the DOCA by comparison with a liquidation, both for creditors generally and employees generally, and had the result that creditors and employees have indicated their support for the current application. An exhibit to that affidavit includes the information provided to creditors which, relevantly, discloses the allegations made by Optus in some detail and discloses the structure of the settlement reached as between the company, its related companies and Optus, and refers to a payment by a company within the TLC Group in the United Kingdom to Optus, but does not specifically disclose the amount of that payment.

  5. The Company in turn reads the affidavit of Ms Shaan Palmer, its solicitor, dated 12 February 2018, which indicates that, in addition to disclosure made by the Deed Administrators to creditors, in the form of a circular to creditors which is in evidence, there have been one on one meetings between an employment partner at the firm representing the Company in this application and Ms Palmer on the one hand, and employees on the other, where she drew attention to the relevant issues and to employees’ entitlement to seek independent advice about them, and raised with employees the possibility that they might send a letter supporting the proposal which the Deed Administrators now propound, and making clear that they should take time to think about that course. It is apparent from Ms Palmer's affidavit that, understandably, the employees have preferred a position of continued employment with the Company, continuing in business on the basis of the DOCA, to a potential liquidation if the DOCA was set aside, and that is in turn reflected both by letters they have sent to the Deed Administrators and by the position which they expressed at the meeting of creditors.

  6. A further affidavit of Ms Palmer dated 13 February 2018 deals with her attendance at the relevant meetings of employees and creditors as observer and with questions of the calculation of employee entitlements. An affidavit of Mr Nicholas True, a director of the Company’s parent company, proves a resolution passed by the parent company, to provide a commitment to payment of employee entitlements, to a specified maximum amount which exceeds the present calculation of those entitlements, in the event that the Company did not do so. That provides additional support relevant to the determination which I will be required to make under s 444DA(5) of the Act, to which I will refer below. An affidavit of Mr Richard Paul, a chartered accountant and financial adviser to the TLC Group, in turn provides information as to the financial position of the TLC Group generally, some of which has been led subject to confidentiality orders, and its capacity to provide the support which the holding company has indicated it will provide.

Status of the DOCA

  1. Detailed submissions of Counsel address the relevant issues. Without any disrespect to the detail of those submissions, it will be possible to provide an indication of the reasons that I consider orders should be made in a simpler manner.

  2. A first question arises as to the status of the DOCA. A challenge was brought to the DOCA and is not pursued, subject to the terms of the settlement and the orders that the Court will make. In those circumstances, and where the matter did not proceed to the completion of the hearing and the Court has no basis for a finding on the merits, then that challenge to the terms of the DOCA was simply not established. I say nothing as to whether it might have been established, or might have been rebutted, at the conclusion of a hearing, because that is not possible to know where the hearing was not concluded.

  3. A second question, then, is whether there is any public policy reason why the Court would not lend its aid, to the extent that its aid is required, for the settlement reached between the parties. Mr Condon, who appears for the Company, rightly draws attention in submissions to the observations of French J in Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 95 FCR 114 at 131 that it is not the Court's function to impede settlements between parties that are legally represented and able to understand and evaluate the desirability of agreement to a settlement, or to substitute its own view for those which are within the range of an appropriate disposition, at least in the case of civil proceedings. Mr Condon fairly also accepts that the Court has a public interest in ensuring compliance with Part 5.3A of the Act, and in some circumstances the Court might not lend its aid to a settlement, if that settlement was contrary to public policy.

  4. There is a question, which it is presently not necessary to address, whether the Court might, for example, have declined its aid to the settlement, if there were any suggestion on the evidence before it that the settlement now involved some unduly favourable treatment of Optus, by comparison with the position of other creditors, and that occurred without the fully informed consent of other creditors. I leave open the question, which it is not necessary to decide, whether the Court might have taken that view, where a payment was made by another entity within the TLC Group to Optus, as part of the terms of settlement. I need not address that question here, because it seems to me that the relevant facts do not raise any question of that character. The settlement involves releases of claims that Optus has against entities within the TLC Group in the United Kingdom, which Optus was taking steps to enforce in the United Kingdom, and Optus would also have incurred substantial costs in the conduct of these proceedings. In those circumstances, the amount of the payment made to Optus cannot be compared only with the amount to which it would have been entitled on a distribution under the DOCA, because it also relates to other matters. There is no reason, on the evidence, to think that Optus has been unduly favourably treated, by comparison with other creditors, in a way that would give rise to any public policy concern.

  5. I also bear in mind, as the evidence makes clear, that there is objective reason for creditors to consider, and the Deed Administrators have expressed the view that, the outcome for creditors other than Optus in respect of the DOCA is likely more favourable than the outcome in a liquidation, and is plainly more certain than the position in a liquidation, where the outcome in a liquidation would have depended on complex litigation and uncertain litigation funding. In those circumstances, there is nothing in the terms of the DOCA, and the returns to creditors other than Optus in the DOCA, which call it into question, and I can give substantial weight to the fact that creditors have now unanimously approved the application to the Court, at a second meeting at which they have been provided comprehensive information.

Order and directions sought by liquidator as to DOCA

  1. There may be a question whether the order sought by the liquidator under s 447A of the Act and the directions under s 90-15 of the Insolvency Practice Schedule (Corporations) as to the validity of the DOCA were strictly necessary, where Optus’ attack on the DOCA had not been pursued to completion, there will be no determination on the merits about it, and the arrangements reached between the parties contemplate that, ultimately, orders will be made dismissing that attack. Nonetheless, the terms of the Restructuring Support Deed reached between the Company, its administrators, Optus and others, contemplate what is described as "restructuring steps", which included the meeting of creditors and the application to the Court for "Regularising Orders". Those "Regularising Orders", as defined, include the order under s 447A of the Act and directions under s 90-15 of the Insolvency Practice Schedule (Corporations) to the effect that, despite the matters alleged by Optus in the proceedings, the DOCA is valid and effective for all purposes of the Act. It may be that, strictly, the implementation of further steps under the Restructuring Support Deed was not conditional upon the making of those orders, although it committed the parties to the process by which they were sought. It does not seem to me that the Court should take any strict or literal view of that matter, where the order sought is plainly a step that was contemplated in the implementation of the Restructuring Support Deed, and will be of assistance to the Company, the Deed Administrators and creditors generally in avoiding any future uncertainty.

  2. It seems to me that the order that is sought can be made under s 447A of the Act, or perhaps more correctly a direction can be given under s 90-15 of the Insolvency Practice Schedule (Corporations) on a relatively narrow basis, and I will make it on that narrow basis. As I have noted, allegations were made in respect of the steps which were taken by the Company, prior to the passage of the resolution which approved the DOCA at the second meeting of creditors. Those allegations were ultimately not pursued to a concluded hearing, or a determination on the merits, in the circumstances set out above, and there has been no finding of facts that would support a conclusion that the DOCA was not valid and effective for all purposes of the Act by reason of those allegations.

  3. The allegations made in the proceedings have also been disclosed to creditors, and creditors have voted to support the DOCA, knowing of those allegations, and to support this application to the Court. That reinforces the view that, as a matter of substance, the DOCA should be permitted to go forward, and all parties should have the comfort that it is valid and effective so as to bring about the reconstruction that it seeks to achieve, and allow the Company to remain in business in accordance with the objectives of Part 5.3A of the Act. I will therefore make the order and direction that is sought, both because it is contemplated by the arrangements reached between the parties, in order to give effect to those arrangements, and because it will clarify the position going forward, at least so far as the Deed Administrators will be justified in proceeding on that basis.

Section 444DA of the Corporations Act

  1. Section 444DA(1) of the Corporations Act provides that a deed of company arrangement must contain a provision to the effect that, for the purposes of the application by the administrator of the company's property coming under his or her control under the deed, any employee of creditors will be entitled to a priority at least equal to what they would have been entitled if the property were applied in accordance with ss 556, 560 and 561 of the Act. It is common ground that the deed does not contain such provision, because it contemplates that continuing employees will not participate in the deed fund, but will instead be paid their entitlements in the ordinary course by the company. That matter could readily have been addressed, by a meeting of eligible employees conducted under s 444DA(2) of the Act, where eligible employee creditors could have passed a resolution agreeing to the non-inclusion of such a provision. As I noted above, the Deed Administrators fairly recognise that such a meeting was not called because they had not recognised the necessity for it at the relevant time.

  2. In the event, what has occurred is that such a meeting has now been held, at which full information has been provided to employee creditors, together with the additional information provided to employee creditors by the Company's solicitors to which I have referred above. The Deed Administrators now seek to have the Court approve the non-inclusion of the relevant provision, under s 444DA(5) of the Act, which provides that the Court may approve the non-inclusion of such a provision if it is satisfied that the non-inclusion of the provision would be likely to result in the same or a better outcome for eligible employee creditors as a whole than would result from an immediate winding up of the company. I am satisfied of that matter, for several reasons. The first is that, on the detailed analysis undertaken by the Deed Administrators, the likely result is that those who will participate in the deed fund, as employee creditors, will receive substantially the same or a better outcome as eligible employee creditors than they would receive in a liquidation. That result, in particular, is likely to be more certain for them, than the outcome in a liquidation.

  3. Second, it seems to me that the question of a "better outcome" in this context may have regard not only to the moneys that would be payable to employees, by reference to their entitlement, but to their position more generally, albeit assessed in the context of Part 5.3A of the Act. It seems to me that the outcome will be a better outcome for employees, so far as employees may choose to, and have (by their support for this application) chosen to, continue their employment by the Company rather than have that employment terminated in a potential liquidation. Third, it seems to me that the assessment of whether the outcome is a better outcome for eligible employees can have regard to employees' own wishes, in the sense that it can properly be said that an outcome which a person, who is properly informed of the relevant issues, prefers for themselves, is likely to be a better outcome. In this case, employees have indicated their preference for the regime by which they recover their entitlements on an ongoing basis from the Company. Fourth, the conclusion that this approach is the same or a better outcome than a liquidation is reinforced by the fact that, in the present circumstances, the Company's holding company has provided financial support for the outcome, which reinforces the view that the payments promised to employees are ultimately likely to be made.

  1. Fifth, although it is not necessary to my conclusion, it should be noted that those employees who are Australian residents — which it appears, are all but two employees — are not placed at any disadvantage in terms of their access to the Fair Entitlement Guarantee Scheme on any ultimate liquidation of the Company, since they would likely have had access to that scheme, had a liquidation occurred at this point previously, and would likely have access to that scheme if such a liquidation of the Company were to occur in the future and insufficient funds are then available to meet their entitlements. It may readily be said that employees achieve a better outcome where they preserve the opportunity for continued employment, but retain their statutory entitlements against the Fair Entitlement Guarantee Scheme in the future, if a liquidation occurs in the future and neither the Company, nor its holding company, which has provided additional support for their entitlements, were to meet those entitlements.

  2. Accordingly, I am satisfied that I may make an order under s 444DA(5) of the Act approving the non-inclusion of the relevant provision. I should note, for completeness, that had I not made an order under s 444DA(5) of the Act, I would have made an order under s 447A of the Act with the effect that the deed would operate as though s 444DA of the Act had been complied with in the relevant circumstances. It seems to me that s 444DA of the Act properly recognises employee autonomy in allowing employees to make an informed choice as to whether the relevant provisions may be excluded. I am satisfied that they have here made such a choice, albeit they have made it after the initial meeting, rather than before it, and it would be consistent with the purposes of Part 5.3A of the Act, both in respect of the continuance of the business generally, and in respect of the recognition of employees' autonomy as recognised under s 444DA of the Act, to make an order under s 447A of the Act if it were necessary to do so.

Orders

  1. Accordingly, I make the following orders:

1. ORDER, pursuant to s 447A of the Corporations Act, and DIRECTS under s 90-15 of the Insolvency Practice Schedule (Corporations) that, despite the matters alleged by the Plaintiff in the Proceeding, which did not proceed to determination on the merits, the DOCA is valid and effective for all purposes of the Corporations Act;

2. ORDER, pursuant to s 444DA(5) of the Corporations Act that the Court approve the non-inclusion in the DOCA of a provision in the terms otherwise required by s 444DA(1) of the Act.

3.    The parties have liberty to approach Black J in Chambers for the making of consent orders which may be required to give effect to the dismissal of the proceedings pursuant to the agreements reached between them.

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Decision last updated: 17 April 2018

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