In the matters of Mroc Car Wholesalers Pty Ltd and ors

[2017] NSWSC 287

Supreme Court

New South Wales

Medium Neutral Citation:	In the matters of MROC Car Wholesalers Pty Ltd and ors [2017] NSWSC 287
Hearing dates:	15 March 2017
Date of orders:	15 March 2017
Decision date:	15 March 2017
Before:	Gleeson JA
Decision:	(1)   Order that until the determination of these proceedings, or earlier further order, the first defendant Andrew John Spring and the second defendant Amanda Young be restrained from: (a)   acting or purporting to act; or (b)   taking any steps in their role or purported role as joint and several administrators of any of the first, second, third, fourth or fifth plaintiff companies. (2)   Order that, without any admissions, until the determination of these proceedings or earlier further order, the third defendant Assaf Financial Services Pty Ltd by itself, its servants or agents be restrained from enforcing or taking any step to enforce against or in respect of any of the five plaintiff companies the security interest purportedly given by those companies pursuant to the agreement dated 12 August 2013. (3)   Costs of the interlocutory process filed on 13 March 2017 be reserved. (4) That Part 5.3A of the Corporations Act is to operate in relation to each of MROC Car Wholesalers Pty Limited, MROC Investments Pty Limited, Mozzart Investments Pty Limited, Plush Services Pty Limited and Zegna Holdings Pty Limited in such a way as to treat the appointment by Assaf Financial Services Pty Ltd on 7 March 2017 pursuant to s 436C of the Corporations Act of Andrew John Spring and Amanda Young as voluntary administrators of each of MROC Car Wholesalers Pty Limited, MROC Investments Pty Limited, Mozzart Investments Pty Limited, Plush Services Pty Limited and Zegna Holdings Pty Limited as having no effect pending the determination of these proceedings or earlier further order of the Court, except that this order does not prevent Mr Spring and Ms Young taking the action referred to in order 5 below. (5) Order 4 does not preclude the first and second defendants giving notice to the creditors of the Companies of the adjournment of the first meeting of creditors convened on 17 March 2017 pursuant to s 436E of the Corporations Act to a date to be fixed, subject to outcome of these proceedings. (6) In so far as it may be necessary to do so, pursuant to s 1322(4)(d) of the Corporations Act extend the period for the convening pursuant to s436E of the Corporations Act the first meeting of creditors of the Companies to a date within eight business days after the date of determination of these proceedings. (7)   Stand over the proceedings before the Corporations List Judge on 20 March 2017 at 9.45am.
Catchwords:	PRACTICE AND PROCEDURE – Interlocutory injunction – application to restrain voluntary administrators from continuing to act – application to restrain party claiming to be secured creditor from taking any enforcement action – whether prima facie case administrators appointment invalid – whether damages would be an adequate remedy for invalid appointment of administrators – balance of convenience. CORPORATIONS – external administration – challenge to validity of appointment of administrators – relief under s 447A, Corporations Act 2001 (Cth) – whether the operation of Pt 5.3A in relation to the plaintiff companies should be suspended pending determination of proceedings – whether the time for convening first meetings of creditors under s 436E should be extended to date after the determination of proceedings pursuant to s 1322(4)(d), Corporations Act
Legislation Cited:	Corporations Act 2001 (Cth), s 436C, 436E, 438C, 447A, 447C, 1322, Pt 5.3A
Cases Cited:	Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160 Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; [2000] HCA 30
Category:	Procedural and other rulings
Parties:	MROC Wholesalers Pty Limited (First Plaintiff) MROC Investments Pty Limited (Second Plaintiff) Mozzart Investments Pty Limited (Third Plaintiff) Plush Services Pty Limited (Fourth Plaintiff) Zegna Holdings Pty Limited (Fifth Plaintiff) Habib Zeitouneh (Sixth Plaintiff) MROC Car Wholesalers Pty Limited (Seventh Plaintiff) Assaf Financial Services Pty Limited (First Respondent) Andrew John Spring (Second Respondent) Amanda Young (Third Respondent)
Representation:	Counsel: Mr D Krochmalik (Plaintiffs) Ms BK Nolan (First and Second Defendants) Mr GD McDonald (Third Defendant)   Solicitors: Swaab Attorneys (Plaintiffs) Clamenz Lawyers (First Respondent) JHK Legal (Second and Third Respondents)
File Number(s):	2017/77279

Judgment

Ex tempore – Revised 22 March 2017

1. GLEESON JA: Application is made by the first to fifth plaintiff companies and the sixth defendant Mr Habib Zeitouneh by interlocutory process filed 13 March 2017 to restrain the first and second respondents, Mr Spring and Ms Young (the Administrators) from acting or purporting to act as administrators of the five plaintiff companies pending the hearing of an originating process also filed 13 March 2017 which challenges the validity of the appointment of the administrators. Section 447C of the Corporations Act 2001 (Cth) provides a mechanism by which a Court can declare the validity or otherwise of a purported appointment of administrators or entry into a Deed of Company Arrangement under Part 5.3A of the Corporations Act.

Background

2. Mr Zeitouneh is a director and secretary of the first plaintiff MROC Car Wholesalers Pty Ltd, the fourth plaintiff Plush Services Pty Ltd and the fifth plaintiff Zegna Holdings Pty Ltd. He is also presently a secretary of the second plaintiff MROC Investments Pty Ltd and the third plaintiff, Mozzart Investments Pty Ltd.

3. At the time of the events in question Mr Zeitouneh was a director of the second and third plaintiffs having only recently resigned as a director on 18 February 2016. The first to fifth plaintiffs are family businesses associated with the Zeitouneh family.

4. In about August 2013 Mr Zeitouneh engaged the third defendant, a firm of accountants, Assaf Financial Services Pty Ltd (ASF) to assist with the preparation of financial statements and tax returns for himself and other entities associated with the Zeitouneh family, including the five plaintiff companies. An engagement letter was signed on 12 August 2013. Mr Zeitouneh's case is that he signed the engagement letter only in his personal capacity and that he did not sign on behalf of any of the five plaintiff companies.

5. In early 2014 ASF issued invoices to Mr Zeitouneh totalling almost $200,000. A dispute arose between Mr Zeitouneh and ASF as to the performance of services described in the invoices and the payment of fees to ASF. Correspondence ensued between the parties, particularly in early 2017.

6. On 3 March 2017 ASF sent letters to the five plaintiff companies among others referring to a charge in the engagement letter. The companies responded promptly through their solicitor denying the existence of any such charge.

7. On 7 March 2017 the administrators were appointed by AFS under a charge purportedly given by the five plaintiff companies in the engagement letter. The plaintiffs commenced these proceedings on 13 March 2017 obtaining short service on that occasion. On the return of the interlocutory process the plaintiffs seek interlocutory relief in terms of paragraphs 1, 2 and 3 of the interlocutory process and also orally made application for ancillary relief under s 447A of the Corporations Act and/or s 1322(4)(d) of the Corporations Act.

8. The position of the respondents is as follows. Ms Nolan of counsel appeared for the administrators. They take the position that they do not oppose the relief sought in paragraph 1 of the interlocutory process that the administrators be restrained from acting or purporting to act as joint and several administrators of any of the five plaintiff companies pending the determination of the validity of their appointment.

9. Mr McDonald of counsel appeared for AFS and indicated that, without any admissions, AFS consented to an order in terms sought in paragraph 2 of the interlocutory process: see [35(2)] below.

Nature of the dispute

10. As the matter has proceeded unopposed, it is unnecessary to outline in any detail the nature of the dispute. It is sufficient to observe that the plaintiffs put in issue two matters.

11. The first is whether or not the engagement letter is binding on the five plaintiff companies. That is whether or not the companies gave a charge to AFS. That issue turns upon the question of the capacity in which Mr Zeitouneh signed the engagement letter. I will return to that issue shortly.

12. The second issue assumes, contrary to the plaintiff companies’ primary position, that they are bound by the engagement letter but puts in issue whether on proper construction of that letter AFS was entitled, in the events which happened, to appoint administrators to the plaintiff companies pursuant to s 436C of the Corporations Act.

Interlocutory relief – relevant principles

13. On an application for an interlocutory injunction the relevant questions are whether there is a prima facie case in the sense explained in the authorities; whether damages would be an adequate remedy for any invalid appointment; and the question of the balance of convenience apart from the adequacy of damages. As explained by Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 at [71]-[72] the assessment of each of these matters bears on the assessment of the other.

Prima facie case

14. Turning to the issue of prima facie case, I am satisfied that there is a serious question to be tried as to the validity of the administrators' appointment. Reference to the following matters will explain that conclusion.

15. First, the engagement letter is addressed to Mr Zeitouneh personally. The letter is signed, it is said, by Mr Zeitouneh on the concluding page above the word "Client". There does not seem, on the face of the letter, to be any indication that Mr Zeitouneh intended to sign the letter in the capacity of agent for any of the five plaintiff companies. Further, the engagement letter states that the agreed services are to be provided "for the business and for the individuals". It does not identify by name any business or businesses that are intended to be bound by it and does not name any other individuals apart from Mr Zeitouneh who signed the letter as the “Client”. In addition, the engagement letter did not make any provision for Mr Zeitouneh to sign that letter on behalf of any business or company.

16. Mr Zeitouneh states in his affidavit sworn 12 March 2017 that he understood that AFS would be doing work for the plaintiff companies, but did not intend by signing the letter that they would become party to any agreement with AFS. Of course his subjective intention is not relevant to the proper construction of the engagement letter. On that question as Giles J explained in Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160 at 174:

… the proper approach is to inquire whether there is to be found an intention that the signatory be personally bound to the contract evidenced in the document, meaning thereby not a subjective intention but an intention to be found objectively, notwithstanding a qualification attached to the signature. That intention, or lack thereof, is to be found upon the construction of the document as a whole, including but not being limited to the qualification attached to the signature, in the light of the surrounding circumstances to the extent to which evidence thereof is permissible. The inquiry is not limited to consideration of the signature and its qualification in order to determine whether or not the signature indicates an assent to be personally bound.

17. The present case, unlike the facts in Clark Equipment Credit, does not raise issues of the effect of any qualification to a signature. Rather, the question is whether the signature of Mr Zeitouneh as the “Client” was intended, assessed objectively, to bind the plaintiff companies.

18. Secondly, page 3 of the engagement letter contains the following:

In consideration of Assaf Financial Services performing accounting, taxation and other work at your request for the following persons, companies, trusts, superannuation funds or other entities, you unconditionally and irrevocably guarantee to Assaf Financial Services payment of all the past, present and future professional fees, disbursements and loans of the following persons, companies, trusts, superannuation funds or other entities: [emphasis added].

19. No list of entities followed that statement, however, a list of eight companies and one trust (which is not a legal entity) appears on page 4 of the engagement letter as described below.

20. Page 4 of the engagement letter contains the following:

If you are a company you hereby charge all of your assets and undertaking, both present and future (“the charge”) in favour of Assaf Financial Services to secure to the payment of any account, fee, debt or liability due by you, whether as principal or guarantor, actual or contingent, current or future, to Assaf Financial Services and the charge shall be fixed over all assets (excluding stock, work in progress and debtors over which the charge shall float) and the charge shall crystallise and become fixed and all funds due to Assaf Financial Services shall be immediately payable to Assaf Financial Services upon you becoming, or any action being commenced by any party to make you, an externally administered body corporate (as per Section 9 of the Corporations Law) and Assaf Financial Services shall thereupon immediately without any notice or demand be entitled to enforce the charge by entering into possession of the assets and undertaking any other remedies at law.

Such charge shall in addition to the provisions already set out above:

Red Eagle Holdings Pty Limited

Zegna Holdings Pty Limited

MROC Car Wholesaler Pty Limited

Plush Services Pty Limited

MROC Entertainment Pty Limited

Mozzart Investments Pty Limited

MROC Investments Pty Limited

MROC Consulting AUST Pty Limited

Zeit Family Trust

21. It may be observed that the named companies and the trust referred to in the extract from the engagement letter set out above, include the five plaintiff companies in these proceedings. The reference to and placement of that list of companies and another entity at that point in the engagement letter is not immediately referable to any of the surrounding words. On its face the terms of the engagement letter do not indicate an intention that any of the five plaintiff companies are intended to be parties to that agreement. Furthermore, there are no words in the charging clause (on page 4) that indicate that a list of companies bound by the charge should follow that paragraph and that such a list would amount to those companies' agreement to charge their assets in favour of AFS.

22. One possibility is that the list of companies appended below the charging clause (on page 4) was intended to be appended below the guarantee clause (on page 3) and the list has no relevance whatsoever to the charging clause. It is unnecessary to express any concluded view on that matter on the present application.

23. Furthermore, there is a contestable question of construction that the enforcement of the charging clause, assuming the five plaintiff companies are bound by the engagement letter, was not triggered in the circumstances of the present case.

24. In support of the construction argument, counsel for the plaintiffs pointed to the language of page 4 of the engagement letter which has been extracted above. The charging clause purports to crystalize and become fixed and provides all funds due to AFS shall be immediately payable to AFS upon "you" (being a reference to a company) becoming or any action being commenced by any party to make "you" an “externally administrated body corporate (as per s 9 of the Corporations Law)”. It is only in those circumstances that the clause operates to permit AFS to, immediately and without notice or demand, enforce the charge by entering into possession of the assets and undertakings or utilising any other remedies at law.

25. The plaintiff companies contend that if, contrary to their primary position, they are bound by the engagement letter, then AFS is not entitled to enforce the charge by, in the one step, appointing administrators to the five plaintiff companies and relying upon that very step as triggering an entitlement to enforce the charge. Again, it is unnecessary to express any concluded view in relation to the merits of that argument other than to remark that it raises a serious question to be tried.

Balance of convenience and adequacy of damages

26. Turning to the questions of balance of convenience and adequacy of damages as a remedy, I accept that the prejudice caused by the appointment of the administrators to the five plaintiff companies is self-evident, as submitted by counsel for the plaintiffs. The effect of the appointment of the administrators is to take control of the companies' business, property and affairs away from its directors. The administrators have the ability to sell any property of the company, the ability to propose the future course for the company either by way of a Deed of Company Arrangement or winding up, matters which would be for the consideration and determination of creditors. In addition, while the administrators remain in office and perform their duties, they will necessarily incur costs which, irrespective of the outcome of the present proceedings, may ultimately be borne by the plaintiff companies.

27. I am satisfied that the balance of convenience favours the making of the orders sought by the plaintiffs and that damages would not be an adequate remedy.

28. Counsel for the plaintiffs confirmed to the Court his instructions to give the usual undertaking as to damages as a condition of the injunctive relief sought. All parties have indicated a willingness to cooperate with the pre-trial steps to ensure that the substantive proceedings are determined as quickly as possible.

Sections 447A and 1322(4)(d) relief

29. One further matter should be mentioned. It relates to the additional relief sought by the plaintiffs which seeks, in effect, to suspend the administration of the five plaintiff companies until the determination of these proceedings. In the course of argument reference was made to the power of the Court to make an order under s 447A and/or s 1322(4)(d) of the Corporations Act.

30. The powers of the Court under s 447A are wide but as the High Court has emphasised are not entirely without limit: Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; [2000] HCA 30 at [20]. The High Court continued at [20] by observing:

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).

31. Section 436E(2) provides that the first meeting of creditors must be held within eight business days after the administration begins. Here that day expires this Friday, 17 March 2017. Counsel for the administrators indicated that the first meeting of creditors of the five plaintiff companies has been convened for that date. It seems (and the parties did not suggest otherwise) that there is no express provision in s 436E of the Corporations Act to extend the time in which the first meeting of creditors is to be held.

32. It is necessary that any orders made under s 447A do not prevent the administrators from notifying creditors of the effect of the orders I propose to make and to ensure that if the challenge to the administrators' appointment is ultimately unsuccessful, the administrators can proceed to convene a first meeting of creditors within eight days of the determination of these proceedings and that the provisions of Part 5.3A operate in their ordinary course from that time.

31. Counsel for the plaintiff companies suggested that s 1322(4)(d) is also available to achieve that extension of time. Assuming that to be the case, I am satisfied that no substantial injustice has been or is likely to be caused to any person as referred to in s 1322(6)(c). In that regard I take into account the position taken by AFS, the asserted secured party, in not opposing this further relief sought by the plaintiffs.

32. I am satisfied that this is an appropriate case in which to make an order under s 447A altering the way in which Part 5.3A is to operate in relation to the five plaintiff companies so as to treat the appointment of the administrators as having no effect pending the determination of these proceedings challenging the validity of their appointment. For more abundant caution it is appropriate also to make a further order pursuant to s 1322(4)(d) extending the period for convening the first meeting of creditors.

33. Accordingly I make the following orders:

Upon the plaintiffs, by their counsel, giving to the Court the usual undertaking as to damages:

1. Order that until the determination of these proceedings, or earlier further order, the first defendant Andrew John Spring and the second defendant Amanda Young be restrained from:

1. acting or purporting to act; or

2. taking any steps in their role or purported role as joint and several administrators of any of the first, second, third, fourth or fifth plaintiff companies.

2. Order that, without any admissions, until the determination of these proceedings or earlier further order, the third defendant Assaf Financial Services Pty Ltd by itself, its servants or agents be restrained from enforcing or taking any step to enforce against or in respect of any of the five plaintiff companies the security interest purportedly given by those companies pursuant to the agreement dated 12 August 2013.

3. Costs of the interlocutory process filed on 13 March 2017 be reserved.

4. That Part 5.3A of the Corporations Act is to operate in relation to each of MROC Car Wholesalers Pty Limited, MROC Investments Pty Limited, Mozzart Investments Pty Limited, Plush Services Pty Limited and Zegna Holdings Pty Limited in such a way as to treat the appointment by Assaf Financial Services Pty Ltd on 7 March 2017 pursuant to s 436C of the Corporations Act of Andrew John Spring and Amanda Young as voluntary administrators of each of MROC Car Wholesalers Pty Limited, MROC Investments Pty Limited, Mozzart Investments Pty Limited, Plush Services Pty Limited and Zegna Holdings Pty Limited as having no effect pending the determination of these proceedings or earlier further order of the Court, except that this order does not prevent Mr Spring and Ms Young taking the action referred to in order 5 below.

5. Order 4 does not preclude the first and second defendants giving notice to the creditors of the Companies of the adjournment of the first meeting of creditors convened on 17 March 2017 pursuant to s 436E of the Corporations Act to a date to be fixed, subject to outcome of these proceedings.

6. In so far as it may be necessary to do so, pursuant to s 1322(4)(d) of the Corporations Act extend the period for the convening pursuant to s 436E of the Corporations Act of the first meeting of creditors of the Companies to a date within eight business days after the date of determination of these proceedings.

7. Stand over the proceedings before the Corporations List Judge on 20 March 2017 at 9.45am.

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Decision last updated: 23 March 2017