Jacobs, in the matter of Western Work Force Pty Ltd
[2017] FCA 342
•20 March 2017
FEDERAL COURT OF AUSTRALIA
Jacobs, in the matter of Western Work Force Pty Ltd [2017] FCA 342
File number(s): WAD 18 of 2017 Judge(s): SIOPIS J Date of judgment: 20 March 2017 Date of publication of reasons: 31 March 2017 Catchwords: CORPORATIONS – deed of company arrangement – one shareholder refused to transfer his shares to give effect to a deed of company arrangement – application by company administrator under s 444GA of the Corporations Act 2001 (Cth) to transfer that shareholder’s shares – whether transfer would unfairly prejudice the interests of the members of the company. Legislation: Corporations Act 2001 (Cth) ss 444GA(1), 444GA(3) Cases cited: Weaver and Others in their capacity as Joint and Several Deed Administrators of Midwest Vanadium Pty Ltd v Noble Resources Ltd (2010) 41 WAR 301 Date of hearing: 20 March 2017 Registry: Western Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 30 Counsel for the First and Second Plaintiffs: Mr JE Scovell Solicitor for the First and Second Plaintiffs: Edwards Mac Scovell ORDERS
WAD 18 of 2017 IN THE MATTER OF WESTERN WORK FORCE PTY LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) ACN 169 888 822
ROBERT ALLAN JACOBS IN HIS CAPACITY AS DEED ADMINISTRATOR OF WESTERN WORK FORCE PTY LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) ACN 169 888 822
First Plaintiff
WESTERN WORK FORCE PTY LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) ACN 169 888 822
Second Plaintiff
JUDGE:
SIOPIS J
DATE OF ORDER:
20 MARCH 2017
THE COURT ORDERS THAT:
1.The first plaintiff has leave under s 444GA(1) of the Corporations Act 2001 (Cth) to transfer all of the existing shares in the company, Western Work Force Pty Ltd (subject to a deed of company arrangement) ACN 169 888 822, as are registered in the name of Craig Mark Loftus to the following persons and in the following number, in accordance with clause 7.1 of the deed of company arrangement executed on 15 December 2016 (Deed of Company Arrangement):
(a)Melinda Goldsworthy as trustee for the Goldsworthy Family Trust - 1,613 shares;
(b)Westbram Pty Ltd as trustee for the Westbram Investment Trust - 4,000 shares; and
(c)Dean Lew Pty Ltd as trustee for the Dean Lew Family Trust - 4,000 shares.
2.The costs of and incidental to this proceeding be costs in the administration of the Deed of Company Arrangement.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
SIOPIS J:
On 20 March 2017, I made orders on the application of the first plaintiff, Mr Robert Jacobs, and I said I would give reasons later. These are the reasons.
This is an application under s 444GA(1) of the Corporations Act 2001 (Cth) by the administrator of a deed of company arrangement in relation to Western Work Force Pty Ltd (the company), for leave to transfer all the shares in the company registered in the name of Craig Mark Loftus, to the following persons (the proponents) and in the following manner:
(a)Ms Melinda Goldsworthy as trustee for the Goldsworthy Family Trust – 1,613 shares
(b)Westbram Pty Ltd as trustee for the Westbram Investment Trust – 4,000 shares
(c)Dean Lew Pty Ltd as trustee for the Dean Lew Family Trust – 4,000 shares.
Each of the parties referred to in 2(a), (b) and (c) above, is a proponent of the deed of company arrangement in relation to the company approved by creditors on 9 December 2016 and entered into on 15 December 2016 (the approved DOCA). The approved DOCA provides that the proponents will in consideration for the transfer to them of all the shares in the company, contribute $404,551 to the company as part of a creditors’ trust.
There are four shareholders in the company. Three of the four shareholders have agreed to transfer their shares to the proponents so that the approved DOCA can come into effect. However, the majority shareholder, Mr Loftus has declined to give his consent to the transfer of his shares. It is in this circumstance, that Mr Jacobs as administrator of the deed of company arrangement, applied for leave to transfer the shares registered in Mr Loftus’ name to the proponents in the manner referred to above.
Section 444GA of the Corporations Act provides as follows:
TRANSFER OF SHARES
(1)The administrator of a deed of company arrangement may transfer shares in the company if the administrator has obtained:
(a)the written consent of the owner of the shares; or
(b)the leave of the Court.
(2)A person is not entitled to oppose an application for leave under subsection (1) unless the person is:
(a)a member of the company; or
(b)a creditor of the company; or
(c)any other interested person; or
(d)ASIC.
(3)The Court may only give leave under subsection (1) if it is satisfied that the transfer would not unfairly prejudice the interests of members of the company.
BACKGROUND
On 23 September 2016, by a resolution of the company, Mr Jacobs was appointed as administrator of the company, pursuant to s 436A of the Corporations Act.
At that time, the shareholders in the company were Mr Beaven-Davis, who held 1,187 shares, Mr Loftus, who held 9,613 shares, Mr Bramhall, who held 600 shares and Bayswater Towing (Vic) Pty Ltd, which held 600 shares. The company carried on business in Western Australia providing recruitment services to small and large family owned businesses, contractors and mining owners.
The catalyst for the appointment of Mr Jacobs as the administrator of the company was the refusal by the Australian Taxation Office (the ATO) on 21 September 2016, to grant the company’s request for the deferral of the time for the payment of the debt then outstanding to the ATO. Prior to that date, the ATO had issued to the company a creditor’s statutory demand in the amount of $2,303,996. The statutory demand amount related primarily to amounts due in respect of the company’s business activity statements for the quarters ended 30 September 2015 ($1,989,699), 31 December 2015 ($1,100,062) and 30 June 2016 ($1,318,280), less instalment payments which the company had made under payment arrangements it had with the ATO.
Prior to that, on 15 March 2016 and on 7 September 2016, the ATO had also issued director penalty notices to the company’s then directors for unpaid PAYG withholding tax.
On 24 October 2016, Mr Jacobs issued his report to creditors of the company, pursuant to s 439A of the Corporations Act. Mr Jacobs advised that there were parties interested in making proposals for a deed of company arrangement and recommended that the second meeting of creditors be adjourned to allow these potential proposals to be developed.
Mr Jacobs also reported on his investigations into the affairs of the company. Among the matters on which Mr Jacobs reported was that the company had lent money to Mr Loftus for Mr Loftus to acquire the shareholding which gave Mr Loftus the substantial shareholding in the company which he held, and that Mr Loftus was indebted to the company. The administrator also said that although there may be claims which could be brought against the directors, including Mr Loftus, the administrator did not have sufficient information to opine as to whether Mr Loftus may have sufficient assets to warrant the pursuit of those claims.
On 9 December 2016, the creditors at a meeting approved the deed of company arrangement proposal propounded by the proponents. This proposal contemplated transferring participating creditor claims and funds to a creditors’ trust to:
(a)allow the company to continue to trade on an unencumbered basis;
(b)allow the company to offer continued employment to the visa holders, thereby avoiding any disturbance to their migration related arrangements;
(c)minimise creditor claims such as the crystallisation of employee entitlements; and
(d)allow for the immediate payment of 100 cents in the dollar for unsecured creditor claims below $10,000.
Further, that proposal contemplated that unsecured creditors with debts greater than $10,000 would receive 22 cents in the dollar.
The proposal advanced by the proponents was one of three deed of company arrangement proposals before the creditors’ meeting on 9 December 2016. One of the other proposed deeds of company arrangement contemplated that all unsecured creditors would receive 39 cents in the dollar. This proposal was more attractive to the ATO than the proposal advanced by the proponents because it was the major creditor with a debt of more than $2.3 million and this proposal contemplated a greater return to the ATO. The ATO, therefore, voted in favour of this alternative proposal. However, the creditors’ meeting approved the proposal advanced by the proponents on the casting vote of the first plaintiff.
In light of that circumstance, at the first directions hearing of this application, I ordered that this application and supporting affidavits be served on the ATO. I also observe that Mr Loftus was represented by counsel at that directions hearing. I made orders on that occasion, that if any party wanted to be heard in opposition to the plaintiffs’ application, that party was to file and serve any affidavits and submissions in opposition by 4:00 pm on Monday, 13 March 2017.
At the hearing of the application, there was affidavit evidence that the ATO was duly served and that, thereafter, a representative of the ATO had advised the solicitors for the plaintiffs that the ATO did not intend to appear to oppose the making of the proposed orders.
Further, Mr Loftus did not file any affidavit or submissions in opposition and was not represented at the hearing of the application on 20 March 2017.
The application was supported by an affidavit from Mr Jacobs, dated 2 February 2017.
Mr Jacobs deposed that it is a condition subsequent (cl 1.1) of the approved DOCA that either all of the shareholders consent to the transfer of their respective shares to the proponents, or the Court makes a s 444GA order giving the first plaintiff leave to transfer all of the shares in the company to the proponents.
Mr Jacobs went on to depose that Mr Loftus has not responded to his letters requesting Mr Loftus to transfer his shareholding to the proponents. As mentioned, each of the other shareholders of the company, however, agreed to transfer their respective shareholding to the proponents.
Mr Jacobs also deposed that if the approved DOCA was effectuated, the three proponents would become the registered shareholders of all of the shares in the company in equal proportions, and further that:
(a)secured creditors, employee claimants and unsecured creditors with claims below $10,000 would receive 100 cents in the dollar;
(b)unsecured creditors with claims over $10,000 would receive a return which Mr Jacobs then estimated to be in the order of 22 cents in the dollar; and
(c)no dividend would be payable to the members of the company.
Mr Jacobs said that in the event that condition subsequent was not satisfied, there was no other viable proposal for rehabilitating the company, and the “only realistically likely outcome” was liquidation of the company. Mr Jacobs deposed that if the company went into liquidation he would cease trading the business, resulting in the redundancy of all of the staff, secured creditors and employee claimants would receive 100 cents in the dollar and the return to unsecured creditors would be in the order of 14 cents in the dollar. Further, there would be no realistic prospect of any dividend being received by the members of the company.
SHOULD LEAVE UNDER S 444GA(1) OF THE CORPORATIONS ACT BE GIVEN?
Section 444GA(3) provides that the Court may only give leave under s 444GA(1) if the Court is satisfied that the transfer would not unfairly prejudice the interests of members of the company.
The Court, therefore, is required to consider whether the transfer of Mr Loftus’ shareholding by the deed administrator to give effect to the approved DOCA would unfairly prejudice the interests of members of the company.
The ambit of s 444GA(3) of the Corporations Act has been considered by Martin CJ in the case of Weaver and Others in their capacity as Joint and Several Deed Administrators of Midwest Vanadium Pty Ltd v Noble Resources Ltd (2010) 41 WAR 301. At [79], Martin CJ in considering the meaning of “unfairly prejudice” in s 444GA(3) observed:
If the shares have no value, if the company has no residual value to the members and if the members would be unlikely to receive any distribution in the event of a liquidation, and if liquidation is the only alternative to the transfer proposed, then it is difficult to see how members could in those circumstances suffer any prejudice, let alone prejudice that could be described as unfair.
At [80], Martin CJ went on to observe:
Before moving on to the circumstances of this case I would also observe that a mere transfer of shares without compensation cannot of itself constitute unfair prejudice, otherwise the section’s operation would be significantly constrained. So, something more would have to be established before it could said that unfair prejudice to the members of the company could arise.
The uncontroverted evidence of Mr Jacobs is that if the approved DOCA does not proceed, the only realistic outcome was that the company would go into liquidation. There is, in Mr Jacob’s view, no viable alternative proposal. According to Mr Jacobs, if the company went into liquidation, the secured creditors would be paid, and the unsecured creditors would receive 14 cents in the dollar, but the members would receive no dividend. It follows that, on the evidence, the shares of the company have no residual value. On that basis, I am satisfied that the making of orders permitting the transfer of Mr Loftus’ shares to the proponents will not cause the members to suffer any prejudice “let alone prejudice that could be described as unfair”.
There are further considerations in favour of making the orders sought by Mr Jacobs, namely, if the approved DOCA is effectuated then the company will continue to conduct its business with the consequence that the employees will continue to be employed and the creditors are likely to receive a dividend in excess of the amount which they would be likely to receive on a winding-up application. It is also of significance that the shareholders of the company, other than Mr Loftus, have agreed to transfer their shares in order to effectuate the approved DOCA.
Further, as I have said, despite having been served with this application, neither the ATO nor Mr Loftus appeared to oppose the making of the orders.
In those circumstances, I am content to make the orders sought by Mr Jacobs.
I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis. Associate:
Dated: 31 March 2017
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