Lombe v Wagga Leagues Club Ltd

[2006] NSWSC 3

Reported Decision: 56 ACSR 387
(2006) 24 ACLC 298

New South Wales

Supreme Court

CITATION:	Lombe v Wagga Leagues Club Ltd [2006] NSWSC 3
HEARING DATE(S):	21/11/05
JUDGMENT DATE :	31 January 2006
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Short minutes to be brought in.
CATCHWORDS:	CORPORATIONS - company previously under deed of company arrangement now in liquidation - priority of payments in winding up - whether contributor to fund under deed of company arrangement advanced money out of which employee entitlements met - whether such contributor entitled to priority under s.560 - CORPORATIONS - charges - where charge void against liquidator because not registered within required time - application by liquidator for order declaring such charge to be valid against liquidator but on basis of curtailed operation and effect - no jurisdiction to make such order shown - CORPORATIONS - deed of company arrangement - residue of funds held by deed administrators after termination of deed - whether such funds became subject to trust in hands of deed administrators - whether any such trust survived termination of deed of company arrangement
LEGISLATION CITED:	Corporations Act 2001 (Cth) - Part 5.3A, ss.262(1)(a), 263, 266, s.444A(4)(b), 444B, 444D, 444G, 445C, 445F, 445H, 560, 561, Corporations Regulations 2001 (Cth), Schedule 8A cl 1 Gaming Machines Act 2001, s.74 Trustee Act 1925, s.63
CASES CITED:	Application of Macedonian Orthodox Community Church St Petka (No 2) [2005] NSWSC 558 Arcfab Pty Ltd v Boral Ltd (2002) 43 ACSR 573 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 564 Capt’n Snooze Management Pty Ltd v McLellan (2002) 171 FLR 124 Commissioner of Taxation v Linter Textiles Australia Ltd (2005) 79 ALJR 913 Commonwealth of Australia v Rocklea Spinning Mills Pty Ltd (2005) 145 FCR 220 Cresvale Far East Ltd v Cresvale Securities Ltd (No 2) [2001] NSWSC 791 Dean-Willcocks v ACG Engineering Pty Ltd (2003) 45 ACSR 290 Federal Commissioner of Taxation v All Suburbs Car Repairs Pty Ltd (1994) 14 ACSR 753 MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636 Re Australian Elizabethan Theatre Trust (1999) 30 FCR 491 Re Francis and Ryan as trustees of West Australian Shed Commercial Pty Ltd [2003] WASC 39 Re Oriental Inland Steam Co (1874) 9 Ch App 577 Re Yagerphone Ltd [1935] 1 Ch 392 Russell v Wakefield Waterworks Co (1875) LR 20 Eq 474 Shepard v Sports Mondial of Australia Pty Ltd (2005) 53 ACSR 746 Sutherland v Rahme Enterprises Pty Ltd (2003) 46 ACSR 458 Twinsectra Ltd v Yardley [2002] 1 AC 164 Young v Sherman (2002) 170 FLR 86
PARTIES:	David John Frank Lombe (in his capacity as liquidator of Wagga Leagues Club Limited (in liquidation)) - Plaintiff Wagga Leagues Club Limited (in liquidation) - First Defendant Birjo Pty Limited - Second Defendant Queensland Club Management Limited - Third Defendant
FILE NUMBER(S):	SC 5375/05
COUNSEL:	Mr G.E. Cussen, Solicitor - Plaintiff Mr S.M. Arnison, Solicitor - Second and Third Defendants
SOLICITORS:	Kemp Strang - Plaintiff Hegarty & Elmgreen - First, Second and Third Defendants

- 2 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

TUESDAY, 31 JANUARY 2006

5375/05 DAVID JOHN FRANK LOMBE (IN HIS CAPACITY AS LIQUIDATOR OF WAGGA LEAGUES CLUB LIMITED) v WAGGA LEAGUES CLUB LIMITED & 2 ORS

JUDGMENT

Background and summary of relief sought

1 By his originating process filed on 12 October 2005, the plaintiff, who is now liquidator of Wagga Leagues Club Limited (“the Club”), seeks various relief with a view to giving effect to a conditional agreement reached with funders of a now terminated deed of company arrangement and clarifying the status and correct application of certain funds.

2 On 1 August 2003, the plaintiff and one of his partners became administrators of the Club under Part 5.3A of the Corporations Act 2001 (Cth). They were appointed pursuant to a resolution of the directors passed on 23 July 2003 but the appointment did not take effect until later approved by the Licensing Court under the Registered Clubs Act 1976. On 17 October 2003, it was resolved at a meeting of creditors that the Club should execute a deed of company arrangement. The deed was subsequently executed and is dated 29 October 2003. Its parties are the Club, the plaintiff and his partner as deed administrators, Queensland Club Management Ltd (or “QCM”, the present second defendant) and Birjo Pty Ltd (the present third defendant). At a meeting of creditors convened under s.445F and held on 5 July 2004, it was resolved that the deed of company arrangement be terminated and that the Club be wound up. The plaintiff and his partner became liquidators. The plaintiff alone is now in office as liquidator.

3 The relief the plaintiff now seeks is, in brief, as follows:

1. Guidance as to whether, as liquidator of the Club, he is justified in committing the Club to a particular settlement or compromise with QCM and Birjo.
2. An order or declaration that a charge given by the Club to Birjo is valid (and as to its operation and effect).
3. Judicial advice (on the footing that the plaintiff is a trustee holding certain moneys) as to the proper application of funds.
4. Clarification of whether either or both of QCM and Birjo is entitled to a priority position in the winding up of the Club pursuant to s.560 of the Corporations Act .

I shall refer in due course to the full text of the orders sought.

The deed of company arrangement and its implementation

4 Central to the issues raised by the plaintiff’s claims are the provisions of the deed of company arrangement and things done under and in relation to it. The deed followed the common pattern under which a deed fund was established and applied towards meeting the claims of creditors making claims in accordance with the deed terms. QCM and Birjo provided financial resources for the purposes of the deed. The creation and composition of the “Deed Fund” were dealt with by clause 4.1:

“The Administrators will establish the Deed Fund and the Company and QCM will, jointly and severally, pay to the administrators the following moneys, together with any applicable GST, to be allocated to the Deed Fund:
(a) the amount $285,041.20;
(b) the agreed value of the Stock and Cash on Hand;
(c) the amount of priority entitlements of the Priority Creditors, being, subject to clause 4.7 and 7, the Blackwood Entitlement (being $29,719.12) and Superannuation Arrears (being $6,386.40);
(d) 20% of the Approved Debts, estimated at $110,000; and
(e) 10%of the Net Profit.”

5 A later provision, clause 4.4(a), allowed the deed administrators to retain as part of the Deed Fund any cash remaining in a bank account operated by the Part 5.3A administrators.

6 For the purposes of the present proceedings, it is necessary to say more about two of the clause 4.1 components. The first of the amounts – the sum of $285,041.20 mentioned in clause 4.1(a) – is referred to in a definition of “Wages Contribution” in clause 1.1 of the deed of company arrangement:

“ ’Wages Contribution ’ means the amount of gross wages actually paid by the Administrators between the Commencement Date and the Execution Date, being an amount of $285,041.20 as at 21 October 2003.”

7 Clause 4.3 of the deed of company arrangement fixed 31 October 2003 as the due date for payment of that part of the “moneys payable by the Company and QCM (jointly and severally) under clause 4.1 “which was the “Wages Contribution”. The plaintiff says in his affidavit that the sum of $285,041.20 was transferred by QCM to the administrators’ account on 31 October 2003, that is, two days after the deed of company arrangement was executed.

8 The fourth of the clause 4.1 amounts – 20% of “Approved Debts” (estimated at $110,000) mentioned in clause 4.1(d) – was further dealt with in clause 12.3(b):

“QCM hereby agrees, covenants, warrants and represents that:
…
(b) it will provide the QCM Guarantee to the Deed Administrators on the Execution Date, such QCM Guarantee to be:
(i) issued by an Australian Bank;
(ii) for the amount of $110,000.00 being an estimate of 20% of the anticipated Approved Debts, as agreed by the Deed Administrators; and
(iii) in such form as the Deed Administrators may require.”

9 The evidence shows that such a bank guarantee was provided and called upon by the deed administrators, with the result that, by those means, they received the sum of $110,000 envisaged by clause 4.1(d) of the deed of company arrangement.

10 It is also necessary to quote clauses 12.6 and 12.7 of the deed of company arrangement:

“12.6 QCM shall on and from the Execution Date:
(a) manage the Company and provide assistance and expertise to the Directors;
(b) discharge or otherwise deal with the CBA Guarantee to the satisfaction of the Deed Administrators;
(c) procure sufficient financing and QCM shall guarantee such financing of all obligations with respect to existing and additional Poker Machines as may be required, subject to compliance with the Registered Clubs Act and the Gaming Machines Act and any direction of the Director. It is acknowledged that the estimated amount required to be finance and guaranteed by QCM under this sub-clause is $600,000;
(d) provide or procure the provision of sufficient working capital for the operation of the Company, as may be required, in accordance with the Budgets, or otherwise, such Budget to be provided initially on or before the Execution Date and thereafter as may be agreed.

12.7 It is expressly acknowledged for the purposes of this Deed of Company Arrangement that:

(a) QCM and Birjo are not Creditors nor Participating Creditors in the Deed Fun in respect of, inter alia the QCM Loan;
(b) The Affiliated Clubs are not Creditors nor Participating Creditors in respect of the Bowls Club Loan and Magpies Loan; and
(c) QCM, Birjo nor any Related Entity does not and shall not acquire any legal or beneficial interest in the assets of the Company, other than by way of assignment of any security (including the CBA Charge), and then only subject to the approval of the Deed Administrators, the Directors and the Company.”

11 Clause 14.1 was as follows:

“No Secured Creditor of the Company, be it Perpetual, CBA, or otherwise, or any party claiming through them or pursuant to any assignment or subrogation of security, shall be bound by this Deed of Company Arrangement and shall be entitled to take such action against assets of the Company as any such security may authorise, or otherwise be available to them at law, subject to:
(a) no Secured Creditor; including Perpetual or CBA, or any other secured creditor, shall have any claim against the Deed Fund; and
(b) to the extent that QCM, Birjo or any Related Entity has any rights under any security granted by the Company to a Secured Creditor, whether by assignment, subrogation or otherwise, neither QCM, Birjo nor that Related Entity shall have any right to exercise any right, at law, or otherwise, against the assets of the Company until the Deed of Company Arrangement has been effectuated.”

12 The reference in clause 12.7(c) to “the CBA Charge” is a reference to a charge granted by the Club to the Commonwealth Bank in 1997 and registered under the Corporations Act. That was apparently a general charge over the assets and undertaking generally operating as a fixed charge as to certain items and a floating charge as to the balance, but ranking after a first security granted to Perpetual Trustee Company. The sum of $600,000 referred to in clause 12.6(c) was apparently advanced to the Club by Birjo, as part of a total advance of $1,000,000 referred to in a letter of 29 October 2003 from QCM to the Club. But whereas the deed of company arrangement contemplated (or may perhaps be taken to have contemplated) in clause 12.7(c) that the security for the provision of $600,000 would be by way of assignment of the CBA charge, what in fact happened is that, apparently without regard for clause 12.7(c) of the deed of company arrangement, Birjo was granted a new and separate charge by the Club and the CBA charge was discharged.

13 By letter dated 18 June 2004, QCM and Birjo informed the deed administrators that “Birjo/QCM have fulfilled its obligations under the terms of the Deed”; and that “no further funding will be forthcoming from the above entity to Wagga Leagues Club”. It was receipt of that letter that brought about the meeting of creditors on 5 July 2004 at which it was resolved that the deed of company arrangement be terminated and the Club be wound up, whereupon the plaintiff and his partner became liquidators.

The dispute with QCM and Birjo and the conditional settlement

14 By 18 June 2004, only part of the moneys specified in clause 4.1 of the deed of company arrangement had been allocated to the deed fund. The evidence does not enable me to say how much had been credited to the deed fund by that date but the fact that not all moneys required to be paid had been paid is borne out by the plaintiff’s evidence of amounts that had been received by 31 March 2005. Having regard to the position at the last-mentioned date, the plaintiff regarded QCM as required to pay in a further $112,470.39 pursuant to clause 4.1, being $101,300.43 as the balance of the agreed value of stock and cash on hand referred to in clause 4.1(b) and $11,169.96 as the balance of 20% of approved debts referred to in clause 4.1(d). According to the plaintiff’s assessment, QCM was also required to pay a further $141,964.00, as at 30 June 2004, by way of working capital pursuant to clause 12.6(d) of the deed of company arrangement, but QCM disputed that calculation. There were also other disputes about rights of QCM and Birjo to certain poker machines.

15 It is also relevant to note that, as at 5 July 2004 when the deed of company arrangement terminated, certain moneys in the deed fund remained unexpended.

16 Correspondence between the solicitors for the plaintiff and the solicitors for QCM/Birjo eventually led to a “conditional settlement” recorded in an undated document which was apparently entered into on 4 April 2005 and is signed on behalf of QCM and Birjo by a director and also by the plaintiff “on behalf of Wagga Leagues Club Limited (In Liquidation) and as Liquidator”. The document reads as follows (with numbering added in square brackets to make it easier to refer to the several bullet points):

“ SETTLEMENT PROPOSAL
This is outline of the agreement reached between

· Wagga Leagues Club Limited (In Liquidation) (‘the Club’);

· The Club’s Liquidator, Mr David Lombe, (‘the Liquidator’);

· Queensland Clubs Management Limited (‘QCM’) and

· Birjo Pty Limited (‘Birjo’)

Summary of Funds
___________________________________________
$
___________________________________________
Stock and Floats 112,470.39
Contribution to Working Capital 20,000.00

132,470.39

The funds will be placed into the Deloitte trust and will be released following:

· [1] Security to the poker machines being granted by the Supreme Court of New South Wales.

· [2] The Liquidator will obtain the required approval by the Committee of Creditors or Court for this agreement.

Conditions:

· [3] QCM and Birjo will be granted security to 24 Electronic Gaming Machines (‘EGM’s’) and associated signage and equipment noted in the QCM letter of 4 April 2005.

· [4] The 24 EGMs may be auctioned by the Liquidator in conjunction with Ron Nairn, at the discretion of QCM and Birjo, and the auction proceeds held in trust pending the granting of the security to the machines to QCM/Birjo. Once this security is granted the funds may be released at the direction of QCM/Birjo.

· [5] The 24 EGM’s are auctioned at no cost to QCM or Birjo, with the exception of auctioneer’s commission as negotiated by QCM and Birjo.

· [6] The Auctioneer to be briefed prior to the auction by Mr Ron Nairn of QCM.

· [7] The Liquidator will support the Court application of QCM/Birjo required to validation/establish the fixed and floating charge of QCM/Birjo at QCM and Birjo’s cost.

· [8] QCM/Birjo or associated entity to prove in the Liquidation.

· [9] The QCM/Birjo wages contribution of approximately $285,000 receives appropriate priority ranking for any realisations from floating charge assets if applicable.

· [10] QCM and Birjo undertake to remove all caveats from the property of the Club as soon as possible with time being of the essence.”

17 The plaintiff explains in his affidavit that the sum of $132,470.39 payable pursuant to the conditional settlement consists of three elements: first, $101,300.43 as balance of stock and cash on hand due under clause 4.1(b) of the deed of company arrangement; second, $11,169.96 as the balance of 20% of approved debts referred to in clause 4.1(d); and, third, $20,000 in settlement of “working capital” obligations which, he says, will be received by him in his capacity as liquidator and be available for application in the winding up. The terms of the conditional settlement document itself would support a finding that it was by reference to those aspects of the deed of company arrangement that the sums were calculated and paid. I proceed accordingly.

18 Stated briefly, the essential effect of the conditional settlement is that QCM and Birjo are to pay the two sums ($112,470.39 and $20,000) but those sums are to come home to the plaintiff only if conditions [1] and [2] are satisfied. Whether satisfaction of conditions [3] to [10] is also a necessary pre-requisite to the entitlement of the plaintiff to receive the funds is not clear but, having regard to the relief the plaintiff seeks (see paragraph [20] below), it seems that it is. The relief sought is concerned with, first, the matter of a charge in favour of QCM and Birjo over certain gaming machines (or, as the plaintiff would have it, over the proceeds of their sale), second, the question whether QCM and Birjo are entitled to a priority position in the winding up of the Club pursuant to s.560 of the Corporations Act, third, the question of the terms on which funds receivable by the plaintiff under the settlement are to be held and, fourth, the general issue of whether the plaintiff is justified in giving effect to the settlement. I infer that the parties have agreed that the making of the orders the plaintiff seeks will satisfy condition [2] of the conditional settlement.

The present position in the winding up

19 Before referring to the precise orders sought, I should mention the evidence given by the plaintiff as to the present position in the administration of the winding up, particularly as regards assets. The first mortgagee, Perpetual Trustee, has sold all the real estate assets of the Club. Perpetual retained the whole of the proceeds on account of the Club’s indebtedness to it. Sales of poker machine entitlements are in progress. It is expected that the bulk of the proceeds will go to Perpetual and that a balance of roughly $170,000 will accrue to the Club for application by the plaintiff as liquidator. Some of the Club’s electronic gaming machines have been sold. The plaintiff as liquidator retains in a trust account the net proceeds of the sale of 14 of the 24 machines to which QCM and Birjo claim an entitlement. The sum involved here is $124,718. The plaintiff plans to sell the remaining 10 of the 24 machines by auction in due course. He expects proceeds of between $90,000 and $130,000 to result.

The relief sought by the plaintiff

20 Now that the background and the terms of the conditional settlement have been described, it is appropriate to set out the precise orders the plaintiff seeks (omitting orders as to costs):

“1. An order that both the plaintiff and the first defendant are justified in entering into the settlement recorded in the letter from the third defendant to the plaintiff and dated 6 April 2005, annexed and marked ‘ A ’ (‘ Conditional Settlement ’).
2. Pursuant to sections 447D, 477(2A), 506(1A) and 511 of the Corporations Act, the Court declares that it is just and beneficial for the plaintiff, as liquidator of the Company to give effect to the Conditional Settlement and the compromises recorded therein.
3. An order or declarations, pursuant to section 266(4) of the Corporations Act, the Court’s inherent power, or otherwise, that, in respect of the Fixed and Floating charge numbered 1037778 over the assets of the Company in favour of Birjo (‘ the Charge ’):
(a) the Charge is a valid fixed charge:
(b) the Charge is valid as against the plaintiff, but operates only as against the net proceeds of sale of the 24 electronic gaming machines listed in annexure ‘ B’ ; and
(c) the Charge has no other operation, validity or effect, either as a fixed charge or a floating charge over any other assets of the Company.
4. The Court provide the plaintiff, in his capacity as trustee of the Deed Fund created pursuant to the Deed of Company Arrangement dated 29 October 2003, between, inter alia, the Company and the plaintiff and the second and third defendants (‘ DOCA ’) (‘ Deed Fund ’), with judicial advice pursuant to section 63 of the Trustee Act 1925 (NSW) that:
(a) that the plaintiff is justified in entering into the Conditional Settlement; and
(b) whether, in the events that have transpired, the amounts of money held by the plaintiff, in the Deed Fund, comprising either $55,000.00 or $66,563.06, in respect of a potential second dividend payment in accordance with DOCA (‘ Subject Funds ’) are properly or prudently payable to Participating Creditors (as that term is defined in the DOCA); and
(c) whether or not, in the circumstances that have transpired, the plaintiff is justified, and entitled, pursuant to the DOCA to apply the Subject Funds in accordance with the priorities established by the DOCA, including to the plaintiff in respect of approved Administrators’ Costs (as that term is defined in the DOCA).
5. An order that the moneys received by David John Frank Lombe pursuant to the Conditional Settlement:
(a) as to the sum of $112,470.39 shall be applied to the Deed Fund and, subject to these orders, applied in accordance with the provisions and priorities of the DOCA; and
(b) as to the sum of $20,000, it shall be received as an asset in the winding up of the Company and available to the liquidator and creditors of the Company in accordance with section 556 of the Corporations Act.
6. Declarations as to whether, in the events that have transpired:
(a) any surplus (if any) available to the plaintiff, in his capacity as liquidator of the first defendant, can or should be applied, subject to section 556 of the Corporations Act, to the second or third defendant on account of any demonstrated entitlement pursuant to section 560 of the Corporations Act; and, if so,
(b) in what amount.”

21 An order pursuant to paragraph 6 of the originating process is the means by which the parties intend that QCM and Birjo will achieve “appropriate priority ranking” for a “wages contribution of approximately $285,000” as contemplated by paragraph [9] of the conditional settlement. An order pursuant to paragraph 3 of the originating process if the means by which the parties intend that QCM and Birjo will achieve the particularly security position in relation to 24 gaming machines referred to in conditions [1], [3], [4], [5], [6] and [7]. Because those orders are, according to the terms of the conditional settlement, essential conditions of implementation of the settlement, it is appropriate to deal with those claims first.

The relief sought under paragraph 6 of the originating process

22 I proceed to consider the matters raised by paragraph 6 of the originating process. The reference in condition [9] of the conditional settlement to the “QCM/Birjo wages contribution of approximately $285,000” is obviously a reference to the “Wages Contribution” of $285,041.20 referred to in the deed of company arrangement: see paragraph [6] above. Paragraph 6 of the originating process is directed to the question whether the provision of that “Wages Contribution” caused a priority position to arise under s.560 of the Corporations Act. That section is as follows:

“ Advances for company to make priority payments in respect of employees

Where a payment has been made by a company on account of wages or of superannuation contributions (within the meaning of section 556), or in respect of leave of absence, or termination of employment, under an industrial instrument, being a payment made out of money advanced by a person for the purpose of making the payment, the person by whom the money was advanced has, in the winding up of the company, the same right of priority of payment in respect of the money so advanced and paid, but not exceeding the amount by which the sum in respect of which the person who received the payment would have been entitled to priority in the winding up has been diminished by reason of the payment, as the person who received the payment would have had if the payment had not been made.”

23 Under s.561, an amount in respect of which a right of priority is given by s.560 is payable in priority of the claims of the holder of a floating charge, to the extent that assets available for payment of creditors other than unsecured creditors are insufficient to cover it.

24 Section 560 does not empower the court to afford to certain creditors an enhanced priority position in a winding up. It creates priority according to its own terms if the prevailing circumstances are as it describes. The claim in item 6 of the originating process must therefore be viewed as, in effect, a claim for a decision whether the circumstances of this case are such as to cause the providing of the $285,041.20 “Wages Contribution” under the deed of company arrangement to produce the “right of priority of payment” in the winding to which s.560 refers.

25 Section 560 has in contemplation a case where, first, a company has made a payment of a particular kind (that is, “on account of wages or of superannuation contributions (within the meaning of section 556), or in respect of leave of absence, or termination of employment, under an industrial instrument”) and, second, that payment was made “out of” money “advanced by a person for the purpose of making the payment”. If those two conditions are satisfied, the section itself causes “the person by whom the money was advanced” to have, in the winding up, “the same right of priority of payment in respect of the money so advanced and paid” as the person who received the payment would have had if the payment had not been made. These aspects were succinctly stated by Hansen J in Capt’n Snooze Management Pty Ltd v McLellan (2002) 171 FLR 124 at [24]:

“Two elements must be satisfied for the section to operate. First, the money must have been advanced for the ‘purpose’ of making a payment of the specified kind. Secondly, the payment must have been made ‘out of’ the money advanced.”

26 On the evidence before me, the two elements are not satisfied in this case. The definition of “Wages Contribution” in the deed of company arrangement makes it clear that the sum of $285,041.20 was paid by the administrators under the Part 5.3A administration between 1 August 2003 (defined as the “Commencement Date”) and the date of execution of the deed of company arrangement (29 October 2003) and was the amount paid “as at 21 October 2003”. To the extent that the Club, under the control of the Part 5.3A administrators, carried on business and paid wages between 1 August 2003 and 23 (or 29) October 2003, it did so by means of funds other than those provided by QCM by reference to the provisions of the deed of company arrangement provisions concerning the “Wages Contribution”. The relevant sum of $285,041.20 was, according to the plaintiff’s evidence, paid by QCM to the deed administrators on 31 October 2003. It is therefore simply impossible, having regard to the words of the section and the analysis of Hansen J in the Capt’n Snooze case, that the gross wages of $285,041.20 paid by the Club between 1 August 2003 and 23 (or 29) October 2003 were paid “out of” funds paid by QCM to the deed administrators on 31 October 2003.

27 Another fatal defect in any claim to s.560 priority is that QCM, by making payment of the relevant sum of $285,041.20 to the deed fund, did not “advance” funds to the Club. Section 560 obviously works on the basis that the person who “advances” funds thereby becomes a creditor. Otherwise, it would not make sense for that person to be afforded “the same right of priority of payment in respect of the money so advanced and paid” as would have attached to the claims of persons brought for employee entitlements of the relevant kind. QCM, by paying $285,041.20 into the deed fund in accordance with clause 4.1 of the deed of company arrangement, did not “advance” (or lend) anything. It made a once and for all payment without right or expectation of repayment.

28 The appropriate declaration in response to paragraph 6 of the originating process is that no entitlement has arisen in the second defendant or the third defendant pursuant to s.560 of the Corporations Act.

The relief sought under paragraph 3 of the originating process

29 I consider next the claim in paragraph 3 of the originating process. The conditional settlement includes, as condition [3]:

“QCM and Birjo will be granted security to 24 Electronic Gaming Machines (‘EGMs’) and associated signage and equipment noted in the QCM letter of 4 April 2005.”

30 This is an obvious adjunct to condition [1]:

“Security to the poker machines being granted by the Supreme Court of New South Wales.”

31 The intention seems clearly enough to be that the security thus “granted” will be security for the $600,000 advanced by Birjo to the Club by reference to QCM’s obligation under clause 12.6(c) of the deed of company arrangement: see paragraph [10] above.

32 The plaintiff proposes a convoluted method for giving effect to this part of the conditional settlement. Two pre-existing circumstances have fashioned the method the plaintiff proposes. The first of them is statutory. Section 74 of the Gaming Machines Act 2001 is as follows:

“ Granting interests in gaming machines

(1) A hotelier or registered club must not grant any interest in an approved gaming machine to any other person.
Maximum penalty: 100 penalty units.
(2) This section does not apply:
(a) to an interest in an approved gaming machine that arises from an interest (such as a floating charge) granted over the whole of the hotelier’s or registered club’s assets (or over a portion of the hotelier’s or registered club’s assets) that includes, but does not specifically identify, the approved gaming machine, or
(b) to an interest in an approved gaming machine that is granted in accordance with financial or other arrangements approved by the Board.”

33 This provision prohibits the grant of specific security over gaming machines but, in sub-s.(2)(a), allows an interest arising from a charge over “the whole” of a hotelier’s or registered club’s assets. A charge over the whole of the Club’s assets was created in favour of Birjo on 9 February 2004 and subsequently registered as No 1037778 in the Australian Register of Charges. This is the charge referred to in paragraph [12] above. I shall refer to it as “Birjo’s 2004 charge”. It represents the second of the pre-existing circumstances to which I have referred.

34 Birjo’s 2004 charge was created by the Club in favour of Birjo after the execution of the deed of company arrangement (29 October 2003) and before its termination (5 July 2004). The charge appears to have been given by the Club as a result of a decision of its directors. The plaintiff, although a deed administrator under the deed of company arrangement at the time Birjo’s 2004 charge came into existence, did not become aware of the charge until after he became liquidator. He sees the charge as having been created in disregard of clause 12.7(c) of the deed.

35 Birjo’s 2004 charge is expressed to secure all indebtedness of the Club to Birjo and to be a fixed charge as to certain items of property described in its clause 2.4 and a floating charge as to the remainder of the Club’s property and undertaking generally. It is thus a charge of the kind referred to in s.262(1)(a) of the Corporations Act attracting the requirement under s.263 that particulars of it be lodged with ASIC within 45 days after its creation. According to search materials in evidence, that lodgement did not occur until 22 April 2004, that is, after the end of the period of 45 days computed from the date of creation (9 February 2004). The parties accept that, as a result of this default and the fact that winding up occurred within six months, Birjo’s 2004 charge is void against the liquidator of the Club by operation of s.266.

36 It is against this background concerning Birjo’s 2004 charge and the operation of s.74 of the Gaming Machines Act that I must approach paragraph 3 of the originating process.

37 The only statutory provision relied on in paragraph 3 of the originating process is s.266(4) of the Corporations Act. That is a section empowering the court to extend the period within which particulars of a charge required by Part 2K.2 to be registered may be lodged. Section 266(4) is as follows:

“The Court, if it is satisfied that the failure to lodge a notice in respect of a charge, or in respect of a variation in the terms of a charge, as required by any provision of this Part:
(a) was accidental or due to inadvertence or some other sufficient cause; or
(b) is not of a nature to prejudice the position of creditors or shareholders;
or that on other grounds it is just and equitable to grant relief, may, on the application of the company or any person interested and on such terms and conditions as seem to the Court just and expedient, by order, extend the period for such further period as is specified in the order.”

38 Section 266(4) is a provision about extending time for lodgement of particulars of a charge. Yet the plaintiff apparently maintains that it should be an instrument by which the court declares Birjo’s 2004 charge to be “a valid fixed charge” operating against him as liquidator “only as against the net proceeds of sale of the 24 electronic gaming machines listed in annexure B” and without any “other operation validity or effect, either as a fixed charge or a floating charge over any other assets of the Company”.

39 It is clear that, in a case where grounds of the kind referred to in s.266(4) are made out, the court may, under that section, extend time for registration, including by way of extension sufficient to accommodate a late lodgement already effected. It is also clear that, in ordering an extension of time for lodgement, the court may impose “such terms and conditions as seem to the Court just and expedient”. But those powers are exercisable only in such a way as to save from the form of invalidity produced by s.266(1) the security in respect of which the original lodgement requirement arose but was not satisfied, that is, the security embodied in and contemplated by the agreement actually made by the company creating the charge and the person in whose favour it was created.

40 In the present case, the liquidator is seeking to use the pre-existing charge (that is, Birjo’s 2004 charge) as the vehicle for saving or reinstating – or, perhaps more accurately, creating anew - something much more limited than the charge the parties created. The plaintiff, as liquidator, has reached an agreement as to settlement of certain outstanding matters. Under that arrangement, security is to be “granted” to two entities, one of which is the chargee under the pre-existing charge. The operative words in conditions [1] and [3] of the arrangement are, “Security to the poker machines being granted” and “QCM and Birjo will be granted security” [emphasis added]. It appears that the plaintiff intends that satisfaction of these conditions will be achieved by an order of the court that purports to re-shape Birjo’s 2004 charge, by way of both retrospective order for the extension of time under s.266(4) and the imposition of conditions under that section which have the effect of depriving the security of a large part of its efficacy.

41 I am not satisfied that the power of the court to impose terms and conditions when making an order for the extension of time under s.266(4) allows it to make a radical change to the nature and effect of the charge. Terms and conditions would generally be directed towards the protection of positions taken in good faith by third parties before what is effectively validation as against a liquidator. Nor, in the entire absence of evidence of the circumstances in which the default in lodgement under s.263 occurred, do I consider that the court has before it the material to which regard is to be had in coming to a conclusion on the matter of extension of time under s.266(4). Even if the s.266(4) application is made by reference solely to the “other grounds” referred to in the section in addition to those mentioned in paragraphs (a) and (b), it will be relevant for the court to know the circumstances in which the initial default occurred. And when regard is had to those “other grounds”, there is an immediate focus on what is “just and equitable”, so far as concerns validation as against a liquidator by extension of time.

42 Considerations of what is “just and equitable” will obviously go beyond the fact that the plaintiff (as liquidator) and QCM and Birjo have reached a settlement to which they wish to give effect. A central question is whether it would be just and equitable, in circumstances where winding up is already in progress, for the positions of creditors to be changed so that Birjo obtains in respect of its debt the benefit of a security not now valid as against the liquidator, with consequent relegation of unsecured creditors. That question would presumably have to be addressed in the context of the settlement, so that it would be relevant to have regard to ways in which the returns to creditors generally would be enhanced if the settlement were to take effect. On the material before me, the settlement would cause $132,470.39 to be received by the plaintiff (albeit in circumstances where there was a question whether the part related to the deed fund was subject to the provisions governing the deed fund). But it would also cause the proceeds of the sale of the 24 gaming machines – estimated by the plaintiff at between $214,718 and $254,718 (see paragraph [19] above) – to become subject to a charge so as to be applied towards satisfaction of the Birjo debt to the exclusion of the claims of unsecured creditors.

43 Nothing in the plaintiffs affidavits or in submissions addresses, from the perspective of the “just and equitable” criterion in s.266(4), the matters I have just mentioned. It follows that, even if I were of the opinion that s.266(4) is a provision under which the court has power to re-shape a charge in the way sought (which I am not), I would not see the court as having been given any evidentiary basis on which it could reach the essential conclusion that it was “just and equitable” to make an order extending time and imposing the relevant terms and conditions.

44 The alternative source of the jurisdiction to make an order in terms of paragraph 3 of the originating process is said to be “the Court’s inherent power”. The aspect of the inherent jurisdiction the plaintiff and those advising him have in contemplation is not explained or illuminated. The court cannot, except by exercise of a statutory power, make valid as against a liquidator a charge that the Corporations Act makes void as against a liquidator. Nor can the court, as some kind of freewheeling master craftsman, make parties’ contracts have some effect other than that which the law gives them, having regard to the terms the parties themselves have chosen to embrace. Where a charge operates (to the extent that it operates at all) as a fixed charge over specified items of a company’s property and as a floating charge over the remainder of its property and undertaking and there is no suggestion of mistake attracting the power to rectify instruments, the court’s inherent jurisdiction does not allow it to step in and decree that the charge is to operate solely as a fixed charge over the proceeds of sale of 24 gaming machines.

45 I would make one further observation on this part of the application. The conditional settlement refers in explicit terms to “security to the poker machines” and “security to 24 Electronic Gaming Machines”. In each case, a specific grant of such security is contemplated. Such a specific grant would be contrary to s.74 of the Gaming Machines Act. To the extent that the application under paragraph 3 of the originating process is intended to cause the court to give effect, in an indirect way, to the agreement for the creation of such specific security, it invites the court to assist in the effectuation of a purpose that is contrary to statute. The court will, on grounds of public policy, not respond positively to any such invitation.

46 There will be no order in terms of paragraph 3 of the originating process.

The relief sought under paragraphs 4(b) and 4(c) of the originating process

47 Since the relief sought in paragraphs 3 and 6 of the originating process will be refused (with the result that conditions essential to the completion of the settlement will not be satisfied), there is no point in proceeding to consider such of the plaintiff’s remaining claims as are relevant to implementation of the settlement. There is accordingly no need to address paragraphs 1, 2, 4(a) and 5 of the originating process. Paragraphs 4(b) and 4(c) do, however, raise matters that are not directly related to the conditional settlement and warrant attention notwithstanding the decision to refuse relief under paragraphs 3 and 6.

48 The question raised by paragraphs 4(b) and 4(c) of the originating process is as to the status and proper application of moneys that were under the control of the deed administrators pursuant to the deed of company arrangement and unexpended when the deed terminated. Consideration of that matter requires reference to certain factual matters not so far mentioned.

49 It is, at first sight, curious that the plaintiff should, in paragraph 4(b) of the originating process, describe “the amounts of money held by the plaintiff in the Deed Fund” as “comprising either $55,000 or $66,563.06”. His affidavit makes it clear, however, that $55,000 is currently held and would be supplemented to the extent of a further $11,563.06 if the conditional settlement were implemented. In that event, part of the funds received under the settlement would be added to the existing $55,000.

50 There is a particular significance to the sum of $66,563.06. It is the amount required to pay a further dividend of 10 cents in the dollar to creditors whose claims became recognisable under and subject to the deed of company arrangement. That further dividend would be in addition to a dividend of 10 cents in the dollar already paid before termination of the deed. It will be recalled that one component of the deed fund (provided by means of a bank guarantee furnished to the deed administrators by QCM) was 20% of “Approved Debts”, estimated at the time of the deed’s execution at $110,000: see paragraph [4] above. I infer that “Approved Debts” eventually turned out to be somewhat more than $550,000, with the result that both the initial dividend of 10 cents in the dollar and any further dividend at the same rate account for slightly more than $220,000.

51 The thing that has prompted the plaintiff to seek relief in terms of paragraphs 4(b) and 4(c) of the originating process is an uncertainty he regards as having arising from things said in a report to creditors dated 9 October 2003. The report was issued by the administrators in connection with the adjourned second meeting of creditors in the Part 5.3A administration. It referred to the deed of company arrangement proposal that was to be submitted for creditors’ consideration at the adjourned meeting. The report read in part as follows:

“9.1 Deed Scenario
The deed proposal involves trade and taxation creditors accepting a total dividend of approximately 20 cents in the dollar plus a 10% share of any net profit the Club makes for the period ended 30 June 2005 after all costs of Voluntary Administration and Deed Administration.
The payments to creditors are summarised as follows:

Month	Class of Creditor	Cents in $
November 2003 June 2004 July 2005	Trade and Tax Creditors Trade and Tax Creditors Trade and Tax Creditors	$0.10 $0.10 10% of Net Profit

The first two dividend payments are secured by a bank guarantee and non-refundable.
As such, if creditors resolve to execute the Deed of Company Arrangement and the Administrators and QCM formally execute the Deed within the required 21 days, the dividend payments will be guaranteed to be paid even if the Deed is subsequently terminated and the Club wound up at a later date.”

52 The plaintiff’s concern is, in essence, to know whether, in the context of this representation and the terms of the deed itself, the sum of $55,000 which remains out of the $110,000 provided by means of the bank guarantee furnished by QCM pursuant to the deed is, as it were, committed to the envisaged second dividend of 10 cents in the dollar for deed creditors or is applicable merely as part of the deed fund in a general way. Before that matter is addressed, it is necessary to deal with the underlying question whether the balance of $55,000 is in reality held upon trust.

Did the deed of company arrangement give rise to a trust?

53 The claim in paragraph 4 of the originating process is cast as a claim for judicial advice under s.63 of the Trustee Act 1925. But the question to be answered is really whether particular moneys are trust moneys – in other words, whether the plaintiff is a trustee at all. That, in a sense, presents the plaintiff with a dilemma as to whether he has standing to approach the court under s.63. In Application of Macedonian Orthodox Community Church St Petka (No 2) [2005] NSWSC 558, Palmer J said at [24] in relation to s.63 of the Trustee Act:

“To avail oneself of that special assistance from the Court, one has to show that one is entitled to it. In my opinion, the Court has no power to give judicial advice under s.63 Trustee Act to a person who does not establish to the Court’s satisfaction that he or she is, in fact, a trustee and that the advice sought relates to the management or administration of trust property or the interpretation of a trust instrument.”

54 That, however, was a case in which the applicants contended that they were not trustees and sought the assistance of the court as a form of protection against costs should they ultimately be proved wrong. In the present case, the plaintiff is quite prepared to be a trustee and the answer to the question whether the moneys in question are trust moneys will also be the answer to the question whether he is. It would be unrealistic to expect him to make some preliminary showing of the necessary standing before considering the substantive issue.

55 Reference has already been made to the provisions of the deed of company arrangement under which moneys were to constitute a deed fund: see the references to clauses 4.1 and 4.4(a) at paragraphs [4] and [5] above. Clause 4.5 of the deed is relevant to the present question. It is in the following terms:

“(a) The Deed Administrators shall hold the Deed Fund on trust for the benefit of the Administrators, Deed Administrators and for those Creditors who become Participating Creditors (other than QCM in respect of the QCM Loan and the Affiliated Clubs in respect of the Affiliated Loans) in accordance with the terms of this Deed of Company Arrangement.
(b) The Company and QCM agree that any moneys paid to the Deed Administrators by the Company shall not be refundable to the Company and the Deed Administrators shall be entitled to exercise a lien over such moneys, and apply such moneys in payment of the Administrators’ Trading Expenses, the Administrators’ Costs and the Administrators’ Disbursements, Deed Administrators’ Costs and Deed Administrators’ Disbursements notwithstanding that:
(i) the Deed Administrators may not have distributed the moneys in accordance with the terms of this Deed; or
(ii) the Creditors resolve at a meeting convened by the Deed Administrators pursuant to section 445F of the Corporations Act that the Deed terminate and the Company be wound up.
(c) In the event that any moneys payable by the Company, Birjo and QCM under this Deed are paid by a third party on behalf of the Company, the Company shall obtain an acknowledgment in writing in a form satisfactory to the Deed Administrators from the third party, and in relation to the matters set out in sub-clauses 4.5(a) and (b) above. QCM and Birjo hereby acknowledge they are bound by this clause.
(d) The Deed Administrators, in their absolute discretion, may return any Retained Cash to the Company if they are satisfied that such payment is required by the Company for working capital purposes.”

(The items referred to in clause 4.5(b) – “Administrators’ Trading Expenses”, “Administrators’ Costs”, “Administrators’ Disbursements”, “Deed Administrators’ Costs” and “Deed Administrators’ Disbursements” – are defined in such a way as not to include the claims of creditors proving under the deed).

56 It is also relevant to quote clause 4.8 concerning application of the deed fund:

“The Deed Administrators shall distribute the Deed Fund in the following order of priority:
(a) firstly, in payment to the Administrators with respect to the Administrators’ Costs, the Administrators’ Disbursements and the Administrators’ Trading Expenses;
(b) secondly, in payment to the Deed Administrators with respect to the Deed Administrators’ Costs and Deed Administrators’ Disbursements;
(c) thirdly, in full payment of Priority Creditors, subject to clause 4.7;
(d) fourthly, by distribution of the balance amongst the Participating Creditors (except the Priority Creditors) pro rata to the amount which each such Participating Creditor is admitted to proof pursuant to the provisions of clause 3.1 of this Deed.”

57 Clause 3.1 established a system for ascertaining and quantifying the claims of creditors, as at the commencement date. Clauses 5.1 and 6.1 specified the effects of the deed upon creditors’ claims thus ascertained and quantified:

“5.1 The Participating Creditors must accept their entitlement under this Deed in full satisfaction and complete discharge of all debts and claims which they have or claim to have against the Company as at the Commencement Date and each of them will, if called upon to do so, execute and deliver to the Company Such forms of release of any such claim as the Deed Administrators require.”
“6.1 If the Deed Administrators have paid to the Participating Creditors their full entitlements under this Deed, all Participating Creditors’ debts or claims, present or future, actual or contingent, due or which may become due by the Company as a result of anything done or omitted by or on behalf of the Company before the Commencement Date and each claim of the Participating Creditors against the Company as a result of anything done or omitted by or on behalf of the Company before the Commencement Date is extinguished.”

58 When the deed of company arrangement came into operation pursuant to s.444B(6), it brought into effect, initially in relation to the rights to receive the contributions to the deed fund and thereafter in relation to the contributions received, the provisions in clauses 4.5(a) and 4.5(b). It is submitted on behalf of the plaintiff that the deed fund thereby became trust property which, despite the subsequent termination of the deed, continues today, as to its residue, to be held by the former deed administrators upon trust to be applied according to the terms of the deed. That submission is supported by reference to the decision of Austin J in Dean-Willcocks v ACG Engineering Pty Ltd (2003) 45 ACSR 290. The deed of company arrangement there under consideration did not make explicit reference to a trust or trust fund. It was merely to the effect that the deed administrator was to hold the administration fund (contributed by the company and its directors) in accordance with the terms of the deed. Those terms involved proof of debts by creditors and application of the fund pro rata towards creditors’ claims after payment of certain priority debts and administration costs. Austin J held that the effect of the deed, viewed in the light of the statutory provisions giving it binding force, was to create a trust in respect of the administration fund and that the trust continued despite subsequent termination of the deed.

59 Austin J saw the deed as creating an obligation upon the deed administrators to “hold” the specified fund in accordance with the deed and to distribute the balance, after specified applications, among the participating creditors identified by the deed. His Honour then said (at [14]):

“Where property is vested in a person subject to a legally enforceable obligation to ‘hold’ the property so as to make a distribution to someone else, the natural conclusion, under our law, is that a trust of that property has been created.”

60 The binding force given by statute to a deed of company arrangement (see ss.444D and 444G and MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636) was seen as the source of the obligation upon the deed administrator that gave rise to a trust.

61 Dean-Willcocks v ACG Engineering Pty Ltd was followed in Shepard v Sports Mondial of Australia Pty Ltd (2005) 53 ACSR 746. In that case, the relevant provision of the deed expressly referred to the creation of a trust, saying that the moneys received by the deed administrators were to be held “on trust for the benefit of the Administrators and the Participating Creditors”. There, as here, the position at the time when the deed was terminated and winding up commenced was that a residue of the deed fund remained and there was a prospect of future recoveries in satisfaction of rights held by the deed administrators. After referring to the ACG Engineering case, Campbell J said at [13]:

“I respectfully agree with his Honour's conclusion that the manner of application of the available funds depends upon the terms of the Deed of Company Arrangement. In the present case, it is the effect of clause 14(c) that money which should constitute the Fund is held on trust for the benefit of the administrators and the Participating Creditors. It follows that it is those people who are entitled to receive the moneys which should have been part of the Fund, when applied in accordance with the order of application set down in the Deed itself. The amount which should be distributed in this fashion includes the amount of $138,114.62 which made up the Fund at the time of liquidation supervening, and the amount recovered from the asset sales, and any amount which might be recovered under the guarantee or in proceedings to enforce the guarantee. The amount recovered from asset sales is distributable in this way because the mortgage over the assets was given to the administrators to secure the company’s obligations under the Deed, and hence, the administrators hold any money received in consequence of enforcing that mortgage on the same terms as they would have held the money the Company was obligated to pay under the Deed. Similarly, the guarantee is a right the administrators hold on the trusts of the Deed.”

62 Campbell J’s judgment concurring in the reasoning in Dean-Willcocks v ACG Engineering Pty Ltd was delivered in May 2005. Two months later, in Commonwealth of Australia v Rocklea Spinning Mills Pty Ltd (2005) 145 FCR 220, Finkelstein J drew attention to the possibility of inconsistency between Dean-Willcocks v ACG Engineering Pty Ltd and the earlier decision of Davies J in Federal Commissioner of Taxation v All Suburbs Car Repairs Pty Ltd (1994) 14 ACSR 753. It is necessary to consider the implications of that case.

63 In All Suburbs Car Repairs, the deed of company arrangement provided for the creation of two funds. One, called the “liquidation fund”, was to consist of all the company’s assets, being, in essence, the net proceeds of the sale of its business. The other, styled the “directors’ fund”, was to consist of money provided by the directors and shareholders. The first fund was to be applied principally in meeting taxation claims. The second fund was reserved for claims other than taxation claims. The Commissioner of Taxation sought (and was granted) an order under s.445D terminating the deed, principally on the ground that it purported to take away a right given to him by taxation legislation. In the course of his judgment, Davies J made significant observations about the statutory scheme.

64 The arrangement considered by Davies J exhibited two features commonly found in such deeds – features, moreover, that are found in the arrangement before me. First, certain persons agreed to make money available to the scheme administrator, in his capacity as scheme administrator. Second, that money was, under the terms of the arrangement, to be applied by the scheme administrator towards satisfaction of creditors’ entitlements ascertained in accordance with the arrangement. The deed of company arrangement in that case, like the deed of company arrangement before me (clause 1 of schedule 1), incorporated clause 1 of schedule 8A to the Corporations Regulations 2001 (Cth):

“In exercising the powers conferred by this deed and carrying out the duties arising under this deed, the administrator is taken to act as agent for and behalf of the company.”

(In the present case, clause 9.1 contains a reinforcing provision to the same effect).

65 Clause 1 of schedule 8A, in Davies J’s view, had a significant consequence in relation to the money to be provided by the directors and shareholders to the scheme administrator:

“It follows, in my opinion, that, when the directors and shareholders agreed to pay sums to Mr Silvia in his capacity as administrator, they agreed to pay those sums to him in his capacity as agent for All Suburbs and, consequently, that the sums when paid would be received by him on behalf of the company. It necessarily follows that the sums when received would be the property of All Suburbs.”

This, of course, is no more than a reflection of the principle that property received by a fiduciary (as a deed administrator undoubtedly is in relation to the company: see, for example, Cresvale Far East Ltd v Cresvale Securities Ltd (No 2) [2001] NSWSC 791) is not received beneficially but for the account of the principal as owner.

66 Davies J saw the company’s beneficial receipt of the sums paid in by the directors and shareholders as, in any event, consistent with the “ordinary operation” of deeds of company arrangement. His Honour referred to s.444A(4)(b) which says that a deed must specify “the property of the company (whether or not already owned by the company when it executes the deed) that is to be available to pay creditors’ claims”. That section, he said:

“contemplates that sums may be paid by third parties for distribution to creditors and that those sums will be property of the company available to pay creditors’ claims”.

67 His Honour then described the effect of the deed, viewed in the statutory context:

“Thus, the subject deed of arrangement provided for the distribution of the moneys and property held by the company prior to entry into the deed of arrangement and also of moneys of the company constituted by the contributions to be made by the directors and shareholders under the directors’ deed.”

68 This analysis seems to me to hold good in every case where, in accordance with a deed of company arrangement incorporating clause 1 of schedule 8A to the Corporations Regulations, funds are provided from outside the company’s existing resources for application towards creditors’ claims pursuant to the deed. Those funds become the property of the company. That they should therefore be controlled and applied by the deed administrator is a corollary of the statutory scheme that makes the administrator the agent of the company. In the ordinary course of events, the deed administrator, being an agent of the company and a fiduciary, obtains no proprietary interest in the contributed funds. And, as one of the parties bound by the deed (s.444G(c)), the deed administrator must deal with the relevant property as the deed provides.

69 What, in the present case, was the true effect of clause 4.5(a) of the deed and its direction that the deed administrators “shall hold the Deed Fund on trust for the benefit of the Administrators, Deed Administrators and for those Creditors who become Participating Creditors … in accordance with this Deed of Company Arrangement”? It must be recognised that, as is shown by Davies J’s analysis, the property to which that direction related (including property provided by QCM) was in truth property of the Club. The direction was accordingly a direction about application of the Club’s property by persons who stood in a fiduciary relationship to the Club. They, as agents of the Club, were directed to “hold” the property ”on trust”, first, “for the benefit of” certain persons and, second, “for” certain other persons “in accordance with the terms of this Deed of Company Arrangement”.

70 The direction had legal force and effect solely by operation of the Corporations Act in the way elucidated by the High Court in MYT Engineering Pty Ltd v Mulcon Pty Ltd (above). It was thus a direction that “bound” all creditors of the Club to the extent specified in s.444D and “bound” the Club, the officers and members of the Club and the deed administrators by operation of s.444G. Because of those statutory provisions, creation of the deed of company arrangement under s.444B(6) marked the point at which all the persons concerned were bound to see the relevant property dealt with in the manner prescribed in the deed. The Club, its creditors, its officers, its members and the deed administrators were thus put into a position where they were entitled to whatever benefits the deed would provide for them with respect to the relevant company property and subjected to whatever detriments the deed would impose upon them with respect to that property.

71 In the present case, there is specific reference to the “Deed Fund” being held “by” the deed administrators “on trust”. Those words did not, in my view, cause the relevant property of the Club to be divested from it and vested in the deed administrators. Clause 4.1, which required the deed administrators to “establish” the deed fund and, in effect, to receive into it the several sums of money mentioned is, upon its proper construction, a provision about how the deed administrators, as agents of the company, were to segregate and apply part of the Club’s property. The statement that they were then to hold that part of the Club’s property “on trust” to be applied in certain ways is, in my view, no more than a particular way of emphasising the fiduciary position they occupied in relation to the Club and the trustee-like responsibility they had to apply the relevant part of the Club’s property according to the benefits and detriments statutorily created by virtue of the advent of the deed.

72 The position of the deed administrators was akin to that of a liquidator, in that they were required by statute to administer the Club’s property in a particular way. Under the deed, as under a winding up, the presiding official had a duty to see property of the company applied for the benefit of persons with defined rights and entitlement. At one period in the history of company law, it was fashionable to speak of a liquidator as a trustee of the property of the company which was accordingly held subject ot a trust in favour of the body of unsecured creditors: see, for example, Re Oriental Inland Steam Co (1874) 9 Ch App 577; Re Yagerphone Ltd [1935] 1 Ch 392. But as is shown in the judgment of Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ in Commissioner of Taxation v Linter Textiles Australia Ltd (2005) 79 ALJR 913, such a characterisation owed more to metaphor than correct legal analysis. Similar metaphor has been applied to directors. In Russell v Wakefield Waterworks Co (1875) LR 20 Eq 474, Jessel MR said:

“In this Court the money of the company is a trust fund, because it is applicable only to the special purposes of the company in the hands of the agents of the company, and it is in that sense a trust fund applicable by them to those special purposes.”

73 Use of the language of trust in a company context concerning the responsibilities of company officers or agents with respect to company property thus does not always mean that the situation is one in which property is vested in and held by a trustee upon trust in the strict sense.

74 The only person capable of creating a trust affecting property of the Club was the Club itself. Essential to any conclusion that it had done so would be a finding that there was divestment from the Club of all legal and beneficial interests in the relevant property in such a way that the deed administrators became the owners at law and other persons became entitled in equity. I do not think that it was intended by the deed of company arrangement that the various persons referred to in clause 4.1, including creditors whose claims were to be dealt with under the deed, should be the beneficial owners of the deed fund. Rather, it was intended that the deed fund should be applied by reference to the claims of those persons, being claims against the Club. Application of the deed fund was thus to be by way of quid pro quo: payment of part of the fund to a particular person was the reward for elimination of a claim that person had against the Club. That intention is incompatible with the creation of a trust in respect of the property concerned. It is consistent with the application of company property for company benefit.

75 The distinction to which I refer is relevant in cases where a debtor conveys property to a trustee upon trust for the payment of his debts. The question that often arises there is whether the debtor intended that the creditors should be actual beneficiaries with an immediate equitable interest in the property conveyed; or whether, by contrast, the situation is one in which the debtor merely constitutes the so–called trustee his agent and arms him with the means of acting for the debtor’s benefit.

76 Despite the use in clause 4.5(a) of the words “[t]he Deed Administrators shall hold the Deed Fund on trust”, I do not see the present situation as one in which the property of the Club specified in the deed, pursuant to s.444A(4)(b), as property to be available to meet creditors’ claims was subjected to any trust. Specific divestment of property of the company and settlement of it upon a trustee to be held upon defined trusts outside the confines of the deed of company arrangement is a result that such a deed may be capable of producing (Re Francis and Ryan as trustees of West Australian Shed Commercial Pty Ltd [2003] WASC 39). And as Austin J pointed out in Dean-Willcocks v ACG Engineering Pty Ltd (above), there is no reason why an officer or agent of the company should not become a trustee for it. But that, in my opinion, is not what happened here. The segregation of part of the company’s property (whether or not including property to be contributed by someone else) so that it becomes a fund to be applied by the deed administrator as the company’s agent in accordance with the deed of company arrangement does not, of itself, give rise to a trust. And where, as in the present case, the segregation is made in a context referring to a “trust” administered by the deed administrator, there is again no trust unless it can clearly be seen that the company has divested itself of the legal and beneficial interests in its property. The fact that the fund is to be applied by reference to creditors’ claims is not sufficient to give them such beneficial interests in the property concerned; nor is it sufficient to justify a conclusion that the deed administrators became the legal owners of the property so as to be capable of holding it on trust.

77 I would add, in conclusion, that I do not regard clause 4.5(b) and the statement that moneys are not “refundable” as justifying a conclusion that they are settled upon trustees (cf the observation at paragraph [20] of the judgment in Dean-Willcocks v ACG Engineering Pty Ltd). All that that part of clause 4.5(b) meant was that neither the Club nor QCM could exercise any unilateral right to prevent application of the relevant part of its property in accordance with the deed.

If there was a trust, what was the effect of termination of the deed?

78 If I am wrong in this and the true effect of the deed of company arrangement in the present case was to constitute the deed administrators trustees in whom was vested the property comprised in the deed fund, it becomes necessary to consider the effect of termination of the deed of company arrangement so far as continuation of the trust is concerned.

79 The deed of company arrangement terminated on 5 July 2004 by force of s.445C(b) of the Corporations Act upon the passing of a resolution for its termination at a meeting of creditors convened under s.445F. The only guidance the Act gives as to the effect of termination of a deed of company arrangement is found in s.445H:

“ Effect of termination or avoidance
The termination or avoidance, in whole or in part, of a deed of company arrangement does not affect the previous operation of the deed.”

80 I have previously expressed the opinion that it is implicit in s.445H that, upon termination of a deed of company arrangement, the several persons initially bound by the deed (that is, the creditors referred to in s.444D and the other persons mentioned in s.444G) cease to be bound as to their future conduct, rights and liabilities: Sutherland v Rahme Enterprises Pty Ltd (2003) 46 ACSR 458 at [14]. In Arcfab Pty Ltd v Boral Ltd (2002) 43 ACSR 573, Austin J said at [37]:

“… when the deed was subsequently terminated, the administrator’s powers and obligations as administrator ended and he was released and discharged from his office and his obligations under clause 16.4, although the termination of the deed did not affect its previous operation (s.445H) and things done by the administrator were valid by virtue of s.451C.”

81 There is no other reference in Austin J’s judgment to clause 16.4 of the deed before him and it may be that the reference to clause 16.4 was intended to be a reference to clause 16.1 which is set out in the judgment in full. It was a clause requiring the deed administrator to assemble and distribute a fund assembled under the deed.

82 If, as the observations of Austin J in the Arcfab case may thus tend to suggest, termination of a deed of company arrangement puts an end to the obligation of a deed administrator to assemble and distribute a deed fund in accordance with the deed, as well as putting an end to the particular person’s tenure as deed administrator, one might think that that person no longer had the power, capacity or duty to apply any unexpended residue of the deed fund. It seems clear enough that that the person could not, after termination, look to the deed as a source of power and protection.

83 A necessary consequence of termination is that the deed ceases to be binding in the ways specified in ss.444D and 444G. From and after termination, the deed does not bind any of the persons and classes of persons mentioned in those provisions. It must follow that someone formerly able to look to one of those persons for the performance of some duty imposed through the deed can no longer do so. In many cases, of course, a deed is terminated by order of the court because of some unfair, discriminatory or oppressive aspect of its intended operation: see, for example, Young v Sherman (2002) 170 FLR 86. In cases of that kind, it is axiomatic that the arrangement the court has seen fit to end is not to have any residual operation for the future.

84 The Corporations Act does not distinguish, in terms, among the various means of terminating a deed of company arrangement, so far as the consequences of termination are concerned. Termination may, under s.445C, be effected by court order, result from a resolution passed at a meeting of creditors or occur upon the happening of an event identified in the deed itself. In each such case, the binding force derived from the statute ceases and the rights and liabilities of relevant persons are as if the deed had never existed – subject, however, to the effects and results of the “previous operation” referred to in s.445H, that is, such operation as the deed actually had, by force of that binding force, before its termination.

85 The trust postulated in the present case is, in terms of clause 4.5(a), a trust under which the “Deed Administrators” – that is, according to the definition of that term in clause 1.1, the plaintiff and his partner Mr Doran “or any replacement administrations of this Deed” – are to hold and apply the relevant trust property “in accordance with the terms of this Deed of Company Arrangement”. Upon termination of the deed of company arrangement, there were no longer any persons properly described as the “Deed Administrators” and there were no longer extant and in operation any terms properly described as “the terms of this Deed of Company Arrangement”.

86 It is also relevant to note that, at the time of termination of the deed of company arrangement, neither clause 5.1 nor clause 6.1 (see paragraph [57] above) had operated to extinguish participating creditors’ claims. Each of those clauses contemplated receipt by such creditors of their deed entitlements in full. Those entitlements were entitlements to share in a fund fully and completely constituted in accordance with clause 4.1. In the events that happened, the deed administrators came to control only part of the envisaged total fund and, so far as participating creditors were concerned, did not fully perform clause 4.8(d) (see paragraph [56] above). As a result, the extinguishment envisaged by clauses 5.1 and 6.1 did not occur and now can never occur.

87 In these circumstances, the postulated trust must be taken to have failed. The commitment of property of the Club to that trust was upon the footing that the Club would thereby be freed from the claims of the participating creditors. That purpose has not been achieved. The claims of the creditors in question have been reduced by reason of the partial distribution made to them, but extinguishment of the balance of claims is no longer possible.

88 In the result, therefore, the residue of the trust property must be regarded as held upon a resulting trust for the Club according to principles most often associated with Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 564, Re Australian Elizabethan Theatre Trust (1999) 30 FCR 491 and Twinsectra Ltd v Yardley [2002] 1 AC 164.

Conclusion in relation to paragraphs 4(b) and 4(c)

89 I am not satisfied that the plaintiff today holds upon trust the money that, at the time of termination of the deed of company arrangement, represented the residue of the deed fund referred to in clause 4.1 of the deed. That money was, immediately after termination of the deed of company arrangement, property of the Club no longer affected by any provision of the deed. It is accordingly applicable by the plaintiff as liquidator in the due course of the winding up of the Club – in which, I might add, the residual claims of the persons who were participating creditors under the deed of company arrangement are cognisable.

90 The court will not give judicial advice in terms of paragraphs 4(b) and 4(c) of the originating process. But the plaintiff may, if he wishes, submit through my Associate a form of direction which he considers the court should give to him as liquidator in relation to the subject matter of those paragraphs.

Disposition

91 The claims in paragraphs 1, 2, 3 and 5 of the originating process are dismissed.

92 In response to paragraph 4 of the originating process, judicial advice is refused but the plaintiff, as liquidator, is entitled to a direction as stated at paragraph [90] of these reasons.

93 In response to paragraph 6 of the originating process, there will be a declaration that neither the second defendant nor the third defendant has any entitlement under s.560 of the Corporations Act by virtue of having provided the “Wages Contribution” under the deed of company arrangement.

94 The applications were properly brought by the plaintiff. He should therefore have his costs out of the assets of the Club as an expense of the winding up.

95 Short minutes of the orders to be made should be filed by delivery to my Associate within fourteen days.

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