National Australia Bank Ltd v Horne
[2011] VSCA 280
•21 September 2011
SUPREME COURT OF VICTORIA
COURT OF APPEAL
| NATIONAL AUSTRALIA BANK LTD (ABN 12 004 044 937) and CAPITAL FINANCE AUSTRALIA LTD (ABN 23 069 663 136) | S APCI 2010 0147 |
| Appellants | |
| v | |
| STIRLING LINDLEY HORNE AND PETR VRSECKY (IN THEIR CAPACITIES AS JOINT AND SEVERAL ADMINISTRATORS OF AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED (ACN 095 474 436) (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED)) | Respondents |
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| JUDGES | BUCHANAN and MANDIE JJA and ALMOND AJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 6 June 2011 |
| DATE OF JUDGMENT | 21 September 2011 |
| MEDIUM NEUTRAL CITATION | [2011] VSCA 280 |
| JUDGMENT APPEALED FROM | [2010] VSC 492 (Sifris J) |
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CORPORATIONS – Voluntary administration – Defect in appointment of administrators by secured creditor – Whether the court has power to validate the appointment under s 447A of the Corporations Act 2001 (Cth) – Whether a proper exercise of discretion – Corporations Act 2001 (Cth) ss 435A, 436A, 436C, and 447A.
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Appearances: | Counsel | Solicitors |
| For the Appellants | Mr R Newlinds SC with Mr D Sulan | Clayton Utz |
| For the Respondent | Mr A Myers QC with Dr A Trichardt | Cornwall Stodart |
BUCHANAN JA:
I agree with Almond AJA.
MANDIE JA:
I also agree with Almond AJA.
ALMOND AJA:
Australian Property Custodian Holdings Ltd (‘the Company’) is the Responsible Entity of the Prime Retirement and Aged Care Property Trust and holds an Australian Financial Services Licence (‘AFS Licence’). It has 18 wholly owned subsidiaries[1] which, together with the scheme manager, APCH Administrators, comprise the Prime Group.
[1]Or subsidiaries of subsidiaries; Re Australian Property Custodian Holdings Limited (Administrators Appointed) (Receivers and Managers appointed) [2010] VSC 492, 2 [10].
On 18 October 2010, Stirling Lindley Horne and Petr Vrsecky were appointed joint and several administrators (‘the administrators’) of the Company by a secured creditor, Daytree Pty Ltd (‘Daytree’), pursuant to a registered charge dated 23 July 2008 (‘the Daytree Charge’). The Daytree Charge secured all of the assets and undertaking of the Company but relevantly excluded from the assets the amount of $5 million cash retained by the Company and held on term deposit with the National Australia Bank Ltd (‘NAB’) to satisfy the net tangible asset requirements of the Company’s AFS Licence.[2]
[2]Affidavit of Petr Vrsecky sworn 26 October 2010 (‘Vrsecky Affidavit’) [27] and ‘Exhibit PV9’ thereto; Re Australian Property Custodian Holdings Limited (Administrators Appointed) (Receivers and Managers appointed) [2010] VSC 492, 1, 2 [4], [7].
On and with effect from 19 October 2010, the second appellant, Capital Finance Australia Limited (‘CFAL’), assigned to NAB a debt of $6.5 million (‘the CFAL Debt’), being part of an amount due and payable under loan facilities which CFAL provided to the Company, and a corresponding portion of all rights, powers
and remedies of CFAL in respect of enforcement. Notice of the assignment was given to the Company on 19 October 2010, including notice that the assigned portion of the debt and amounts relating to it including interest and fees must, when payable, be paid to NAB rather than to CFAL.[3]
[3]Vrsecky Affidavit [66]–[72].
Upon their appointment, the administrators wrote to NAB, the first appellant, claiming an amount in excess of $5 million standing to the credit of the Company’s accounts with the bank.[4] In a written response on 20 October 2010, NAB raised a concern that the administrators may not have been duly appointed.[5]
[4]Vrsecky Affidavit [12].
[5]Vrsecky Affidavit [12] and ‘Exhibit PV2’ thereto.
In order to resolve any question over the validity of the appointment of the administrators, the Company and the administrators made application to the Court seeking:
(a)a declaration pursuant to s 447C of the Corporations Act 2001 (Cth) that Mr Horne and Mr Vrsecky had been validly appointed as joint and several administrators of the company;
(b)alternatively to (a), an order pursuant to s 447A of the Corporations Act 2001 (Cth) appointing Mr Horne and Mr Vrsecky as administrators of the company;
(c)alternatively to (a), an order pursuant to s 447A; alternatively s 447C, alternatively s 1322(4) of the Corporations Act 2001 (Cth) that the appointment or purported appointment of Mr Horne and Mr Vrsecky as administrators of the company was not invalid but valid.
NAB and CFAL were given notice of the impending application. They appeared as interveners, by leave of the Court, and challenged the validity of the appointment of the administrators pursuant to the Daytree Charge on the basis that the chargee was not entitled to appoint the administrator under s 436C of the Corporations Act 2001 (Cth) (’the Act’).
In his reasons for judgment, the primary judge dealt with the issue of validity of the appointment as follows:[6]
[6]Re Australian Property Custodian Holdings Limited (Administrators Appointed) (Receivers and Managers appointed) [2010] VSC 492, 1–2 [6]–[9].
6. Section 436C of the Act is in the following terms:
436C Chargee may appoint administrator
(1)A person who is entitled to enforce a charge on the whole, or substantially the whole, of a company’s property may by writing appoint an administrator of the company if the charge has become, and is still, enforceable.
7.Mr Coles QC, who appeared with Mr Cheetham for the NAB and Capital Finance Australia Limited (by leave of the Court), submitted that the appointment was invalid because the Charge was not over ‘the whole or substantially the whole, of [the Company’s] property’. The balance sheet of the company as at June 2010 discloses total assets of $15,751,942.63. Total liabilities are disclosed as $10,709,020.58. Accordingly, the net asset position as at 30 June 2010 was $5,042,922.05. If the $5,000,000 term deposit with the NAB is excluded from the asset position of the Company, as it must, the Charge as at 30 June 2010 would be over $10,751,942.63 of the assets of the Company, out of total assets of $15,751,942.63. Put another way, the Company encumbered (as at 30 June 2010) about 68% of its assets in favour of Daytree. Of course, the property of a company may change from time to time and the position referred to above is only at a particular point in time. However, the exclusion of the $5,000,000 term deposit is, in my opinion, definitive as it represents a substantial asset of the Company.
8.In my opinion, the Charge is not over the whole or substantially the whole of the Company’s property. It is over a significant part of the Company’s assets, but certainly not the whole and in my opinion, certainly not substantially the whole. In this context, substantially refers to almost all of the assets but certainly not 68% of the assets. The exclusion of a substantial asset must, inevitably, lead to the conclusion that a charge is not over the whole, or substantially the whole, of a company’s property.
9.Accordingly, I consider that the appointment of the Administrators of the Company was not a valid appointment…
Having found that the appointment was not valid, the judge made the following order:
1.Pursuant to section 447A(1) of the Corporations Act 2001 (Cth) (‘Act’), Part 5.3 of the Act is to operate in relation to Australian Property Custodian Holdings Limited ACN 095 474 436 (‘Company’) as if Stirling Lindley Horne and Petr Vrsecky were validly appointed as administrators of the Company by resolution of the board of directors by the Company on 18 October 2010 pursuant to section 436A of the Act.[7]
[7]Order of Sifris J dated 29 October 2010.
For convenience, I set out ss 447A(1) and 436A of the Act:
447A General power to make orders
(1)The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.
…
436A Company may appoint administrator if the board thinks it is or will become insolvent
(1) A company may, by writing, appoint an administrator of the company if the board has resolved to the effect that:
(a) in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and
(b) an administrator of the company should be appointed.
(2) Subsection (1) does not apply to a company if a person holds an appointment as liquidator, or provisional liquidator, of the company.
Grounds of appeal
The appellants appeal against the decision to validate the appointment of the administrators. In the Notice of Appeal the appellants set out their grounds of appeal as follows:
1.His Honour erred in law in holding that s 447A(1) of the Corporations Act should be used to validate the invalid appointment of the respondents as administrators of APCH.
2.Further, and in the alternative, in finding that s 447A(1) of the Corporations Act could be used to treat the invalid appointment of the respondents as administrators of APCH pursuant to s 436C of the Corporations Act as a valid appointment pursuant to s 436C of that Act, his Honour:
(a) erred in law; and
(b)failed to accord natural justice to the appellants, in circumstances where no argument to that effect was advanced by the respondents or raised by his Honour in the course of the proceeding, thus denying the appellants the opportunity to advance submissions against such a finding.
3.His Honour erred in finding that ‘everyone intended [that a valid appointment] be done and acted on the basis that it was done’, in circumstances where the evidence before him established that the appellants had not so intended or acted and had notified the respondents accordingly.[8]
[8]Notice of Appeal 2–3.
Evidence before the primary judge
Mr Neil Rodaway (‘Rodaway’), a director of the Company, swore an affidavit on 26 October 2010 in which he deposed that he was a director of each of the entities in the Prime Group and that he was authorised by the directors of each of the corporations comprising the Prime Group to swear the affidavit on their behalf.[9] He further deposed that when he referred in his affidavit to ‘the directors’, ‘we’ or ‘our’ he meant to refer to the directors of each of those corporations.[10]
[9]Affidavit of Neil Rodaway sworn 26 October 2010 (‘Rodaway Affidavit’).
[10]Rodaway Affidavit [2].
Rodaway’s evidence in relation to the events of 18 and 19 October 2010 was as follows:
9. On 18 October 2010, the directors met at the offices of Blake Dawson at 181 William Street, Melbourne, to review Prime Group’s position having regard to the appointment of receivers to various of its real property assets (18 October 2010 meeting). Following the appointment of receivers by Prime Trust’s senior lenders and advice from its advisers Blake Dawson and PPB the directors now believed that Prime Trust had no prospect of trading on and that administrators should be appointed to ensure an orderly resolution to matters.
10. During the course of the 18 October 2010 meeting, we learned that charge-holders of assets of APCHL and APCH Administrators, namely Daytree Pty Ltd (Daytree) and Australian Property Administrators Pty Ltd (Australian Property Administrators), had appointed Stirling Lindley Horne and Petr Vrsecky as joint and several administrators of APCHL and APCH Administrators pursuant to section 436C of the Corporations Act 2001.
11. In light of the appointment of Messrs Horne and Vrsecky as administrators of APCHL and APCH Administrators, the directors resolved in the case of each of the following companies that those companies were insolvent, or likely to become insolvent, and to appoint Stirling Lindley Horne and Petr Vrsecky as joint and several administrators of those companies: … (reference to 11 company names and exhibit omitted).
12. Had Daytree and Australian Property Administrators not appointed Stirling Lindley Horne and Petr Vrsecky as administrators of APCHL and APCH Administrators, the directors would in any event have appointed administrators to those companies at the 18 October 2010 meeting.
13. The next day (19 October 2010), the directors resolved to appoint Stirling Lindley Horne and Petr Vrsecky as joint and several administrators of the balance of the companies within the Prime Group, namely the following companies: … (reference to 7 company names and exhibit omitted).
…
16. I am informed by the administrators that a question has arisen as to the validity of their appointment as voluntary administrators of APCHL. The directors support their appointment as at 18 October 2010 and respectfully request that the Court find their appointment valid or if invalid, to validate the same.
In his reasons for judgment, the judge relevantly found as follows:[11]
[11]Re Australian Property Custodian Holdings Limited (Administrators Appointed) (Receivers and Managers appointed) [2010] VSC 492, 3–7 [13]–[20], [28].
13. It is clear from Rodaway’s affidavit that the only reason why Horne and Vrsecky were not appointed joint and several administrators of the Company by the directors acting pursuant to s 436A of the Act was because of the prior appointment by the secured creditor, Daytree, purportedly acting pursuant to s 436C of the Act. Had the appointment not been made, it is obvious that the directors, directing their minds as they did to the overall position of each of the companies and the group (including solvency issues), would have passed the necessary resolution in the proper form in compliance with s 436A of the Act as they did in respect of the other companies.
14. As pointed out, there is no attack on the validity of the appointment of Horne and Vrsecky in relation to each of the other companies in the group. It may be assumed that had they been appointed by the directors as joint and several administrators of the Company on 18 October 2010 (as they would have if Daytree had not acted) such appointment would not be challenged.
15. Consequently, it is beyond dispute that the directors of the Company and the Administrators assumed the validity of their appointment and acted accordingly. They obviously could have been appointed by the directors (and would have) but, for the reason stated, were not.
16. All of the directors were present at the meeting at Blake Dawson. There is nothing to suggest that they would not have made the appointment of the Administrators to the Company had the secured creditor not made such appointment or had they been alerted to the fact that such appointment may not be valid. In fact, the position is to the contrary. Further, and perhaps more significantly, from the context of their meeting as referred to in Rodaway’s affidavit it is evident that the directors directed themselves to the solvency position of the companies and the group as a whole.
17. Paragraph 11 of Rodaway’s affidavit deposes to the fact that on 18 October 2010 the directors regarded 11 of the companies within the group as either being insolvent or likely to become insolvent. Appointments were made. It is reasonable to infer that the very next day the directors were of the same opinion in relation to the other 7 companies. It is also reasonable to infer that they were of the same opinion in relation to the Company. Further, paragraph 74 of the Vrsecky’s affidavit provides additional evidence of the likelihood of insolvency in relation to each member of the group and the Company.
18. Accordingly, there is sufficient evidence to conclude that but for the purported appointment by the secured creditor, the board would have formally made the appointment in accordance with s 436A, as they indeed did in relation to 18 of the other companies. All the ingredients for the operation and valid appointment of the Administrators pursuant to s 436A of the Act were present. No action was taken because the directors did not think it was necessary.
19. Another way of putting the position is that a decision was, in effect (and in the context and circumstances where the future of the group was being discussed), made by the board but not required to be formally implemented because of the purported appointment by the secured creditor.
20. Accordingly, I conclude on the facts the following:
(a) That the appointment by the secured creditor of the Administrators of the Company was invalid; and
(b) That the board of directors was desirous of Horne and Vrsecky acting as joint and several administrators of the Company. The only reason why they did not formally make the appointment was because they assumed the validity of the appointment by the secured creditor.
…
28. An appointment was always contemplated by the directors of the Company in circumstances that but for the defective appointment would have been made. All relevant matters that needed to be considered for a valid s 436A appointment were considered, but not implemented for the reason given. I propose to implement it by recourse to s 447A of the Act. It ought to be done because everyone intended it to be done and acted on the basis that it was done. (footnotes omitted)
The appellants challenge the following findings of fact in the judge’s reasons for judgment, namely that:
(a)it is clear from Rodaway’s affidavit that the only reason why Horne and Vrsecky were not appointed … administrators of the company by the directors … was because of the prior appointment by the secured creditor, Daytree;[12]
(b)all of the directors were present at the meeting at Blake Dawson. There was nothing to suggest they would not have made the appointment of the Administrators to the company had the secured creditor not made such appointment;[13]
(c)there is sufficient evidence to conclude that but for the purported appointment by the secured creditor, the board would have formally made the appointment in accordance with s 436A as they indeed did in relation to 18 of the other companies;[14]
(d)another way of putting the position is that a decision was, in effect (and in the context and circumstances where the future of the group was being discussed), made by the board but not required to be formally implemented because of the purported appointment by the secured creditor;[15]
(e)that the board of directors was desirous of Horne and Vrsecky acting as joint and several administrators of the company. The only reason why they did not formally make the appointment was because they assumed the validity of the appointment by the secured creditor;[16]
(f)it was the clear intention of the directors of the Company for Horne and Vrsecky to be appointed as joint and several administrators of the Company.[17]
[12]Ibid 3 [13].
[13]Ibid 4 [16].
[14]Ibid 4 [18].
[15]Ibid 5 [19].
[16]Ibid 5 [20(b)].
[17]Ibid 5 [22].
The appellants contend that on the evidence it was not open for the judge to find that the directors would have appointed Horne and Vrsecky on 18 October 2010 had Horne and Vrsecky not already been appointed pursuant to the Daytree Charge. It was submitted that without the purported appointment by the chargee the directors might not have appointed Horne and Vrsecky as administrators but might just as well have appointed other people.
I accept that this is so. Put at its highest, Rodaway’s evidence on this issue establishes that administrators, but not necessarily Horne and Vrsecky, would have been appointed to the Company on 18 October 2010.
Further, the appellants contend that on the evidence it was not open to find that all or a majority of the directors of the Company were present at the meeting at Blake Dawson. To this end, senior counsel for the appellants referred to and relied upon the exhibited copy of minutes of the directors’ meetings of the 11 companies which appointed Horne and Vrsecky as administrators on 18 October 2010.[18] Those minutes indicate that two directors, Rodaway and Mr Kim Jaques (‘Jaques’), were present at each of the company meetings. In the circumstances, the Court was asked to infer that Rodaway’s evidence in paragraph 11 of Rodaway’s affidavit that ‘the directors resolved … to appoint Horne and Vrsecky as joint and several administrators of those companies’ should be taken to be confined to the two directors named in the relevant minutes (Rodaway and Jaques).
[18]Rodaway Affidavit and “Exhibit NR1” thereto.
In paragraph 12 of his affidavit, Rodaway deposes, ‘had Daytree not appointed Horne and Vrsecky as administrators to the Company, the directors would in any event have appointed administrators at the 18 October meeting’.[19] Senior counsel for the appellants contend that in light of the minutes which show that only two directors were present at the 11 company meetings, the Court should infer that Rodaway was ‘not speaking and ought not to have been found to have been speaking as to what the other directors of… the Company may have done on the day’.
[19]Rodaway Affidavit [12] (emphasis added).
I am not persuaded by these submissions. Whilst the minutes of the 11 company meetings state that only two directors were present at the meetings of those companies, it does not necessarily follow that only two of the four directors of the Company were present at the office of Blake Dawson on 18 October 2010. It merely establishes that Rodaway and Jaques participated in the formal meetings of the 11 companies and made the resolutions appointing administrators. I cannot infer from this evidence that the other directors of the Company were not present at the office of Blake Dawson.
Allowance must also be made for Rodaway’s evidence regarding collective reference to directors. Rodaway deposed that ‘[w]here… I refer to “the directors”… I mean to refer to the directors of each of the corporations’ in the Prime Group. If this definition is read distributively, namely to refer to the directors of the relevant corporation in the Prime Group (and not as a generic reference to all of the directors of the corporations in Prime Group) then no difficulty arises. There is evidence before the Court that the Company at the relevant time had four directors. If the definition is read distributively, the reference to ‘the directors’ in paragraph 12 insofar as it relates to the Company would apply to those four individuals.
Rodaway was not cross-examined on the contents of his affidavit. In the absence of a compelling reason it is not possible to go behind the affidavit evidence as it stands. This has significance for the appellants who have the burden of showing that the judge made a relevant error. In my opinion, the appellants have not established that the judge erroneously concluded that all of the directors attended at the office of Blake Dawson on 18 October 2010 nor that the Court should infer that Rodaway was not speaking and should not have been found to be speaking as to what the other directors of the Company may have done on the day. In my opinion these findings were plainly open to the judge.
However, the appellants have established that the judge erroneously concluded that the Company would have appointed Horne and Vrsecky as administrators. This conclusion was squarely relied upon in his Honour’s path of reasoning.[20] In my opinion the judge exercised his discretion on an incorrect factual premise which was material. In the circumstances, the judge’s order should be set aside and this Court should exercise its discretion afresh based on the same material.[21] In the result, it is not necessary to examine whether the order ultimately made by the judge was outside the power conferred by s 447A of the Act, or whether, in making the order, the judge failed to accord natural justice to the appellants.
[20]Re Australian Property Custodian Holdings Limited (Administrators Appointed) (Receivers and Managers appointed) [2010] VSC 492, 3–5 [13], [16], [18], [20(b)] and [22].
[21]House v R (1936) 55 CLR 499, 505.
Declaratory relief
In its originating process the respondents sought a declaration that the appointment of the administrators was valid. The judge declined to grant declaratory relief in the Court below. I agree with the judge’s finding that the appointment of the administrators of the Company was not a valid appointment. Having regard to the value of assets excluded from the Daytree Charge relative to the total value of the Company’s assets, it is clear that Daytree was not ‘entitled to enforce a charge on the whole or substantially the whole’ of the Company’s property. Section 436C in its terms therefore did not engage. In my opinion, there is no error revealed in the reasons for judgment on this issue, nor in the conclusion reached. In the circumstances the Court should not grant the declaratory relief sought.
Other relief
In the alternative, the respondents sought an order pursuant to s 447A(1) of the Act appointing Horne and Vrsecky as administrators of the Company. As a further alternative, they sought an order that the appointment or purported appointment of Horne and Vrsecky as administrators of the Company was not invalid but valid.[22] The question therefore arises whether the Court has power under s 447A to make the orders sought and, if so, whether it would be a proper exercise of discretion to do so.
[22]Originating Process dated 26 October 2010 sub-paragraph (c).
Part 5.3A of the Corporations Act 2001 (Cth)
Section 447A is found in Part 5.3A of the Act which contains detailed provisions about how and when the administration of a company is to begin and end.[23]
[23]Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270, 274 [2]; Corporations Act 2001 (Cth) Part 5.3A.
The object of the Part is set out in s 435A which provides:[24]
[24]Corporations Act 2001 (Cth) s 435A.
Object of Part
The object of this Part is to provide for the business, property and affairs of an insolvent company to be administered in a way that:
(a)maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b)if it is not possible for the company or its business to continue in existence – results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.
The Court is given broad powers under s 447A. Section 447A provides:[25]
[25]Corporations Act 2001 (Cth) s 447A.
General power to make orders
(1)The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.
(2)For example, if the Court is satisfied that the administration of a company should end:
(a) because the company is solvent; or
(b) because provisions of this Part are being abused; or
(c) for some other reason;
the Court may order under subsection(1) that that administration is to end.
(3) An order may be made subject to conditions.
(4) An order may be made on the application of:
(a) the company; or
(b) a creditor of the company; or
(c)in the case of a company under administration – the administrator of the company; or
(d)in the case of a company that has executed a deed of company arrangement – the deed’s administrator; or
(e) ASIC; or
(f) any other interested person.
In Australasian Memory Pty Ltd v Brien (‘Australasian Memory’),[26] the High Court (Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ) considered the extent of the power given to the Court by s 447A and looked closely at the statutory language.
[26](2000) 200 CLR 270.
The Court said:[27]
[27](2000) 200 CLR 270, 279–280, 282 [17]–[18], [20], [26] (emphasis in original, footnotes omitted).
It is important to notice that the orders that may be made under s 447A(1) are described as orders about how Pt 5.3A is to operate ‘in relation to a particular company’. The power is not cast in terms of a power to make orders to cure defects or to remedy the consequences of some departure from the scheme set out in the other provisions of Pt 5.3A. Its operation is not confined to such cases. Nor is there anything on the face of s 447A(1) that suggests that it should be read down. In particular, the words of the provision are wide enough to confer power to make orders which will have effect in the future but which are occasioned by something that has been done (or not done) under the other provisions of Pt 5.3A before application is made under s 447A(1).
…
Section 447A(1) speaks of orders about how ‘this Part’ is to operate. The reference to ‘this Part’ cannot be read as referring only to the Part as a whole. That is, it cannot be read as referring, in some global way, to the total operation or effect of the Part. In its context, the reference to ‘this Part’ is to be understood as a reference to each of the provisions in it, for it is the provisions of the Part which give it the operation which an order under s 447A(1) may affect. And although the examples given in s 447A(2) cannot be taken as exhaustive of the scope, or as controlling the meaning, of s 447A(1), it is clear from those examples that they assume that orders under s 447A(1) may alter the operation of other provisions of the Part. That is, the orders contemplated in the examples go beyond a curial determination of what is the effect of existing provisions of the Part on a particular company in the circumstances that may be established in a proceeding; the orders contemplated are orders that alter how the Part is to operate in relation to a particular company, not how the Part does operate in relation to that company.
…
The considerations we have mentioned suggest that the powers under s 447A are wide but they do not compel the conclusion that they are entirely without limit.
…
It may be accepted that the expression ‘how this Part is to operate’ is an expression that looks to the future, not the past. But this temporal requirement is satisfied if orders made under s 447A are orders that have effect only from the time of their making. It does not preclude the making of an order with future effect, but in respect of past matters or events.
It can be seen that s 447A confers wide powers which would enable the making of orders that alter how Part 5.3A is to operate or how a provision within Part 5.3A is to operate in relation to a particular company and does not preclude the making of an order with future effect, but in respect of past matters or events.
In my opinion it is clear from the decision of the High Court in Australasian Memory that the Court has power to alter how Part 5.3A, specifically how s 436C in Part 5.3A, is to operate in relation to the Company and could exercise that power by ordering that Part 5.3A is to operate as though the purported appointment of the administrators by the chargee on 18 October 2010 was valid. This was all but conceded in argument by senior counsel for the appellants. Once such an order is made, the Act will operate as declared and so will operate in respect of actions taken from the nominated date or event. In that sense, an order which validates the appointment of administrators has retrospective effect, an understanding which appears consistent with Australasian Memory, as observed by Gyles J in Re Pasdonnay Pty Ltd.[28] Nevertheless senior counsel for the appellants submitted that any order made under s 447A must be consistent with the objects of the Part.[29]
[28](2005) 53 ACSR 717, 722 [18].
[29]A separate argument that any order under s 447A must have a nexus with Part 5.3A was not pursued because the appellants argued, correctly in my view, that if an order was couched in terms of an appointment by the secured creditor the argument as to nexus would fall away (T 66.14-20).
In an affidavit sworn in support of the application below, William Lionel Lewski, the sole director of Daytree, gave evidence that:[30]
[16] On 15 October 2010, Capital Finance Australia Limited (CFAL) appointed Mark Anthony Korda as receiver to certain of the Trust’s assets held by APCHL. Now shown to me marked ‘WLL-6’ is a true copy of an extract from the records of the Australian Securities and Investments Commission in relation to APCHL, which shows the details of the appointment of Receivers to certain assets of APCHL as trustee of the Trust by CFAL. The appointment of receivers to those assets constituted an Event of Default under the Daytree Charge.
…
[18] Following the appointment of receivers by CFAL, I became concerned that other creditors may seek to wind up APCHL. Daytree appointed Administrators to APCHL (instead of appointing Receivers) as I was concerned that appointing a receiver would not sufficiently protect the Trust. It was unclear at the time whether APCHL was insolvent or likely to become insolvent and given that the rights of the various creditors APCHL are complex, I considered it was safer to appoint Administrators to investigate the position of APCHL.
[19] The ultimate aim of Daytree in appointing the Administrators to APCHL is to have a reconstructed company and service company remain in place whereby APCHL will be retained as the responsible entity and AFSL holder. I have retained advisors to liaise with the various stakeholders of APCHL with the view to finding a realisation pathway that will produce a greater return to the investors/unit holders than would otherwise be the case.
[20] Until the Administrators investigate the affairs of APCHL and determine whether or not it is solvent, Daytree will not be in a position to assess whether or not a scheme of arrangement or deed of company arrangement proposal to investors/unit holders will be necessary or appropriate.
[30]Affidavit of William Lionel Lewski sworn 26 October 2010 [16], [18]–[20].
At the time Mr Lewski’s affidavit was sworn the administration was at a preliminary stage. This evidence nevertheless provides context for the making of an order. In my opinion, the stated aims of the chargee to have a reconstructed company remain in place and to retain advisors to liaise with stakeholders with a view to producing a greater return to investors/unit holders than would otherwise be the case, are consistent with the stated objectives of the Part.[31] There is nothing to indicate from the stated aims of the appointer that an order validating the appointment would be inconsistent with the objects of the Part.
[31]Senior counsel for the appellants accepted that the order made by the judge was consistent with the Part but submitted it didn’t advance the object of the Part (T 47.1–6).
Discretionary considerations
In substance, the appellants submitted that the judge did not consider the impact of pre-dating the appointment of the administrators and how that may have affected accrued rights of the appellants as assignees of part of the CFAL Debt. The appellants submitted that the orders concerning the appointment may well affect the validity of set off/combination of accounts by the respondents. Counsel for the appellants urged the Court not to make an order to validate the appointment of the administrators as at 18 October 2010 but submitted that, if the discretion is to be exercised, the Court should make an order that moves the date of appointment to 19 or 20 October 2010 or the date of judgment. It was submitted that this will eliminate any commercial prejudice to the appellants.
The respondents submitted that the Court should be loath to make an order moving the date of appointment, because it would not promote the purposes of Part 5.3A, and that the Court should not encourage transactions which are taken only for the purpose of gaining an advantage in an anticipated insolvency administration. Presumably, though it was not elaborated upon, the advantage in this case would be that if the assignment of the CFAL Debt to NAB occurred before administrators were appointed, NAB could seek to rely on the mutual set off provisions of the Act to set off the amount due to the Company held by NAB on term deposit against the amount of the CFAL Debt due to the NAB, subject to NAB not being on notice that the Company was insolvent.[32]
[32]Corporations Act 2001 (Cth) s 553C.
In an affidavit sworn by one of the administrators Petr Vrsecky (‘Vrsecky’) on 26 October 2010, Vrsecky set out the numerous steps which had at that time been taken as (purported) administrators of the companies within the Prime Group.[33]
[33]Vrsecky Affidavit [77], [79].
It was submitted by the respondents that many actions had been taken by the administrators promptly and within a few days of appointment which would have to be undone if an order were made setting aside the order; and that if the Court were merely being asked to move the date of the appointment by a day or so, there was an implicit concession by the appellant that much of the administration should not be upset.
Further, it was submitted by the respondents that the judge’s order preserves proper equality between creditors, discourages manoeuvres of the kind that were undertaken, allows all companies in the group to be administered by the same people, preserves the effect of actions taken in good faith by the administrators between the date of the purported appointment and the date of the judge’s decision and accords with good sense.
In Australasian Memory, the Court had occasion to consider the issue of accrued or vested rights in the context of s 447A(1). In doing so, the Court distinguished between two kinds of case. In the first kind of case, steps were taken by members or officers of the company or by third parties which were predicated upon the termination of an administration other than by entering a deed of company arrangement or going into liquidation. In the second kind of case, steps were taken that were predicated upon a company having validly entered a deed of company arrangement or having gone into liquidation. Amongst other things, the Court noted (but did not need to decide) that in the first kind of case an order reinstating the administration may well be inconsistent with rights created in the intervening period which could create insuperable discretionary obstacles to its making. In the second kind of case there would be no inconsistency between the varied operation of Part 5.3A and the rights that have accrued in the intervening period if the order gave legal validity to the premise for the parties’ conduct.[34]
[34]Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270, 283–284 [29]–[31].
This case is akin to the second kind of case posited in Australasian Memory, in that steps were taken by members or officers of the Company and third parties which were predicated upon the administrators having been validly appointed. In Australasian Memory, there were no rights which may have accrued to third parties within the intervening period which were adversely affected by the relevant order and therefore no discretionary obstacles were created.
The appellants submitted that the judge did not consider the impact of pre-dating the appointment of the administrators and how that may affect the rights then accrued by the appellants. I am not persuaded by this submission. On the contrary, his Honour indicated that he had considered such matters when he concluded that ‘no adequate basis’ had been suggested as to why retrospective validation would adversely affect any party or accrued rights.[35] In the Court below, senior counsel then appearing for the appellants had submitted that the Court was ‘not able to exclude the reasonable possibility that there are persons who may not be disadvantaged’ by an order validating the appointment. His Honour’s conclusion was reached in light of that submission in circumstances where the appellants had intervened as contradictors to make submissions as they saw fit, but led no evidence and made no submission that they were prejudiced by the making of an order validating the appointment. In my opinion no error is demonstrated by this finding.
[35]Re Australian Property Custodian Holdings Limited (Administrators Appointed) (Receivers and Managers appointed) [2010] VSC 492, 9 [37].
Senior counsel for the appellants contended that the order made by the judge may well affect accrued rights of the appellants and that the prejudice which would be suffered is the loss of an opportunity to make whatever submission the appellants (or at least NAB) wish to make based on the date of set-off. Before this Court the appellants did not go so far as to say that the appellants will ultimately suffer prejudice or that accrued rights will be adversely affected.
Looking at the matter afresh, in my view there is no insuperable discretionary obstacle to validating the appointment by Daytree from 18 October 2010 when it was purportedly made and I do not propose to change the date.[36]
[36]Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270, 284 [32].
On the evidence, I find that it is highly likely that in any event, administrators would have been appointed by the Company on 18 October 2010. On 15 October 2010, three days before the purported appointment of the administrators, Prime Group senior lenders had appointed receivers to several entities in the Prime Group. Rodaway deposes, ‘[f]ollowing the appointment of receivers by Prime Trust’s senior lenders and advice from its advisers Blake Dawson and PPB, the directors now believed that Prime Trust had no prospect of trading on and that administrators should be appointed to ensure an orderly resolution to matters’.[37]
[37]Rodaway Affidavit [9].
Rodaway’s evidence is that administrators were appointed to (all but one of) the entities described as ‘active entities’ in the Prime Group on 18 October 2010.[38] Presumably these entities acted immediately on the advice given. I accept that this evidence alone does not compel the conclusion that administrators would have been appointed to the Company on the same day, but in my opinion it is highly likely that administrators would also have been appointed to the Company on 18 October 2010 had the purported appointment not been made.
[38]Rodaway Affidavit [2], [11].
This is supported by the evidence. As previously noted, Rodaway was authorised by the directors of each of the corporations comprising the Prime Group to swear his affidavit on their behalf.[39] Rodaway states, ‘had Daytree not appointed Horne and Vrsecky as administrators to the Company and APCH Administrators the directors would in any event have appointed administrators to those companies at the 18 October 2010 meeting’.[40] In this regard, it seems to me that Rodaway’s authority to speak on behalf of all directors of the Company is of more significance than whether all directors were present at the same time in the same place on 18 October 2010. All four directors of the Company authorised Rodaway to say that the directors would in any event have appointed administrators to the Company at the 18 October 2010 meeting had Daytree not appointed Horne and Vrsecky as administrators to the Company.
[39]Rodaway Affidavit [2].
[40]Rodaway Affidavit [12].
In my opinion there are sound reasons for the Court to exercise its discretion to validate the appointment of the administrators. It is consistent with the course which Mr Rodaway deposed to on behalf of all of the directors of the Company. It will ensure that the holding company has administrators appointed on and from the same date as (all but one of) the active subsidiary companies. It will ensure that creditors are treated equally.
Senior counsel for the respondents submitted that the assignment was a manoeuvre to defeat creditors. Although it is possible that this was a motivation for the assignment, there is insufficient evidence to draw any conclusion in this regard and this assertion has not influenced the exercise of my discretion. I consider that the factors which are mentioned above, and to which I have had regard, are not outweighed by the submission on the part of the appellants that to make such an order ‘may well’ affect accrued rights.
In my opinion there should be an order made in the terms sought in paragraph (c) of the originating process pursuant to s 447A that the appointment by Daytree Pty Ltd of Stirling Lindley Horne and Petr Vrsecky as administrators of the Company was valid. This order will in its effect alter how Part 5.3A and specifically how s 436C is to operate in relation to the Company by allowing Daytree to enforce a charge which is on a substantial portion of the Company’s property (approximately 68%) rather than on the whole or substantially the whole of the Company’s property.[41]
[41]Re Australian Property Custodian Holdings Limited (Administrators Appointed) (Receivers and Managers appointed) [2010] VSC 492, 1 [7].
The order should be in the following form:
That Part 5.3A of the Corporations Act is to operate in relation to Australian Property Custodian Holdings Ltd in such a way as to treat the appointment by Daytree Pty Ltd on 18 October 2010, pursuant to s 436C of the Corporations Act, of Stirling Lindley Horne and Petr Vrsecky as administrators of Australian Property Custodian Holdings Ltd as a valid appointment.
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