National Australia Bank v Premier Pork

[1999] NSWSC 824

CITATION:	National Australia Bank v Premier Pork [1999] NSWSC 824
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	1929 of 1999
HEARING DATE(S):	26 and 27 July 1999
JUDGMENT DATE:	27 July 1999
PARTIES :	National Australia Limited (Plaintiff) Premier Pork Pty. Limited (Defendant)
JUDGMENT OF:	Windeyer J at 1

COUNSEL :	Mr. S. Reeves (Plaintiff) Mr. J. Johnson (Defendant)
SOLICITORS:	Mallesons Stephen Jaques (Plaintiff) Garrett Walmsley Madgwick (Defendant)
CATCHWORDS:	CORPORATIONS - management and administration - winding up - order sought pursuant to s447A of the Corporations Law for extension of the convening period for the calling of a meeting of creditors - no sound basis for such an extension - administrator to take proper care - deficient report to creditors - order made for winding up of company
ACTS CITED:	Corporations Law ss439A(b), 447A and 1322
CASES CITED:	Re: Ricon Constructions Pty. Limited (1997) 26 ACSR 55
DECISION:	See paragraphs 15 to 18

1

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

TUESDAY 27 JULY 1999

1929/99 NATIONAL AUSTRALIA BANK LIMITED v PREMIER PORK PTY. LIMITED

JUDGMENT

1    HIS HONOUR: In this matter the defendant company, Premier Pork Pty. Limited (Premier Pork), which is under administration, seeks an order that the convening period for the calling of the second meeting of creditors in the administration be extended by one day.

2    The basic facts are that Mr. Andrew Wily was appointed administrator of Premier Pork on 30 June 1999. The respondent, National Australia Bank Limited (NAB) had filed a summons for the winding up of Premier Pork on 8 April 1999 founded on a statutory demand served on 13 December 1998 claiming a debt of $1,066,703.37 on an overdraft account. That summons was stood over to 26 July 1999 for the hearing of the notice of motion and was further stood over yesterday until today.

3    There were two supporting creditors, both seeking that a winding up order be made. In other words, those supporting creditors did not support the motion before the Court.

4    The first creditors meeting was held on 6 July 1999. At that meeting the creditors present (it appears all by proxy) resolved not to appoint a committee of creditors. Those creditors who voted against the appointment were represented by proxy by either Mr. Al Constantinidis or his wife Maria Constantinidis. The administrator on 20 July, sent a letter to creditors convening the second meeting of creditors on 28 July 1999. That was one day outside five days after the convening period. The notice of motion, therefore, seeks an order extending the convening period by one day.

5 As the application was not made within the convening period there is no power under s439A(b) of the Corporations Law to extend the time. The application is made under s447A of the Corporations Law, or perhaps, but this was not expressly stated, under s1322. While I might have had some doubts about the matter in considering the matter afresh without the benefit of authority it was held by Santow J in Re: Ricon Constructions Pty Limited (1997) 26 ACSR 55 that s447A gave power to extend time in circumstances such as this. In that case he gave a careful consideration to earlier decisions. I intend to follow his decision. I was not asked to do otherwise than to note that the respondent bank argued that there was no such power so as to preserve its rights on appeal if necessary.

6 While there is power under s447A to make an order on application of a company, I do not consider such a power can be exercised so as to extend the convening period unless the application is made by the administrator. It would seem to me that on that technical basis the motion must fail, although were it not for my conclusion on more important grounds, it would probably have been proper to have made an order adding the administrator as an applicant to the motion as this point had not been argued. Even that would perhaps require some further consideration as one has less sympathy with a last minute application to the court to exercise its discretion in favour of an incorrect applicant.

7    I turn to more substantial matters. The applicant says that the Court should be quick to assist in the case of a procedural mistake. That is partly true, but the periods fixed by law for the calling of meetings during an administration ought not to be regarded as guidelines only. Administrators must be expected to take proper care in the exercise of their functions. Proper care includes an ability to count. The respondent bank says that in the exercise of my discretion I should refuse to make the orders.

8    It says:

A. The first meeting of creditors was called, yet some creditors were not notified. In answer to that the administrator said he did his best on the information available to him. I accept that, but the fact is that no information as to creditors has ever been given by the directors. It seems to have come from some books in the custody of Mr. Constantinidis, who is not shown to have any official, or other, position with the company.

B. All creditors, other than those apparently associated with Mr. & Mrs. Constantinidis, voted for a committee of creditors and for an administrator other than Mr. Wily.

C. Any information coming from Mr. Constantinidis as to creditors should be treated with suspicion because, in affidavit evidence, in a matter which appears to be somehow related, he deposed to the creditors of Premier Pork being in an amount of $20,000, yet later sought to represent those claiming total debts to be owing to them of $1,996,689.

D. The minutes of the first meeting of creditors listing the creditors present lists no amounts of debts, in contrast to the minutes of a similar meeting of the company to which I have referred, namely Rustlers Food Group Pty. Limited.

E. The appointment of Mr. Wily as administrator was not properly made as it was not properly executed under the seal of the company in the manner required by the Articles of Association and yet purports to be executed under such seal. I should say that I do not think this should be taken into consideration as there is a separate provision in the Corporations Law as to the setting aside of appointments not properly made.

F. The report to creditors is deficient. It contains the following statement by the administrator:

I have been advised that the primary reason for the company's failure was the National Australia Bank withdrawing and refusing to review the company's overdraft facility.

Yet the proposal recommended by the administrator for a deed of company sets out the proposal as follows:

I have received a proposal from the directors in accordance with s439A(c) of the "Law". I advise that the main provision of the deed of company arrangement is as follows:
1. That litigation funding be sought in order that the company pursue its cause of action against the National Australia Bank in respect of the refusal by the National Australia Bank to provide commercial bills which the National Australia Bank had contracted with Premier Pork Pty. Limited to provide to it; and
2. That the company pursue its cause of action against the National Australia Bank;
3. That pending the provision of litigation funding, should it prove necessary for the litigation to be commenced, Mr. Achilles Constantinidis agrees to fund the proceedings on behalf of the company.

9    The administrator supported the deed of company arrangement proposed on the basis that it was unlikely that there would be any realisations by a liquidator for the benefit of unsecured creditors and that the support of Mr. Constantinidis would not be available in the event of a liquidation. I should add that there is nothing to show that the support of Mr. Constantinidis would have been valuable support, and there is nothing to show one way or the other whether he would be able to give that support. The administrator went on to say:

By comparison a DCA immediately protects the contingent assets of the potential litigation, which is a very real benefit to both creditors and shareholders of the company.

10    His opinion was that it was in the interests of creditors and shareholders to accept the deed of company arrangement as a substantial contingent asset would be preserved, there would appear to be substantial tax advantages for shareholders and the potential recovery for unsecured creditors and shareholders would be substantially increased. He said that the unsecured creditors were shown in the report as to affairs to amount to $3 million. I should add the report as to affairs shows no such thing.

11    I decided to reserve my decision overnight so that I could study the evidence and the documents more closely. I did this because I am of the opinion that in an application of this sort, where discretion is involved, the court ought to be satisfied that the extension that is sought is justified, and therefore, in the exercise of the discretion, the court should give some consideration to the opinion put forward by the administrator and to form some view whether or not it is in the interests of all those concerned that the extension sought be granted.

12    After careful consideration I have come to the conclusion that there is no sound basis for the granting of an extension. It is apparent that the administrator has received no information at all from the directors. The report as to affairs signed by one of the directors is not a report at all, in that there is no information given and every question which is asked is answered with a question mark. There is no suggestion that there are any contingent assets. There is no information whatever as to the creditors. The administrator said that the books of the company were made available to him by Mr. Constantinidis. Presumably any information be obtained as to some possible claim against NAB came from Mr. Constantinidis as well. There is no suggestion it came from the directors. There is no suggestion that Mr. Constantinidis has any interest whatever in the company.

13    In addition the following matters are of some significance: The creditors for whom Mr or Mrs Constantinidis held proxies and who voted at the first meeting are not listed as creditors in the list referred to in the letter from Messrs. Garrett Walmsley & Madgwick, solicitors for the administrator of 23 July 1999, which specified the creditors to whom the report to creditors was sent, although it is probably fair to say that Mr & Mrs Constantinidis were specified on that list. More important, the proposal put forward as the main provision of the deed of company arrangement, namely that litigation funding be sought for the purpose I have set out, and that the company pursue its cause of action against the bank, is a recommendation for a deed of company arrangement for a purpose for which no foundation whatever is shown. In fact, the proposed action is identical with the proposal put forward in the administration of Rustlers Food Group Pty Limited and is quite unconnected with the reason put forward for the failure of the company. I should say the opinion of the administrator in support of the deed of arrangement is expressed in precisely the same terms as it is in the case of the report in the Rustlers matter. There is no suggestion anywhere that the NAB was obliged not to withdraw credit and was obliged to review the overdraft facility. There is no basis to suggest that litigation funding might be available; and as opposed to the report in Rustlers, there is nothing to suggest that legal advice has been obtained as to the possible success of any action against the bank and, of course, as I have said, it is clear there is no maintainable claim for that which is proposed to be somehow put forward.

14    In all the circumstances I have come to the clear view that there has been no proper basis put forward to support the proposed deed of company arrangement; that no proper consideration could have been given to this as no basis has been shown for the proposed action and there is no evidence that any director supports it. I am of the clear view that it is in the interest of all concerned the company be wound up and the liquidator can then determine whether or not there is a ground for any claim against the bank.

15    The effect of the dismissal of the notice of motion will be that the administration is at an end. On that basis it is clear and it is accepted that an order for winding up should be made and I propose to dismiss the notice of motion and make an order for winding up.

(Counsel addressed)

16    So far as the costs of the notice of motion are concerned, while I have been critical of the administrator's report and in the exercise of my discretion have decided I should not grant the extension sought, I do not think that I should make an order that Mr. Wily pay the costs personally: Nevertheless I add that it is a borderline decision.

17    In those circumstances I will make no order as to costs and order that the company be wound up, that the plaintiff's costs of the notice of motion be paid out of the assets of the company.

18    The orders I will make are:

1. That the notice of motion filed on 26 July 1999 be dismissed.

2. That Premier Pork Pty. Limited be wound up.

3. That Anthony Milton Sims of Sims Lockwood & Partners, Level 13, Norwich House, 6-10 O'Connell Street, Sydney be appointed as liquidator of the company.

4. That the plaintiff's costs of the proceedings for winding up and its costs of the notice of motion be paid out of the assets of the company.

5. That the costs of the supporting creditors be paid out of the assets of the company.

6. The exhibits may be returned.

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Last Modified: 08/24/1999