Niardone v Clubb

Case [2021] FCA 14

FEDERAL COURT OF AUSTRALIA

Niardone v Clubb [2021] FCA 14

File number: WAD 7 of 2021
Judgment of: COLVIN J
Date of judgment: 21 January 2021
Catchwords: CORPORATIONS - application by directors for urgent interlocutory injunction restraining respondents from acting as administrators of company - where appointment of administrators based on claim that company failed to pay fees - where directors dispute fees payable - where parties consented to grant of interlocutory relief if amount paid into Court - whether company required to demonstrate solvency for order to be made for administration to end - consideration of width of power of s 447A of Corporations Act 2001 (Cth) - interlocutory relief granted - order made for administration to end on specified date unless application made by a creditor or other interested party to vary or discharge order
Legislation: Corporations Act 2001 (Cth) ss 435C, 436C, 447A, 1322, Part 5.3A
Cases cited:

Australasian Memory Pty Limited v Brien [2000] HCA 30; (2000) 200 CLR 270

BE Australia WD Pty Ltd (subject to a Deed of Company Arrangement) v Sutton [2011] NSWCA 414; (2011) 82 NSWLR 336

Flynn v Theobald [2008] WASC 263

Re MROC Car Wholesalers Pty Ltd [2017] NSWSC 287

Smolarek v Liwszyc [2006] WASCA 50 (S)
Division: General Division
Registry: Western Australia
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 48
Date of hearing: 20 January 2021
Counsel for the Applicants: Mr AJ Papamatheos
Solicitor for the Applicants: Tottle Partners
Counsel for the First and Third Respondents: MR JR Anderson
Solicitor for the First and Third Respondents: Allen & Overy
Counsel for the Second Respondent: Dr SH Hartford-Davis
Solicitor for the Second Respondent: Ashurst

ORDERS

WAD 7 of 2021
BETWEEN:

PAUL CLEMENT NIARDONE

First Applicant

ADAM STUART DAVEY

Second Applicant

ANDREW PAUL JENSEN

Third Applicant

MATTHEW JOSEPH LAHOOD

Fourth Applicant
AND:

DUNCAN EDWARD CLUBB AND ANDREW THOMAS SALLWAY

First Respondent

MCL 105 PTY LTD (ACN 638 967 218)

Second Respondent

THE AGENCY GROUP AUSTRALIA LTD (ACN 118 913 232)

Third Respondent

ORDER MADE BY:

COLVIN J

DATE OF ORDER:

20 JANUARY 2021

THE COURT ORDERS THAT:

1.To the extent necessary, the applicants have leave pursuant to s 440D of the Corporations Act 2001 (Cth) (the Act) to commence these proceedings against the third respondent. 

2.Until further order and upon the usual undertaking as to damages by the applicants, without any admissions, the first respondents by themselves, their servants and agents, be restrained from:


(a)acting or purporting to act as voluntary administrators of the third respondent; or

(b)taking any steps in their role or purported role as voluntary administrators of the third respondent,

save that nothing in this order prevents the first respondents from notifying creditors of the third respondent, the Australian Securities and Investments Commission, and the Australian Securities Exchange of the making of these orders.

3.Pursuant to s 447A of the Act, Part 5.3A of the Act is to operate in relation to the third respondent in such…

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Niardone v Clubb [2021] FCA 14
Case
[2021] FCA 14
Decision Date

CaseChat Overview and Summary

The case involves The Agency, its directors, and MCL. The directors of The Agency sought an urgent interlocutory injunction to restrain the respondents from acting as administrators of the company. The appointment of administrators was based on a claim that The Agency failed to pay fees. The directors dispute the fees payable. The parties had consented to the grant of interlocutory relief if a certain amount was paid into court. The legal issue before the court was whether The Agency was required to demonstrate solvency for the court to make an order for the administration to end. The court considered the scope of the power under s 447A of the Corporations Act 2001 (Cth). The court found that the onus was not on The Agency to demonstrate solvency for the court to make an order for the administration to end. The court granted the interlocutory relief and made an order for the administration to end on a specified date unless a creditor or other interested party applied to vary or discharge the order. The court found that the provision contemplates that there may be instances where matters other than the demonstrated solvency of the company in administration is the basis for an order that the administration of the company is at an end. The court also found that the example of the case where the Court is satisfied that the company is solvent is provided as an example only and is not exhaustive.

Orders

Orders of the court

1. To the extent necessary, the applicants have leave pursuant to s 440D of the Corporations Act 2001 (Cth) (the Act) to commence these proceedings against the third respondent.

2. Until further order and upon the usual undertaking as to damages by the applicants, without any admissions, the first respondents by themselves, their servants and agents, be restrained from:

(a) acting or purporting to act as voluntary administrators of the third respondent; or

(b) taking any steps in their role or purported role as voluntary administrators of the third respondent,

save that nothing in this order prevents the first respondents from notifying creditors of the third respondent, the Australian Securities and Investments Commission, and the Australian Securities Exchange of the making of these orders.

3. Pursuant to s 447A of the Act, Part 5.3A of the Act is to operate in relation to the third respondent in such a way as to treat the appointment or purported appointment of the first respondents as voluntary administrators of the third respondent as having no effect pending the determination of these proceedings or earlier further order of this Honourable Court, except that each of:

(a) Subdivision B of Division 9 of Part 5.3A of the Act;

(b) Division 13 of Part 5.3A of the Act;

(c) Sections 451E, 451F, 451G and 451GA of the Act; and

(d) Division 60 of Schedule 2 of the Act,

continue, without any admission, to operate in accordance with their terms in relation to the third respondent until further order.

4. Insofar as may be necessary to do so, and subject to order 6, pursuant to s 1322(4)(d) of the Act, extend the period for the convening pursuant to s 436E of the Act of the first meeting of creditors of the third respondent to a date within eight business days after the determination of these proceedings.

5. The third respondent pay into Court the sum of $400,000 by 22 January 2021.

6. Subject to the third respondent complying with order 5 the administration or purported administration of the third respondent end at 4.00 pm AWST on 1 February 2021.

7. Leave be given to any creditor of the company or any other party with sufficient interest to apply to vary or discharge order 6 and notice of any such application be given to the applicants and the application be heard at 9.15 am on 1 February 2021.

8. The matter otherwise be adjourned to a case management hearing on 9.15 am on 1 February 2021.

9. As soon as possible, the applicants do provide notice of the hearing on 1 February 2021 and its purpose on the ASX platform.

10. Costs reserved.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

These are my reasons for making those additional orders.Factual background Mr Mitchell Atkins, the sole director and company secretary of MCL, provided an affidavit in opposition to the application for urgent relief. Relevantly for present purposes, the terms of that affidavit show:(1)Mr Atkins was introduced to The Agency in July 2019.(2)He operates a business known as Magnolia Capital.(3)Between July and September 2019, Mr Atkins arranged for related entitles of Magnolia to subscribe for $3,329,632 in shares in The Agency which represents 17.9% of the total shares on issue by The Agency.(4)Mr Atkins became a director of The Agency on 1 October 2019.(5)At this time and for some time thereafter, The Agency was seeking required capital and to negotiate extensions of time with its principal lender Macquarie Bank.(6)The Agency negotiated an extension of its facilities with Macquarie Bank to April 2020.(7)In late January, Mr Atkins was asked whether Magnolia Capital would source funds to refinance Macquarie Bank and provide The Agency with working capital.(8)Shortly thereafter, the Letter of Offer was issued by MCL to The Agency.(9)The Letter of Offer provided for fees of a kind that were said to be typically required because Magnolia Capital 'incurs costs considering investments, promoting opportunities amongst its network and raising the required funds necessary to provide loans'.(10)The board of The Agency resolved to accept the offer (being a resolution in which Mr Atkins did not participate given his relationship with Magnolia Capital and MCL).(11)The provision of finance by MCL was delayed because information was not provided by The Agency.(12)The Agency secured forbearance terms with Macquarie Bank in or around April 2020 by securing funds through a third party without the consent of Magnolia Capital.(13)There was a board meeting of 1 May 2020 and the events that occurred at that meeting are in dispute between Mr Atkins on the one hand and the other directors. It is the meeting at which the directors who bring the application contend that the agreement recorded in the Letter of Offer was terminated.(14)Thereafter, MCL provided no funding to The Agency.(15)On 1 May 2020, even though MCL had provided no funding, it registered a claimed security interest on the Personal Property Securities Register (PPSR) against The Agency (and a considerable number of its subsidiaries).(16)On 8 May 2020, Mr Atkins resigned as a director of The Agency.(17)Since then Peters Investments Pty Ltd has subscribed for convertible notes in The Agency in two tranches being $1 million in May 2020 and $5 million in October 2020. Other evidence before the Court in support of the urgent application is to the following effect:(1)Financial close was contemplated by the Letter of Offer to occur on 31 March 2020, but did not do so by reason that Magnolia Capital and MCL were still seeking funds from investors.(2)Between May and November 2020, correspondence was exchanged between the parties in which claims by MCL that The Agency had breached exclusivity provisions in the Letter of Offer and other matters were debated.(3)Eventually, MCL released its PPSR registrations.(4)On 26 November 2020, solicitors acting for MCL for the first time demanded payment of various fees alleged to be due under the terms of the Letter of Offer (described as establishment fee $300,000, due diligence fee $9,090.91, early withdrawal fee $24,750, legal fees $15,478.90 and search fees $200.18).(5)On 4 December 2020, Magnolia Equities III Pty Ltd informed The Agency that it intended to made a takeover bid for the company.(6)On 16 December 2020, an application was made to the Takeovers Panel by Magnolia Equities III.(7)On 4 January 2021, Magnolia Equities III lodged its bidder's statement.(8)On 18 January 2021 (the day before the purported appointment of administrators to The Agency), payment of the fees alleged to be due was demanded by 5 pm that day.(9)On 19 January 2021, a solicitor acting for Magnolia Equities III sent an email to the Takeovers Panel referring to the alleged appointment of Mr Sallway and Mr Clubb as administrators of The Agency and advised that Magnolia Equities III would rely upon the appointment as a triggering defeating condition for its bid and would not be sending out offers to The Agency shareholders. (10)The Agency has secured refinancing and has reduced its indebtedness to Macquarie Bank.The Letter of Offer

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

For MCL it was submitted that the onus was on The Agency to demonstrate solvency in order to persuade the Court to make such an order on such a basis and on the evidence it was said that there was simply an assertion as to solvency. Further, it was said that the evidence indicated that The Agency had been endeavouring for some time to raise funds and had experienced some difficulty in doing so in 2020. In those circumstances, it was submitted that the Court lacked the power to make the order sought.The power of the Court to order that an administration has ended Relevantly for present purposes, s 435C of the Corporations Act provides: (1) The administration of a company:(a)begins when an administrator of the company is appointed under section 436A, 436B or 436C; and(b)ends on the happening of whichever event of a kind referred to in subsection (2) or (3) happens first after the administration begins.(2) The normal outcome of the administration of a company is that:(a)a deed of company arrangement is executed by both the company and the deed’s administrator; or(b)the company’s creditors resolve under paragraph 439C(b) that the administration should end; or(c)the company’s creditors resolve under paragraph 439C(c) that the company be wound up.(3) However, the administration of a company may also end because:(a)the Court orders, under section 447A or otherwise, that the administration is to end, for example, because the Court is satisfied that the company is solvent; or…(4)During the administration of a company, the company is taken to be under administration. The key provision for present purposes is s 435C(3) which provides that the administration of a company may end because the Court orders 'under section 447A or otherwise, that the administration is to end'. The example is given of the case where the Court is satisfied that the company is solvent. Significantly, that instance is provided as an example only. Plainly, the provision contemplates that there may be instances where matters other than the demonstrated solvency of the company in administration is the basis for an order that the administration of the company is at an end. Section 447A is in the same Part of s 435C and provides:(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 the 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.