Open Telecommunications Ltd (Subject to Deed of Company Arrangement)

[2003] NSWSC 1198

CITATION:	Open Telecommunications Ltd (Subject to Deed of Company Arrangement) [2003] NSWSC 1198
HEARING DATE(S):	3 December 2003
JUDGMENT DATE:	3 December 2003
JURISDICTION:	Equity
JUDGMENT OF:	Hamilton J
DECISION:	Directions given to DCA administrator.
CATCHWORDS:	CORPORATIONS [176] - Voluntary administration - Jurisdiction and powers of court - General power to make orders - Application for directions - Principles on which discretion will be exercised.
LEGISLATION CITED:	Corporations Act 2001 (Cth) s 447D
CASES CITED:	Derwinto Pty Ltd (in liq) v Lewis (2002) 42 ACSR 645 Editions Tom Thompson Pty Ltd v Pilley (1997) 77 FCR 141 Re Ansett Australia Ltd v Korda (2002) 115 FCR 409 Re Ansett Australia Ltd v Mentha (2002) 41 ACSR 605 Re Magik Australia Pty Ltd (in liq) (1992) 7 ACSR 742
PARTIES :	Open Telecommunications Ltd (P) Peter George Yates (Administrator)
FILE NUMBER(S):	SC 6086/03
COUNSEL:	A P Ryan, Solicitor (P/Administrator)
SOLICITORS:	Blake Dawson Waldron (P/Administrator)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HAMILTON J

WEDNESDAY, 3 DECEMBER 2003

6086/03 RE OPEN TELECOMMUNICATIONS LTD (subject to Deed of Company Arrangement)

JUDGMENT

1 HIS HONOUR: In these proceedings a deed administrator applies for directions under s 447D of the Corporations Act 2001 (Cth) (“the CA”). The directions that he applies for are directions that he would be justified in executing and giving effect to a varied deed of company arrangement and a creditors’ trust deed which are proposed. Section 447D(1) of the CA provides as follows:

“The administrator of a company under administration, or of a deed of company arrangement, may apply to the Court for directions about a matter arising in connection with the performance or exercise of any of the administrator's functions and powers.”

2 The principles on which this discretion will be exercised by the Court have been addressed in a number of cases. The discretion is a wide one. The deed administrator’s right to apply for directions should be treated as analogous to a liquidator’s right to apply for directions under s 479(3) of the CA; see the decision of Lindgren J in Editions Tom Thompson Pty Ltd v Pilley (1997) 77 FCR 141. The circumstances in which the discretion should be exercised were discussed at length by Goldberg J in Re Ansett Australia Ltd v Korda (2002) 115 FCR 409. After a lengthy review of the authorities his Honour said at [65]:

“This review of the authorities satisfies me that the prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance. There must be some issue which arises in relation to the decision. A court should not give its imprimatur to a business decision simply to alleviate a liquidator's or administrator's unease. There must be an issue calling for the exercise of legal judgment. ”

See also the further observations of Goldberg J in Re Ansett Australia Ltd v Mentha (2002) 41 ACSR 605 at [45] - [46]. I approach this matter in accordance with those principles.

3 In this case the company is already subject to a deed of company arrangement (“DCA”). Under the DCA a fund is to be created in favour of employee creditors and a further fund is to be created in favour of other unsecured creditors. The company was previously listed on the Stock Exchange. An opportunity has now arisen for at least $7.2 m to be raised by a share placement if the company can be restored to the Stock Exchange board. However, it is unlikely to be restored whilst subject to a DCA. It would be to the creditors’ advantage if it could be restored, since they would be more likely to receive in full the amounts which the DCA contemplates they should be paid if money can be raised in this way. The creditors’ position is fully protected, because the arrangement now proposed will be put into effect only if they vote in favour of it at a further creditors’ meeting proposed to be called.

4 The mechanism proposed by the deed administrator is quite ingenious. It is for the adoption of an amended DCA coupled with a creditors’ trust deed. This would remove the sums promised to creditors from the ambit of the DCA to the ambit of a deed of trust. When this is done, the DCA could be discharged; the company would no longer be subject to a DCA; and it is likely that it could be restored to the Stock Exchange board and the contemplated additional capital sums raised, both to feed the promised amounts into a scheme for the creditors and to restore the company to viability. Although this would take the management of the money outside the ambit of the CA, it would be held and supervised in the creditors’ interests according to the general law of trusts and their position would be thus protected. Even disputes as to entitlement, if they arose, would have a mechanism for their resolution through the provisions of s 63 of the Trustee Act 1925. The existence of that mechanism would be brought to the attention of relevant parties by the giving of notices under s 63(8) of the Trustee Act.

5 The administrator in this case is not blowing hot and cold or in any way exhibiting doubts or seeking reassurance from the Court on a commercial basis. On the evidence he is firmly of the view that the proposed scheme is viable and offers a better commercial solution than the present scheme under the DCA. Incidentally, it should be added that the new documentation provides that, if the implementation of the new scheme fails, the situation will revert in effect to the present situation and the creditors will be no worse off than they are at present. The administrator approaches the Court for assurance as to the legality and propriety of his entering into such arrangement in the light of doubts which may conceivably arise as to whether he is justified in taking the considerable sums of money potentially involved (in the vicinity altogether of $2m) out of the ambit of the CA to be clothed in the legal garments which I have described.

6 It seems to me that to give the administrator assurance on that narrow front is within the proper ambit of s 447D. In my view there can be no objection on the ground of legality or propriety to the course he proposes to follow. I propose to give directions accordingly. Those directions need to be read in the light of the fact that the arrangement must be approved by the creditors to be implemented and the fact that the provision of the directions that the administrator is justified in following the course. The directions are also to be read in the light of the remarks that I have made in these reasons for judgment. The advantages of the course to all concerned appear from the facts as I have set them out above. On the basis of this factual matter I propose to give the directions under s 447D(1) as asked.

7 I should add only that there is no question in this case of the adjudication of the legal rights of various persons. McLelland J observed that an application for directions “is not an appropriate vehicle for the determination of substantive issues”: Re Magik Australia Pty Ltd (in liq) (1992) 7 ACSR 742 at 745. The application of that principle was further discussed by Austin J in Derwinto Pty Ltd (in liq) v Lewis (2002) 42 ACSR 645 at [26] - [28].

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Last Modified: 03/19/2004