Papua New Guinea Dockyard Ltd v Adams - [2005] FCA 413

FEDERAL COURT OF AUSTRALIA
Papua New Guinea Dockyard Limited v Adams [2005] FCA 413
CORPORATIONS – deed of company arrangement – application for termination – floating charge – validity of charge – whether granted to “relevant person”
PRACTICE AND PROCEDURE – parties – application to terminate deed of company arrangement – necessary parties
Corporations Act 2001 (Cth) ss 267, 445D
Corporations Regulations 2001 (Cth) reg 5.3A.07
Administration of the Territory of Papua New Guinea v Daera Guba (1973) 130 CLR 353 applied
Bateman v Newhaven Park Stud Ltd (2004) 49 ACSR 597 cited
Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612 applied
Challenge Charter Pty Ltd v Curtain Bros (Qld) Pty Ltd [2004] VSC 1 cited
IPT Systems Ltd v Mtic Corporate Pty Ltd (2000) 36 ACSR 454 not followed in part
Jesserson Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (1994) 13 ACSR 455 distinguished
Langton, in the Estate of [1964] P 163 applied
Linen House Pty Ltd v Rugs Galore Australia Pty Ltd [1999] VSC 126 cited
McVeith v Linen House Pty Ltd (No 2) (2000) 1 VR 31 cited
Nana Ofori Atta II v Nana Abu Bonsra II [1958] AC 95 applied
Osborne v Smith (1960) 105 CLR 153 applied
Sydney Land Corporation Pty Ltd v Kalon Pty Ltd (1997) 142 FLR 188 cited
PAPUA NEW GUINEA DOCKYARD LIMITED v JOHN DAVID ADAMS, LAURENCE ANDREW FITZGERALD, MORTIM (AUSTRALIA) PTY LTD, JOHN LINDHOLM AND CHALLENGE CHARTER PTY LIMITED
V 1020 of 2004
FINKELSTEIN J
15 APRIL 2005
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

V 1020 of 2004

BETWEEN:

PAPUA NEW GUINEA DOCKYARD LIMITED
Plaintiff

AND:

JOHN DAVID ADAMS, LAURENCE ANDREW FITZGERALD, MORTIM (AUSTRALIA) PTY LTD, JOHN LINDHOLM AND CHALLENGE CHARTER PTY LIMITED
Defendants

JUDGE:

FINKELSTEIN J

DATE:

15 APRIL 2005

PLACE:

MELBOURNE

REASONS FOR JUDGMENT

Last year the fifth defendant, Challenger Charter Pty Ltd, found itself in financial difficulty. Believing that the company was insolvent, its sole director, Mr Goldschlager, appointed an accountant to be its administrator under s 436A of the Corporations Act 2001 (Cth). At the first meeting of the company’s creditors they resolved to remove the accountant from office and to appoint the first and second defendants, Mr Adams and Mr Fitzgerald, to be the administrators in his place. At the second meeting of the company’s creditors it was decided that Challenge Charter should, and it thereafter did, execute a deed of company arrangement. The effect of the deed is to extinguish the claims of all unsecured creditors, apart from those associated with Mr Goldschlager, upon payment to them parri passu of the sum of $85,000 plus 20% of the net proceeds of an action in the Supreme Court of Victoria between Challenge Charter and the plaintiff (being action no 8384 of 2001), less the costs and expenses of the administration. The sum of $85,000 was paid to the administrators by the third defendant, Mortim (Australia) Pty Ltd, a company that holds a floating charge over…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2005] FCA 413
Decision Date: 15 APRIL 2005

CaseChat Overview and Summary

The Federal Court of Australia heard a case involving Papua New Guinea Dockyard Limited (the plaintiff) against John David Adams, Laurence Andrew Fitzgerald, Mortim (Australia) Pty Ltd, John Lindholm, and Challenge Charter Pty Ltd (the defendants). The plaintiff, an unsecured creditor of Challenge Charter, sought to set aside a deed of company arrangement or terminate it, as well as to have a floating charge declared void. The deed aimed to extinguish the claims of all unsecured creditors, except those associated with Mr Goldschlager, upon payment of $85,000 plus 20% of the net proceeds of a lawsuit between Challenge Charter and the plaintiff. The charge in question secured a debt of $169,770.

The legal issues the court had to decide included whether the deed of company arrangement should be terminated, whether the floating charge was valid, and which parties should be involved in the proceedings. The court held that the unsecured creditors who were bound by the deed did not need to be made parties to the proceeding, as they had been given notice of the application and chose not to intervene. The court also found that the administrators had not conducted a detailed investigation into potentially unfair or uncommercial transactions, which could have affected the creditors' decision to adopt the deed. As a result, the deed should be terminated, and Challenge Charter put into liquidation.

Regarding the floating charge, the court found that Mortim was not a "relevant person" associated with Mr Goldschlager, as there was no evidence of them acting in concert in relation to the creation of the charge. Therefore, the challenge to the charge must fail. The court ordered that the plaintiff would pay the costs of Mortim, while the plaintiff would receive 20% of the costs of the action, which would be considered costs in the administration. The plaintiff was to bring in short minutes of orders within seven days to give effect to these reasons.

Orders