Peter Stannard Homes Pty Ltd v Lyford

[2000] WASC 18

PETER STANNARD HOMES PTY LTD -v- LYFORD [2000] WASC 18

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2000] WASC 18
Published:	07/02/2000
Case No:	COR:334/1999	Heard:	18 JANUARY 2000
Coram:	MASTER BREDMEYER	Delivered:	28/01/00
No of pages:	6	Judgment Part:	1 of 1
Result:	Application dismissed
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Parties:	PETER STANNARD HOMES PTY LTD MAURICE HODGSON LYFORD
Catchwords:	Corporations Application to remove administrator
Legislation:	Corporations Law s 449B, s 447A, s 447B, s 447E
Case References:	Network Exchange Pty Ltd v MIG International (1994) 12 ACLC 594 Australasian Memory Pty Ltd v Brien (1998) 16 ACLC 1750 Petrochemical Industries Ltd (In Liq) v Dempster Nominees Pty Ltd (administrator appointed) (1995) 15 ACSR 468 Re Ballon (1994) 12 ACLC 166

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA CITATION : PETER STANNARD HOMES PTY LTD -v- LYFORD [2000] WASC 18 CORAM : MASTER BREDMEYER HEARD : 18 JANUARY 2000 DELIVERED : 28 JANUARY 2000 PUBLISHED : 7 FEBRUARY 2000 FILE NO/S : COR 334 of 1999 BETWEEN : PETER STANNARD HOMES PTY LTD

Applicant

AND

MAURICE HODGSON LYFORD
Respondent

Catchwords:

Corporations - Application to remove administrator

Legislation:

Corporations Law s 449B, s 447A, s 447B, s 447E

Result:

Application dismissed

(Page 2)

Representation:

Counsel:

Applicant : Mr G R Donaldson
Respondent : Ms K Eagle

Solicitors:

Applicant : Hotchkin Hanly
Respondent : Cahill Billington

Case(s) referred to in judgment(s):

Network Exchange Pty Ltd v MIG International (1994) 12 ACLC 594

Case(s) also cited:

Australasian Memory Pty Ltd v Brien (1998) 16 ACLC 1750
Petrochemical Industries Ltd (In Liq) v Dempster Nominees Pty Ltd (administrator appointed) (1995) 15 ACSR 468
Re Ballon (1994) 12 ACLC 166

(Page 3)

1 MASTER BREDMEYER: This is an application by a creditor to remove the administrator of Turner Corporation Pty Ltd (the company) and replace him by another. The applicant is Peter Stannard Homes Pty Ltd, which is a major creditor of the company, with a debt of $200,000. It is a judgment debt. The present administrator is the respondent, Mr Lyford. The applicant wants the Court to replace him with a Mr Francis. Both are qualified liquidators, receivers and administrators.

2 The application is made under s 449B, s 447A, s 447B and s 447E of the Corporations Law (the Law), but the most relevant section is s 449B. I accept the view of Hayne J in Network Exchange Pty Ltd v MIG International (1994) 12 ACLC 594 at 599 that an administrator should be replaced only if that would be "for the better conduct of the administration". It is not done on a whim or because a creditor prefers A to B.

3 I note that, although five orders are stated in the application, the present application is for orders 1, 2 and 5 only. It is not sought today to set aside the deed of company arrangement. That part of the application is to be adjourned.

4 I now consider the several matters said to justify the removal of Mr Lyford. The first is that he is said to have a conflict of interest. I consider there is nothing in that. He revealed to the first meeting of creditors his previous appointment in April 1999 as an investigating accountant to the company. The matter was debated and the present applicant was there through its director, Mr Stannard, and his solicitor. A vote was taken to retain Mr Lyford. Since then it has been revealed that Mr Lyford had some other involvement in the company in later months. That involvement was slight and neither that involvement nor his failure to mention it justifies his removal.

5 The second complaint is that Mr Lyford did not investigate adequately the claim of Mr Turner as to the enforceability of the Vision charge, Vision being one of the creditors.

6 When Mr Lyford was the investigating accountant in May 1999, he noted that the Vision charge was for $2 million, that Turner claimed it was invalid, or of no value because he had a counterclaim of $2.2 million. Turner also said he accepted that his counterclaim against Vision "will produce nothing". So that is confusing. On the one hand he says he has a counterclaim against the Vision charge. On the other hand he considers it will produce nothing. What investigations did Mr Lyford make as

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administrator into this charge and Mr Turner's claims against it? Not much, it seems. He said the charge appeared valid on the face of it and Vision had agreed in the deed of company arrangement to let unsecured creditors have the first $200,000 and to reduce the secured part of the debt from $2 million to $1.1 million. That seemed good to Mr Lyford. It was a compromise; a secured debt of $2.3 million abandoned as to the first $200,000 and reduced to $1.1 million secured and the rest unsecured.

7 The administrator appears to have made no independent examination of Turner's claims that the deed was invalid and that his company had a counterclaim of $2.2 million. The administrator thought the deed was valid on the face of it. Mr Turner had not supplied him with any information to support his claim and the proposed deed of company arrangement compromised Vision's debt. Mr Lyford could have asked Mr Turner for details of his claim. The administrator's duties in this regard are set out in s 438A of the Law. He is to investigate the company's business property affairs and financial circumstances and to form an opinion about whether it is in the interests of the company's creditors for the company to execute a deed of company arrangement; whether it is in the creditors' interest for the administration to end; or whether it would be in the creditors' interest for the company to be wound up. I have referred to the CCH commentary on this section. The administrator is not required to investigate the company's affairs as carefully as a liquidator. Given the short time available for the administrator to do this, 21 to 28 days, I am unable to say that he failed in his investigative duties. The fact that Vision was willing to compromise its secured claim in the two ways mentioned was no doubt a powerful factor in his forming the opinion in favour of the deed of company arrangement. I consider that was a reasonable commercial decision for him to make.

8 Thirdly, it is said that the administrator did not investigate adequately Turner's claims to be owed $18 million. Mr Lyford obtained a written report on this from Mr Turner and, in his report to creditors prepared for the second meeting, he said he considered Mr Turner's claim to be valid. He did not, apparently, see the 1990 deed of release to Turner and he noted that the $18 million debt was always shown as such in the accounts of the company and appeared valid.

9 I do not see Turner's claim for $18 million debt as "fanciful", as the applicant argued. It could be correct. Turner borrowed $18 million from the Teachers Credit Society. He then on-lent that sum to his company. The Society released him from the total debt in 1990 for a payment of

(Page 5)

$100,000. That release would not release the company from its debt to him. The company still owes him $18 million. That could be legally correct, although it seems morally bad. Turner's willingness to waive this claim, if the deed of company arrangement was agreed, but to push it if the company went into liquidation was no doubt a powerful factor in Mr Lyford's opinion in favour of the deed and in getting the deed of company arrangement accepted by the creditors.

10 In the fourth place it is said that the present administrator did not investigate adequately the reasons why Turner should be given a priority payment of $100,000 and possibly up to $250,000 from the money recovered in the Burnett action. At the second meeting of creditors, in relation to the $100,000 to go to Turner under the proposed deed, Mr Lyford said, "Without his cooperation the Burnett action could not proceed." I think that is wrong reasoning. Turner is a co-plaintiff in the Burnett action, anyway, along with the company. So he is involved in the action. He has to give evidence. Then he has a duty as a company director to prosecute the claim. He does not need to be "paid" to do so. Nevertheless, I consider his preferential payment of $100,000 rising to $250,000 if the sum of $1 million is recovered can be justified on other commercial grounds; namely, that he traded his $18 million unsecured debt for the $100,000-plus preferential payment. Also, his preferential treatment in the deed of company arrangement is primarily at the expense of Vision, a secured creditor. It is also by arrangement with Vision. It is not at the expense of the unsecured creditors such as the applicant. Vision gave up, as it were, some of its secured debt to let Turner in. I do not see any cause to remove Mr Lyford on this ground.

11 The fifth complaint is that the administrator made no investigation of the merits of the Burnett action. Why should he? He had no funds for independent legal advice, and the action was (and is) the only asset of the company available to those creditors. The action is moving along through the interlocutory stages; it is not dormant. It has a competent solicitor, Mr Tait, in charge. Jack Nelson has loaned $34,000 to the company to pay for the legal costs. He presumably believes in its merits. He is an unsecured creditor for that $34,000. I cannot see why the administrator should have done more.

12 The final complaint concerns a last-minute amendment at the meeting of creditors to include Mrs Turner as an unsecured creditor for $330,000. She was a creditor at the meeting by proxy. She lodged a proof of debt of $430,000, and Mr Lyford had reduced that to $330,000. Initially, she was left out of the deed. An amendment was moved by her

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proxy, Mr Hillman, to include her in the list of unsecured creditors to share in the first $200,000 recovered from the litigation. I consider there was power for the meeting to move that amendment under s 439C. There was discussion on the proposal. I think it likely that the discussion was both for and against it. I say "against it" because Mr Stannard's solicitor, Mr Hotchkin, voted against it (as did another creditor, Wishart) and Mr Hotchkin attacked Lyford and questioned him throughout the meeting. The inclusion of Mrs Turner as an unsecured creditor for $330,000 is, of course, harmful to the applicant's chances of recovering any money, but nevertheless the Law allows a decision on this matter by majority vote.

13 For these reasons I do not consider that Mr Lyford should be replaced. The application will be dismissed.