PFL Ltd formerly known as Palandri Finance Ltd (Administrators Appointed) v The Public Trustee Of Queensland [No 2] - [2008] WASC 234

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: PFL LTD formerly known as PALANDRI FINANCE LTD (Administrators Appointed) -v- THE PUBLIC TRUSTEE OF QUEENSLAND [No 2] [2008] WASC 234

CORAM: EM HEENAN J

HEARD: 22 SEPTEMBER 2008

DELIVERED : 22 SEPTEMBER 2008

PUBLISHED : 21 OCTOBER 2008

FILE NO/S: CIV 2062 of 2008

BETWEEN: PFL LTD formerly known as PALANDRI FINANCE LTD (Administrators Appointed) (ACN 090 580 500)
First Plaintiff
NEIL ROBERT CUSSEN, GARY PETER DORAN AND JOHN LETHBRIDGE GREIG AS VOLUNTARY ADMINISTRATORS OF PFL (FORMERLY PALANDRI FINANCE LTD) (ADMINISTRATORS APPOINTED) (ACN 090 580 500)
Second Plaintiffs
AND
THE PUBLIC TRUSTEE OF QUEENSLAND
First Defendant
JOHN VERHELST
Second Defendant
CURTISS TEBBUTT
Third Defendant

FILE NO/S :CIV 2064 of 2008

BETWEEN :PWL LTD formerly known as PALANDRI WINES LTD (ACN 084 252 488)
First Plaintiff
NEIL ROBERT CUSSEN, GARY PETER DORAN AND JOHN LETHBRIDGE GREIG AS VOLUNTARY ADMINISTRATORS OF PWL LTD (FORMERLY PALANDRI WINES LTD) (ADMINISTRATORS APPOINTED) (ACN 084 252 488)
Second Plaintiffs
AND
THE PUBLIC TRUSTEE OF QUEENSLAND
First Defendant
MARK SELBY-HELE
Second Defendant

Catchwords:

Originating summons - Corporations - Voluntary administration - Meeting of creditors - Registered debentures giving security to note holders and bond holders and appointing trustee for secured creditors - Whether trustee or the note holders or bond holders entitled to vote at the meeting of creditors - Proposed deed of company arrangement (DCA) - Effect on secured creditors and unsecured creditors - Issue of construction concerning entitlement to vote on behalf of secured creditors - Lack of contradictors - Voluntary administrators' application for directions pursuant to Corporations Act s 447D

Legislation:

Corporations Act 2001 (Cth)
Corporations Regulations 2001 (Cth)

Result:

Directions refused
Applications adjourned

Category: B

Representation:

CIV 2062 of 2008

Counsel:

First Plaintiff                  :     Mr R J Price
Second Plaintiffs           :     Mr R J Price
First Defendant              :     Mr B Dharmananda
Second Defendant         :     Mr K A Dundo
Third Defendant            :     Mr K A Dundo

Solicitors:

First Plaintiff                  :     McKenzie Moncrieff Lawyers
Second Plaintiffs           :     McKenzie Moncrieff Lawyers
First Defendant              :     Minter Ellison
Second Defendant         :     Q Legal
Third Defendant            :     Q Legal

CIV 2064 of 2008

Counsel:

First Plaintiff                  :     Mr R J Price
Second Plaintiffs           :     Mr R J Price
First Defendant              :     Mr B Dharmananda
Second Defendant         :     Mr K A Dundo

Solicitors:

First Plaintiff                  :     McKenzie Moncrieff Lawyers
Second Plaintiffs           :     McKenzie Moncrieff Lawyers
First Defendant              :     Minter Ellison
Second Defendant         :     Q Legal

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

Australian Securities & Investments Commission v Rowena Nominees Pty Ltd [2003] WASC 106; (2003) 45 ACSR 419
Murdoch v Crawford [1986] V.R. 97
Re Media World Communications Ltd; Crosbie v Naidoo [2005] FCA 51; (2005) 216 ALR 105

EM HEENAN J: Because they involved common issues arising in the course of voluntary administrations of the plaintiffs PFL (formerly Palandri Finance Ltd) (administrators appointed), and of PWL (formerly Palandri Wines Ltd) (administrators appointed), these two originating summonses came on for hearing together.
The first originating summons sought declarations as to whether or not a debenture trust deed dated 24 May 2004 between Palandri Finance Ltd (as it then was and which is hereafter referred to as 'Palandri Finance'), the Public Trustee of Queensland (the 'Public Trustee') and Palandri Ltd (administrators appointed) and also a document termed the Palandri Note Trust Deed dated 1 March 2005 each created a valid and subsisting trust and, secondly, whether two consequent designated fixed charges constituted valid and subsisting securities for the sums advanced by the security holders over specified charged property.
In addition, each originating summons, as originally framed, sought declarations as to whether each of the security holders or, alternatively, the Public Trustee, is entitled for the purposes of considering any voluntary administration, liquidation or a deed of company arrangement (DCA) of the first or second plaintiffs; to vote at meetings of creditors; to lodge a proof of debt; entitled to appoint a proxy for the meetings of creditors; entitled to receive dividends in the capacity of a creditor; or entitled to exercise other powers or take other action as a creditor.
Further, by par 4 of the originating summons in 2062 of 2008 Palandri Finance sought directions, pursuant to s 447D of the Corporations Act 2001 (Cth), that the second plaintiffs (who are the administrators of Palandri Finance and of Palandri Wines) might treat each of the debenture holders or the trustee, as the person or persons who, in various ways, are entitled to vote or exercise the rights of the creditors of the first plaintiff in the course of the administration, any ensuing liquidation or pursuant to any DCA which might be approved, together with other more extensive, but related, relief.
By the originating summons in 2064 of 2008, substantially similar relief was sought in the form of declarations and directions concerning the entitlement of the parties under a security termed the Wine Bond Trust Deed, undated but stamped 23 February 2006 between Palandri Wines and the Public Trustee, and an associated fixed and floating charge dated 13 December 2005.
It is now unnecessary to describe more fully the details of the relief sought in each originating summons because the plaintiffs did not pursue all those claims before me for reasons which I shall describe later. Indeed, the plaintiffs no longer sought any declarations or other relief against any of the defendants to either of the originating summonses but, instead, merely sought directions pursuant to s 447D of the Corporations Act about whether the administrators might deal with the Public Trustee of Queensland, as the creditor entitled to represent, vote on behalf of, and exercise the other powers of the creditors under the three alleged charges, namely the Debenture Trust Deed of 24 May 2004 and the Palandri Note Trust Deed of 1 March 2005 (CIV 2062 of 2008) and the Wine Bond Trust Deed stamped 23 February 2006 (CIV 2064 of 2008).
To appreciate the basis of the applications for directions, and the issues which they have generated, it is first necessary to sketch the role and relationship of the several parties and give a brief outline of the background which has led to the appointment of administrators of each of the plaintiffs and the purposes of the meetings of creditors at which the creditors of the companies are being invited to vote. This explains why, in the end, these proceedings concern some foreshadowed potential disputes about who is entitled to vote on behalf of these apparent secured creditors.
Furthermore, none of the three named defendants to these proceedings wish to contest the questions of the validity of the debenture, the Note or the Wine Bond Trust Deed, or the validity of the registration of the charges or to participate in any determination over the foreshadowed potential dispute as to the eligibility to vote at the meetings of creditors.
Earlier in the course of the proceedings, the second and third defendants in 2062 of 2008 and the second defendant in 2064 of 2008 had been selected and joined as parties by the plaintiffs in the expectation that each of those defendants would contest, either alone on his own behalf or, subject to a representative order being made, on behalf of other claimants with similar interests, the substantive questions raised concerning the validity of the debenture, the Note and Wine Trust Deed, the efficacy and validity of the charges and the other questions concerning the foreshadowed potential disputes over the right to vote or exercise other powers for these classes of putative secured creditors. However, none of those defendants is now willing or able to assume, or to continue, the role of a contradictor, either alone or with others, in relation to those issues. Each wishes to have the proceedings discontinued against him. Applications had earlier been made by the plaintiffs to have these defendants, or others, appointed as representative defendants of all potential claimants in the same category but these were adjourned and have not been pressed.
Because the respective plaintiffs are unable to find any party willing to act as contradictor on these issues, they have decided, no doubt for good cause, not to pursue claims for declarations or other substantive relief. The plaintiffs are willing for the current proceedings to be adjourned against the several defendants with a view to eventual discontinuance of the claims against those defendants subject only to the resolution of any issues of costs which might become necessary in that process. All the defendants agreed that the present claims against them should be adjourned or discontinued, again subject to the resolution of any issues of costs which might arise as a result of these steps, and I have therefore ordered that the claims against the several defendants should be adjourned indefinitely, with liberty to apply or to relist if and when desired.
Palandri Wines (the first plaintiff in 2064 of 2008) has been, at all material times, the responsible entity of six separate managed investment schemes which, broadly speaking, were designed to engage in the business of vineyard establishment, grape production, viticulture, wine production, wine marketing, associated financial activities and property investments. Palandri Finance (the first plaintiff in 2062 of 2008) is a related company of Palandri Wines involved in the provision of financial support for the various vineyard operations, viticulture, wine production and marketing of the several managed investment schemes.
In separate proceedings also before me today (COR 116/2008), there is an originating summons seeking the winding up of each of the six managed investment schemes and the appointment of designated persons, in substitution for PWL, as the responsible entity to conduct the winding up. Those orders are sought essentially on the grounds that each of the schemes is insolvent and/or that it is just and equitable for it to be wound up and, alternatively, in one case, that the purpose of one of the schemes cannot be accomplished.
It is acknowledged, in these present proceedings, that each of the schemes is insolvent, cannot be continued and that the present responsible entity, Palandri Wines, the first plaintiff in 2064 of 2008, is also insolvent. It is because of the acute financial difficulties of Palandri Wines that the second plaintiffs, Messrs Cussen, Doran and Greig, were appointed as its voluntary administrators on 26 February 2008. Similar associated financial difficulties led to the same persons being earlier appointed as voluntary administrators of Palandri Finance on 15 February 2008.
In their role as administrators of the two companies the second plaintiffs in each of these applications have investigated the affairs of both companies and the role of Palandri Finance as the responsible entity for each of the six managed investment schemes. A deferred meeting of the creditors of each of the companies is due to be held in October 2008. At that meeting the creditors attending and entitled to vote are expected to be called to deliberate upon motions either to put each of the two companies, PWL and PFL, into liquidation or to approve a proposed DCA for both companies which might be propounded by the administrators. Details of the possible DCA have not been put before the court, but I have been informed by counsel for the plaintiffs, and there is no reason why I should not accept this statement, that a prominent feature of the DCA presently under consideration is a proposal that the company should offer to all creditors, in satisfaction of their claims, an aggregate amount of approximately $5 million, of which $4 million would be allocated to all secured creditors and the balance to all unsecured creditors.
The effect of such a proposal, were it to be accepted, would be that the secured creditors would receive less than 100 cents in the dollar for their respective claims but that the residue of approximately $1 million would be available to all unsecured creditors who would, otherwise, not be expected to receive anything in the winding up of either of the companies. Another feature of the proposed DCA is that each of the six managed investment schemes should be ordered to be wound up as, already mentioned, is being sought in the related proceedings COR 116/2008.
If such a proposed DCA were indeed put to the meetings of creditors of these two companies then decisions whether or not to approve and accept the DCA or, alternatively, to reject it and force either or both companies into liquidation, would be made by the vote of the majority in number and the majority in value of the creditors admitted to vote at the meetings and, in this regard, the votes of secured creditors would count equally with the votes of other creditors ‑ see Corporations Regulations 2001 (Cth), Winding Up Generally, 5.6.22, 5.6.23 and 5.6.24.
Accordingly, the question arises as to who is entitled to vote as, or on behalf of, any secured creditor or creditors under the Debenture Trust Deed of 24 May 2004 and the Palandri Note Trust Deed of 1 March 2005 (2062 of 2008) and the Wine Bond Trust Deed stamped 23 February 2006 (2064 of 2008). One view, favoured by the administrators and by the Public Trustee, is that the Public Trustee, as trustee for the secured debenture holders or note holders, is exclusively entitled to vote on behalf of all the debenture holders and note holders under those security instruments. A rival view, foreshadowed at least by the three individual defendants and by others not parties to these proceedings, is that each individual debenture holder or note holder is a creditor entitled to vote (to the exclusion of the Public Trustee) at the meetings of creditors and to exercise other rights of a creditor of the companies in that respect.
Some of those individual debenture holders and note holders, including the three named defendants, have lodged individual proofs of debt with the administrators, thereby asserting that each is a creditor of one or both of the two companies in administration and, therefore, entitled to vote at meetings of creditors conducted in the course of the administration. The administrators have, upon legal advice, not accepted the proofs of debt of any of the individual debenture holders or note holders and are instead treating the Public Trustee as being solely entitled to vote on behalf of all the creditors whose debts are secured by these instruments. No attempt has been made by any of these individual debenture holders or note holders to challenge the administrators' rejection of their respective proofs of debt and it is presently the intention of the administrators to treat the Public Trustee as the sole representative entitled to vote in respect of the debts secured by those instruments.
It was because of uncertainty about whether the interests of these secured debenture holders, note holders and wine bond holders could be represented exclusively by the Public Trustee that the administrators originally instituted these proceedings and sought the declarations and other relief which I have earlier described. Any determination of these questions would inevitably require a detailed examination of the proper construction and application of the terms of the Debenture Trust Deed and the Wine Bond Trust Deed which now, so the administrators consider, is not feasible in the absence of a contradictor. The concern of the administrators, not without reason, is that despite the absence of any person presently willing to contend that an individual wine bond holder or debenture holder is entitled to vote at the meetings of creditors or exercise other rights of creditors individually, the outcome of the creditors' meeting might subsequently be challenged on these grounds if some interested person is subsequently dissatisfied with the result.
I was informed by counsel and accept that notice of the present application had been given informally by PWL to each of the 37 wine bond holders but that no such notice had been given to the debenture holders or note holders who collectively number approximately 415 persons or entities. Again, as previously described, the possibility of seeking an order for the appointment of a representative defendant or defendants for those several interests was not pursued, presumably, because of substantial logistical impracticalities. The consequence, therefore, is that of the debenture holders, note holders and wine bond holders potentially affected by this question, none but three individuals has been joined in, or will be bound by, the present proceedings and that, for other adequate reasons already mentioned, the plaintiffs are not seeking to bind the three individuals who have been joined.
Therefore, while accepting the impracticality in the present circumstances of seeking binding declarations of right concerning the entitlement of claimants to vote as creditors under these instruments, and without seeking to bind any of the creditors or the Public Trustee, the administrators nevertheless press for directions pursuant to s 447D of the Corporations Act in similar terms in each originating summons.
It is only necessary to set out the directions sought in respect of 2062 of 2008 because the same directions, but adapted to the different company under administration, are being sought in relation to 2064 of 2008. The declarations sought in 2062, therefore, represent the prototype and are:
(1)pursuant to s 447D of the Corporations Act the court directs that the second plaintiffs may treat the first defendant exclusively as the person who is:
(a)entitled to vote at the meetings of the creditors of the first plaintiff;
(b)entitled to lodge proof of debt in respect of the first plaintiff;
(c)entitled to appoint a proxy for the purposes of meetings of creditors of the first plaintiff;
(d)qualified to be a member of a committee of creditors for the purposes of s 436G of the Corporations Act 2001 (Cth); and
(e)qualified to be a member of a committee of inspection for the purposes of ch 5, pt 5.6, div 5 of the Corporations Act 2001 (Cth)
in relation to the amounts owing by or obligations of the first plaintiff in respect of or pursuant to the document entitled Palandri Finance Ltd Debenture Trust Deed dated 24 May 2004 between the first plaintiff, the defendant and Palandri Ltd ACN 087 787 415 (administrators appointed) or the fixed charge dated 24 May 2004 and bearing number 1053562 granted by the first plaintiff to the first defendant over the Charge Property (as that term is defined in the charge);
(2)pursuant to s 447D of the Corporations Act, the court directs that the second plaintiffs may treat the first defendant exclusively as the person who is:
(a)entitled to vote at meetings of creditors of the first plaintiff;
(b)entitled to lodge proof of debt in respect of the first plaintiff;
(c)entitled to appoint a proxy for the purposes of meetings of creditors of the first plaintiff;
(d)qualified to be a member of a committee of creditors for the purposes of s 436G of the Corporations Act 2001 (Cth); and
(e)qualified to be a member of a committee of inspection for the purposes of ch 5, pt 5.6, div 5 of the Corporations Act 2001 (Cth);
in relation to the amounts owing by or obligations of the first plaintiff in respect of or pursuant to the document entitled Palandri Note Trust Deed dated 1 March 2005 between the first plaintiff, the first defendant and Palandri Ltd ACN 087 787 415 (administrators appointed) for the fixed charge dated 1 March 2005 and bearing number 1142773 granted by the first plaintiff to the first defendant over the Charge Property (as that term is defined in the charge).
(3)The plaintiff must send by ordinary post a copy of these orders to all persons listed in:
(a)attachment GPD6 of the affidavit of Gary Peter Doran sworn 21 August 2008; and
(b)attachment GPD1 of the affidavit of Gary Peter Doran sworn 2 September 2008;
within seven days of these orders being made;
(4)Any person who holds notes or debentures and who intends to be heard in the proceedings must file an appearance by no later than 20 October 2008.
(5)There be liberty to apply generally.
(6)Costs to be reserved.

Despite it being acknowledged that such directions, even if made, would not constitute any binding or authoritative determination of who is entitled to vote at the proposed meetings of creditors, the plaintiffs nevertheless sought the directions on the footing that they would be merely procedural and would protect the administrators in the event of any allegation of breach of duty being made against them in respect of the conduct of the administration and, in particular, the conduct of the proposed meetings of creditors and the acceptance or rejection of the claimants asserting a right to vote in respect of debts or other claims arising under these instruments. Reliance for this approach was placed on the observations of Pullin J in Australian Securities & Investments Commission v Rowena Nominees Pty Ltd [2003] WASC 106; (2003) 45 ACSR 419 [20] where his Honour observed:
An application for directions under s 479(3) of the Corporations Act 2001 is an administrative non‑adversary proceeding: Re Murphy & Allen; re BPTC (In Liq) (1996) 19 ASCR 569, 570. Directions given under s 479(3) will protect the liquidator against subsequent allegations of breach of duty if the liquidator has made full disclosure of the facts, but no binding determination of substantive issues can be made under this provision: see RGB Nathan & Co Pty Ltd (In Liq) (1991) 24 NSWLR 674; 5 ASCR 673; Re Magic Aust Pty Ltd (In Liq) (1992) 7 ACSR 742; the authorities cited by Goldberg J in Re Ansett Australia Ltd (2001) 39 ACSR 355 [47]; and Re Murphy & Allen above at 570.
It was submitted, and I accept, that the power to give directions under s 479(3) is analogous to the power to give directions in relation to managed investment schemes under s 477D. Nevertheless, the directions given by Pullin J in Rowena related to the issue of demands by the liquidator for the repayment of funds and if necessary to institute proceedings; to confer on the liquidator authority to give a discharge of debt in the name of the company; and to hold the proceeds of receipts from these demands upon trust pending further order. Each of those directions can readily be regarded as truly procedural because none would result in the determination of any substantive rights, and the validity of the actions taken by the liquidator in reliance upon the directions could clearly be contested in other proceedings if any dispute about their efficacy were to arise.
The contrast between such procedural non‑binding directions and determinations having substantive effect was noticed by Finkelstein J in Re Media World Communications Ltd; Crosbie v Naidoo [2005] FCA 51; (2005) 216 ALR 105 which actually did indeed involve an application for directions under s 447D. In that case the administrator of a company pending consideration of proposals at a meeting of creditors of the company in the administration sought direction from the court as to whether shareholders of the company, who asserted that the prospectus under which they had subscribed contained false statements inducing them to subscribe for shares giving rise to a claim for damages, could be treated as creditors for the purpose of the administration and, if so, would have a right to vote at subsequent meetings of creditors. In relation to this application his Honour observed at [5]:
As I said, the application was for directions under s 447D. This procedure is commonly employed by administrators who seek guidance from the court about problems which arise during the course of an administration. But it is not a provision which can be employed to resolve substantive rights of third parties: Re Lorenz's Settlement (1861) 3 Dr & Sm 401 at 402; 62 ER 433 at 434.
His Honour concluded that a decision about who was entitled to vote at a meeting of creditors would directly affect the substantive rights of the shareholders seeking to exercise the alleged right to vote, and also that it would affect the rights of other shareholders and creditors who were not parties to the proceedings. Any such direction would not bind anyone and there might not be a right of appeal: Murdoch v Crawford [1986] V.R. 97, 99 ‑ 100.
In Crosbie v Naidoo it was possible to overcome the problem by relying on other sources of power to make determinations rather than s 447D and for the interested parties to be joined. This cannot be done in the present case. The proposed directions sought under s 447D would, in my view, have no utility and should, therefore, be refused.
There can be no doubt that, being faced with a real dilemma, the second plaintiffs as administrators have sought to have the issue put before the court and, so far as it is possible to see, there has been the most ample disclosure. Nevertheless, what is clearly needed to obviate any doubts concerning the rights to vote and the authorised representatives of the secured creditors, is a substantive determination of the entitlement to vote under the Debenture Trust Deed, the Note and the Wine Trust Deed. This is not possible under the present procedure and no other procedure can be utilised because of the absence of representation of the affected interests.
In these circumstances, the administrators are not without recourse to other avenues of adequate relief if a real dispute about eligibility to vote at the meetings of creditors were to arise. Obviously, notice of the meetings of creditors should be given to all known creditors or persons claiming to be creditors. Such persons would then have the opportunity to attend at the meetings and at least to assert a right to vote. A decision as to whether any, and if so which persons should be admitted as creditors and allowed to vote will then be a decision for the administrators and, if taken, to the dissatisfaction of any claimant, can then be the subject of challenge and the challenge determined in legal proceedings in which there will be a real contest between interested parties who will be bound by the result. If a right to vote is asserted by any one or more persons claiming to be creditors and rejected, and neither that creditor nor any other pursues a challenge to the validity of the vote but nevertheless threatens to do so, the administrators would, it would seem to me, be entitled to seek a declaration from the court as to the efficacy of the resolutions passed at the meeting binding the persons claiming to exercise the right to vote. Proceedings seeking declarations to that end could be brought by the company or the administrators against the rejected claimants or a representative of them and again a decision could be made which would have substantive effect and be binding upon all interested parties.
It may never come to that because some other resolution of the proceedings at the meetings of creditors might result or interested persons attending the meeting might accept the decisions of the administrators about who is entitled to vote. The absence of any contradictor in the present proceedings seems to suggest that this is a likely possibility. Therefore, although the issue is not free from doubt, these present proceedings are incapable of resolving it. Directions under s 447D as sought by the administrators would not, it seems to me, in any way alter that situation.
For these reasons, I refused to make any of the declarations sought and adjourned each originating summons indefinitely with liberty to apply.