Quigley v Laserbase Pty Ltd - [2013] WASC 449

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: QUIGLEY -v- LASERBASE PTY LTD [2013] WASC 449

CORAM: MASTER SANDERSON

HEARD: 5 DECEMBER 2013

DELIVERED : 16 DECEMBER 2013

PUBLISHED : 16 DECEMBER 2013

FILE NO/S: COR 230 of 2013

BETWEEN: PETER REYMOND QUIGLEY
Plaintiff
AND
LASERBASE PTY LTD (Administrator Appointed) (ACN 118 242 434)
Defendant

Catchwords:

Corporations law - Rectification of deed of company arrangement - Whether power to rectify - Turns on own facts

Legislation:

Nil

Result:

Deed of company arrangement rectified

Category: B

Representation:

Counsel:

Plaintiff:     Mr K L Christensen
Defendant:     No appearance
Creditor of the Defendant Company        :        Mr J R Reynolds

Solicitors:

Plaintiff:     Gadens Lawyers
Defendant:     No appearance
Creditor of the Defendant Company        :        Jackson McDonald

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

Le Meilleur Pty Ltd v Jin Heung Mutual Savings Bank Co Ltd [2011] NSWSC 1115; (2011) 256 FR 240
Surber v Lean [2000] WASCA 380; (2000) 23 WAR 445

MASTER SANDERSON: By originating process filed 18 November 2013 the plaintiff as administrator of Laserbase Pty Ltd applied for certain orders. The first of those orders was an extension of time to convene a meeting of creditors. The plaintiff sought to have the time extended to 10 December 2013. Certain other consequential orders were sought. I was satisfied on the evidence provided by the plaintiff in an affidavit sworn 18 November 2013 the extension of time was appropriate and accordingly I made the order sought. A further order was sought seeking directions under s 447A(1) of the Corporations Act 2001 (Cth). That matter was not resolved on 19 November 2013 when the matter was first returned and was reserved to 28 November 2013. At the resumed hearing counsel for the plaintiff proposed a minute dealing with the directions issue. Effectively the matter was programmed through to 5 December 2013.
At the resumed hearing Mr Reynolds appeared instructed on behalf of Italia Stone Group Pty Ltd a creditor of the company. He sought leave to make submissions in relation to the directions issue. I granted that leave. The submissions were in fact contained in a letter from Italia Stone Group's solicitors to the plaintiff's solicitors dated 4 December 2013. Mr Reynolds indicated all he wished to say was contained in that correspondence and otherwise he was prepared to abide by the decision of the court. I then invited counsel for the plaintiff to make further submissions and that has been done. These reasons deal with the directions sought by the plaintiff. The starting point is to set out the relevant facts.
The plaintiff was appointed the administrator of the defendant on 21 October 2013. On 24 October 2013 he convened a meeting of creditors under s 436E of the Corporations Act. At that meeting he met a Mr Pollock who had been appointed a director of the company on 29 January 2013. Mr Pollock provided the plaintiff with a completed Report as to Affairs (RATA) on 14 November 2013. On the same day the plaintiff received an in principle proposal for a deed of company arrangement from Mr Pollock. The plaintiff says he will not be in a position to act on Mr Pollock's proposal until such time as the position of the creditors of the company is determined.
This is the second time the defendant has been in administration. On 8 September 2008 the company appointed Mr Dougal McLay as administrator. Mr McLay prepared a report to creditors under s 439A of the Corporations Act on 6 October 2009. The company made a proposal for a deed of company arrangement which was set out under item 7.1 of Mr McLay's report. The proposal involved three creditors receiving a distribution of a dividend. They were the Australian Taxation Office, Elmoson Pty Ltd and Dejavu Investments Pty Ltd.
The company executed a deed of company arrangement (the first DOCA) on 19 October 2009. The execution of that agreement was approved by a meeting of creditors on 22 October 2009. The first DOCA was varied on three occasions but none of those variations are presently relevant. It is cl 9, cl 11 and cl 13 and their interaction which provides the uncertainty. Clause 9 which is headed 'Distribution of the Fund' is in the following terms:
9.1Upon receipt of the Proceeds, the Administrator is to pay from the Fund as soon as is practicable:
9.1.1firstly, his own liabilities, debts, costs, remuneration, fees and expenses incurred in respect of:
(a)the administration of the Company, pursuant to his appointment under section 436A of the Corporations Act; and
(b)the preparation, stamping, execution and administration of this Deed, pursuant to the provisions of this Deed;
(c)any applications against the Company to wind up the Company, whether such costs be taxed or are to be agreed between the parties to any such applications; and
(d)acts of the Administrator to ensure that the Company's taxation compliance and reporting is up to date.
9.1.2secondly, the Admitted Claims of Creditors, including employees of the Company who are entitled to a priority under section 556(1)(e) to (h) of the Corporations Act, to the extent necessary to satisfy their admitted claim in full;
9.1.3thirdly, to pay a dividend to the following entities only:
(a)the Australian Taxation Office; and
(b)Elmoson Pty Ltd and Dejavu Investments Pty Ltd (both receivers and managers appointed);
whose debts or claims arose on or before 8 September 2009 and are Admitted Claims; and
9.1.4finally, to the extent that there is any surplus in the Fund after payments of the amounts in clauses 9.1.2 and 9.1.3, the Administrator shall pay the surplus to the Company.
The plaintiff says he is uncertain as to whether cl 9.1.2 of the first DOCA means the term 'Admitted Claims of Creditors' includes claims of all the company's creditors that arose up until 8 September 2008 or only the claims of the three creditors who had claims under s 556(1)(e) to (h) of the Corporations Act. In respect of cl 9.1.3 that clause provides for the payment of a dividend to the Australian Taxation Office, Elmoson and Dejavu Investments in respect of claims arising on or before 8 September 2009. The plaintiff says if the 'Admitted Claims of Creditors' includes those creditors who are not the Australian Taxation Office, Elmoson and Dejavu Investments then the latter three creditors appear to be creditors who rank behind the other unsecured creditors of the company as set out in cl 9.1.2. That is inconsistent with the proposal for a deed of company arrangement which is set out in Mr McLay's report dated 6 October 2009.
Clause 11 and cl 13 of the first DOCA are in the following terms:
11Payment of Dividend to Creditors and No Payment of Dividends to Others
11.1The Administrator shall pay a dividend, firstly, in accordance with clause 9.1.3 of this Deed and then, to those Creditors with Admitted Claims out of the Fund in one or more instalments.
11.2The Director, the Shareholder, Oakford, AIK Corporation Pty Ltd, Dreamview Investments Pty Ltd, Newcode Pty Ltd, Sandpiper Asset Pty Ltd and any other related entities of the Director, in their capacity as Creditors of the Company, have agreed that, for the duration of this Deed, they will not make a claim against the Company, whether in accordance with this Deed or otherwise, for payment of a dividend but these debts (if any) will not be extinguished by operation of this clause or this Deed.
...
13Discharge of Debts
13.1The Creditors accept their entitlements under this Deed in full satisfaction and complete discharge of their Claims and if called upon to do so, shall execute and deliver to the Company such forms of release of any such Claim as the Administrator may require.
13.2The release and discharge given to the Company by the Creditors in clause 13.1 of this Deed will take effect from the Execution Date.
13.3Notwithstanding clauses 13.1 and 13.2 of this Deed, the rights of any Creditor who has been provided with a personal guarantee by the Director, as at the Relevant Date, are not prejudiced or extinguished by the terms of this Deed.
13.4The rights of secured creditors and lessors of the Company, lessors and owners of property the subject of this Deed and ordinary and unsecured Creditors not entitled to participate in the distribution under this Deed, are not prejudiced or extinguished by the terms of this Deed.
Clause 11.1 of the first DOCA provides that the administrator must first pay a dividend to the Australian Taxation Office, Elmoson and Dejavu Investments. The combined effect of cl 9.1.2, cl 9.1.3, cl 11.1, cl 13.1 and cl 13.4 makes the position of unsecured creditors of the company uncertain. The plaintiff says he is unable to make a determination as to how to deal with claims of those creditors who had claims that arose prior to 8 September 2009 that being the date from which claims under the first DOCA can be made against the company.
Not surprisingly the first DOCA has been finalised. Appearing as annexure PRQ15 to the plaintiff's affidavit is a document entitled 'Presentation of Accounts and Statement' for the period 19 January 2012 to 5 June 2012. Appearing as annexure PRQ16 to the plaintiff's affidavit is a copy of a document entitled 'Notice that Deed Wholly Effectuated' dated 5 June 2012. Taken together these two documents showed the administrator of the first DOCA paid dividends to the Australian Taxation Office, Elmoson and Dejavu Investments consistent with the terms of the proposal for the deed of company arrangements as set out in Mr McLay's report to the company's creditors dated 6 October 2009.
Against that background the plaintiff sought orders as set out in a minute dated 5 December 2013. The orders sought were as follows:
Upon the application of the Plaintiff IT IS ORDERED that:
1.The Court declares under section 447A(1) of the Corporations Act 2001 (Act) that:
(a)the Deed of Company Arrangement (as varied on 5 May 2010, 21 April 2011 and 30 January 2012) (the DOCA) that was executed by the Defendant on 19 October 2009 is valid;
(a)[sic]The Australian Taxation Office, Elmoson Pty Ltd and Dejavu Investment Pty Ltd;
i.are not creditors of the Defendant in relation to all debts and claims which arose on or before 8 September 2009; and
ii.are creditors of the company in relation to all debts and claims that arose after 8 September 2009; and
(b)any other debts and claims against the company that arose before or after 8 September 2009 are creditors of the Plaintiff.
Alternative to order 1
2.An order under section 447A(1) of the Act that the DOCA be reinstated.
3.An order under section 447A(1) of the Act that the DOCA dated 19 October 2009 be varied as follows:
(c)Clause 9.1.2 by deleting the phrase 'Creditors, including' and replacing that phrase with the word 'any';
(d)Clause 11.1 by deleting the reference to '9.1.3' and replacing that with the phrase '9.1';
(e)Clause 12.1 by deleting word [sic] 'all of' in the first line and inserting the phrase 'referred to in clauses 9.1.2 and 9.1.3' after the words 'Creditors Claims' in the first line;
(f)Clause 13.1 by inserting after the words 'The Creditors' thye [sic] phrase 'referred in clauses 9.1.2 and 9.1.3'.
4.An order under section 447A(1) of the Act that the DOCA, as varied by order 3(a)-(d) above, be terminated.
5.The plaintiff to notify all known creditors of the defendant of these orders within two business days.
6.The costs of the plaintiff's application be the costs in the administration of the defendant.
The plaintiff's application relies on s 447A of the Corporations Act. That section is in the following terms:
General power to make orders
(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.
It is difficult to imagine a statutory provision being couched in more general terms. Essentially it was the plaintiff's position the first DOCA should be rectified in the same way as any other contract can be rectified to reflect the true position between the parties. It was submitted taking this step would do nothing more than bring the written document into line with what creditors had accepted and the arrangement which had in fact been effected. The alternative proposal put in the minute achieved the same ends by a slightly different means and counsel indicated he had no preference for either proposal.
Turning then to the concerns of Italia Stone Group I can do no better than quote correspondence from their solicitors which sets out their four concerns. Relevantly they are as follows:
2.The first concern is that paragraphs 18 to 23 of the administrator's affidavit do not explore the full extent of the possible inconsistency. If the 'other unsecured creditors' referred to in paragraph 21 (of which our client is one) are creditors within clause 9.1.2 of the 2009 DOCA, and rank for dividend ahead of the creditors referred to in clause 9.1.3, it appears to follow that their claims against the Company were discharged when the 2009 DOCA was fully effectuated. If that is so, they may have other remedies, but are not currently creditors of the Company. The effect of the order sought at paragraph 6(b) of the Originating Process filed by the administrator on 18 November 2013 (Originating Process) would be to reinstate them as creditors.
3.Our second concern relates to the possible inconsistency between the DOCA Proposal circulated on 6 October 2009 and the 2009 DOCA signed on 19 October 2009. The inconsistency is significant: the DOCA Proposal says that the debts of the 'other unsecured creditors' will not be discharged, the 2009 DOCA operates to discharge them.
...
6.Our third concern is that proposed order 6(b) in the Originating Summons appears to attempt to resolve the ambiguity in one particular way. The plaintiff provides no particular assistance to the court as to why the ambiguity is to be resolved one way rather than another.
7.Our fourth concern is as to the mechanism proposed for resolution of the ambiguity. If the 'other unsecured creditors' are not currently creditors of Laserbase, the proposed order 6(b) would make them creditors. The same point arises with the proposed orders at 6(a). To the extent the proposed orders seek to make people who are not creditors into creditors, or cause people who are creditors to cease to be creditors, the court may not have power under s447A of the Corporations Act to bring this about.
The first point raised by Italia Stone Group really is nothing more than an expansion of the plaintiff's concerns about the inconsistency in the first DOCA. It may well be the plaintiff did underestimate the confusion the terms of the first DOCA caused. But that only strengthens the need to clarify the position. It does not mean any orders above and beyond what the plaintiff is seeking are necessary.
It is the second point which is of most concern. Italia Stone Group's solicitors referred to a decision of Ward J in Le Meilleur Pty Ltd v Jin Heung Mutual Savings Bank Co Ltd [2011] NSWSC 1115; (2011) 256 FR 240. Although the facts in the case seem relatively straight forward the decision itself is lengthy - it runs to 458 paragraphs. On behalf of Italia Stone Group it was submitted the case stands for the principle that a document which is executed purportedly as an instrument prepared under s 444A of the Corporations Act but which is not in conformity with the resolution referred to in s 444A does not become a deed of company arrangement by virtue of s 444B and is not a binding instrument. As a consequence on expiry of the time allowed for execution under s 444B(2), s 446A operates so the company is deemed to have passed a special resolution that the company be would up voluntarily.
While that submission may be correct it has to be set against the facts in Le Meilleur. In that case there was a meeting of creditors at which a written proposal for a deed of company arrangement was proposed to creditors. During the course of the meeting the administrator raised the possibility of an amendment to the deed of company arrangement. It was clear from the minutes of the meeting that the creditors resolved to accept a deed of company arrangement based upon the written proposal. The administrator then caused the deed of company arrangement to be drafted not by reference to the proposal but to include an additional clause. In these circumstances it was held the document signed as a deed of company arrangement was not a document which was in conformity with the proposed resolution passed at the meeting of creditors required by s 444B(2). Therefore it did not qualify as a deed of company arrangement and was not executed as required by the Corporations Act. Pursuant to s 446A of the Corporations Act the company was wound up as a creditors voluntary winding up.
As was submitted on behalf of the plaintiff the facts here are significantly different. There was an error in the drafting of the deed of company arrangement and that error was made by the draftsman. The creditors in this case acted as if the deed of company arrangement correctly reflected the resolution and thereby the parties' intentions. It is almost a classic rectification case. Everyone was in agreement as to the terms of the contract, they acted as though the document reflected those terms and the fact that the document did not do so was simply a drafting error. Given there is undoubted power to modify or rectify a deed of company arrangement that is what should be done in this case: see Surber v Lean [2000] WASCA 380; (2000) 23 WAR 445.
It is to be noted that Italia Stone Group's solicitors raised doubts about whether or not orders could be made under s 447A of the Corporations Act in the circumstances of this case. They suggested as an alternative s 445G. That section is in the following terms:
When Court may void or validate deed
(1)Where there is doubt, on a specific ground, whether a deed of company arrangement was entered into in accordance with this Part or complies with this Part, the administrator of the deed, a member or creditor of the company, or ASIC, may apply to the Court for an order under this section.
(2)On an application, the Court may make an order declaring the deed, or a provision of it, to be void or not to be void, as the case requires, on the ground specified in the application or some other ground.
(3)On an application, the Court may declare the deed, or a provision of it, to be valid, despite a contravention of a provision of this Part, if the Court is satisfied that:
(a)the provision was substantially complied with; and
(b)no injustice will result for anyone bound by the deed if the contravention is disregarded.
(4)Where the Court declares a provision of a deed of company arrangement to be void, the Court may by order vary the deed, but only with the consent of the deed's administrator.

As I indicated above s 447A is in very general terms. It would seem to be directed at empowering a court to put a situation to rights when something has gone wrong. There is no reason to limit its terms. The difficulty with s 445G in the present circumstances is that the plaintiff does not fit within any of the categories of persons who may apply for an order under s 445G(1). He was not the administrator of the first DOCA. So that section could not apply. But that is of no consequence as s 447A is available.
The final point made by Italia Stone Group's solicitors is a valid one. The present wording of the orders proposed by the plaintiff may go beyond the power conferred by s 447A. There is no difficulty with making an order the Australian Taxation Office, Elmoson and Dejavu Investments are not creditors of the company in relation to debts and claims which arose on or before 8 September 2009. That is the effect of the first DOCA. But declaring they are creditors of the company in relation to 'all debts and claims' which arose after 8 September 2009 ignores the possibility there may be disputes about the enforceability of the debts and claims. This difficulty can I think be overcome by a slight rewording of the orders. Perhaps if the phrase 'subject to the approval of the deed administrator or the court' were to be included in those two orders that would be sufficient. The plaintiff's solicitors need to give some consideration to making an adjustment to the form of the orders.
However, subject to that slight adjustment, it seems to me orders ought be made in terms of par 1 of the minute of proposed orders. Having said that it may be the concerns of Italia Stone Group can be overcome more effectively by making orders in terms of pars 2, 3 and 4 of the minute. The plaintiff's solicitors should give this matter further consideration and submit a minute of orders either adjusting the orders in par 1 or adopting the orders in pars 2, 3 and 4. There will be an order in terms of pars 5 and 6 of the minute.