Re Ansett Australia Ltd

[2002] VSC 114

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

CORPORATIONS LIST

No. 5059 of 2002

IN THE MATTER of ANSETT AUSTRALIA LIMITED (ACN 004 209 410) & ORS (in accordance with the Schedule attached)  (All Administrators Appointed) ("the Companies")

MARK ANTHONY KORDA and MARK FRANCIS XAVIER MENTHA (as Administrators of the Companies)

Plaintiffs

v

ANSETT AUSTRALIA GROUND STAFF SUPERANNUATION PLAN PTY LTD (ACN 065 590 178) (as trustee of the Ansett Australia Ground Staff Superannuation Plan)

and

ANSETT AUSTRALIA PILOTS/MANAGEMENT SUPERANNUATION PLAN PTY LTD (A.C.N. 065 590 043) (as trustee of the Ansett Transport Industries Limited Pilots/Management Superannuation Plan

Defendants

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JUDGE:	Warren J
WHERE HELD:	Melbourne
DATE OF HEARING:	12 April 2002
DATE OF JUDGMENT:	16 April 2002
CASE MAY BE CITED AS:	Ansett Australia Ltd & Ors v Ansett Australia Ground Staff Superannuation Plan P/L & Anor
MEDIUM NEUTRAL CITATION:	[2002] VSC 114

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Corporations – administration – deed of company arrangement – power to amend – severance

Corporations Act 2001 – ss.447A and 447D

Costs – costs order applicable where administrators compelled to institute an unnecessary proceedings

APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr S. Whelan, QC with Mr Sharpley	Arnold Bloch Leibler
For the Defendants	Mr P. Lacava, SC with Mr T. Boston	Deacons

HER HONOUR:

1. The plaintiffs bring an application pursuant to ss.447A and 447D of the Corporations Act 2001 seeking a direction in the context of the administration of Ansett Australia Limited and other companies ("the Companies"). The circumstances surrounding the administration of the Companies are well rehearsed in other judgments in the Federal Court: see for example Ansett and Ors v Mentha (2001) 39 ACSR 355.

1. In the context of the administration issues have arisen in relation to the Staff Superannuation Fund for the Ansett employees.  The trustees of those funds raised certain issues that led to proceedings being issued in this Court (No. 2115/01) ("the related proceeding").  This proceeding is fixed for trial on 16 July 2002.  The related proceeding came to be issued in this Court notwithstanding the fact that all proceedings relating to the administration to date had been issued in the Federal Court because of apparent doubts over jurisdiction with respect to the Staff Trust Fund.

1. In the related proceeding the trustees have raised a number of issues including whether the Ansett employees have been retrenched within the meaning of the applicable superannuation trust deeds; whether Ansett Australia Limited, as employer, is obliged to make additional contributions; whether any obligation to make additional contributions falls within the ambit of s.556(1)(e) of the Corporations Act and would thereby have priority in a winding up.

1. The defendants in the present proceeding, Ansett Australia Ground Staff Superannuation Plan Pty Ltd and Ansett Australia Pilots/Management Superannuation Plan Pty Ltd are the defendants and, also, are the parties who instituted the related proceeding.  These parties are generally known as "the trustees". 

1. The administration of the Companies reached the stage that a meeting of creditors was proposed to be convened on 27 March 2002.  Prior to the meeting, on 19 March 2002 the administrators informed creditors and interested parties of a proposed deed of arrangement.  On 26 and 27 March 2002 the solicitors for the trustees wrote to the administrators raising certain legal issues. 

1. On 27 March 2002 the creditors of the companies resolved to enter into deeds of company arrangement that contained provisions whereby the claims advanced by the trustees in the related proceeding rank for a dividend with ordinary unsecured creditors. 

1. At the meeting of creditors on 27 March 2002, among other matters, an issue arose as to the capacity at law for part of the deed of arrangement to be severed if needs be. In correspondence the trustees advanced the proposition that the proposed deeds of company arrangement would operate such as to dislocate the winding up priorities and that the dislocation would be oppressive or unfairly prejudicial to or unfairly discriminatory against them. The trustees foreshadowed that if the deeds of company arrangement were resolved in the terms proposed by the administrators they would apply to terminate those deeds under s.445D of the Corporations Act.  The deeds of company arrangement proposed by the administrators contained a particular severance provision (clause 33) that was expressed to operate in circumstances where any provision was subsequently found by a court to be unfairly prejudicial to a creditor.  At that meeting the solicitor for the trustees asserted that this could not be done as a matter of law.  A debate ensued on the floor of the meeting.  The solicitor for the trustees, who was also their proxy‑holder, repeated the foreshadowed application to terminate the deeds of company arrangement if resolutions were passed in the terms proposed by the administrators.  Furthermore, the solicitor for the trustees asserted, for the first time on their behalf that no court had jurisdiction to amend deeds and that the only order that a court could make in order to address the issue of severance would be to terminate the deeds of company arrangement.  In response, the solicitor for the administrators asserted that there was a particular provision in the Corporations Act that would overcome any difficulties as to severance. The solicitor did not identify s.447A or s.447D of the Corporations Act.  Rather, referred to "some magical provision" that would constitute panacea to the problems raised by the solicitor for the trustees.  Nevertheless, the solicitor for the trustees maintained his position.  Ultimately it was resolved by the creditors at the meeting on 27 March 2002 that proceedings would be issued seeking directions from the Court with respect to the subject of severance.  Once the resolution was passed by the creditors the administrators were bound to proceed to institute these proceedings. 

1. Hence, these proceedings were issued seeking a direction under s.447A or s.447D. On balance, the administrators supported by the trustees considered that it was appropriate for the proceeding to be issued in this Court because of the staff superannuation funds and the related proceedings. I accepted those submissions. The proceedings were issued on 5 April 2002. The matter was fixed for urgent trial because of the inherent circumstances of the administration and the application of the statutory provisions that would necessitate an extensions of time if an urgent trial was not convened. Mentions and directions hearings were convened to facilitate and expedite the hearing.

1. Throughout the period from the time of the creditors' meeting on 27 March up until the eve of the trial on 12 April 2002 the trustees maintained their position that the administrators should seek a direction from the Court. However, on the eve of the trial, on 11 April 2002, counsel for the trustees submitted written submissions indicating that the trustees did not oppose an application by the administrators for directions under s.447A and s.447D of the Corporations Act.  The trustees did not consent to any order or directions.

1. These are the relevant prevailing circumstances with respect to the matter before me. 

1. Turning then to the application itself. The administrators make application under s.447A and s.447D of the Corporations Act 2001 for a direction in the administration.

1. In essence, the issue to be determined is whether in the event that deeds of company arrangement are executed in accordance with the resolutions passed by the creditors of the companies on 27 March 2002 the Court rule has power to subsequently to amend those deeds if it thought it appropriate to do so. The apparent fear of the administrators is that if it was necessary to seek to amend the deeds of company arrangement and such amendment did not eventuate those circumstances could result in termination of the deeds leading to the winding up of the companies. Hence, the administrators seek guidance from the Court under s.447A and s.447D.

1. I turn then to the general ambit of s.447A.

1. In Cawthorn v Keira Constructions (1994) 13 ACSR 337 Young J described the section (at 341) as conferring on the Court "plenary powers to do whatever it thinks is just in all the circumstances". In Re Brashs Pty Ltd (1994) 15 ACSR 477 Hayne J cited (at 483) with approval the observations of Young J in Cawthorn. 

1. In any event, any doubts as to the application of s.447A were resolved by the High Court in Australasian Memory v Brien (2000) 200 CLR 270. There the High Court rejected the suggestion that s.447A was to be confined to curing defects or remedying departures from the provisions of Part 5.3A and said there was nothing on the face of s.447A that suggested it should be read down in any way. The Court held (at 279 – 282) that s.447A was an integral part of the legislative scheme enshrined in Part 5.3A and that specific provisions regulating particular matters did not thereby confine the very wide general operation of s.447A. In consequence, therefore, the High Court in Australasian Memory v Brien resolved such controversy as there was as to the ambit of s.447A in favour of an approach that gives the section full operation in accordance with its wide terms:  see, also, Ansett and Others v Mentha, supra. 

1. Furthermore, an examination of the consideration by the authorities of s.447A with respect to amendments by the Court to deeds of company arrangement supports the making of orders as sought by the administrators in the present case.  In Milankov Nominees v Roycol Ltd (1994) 14 ACSR 296, Lee J observed by way of obiter dicta, that under s.447A an order "bearing the terms of the deed of company arrangement" might be made (at 301). In Mulvaney v Rob Wintulich (1995) 60 FCR 81 Branson J considered circumstances where a deed of company arrangement had been entered into on the basis of a misconception as to the administrator's powers to compel the transfer of shares in the subject company for a nominal consideration. A cause of the deed had been drawn on the basis of the particular misconception and the administrators applied under s.445G, alternatively s.447A, for orders declaring the relevant provision "to be void" and for the inclusion of a substitute provision. Branson J held that orders could not be made under s.445G. Her Honour considered the question of whether orders could be made under s.447A and relying upon her earlier observations in Re Giga Investments Pty Ltd (1995) 13 ACLC 1185, she held (at 83):

"I am satisfied that s.447A of the Corporations Law empowers the court to alter the operation of Div 11 of Pt.5.3A of the Corporations Law so as to allow, in appropriate circumstances, a deed of company arrangement to be varied, not by a resolution passed at a meeting of the company's creditors convened under s.445F of the Corporations Law, but by orders of the court".

1. Since the judgment in Mulvaney a number of authorities have confirmed the power of the court to vary or amend a deed of company arrangement under s.447A:  see Hamilton v National Australia Bank Ltd (1996) 66 FCR 12; Mentha v GE (1997) 27 ACSR 696; Re The Hellenic Athletic and Soccer Club of SA Inc (1999) SASC 393; Re Paradox Digital (2001) WASC 182; see also, Santow J at first instance in Brien v Australasian Memory (1997) 25 ACSR 1, 45, 51.

1. Finally, I note that in Ford's Principles of Corporations Law (Butterworths, loose leaf service) at para 26.410 the authorities Mulvaney and Hamilton are cited as examples of orders under s.447A for varying deeds of company arrangements.  The learned authors, cite, also, Mentha v GE as an example of an order under s.447A.

1. From the analysis of the authorities and the removal in particular of any doubt by the High Court in Australasian Memory I conclude that the power of the court to amend or vary a deed of a company arrangement relying on the power in s.447A is well established and has been so now for some years.

1. Accordingly an order will be made as sought by the administrators for a direction in the present proceedings. 

1. I turn then to the question of costs.  In essence, the administrators have argued that as the position under s.447A was at all times abundantly clear they were forced to institute the present proceedings so as to enable the deed of arrangement to proceed without encountering the difficulties and problems asserted and raised on behalf of the trustees of the staff superannuation fund at the creditors' meeting.  In this respect I observe that the law is very clear.  Indeed, basic texts on the section make the position so clear:  see Ford's Principles of Corporations Law, Ibid.  There is difficulty, therefore, in comprehending the basis on which the trustees purported to assert that the procedure contemplated at the creditors' meeting on 27 March 2002 was contrary to law.  Furthermore, it is difficult to comprehend that the trustees were not alert to the "magical provision" adverted to by the solicitors for the administrator, namely, s.447A.  In these circumstances, therefore, the administrators assert that they had incurred unnecessary expense and inconvenience in instituting these proceedings.  Nevertheless, its to be observed that the administrators were not content to abandon the proceeding by way of an order for its dismissal.  Having instituted the proceedings and filed affidavits in support and prepared the matter for urgent trial the administrators pressed on seeking orders under s.447A in any event.  However, the administrators were bound to do so by virtue of the resolution passed at the creditors' meeting on 27 March 2002.  Doubtlessly the orders made will provide the administrators with comfort in the context of the administration, the deeds of company arrangement and matters arising from the creditors' meeting.  Notwithstanding this position the administrators say that their costs ought be paid by the trustees. 

1. The trustees on the other hand argue that the position was not abundantly clear as a matter of law, that they were in a position of having to make decisions in difficult circumstances, namely on floor of the creditors' meeting, that could potentially impact on assets to the value of $140 million dollars or more.  Furthermore, the trustees have criticised the administrators in that the so called straight forward legal principle was not articulated by the administrators at the creditors meeting.  As a consequence, therefore, the trustees urge that the costs of the proceeding should be costs in the administration of the company. 

1. It seems that there is little authority in relation to the costs of an application in circumstances such as the present whether relating to an administrator or a liquidator.  A review of such authorities as exist was conducted by Hansen J of this court in Farrow Finance Co Ltd (In Liq.) v ANZ Executives and Trustee Co Ltd and Others (1997) 23 ACSR 521. As observed by Hansen J in Farrow, generally where the question is not complex and a position in opposition to the liquidator (in this case the administrator) is taken and the position of the liquidator or administrator is ultimately vindicated costs should follow the event: see Re Masureik and Allan Pty Ltd (1981) 6 ACLR 39; Farrow Finance v ANZ, supra 525 –527.  Hansen J observed in Farrow, on the other hand, generally where the issue is a complex one or one involving a relatively novel proposition in law the starting point is that the costs of all necessary parties are to be paid by the liquidator (in this case the administrator) and counted as costs in the liquidation; see Re GPI Leisure Corp Limited (In Liq) (1994) 15 ACSR 282; UTSA Pty Ltd (In Liq) v Ultra Tune Australia Pty Ltd, unreported judgment of Hansen J, Supreme Court of Victoria dated 19 July 1996; Farrow Finance v ANZ, supra, 527 – 528.

1. Of particular assistance in consideration of the present application are the observations of Hansen J in Farrow, supra, at 526:

"In my opinion, the general principles which apply to the question of costs upon an application by a liquidator for directions include these:  Where the application is necessitated only by the stand taken by one particular creditor, or a certain group of creditors acting only in their own interest, and the question involved is not a complex one, then costs should generally follow the event.  In other words, if the position in which the liquidator always intended to adopt is vindicated, and the submission of the opposing creditors is rejected, then those creditors should be liable for the liquidator's costs of the application".

1. With respect, I adopt the observations of Hansen J in Farrow. Applying those principles to the present case, the administrators were compelled by virtue of the matters raised on behalf of the trustees at the creditors' meeting on 27 March 2002 to institute the present proceedings. Furthermore, the trustees maintained their position until the eve of the trial. In my view the administrators cannot be criticised for pursuing the proceedings to seek a direction under s.447A of the Corporations Act even after the attitude of the trustees was finally known.  By that time it was too late.  The die had been cast so far as the administrators were concerned by virtue of the resolution passed by the creditors.  In any event, where a party changes its position on the eve of the trial as the trustees have done in the present matter it is far too late.  The costs have been incurred by the administrators.  Hence, even though the administrators will have the comfort of a direction under s.447A the proceeding was one where the position of the administrators has been entirely vindicated and the original position of the trustees has been rejected.  Furthermore, the position at law was sufficiently clear or, at least ought have been sufficiently clear immediately before and at the creditors' meeting such that the trustees should not have pursued the approach that they did. 

1. Accordingly, the orders I will make, subject to hearing the parties as to the form of order, are as  follows:

(1)In the event that a deed of company arrangement is executed in accordance with the Outline of Deed of Company Arrangement as amended and resolved upon by the creditors of the Companies at the meetings held on 27 March 2002, the Court has the power to amend such a deed by:

(a)deleting clauses 3.44 and 18; and

(b)amending clauses 3.30, 21.2.4 and 21.2.5 so as to delete the references to the "Top Up Retrenchment Benefit Creditors";

if the Court were to hold that the said clauses are illegal, void or unfairly prejudicial to a class of creditors. 

(2)       The defendants pay the plaintiffs' costs of the proceeding. 

(3)       Liberty to apply.

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