Re Brett Kent Andrew Orzel as joint and several administrator of Scotia Inspection Consultants Pty Ltd (Administrators Appointed) (ACN 143 224 328) - [2024] WASC 6

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   RE BRETT KENT ANDREW ORZEL as joint and several administrator of SCOTIA INSPECTION CONSULTANTS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 143 224 328); EX PARTE BRETT KENT ANDREW ORZEL as joint and several administrator of SCOTIA INSPECTION CONSULTANTS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 143 224 328) [2024] WASC 6
CORAM:   HILL J
HEARD:   20 DECEMBER 2023
DELIVERED          :   20 JANUARY 2024
PUBLISHED           :   15 JANUARY 2024
FILE NO/S:   COR 199 of 2023
MATTER:   IN THE MATTER OF BRETT KENT ANDREW ORZEL as joint and several administrator of SCOTIA INSPECTION CONSULTANTS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 143 224 328)

EX PARTE
BRETT KENT ANDREW ORZEL as joint and several administrator of SCOTIA INSPECTION CONSULTANTS PTY LTD (ADMINISTRATORS APPOINTED)
First Plaintiff
STEPHEN ROBERT DIXON as joint and several administrator of SCOTIA INSPECTION CONSULTANTS PTY LTD (ADMINISTRATORS APPOINTED)
Second Plaintiff

Catchwords:

Corporations - Insolvency - Whether director formed view that company was likely to become insolvent - Where dispute between shareholders about whether director acted in good faith - Validity of appointment of administrators - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 436A, s 447A, s 447C

Result:

Declaration of validity of appointment of administrators made

Category: B

Representation:

Counsel:

First Plaintiff	:	D B Shaw
Second Plaintiff	:	D B Shaw

Solicitors:

First Plaintiff	:	Gandhi And Shaw
Second Plaintiff	:	Gandhi And Shaw

Case referred to in decision:

Re Live Board Holdings Limited (Administrators Appointed) [2014] NSWSC 161

HILL J:

(This judgment was delivered extemporaneously and has been edited from the transcript.)

On 18 December 2023, the plaintiffs filed an originating process seeking orders under s 447C, alternatively, s 447A, of the Corporations Act 2001 (Cth) (Act). The orders are sought to validate their appointment as voluntary administrators of Scotia Inspection Consultants Pty Ltd (Company) under s 436A of the Act. The originating process came before me this morning for hearing on an urgent basis.
The urgency arose out of issues that were raised by some of the shareholders of the Company as to the validity of the appointment of the plaintiffs as the Company's voluntary administrators and the desire to have this resolved prior to the second creditors' meeting, which is scheduled to be held at 11:00 am tomorrow, 21 December 2023.
I have been significantly assisted in considering this matter by the outline of submissions filed by counsel for the plaintiff on 18 December 2023.

Factual background

In support of the application, the plaintiffs relied on two affidavits of the first plaintiff, which were filed on 18 December 2023 and 19 December 2023. The factual background to this matter is set out in the first affidavit of the first plaintiff and can be summarised briefly as follows.
The Company is a non-destructive testing service business operating in the oil and gas sector. It is NATA-certified and offers a wide-ranging and diverse level of onshore and offshore inspection services.
The sole director and company secretary of the Company is Chew Seng Theo. Mr Theo is also the general manager of the Company. At the time of swearing the affidavit, there were six full-time employees of the Company comprising three engineers, Mr Theo and two support staff. At present, there are five shareholders of the Company. The shareholders include Mr Theo and Ai Ping Ang, Mr Boath, Ms Christie, Mr Murray and Wei Jie Tan and Li Qin Chieng.
The evidence of Mr Orzel is that he first met with Mr Theo on 3 November 2023. At that meeting, Mr Theo informed him that he intended to resign as a director and company secretary of the Company by the end of December 2023, but that, at that stage, no one had agreed to replace him. He also indicated there were ongoing disputes between him and three of the shareholders which had impacted staff morale.
Mr Orzel's evidence is that Mr Theo told him that without the available personnel and without stability in the Company's personnel, the Company's sales revenue and income stream would be negatively affected in the near future, which would likely cause the Company to become insolvent. Given the concerns expressed by Mr Theo as to the solvency of the Company, Mr Orzel discussed with him the option of appointing external administrators to the Company.
On 20 November 2023, Mr Theo resolved to appoint the plaintiffs as administrators of the Company. There are minutes of a meeting of the director of the Company which record that:[1]
[1] Affidavit of Brett Kent Andrew Orzel filed 18 December 2023 'BKAO2', p 19.
The Director considered the solvency of the Company and whether it was necessary to appoint Joint and Several Administrators to the Company.
APPOINTMENT OF JOINT AND SEVERAL ADMINISTRATORS
It was determined that, in the opinion of the Director, the Company is insolvent or likely to become insolvent at some future time.
It was further resolved the Company appoint Stephen Dixon and Brett Orzel as Joint and Several Administrators pursuant to Section 436A of the Corporations Act 2001.
The records of the Company also include a signed resolution of the sole director, which provides that:[2]
The undersigned, being the sole director of Scotia Inspection Consultants Pty Ltd ('the Company'), hereby resolve [sic]:
.That in the opinion of the Director, the Company is insolvent or is likely to become insolvent at some future time and that Joint and Several Administrators should be appointed to the Company pursuant to Section 436A of the Corporations Act 2001 ('the Act').
.That the Company appoint Stephen Dixon and Brett Orzel of Hamilton Murphy Advisory … as Joint and Several Administrators pursuant to Section 436A of the Act.
.That the Company execute, in accordance with the Act, an Instrument of Appointment of Joint and Several Administrators and, for the purpose thereof, the undersigned, being the Director of the Company, is hereby authorised to execute on behalf of the Company the Instrument of Appointment of Joint and Several Administrators.
[2] Affidavit of Brett Kent Andrew Orzel filed 18 December 2023 'BKAO2', p 20.
The records also include the appointment of joint and several administrators, signed by the sole director, which provided that in accordance with the resolution of the director signed on 20 November 2023, the Company hereby appointed Mr Dixon and Mr Orzel as joint and several administrators.[3]
[3] Affidavit of Brett Kent Andrew Orzel filed 18 December 2023 'BKAO2', p 21.
Mr Orzel's evidence is that based on his inspection of the books and records of the Company after his appointment, including correspondence between Mr Theo and the other shareholders, he believes the director was correct in his assessment of the Company's financial position and that his decision to appoint administrators was based on his concern that the Company was likely to become insolvent in the near future.[4] This conclusion is consistent with his report to creditors for the first creditors' meeting.
[4] Affidavit of Brett Kent Andrew Orzel filed 18 December 2023 [18].
Since the appointment of the plaintiffs, three of the shareholders - namely, Mr Murray, Mr Boath and Ms Christie - have raised concerns as to the validity of the plaintiffs' appointment, although Mr Boath and Ms Christie have not outlined the basis for their concerns.[5]
[5] Affidavit of Brett Kent Andrew Orzel filed 18 December 2023 'BKAO9', p 400 - 401.
Solicitors retained by Mr Murray wrote to the solicitors for the plaintiffs setting out what were described as Mr Murray's concerns about the appointment. These essentially were whether Mr Theo held a bona fide opinion as to the actual or likely insolvency of the Company and whether the exercise of the power to appoint administrators was done for a proper purpose.[6] Mr Murray has since withdrawn any objection to the appointment of the plaintiff.[7] On 18 December 2023, after receipt of copies of the application and the affidavit, Mr Boath similarly withdrew his application.[8]
[6] Affidavit of Brett Kent Andrew Orzel filed 18 December 2023 'BKAO5', p 183 - 185.
[7] Affidavit of Brett Kent Andrew Orzel filed 18 December 2023 'BKAO13', p 419.
[8] Affidavit of Brett Kent Andrew Orzel filed 19 December 2023 'BKAO15', p 3 - 4.
The affidavit evidence before me included the preliminary financial statements of the Company for the year ended 30 June 2023, which disclosed that the Company made a net loss for that year of $94,982[9] and had accumulated losses of $357,432 at financial year end.[10] The report from the plaintiffs is that at the date of their appointment, the Company had cash at bank of $111,680 and unsecured creditors of $134,281. The report also discloses that the Company incurred trading losses in each month between 31 October 2022 and 31 July 2023.[11]
[9] Affidavit of Brett Kent Andrew Orzel filed 18 December, p 213.
[10] Affidavit of Brett Kent Andrew Orzel filed 18 December, p 219.
[11] Affidavit of Brett Kent Andrew Orzel filed 18 December, p 71 - 79.

Legal principles

Pursuant to s 436A of the Act, a company may, by writing, appoint an administrator if the board has resolved to the effect that, first, in the opinion of the directors voting for the resolution, the company is insolvent or is likely to become insolvent at some future time and, second, an administrator of the company should be appointed.
Section 447C of the Act relevantly provides that if there is doubt on a specific ground about whether a purported appointment of a person as administrator of the company or of a deed of company arrangement is valid, the person, the company or any of the company's creditors may apply to the court for an order under subsection (2). Subsection (2) provides that, on an application, the court may make an order declaring whether or not the purported appointment was valid on the grounds specified in the application or on some other ground.
Where orders are made by the court under s 447C of the Act, these orders are declaratory rather than curative.[12]
[12] ReLive Board Holdings Limited (Administrators Appointed) [2014] NSWSC 161 [4].

Disposition

In this case, I accept that the plaintiffs have standing to bring the application under s 447C of the Act as the administrators of the Company.
The evidence before the court is that the sole director of the Company resolved to appoint the plaintiffs after considering the Company's solvency and forming the view that the Company was insolvent or likely to become insolvent at some future time.
As sole director of the Company, he was bound to comply with his statutory and fiduciary duties that, as a director, he owed to the Company. These include the duty under s 588G of the Act to prevent insolvent trading.
It is not clear as to the basis on which the shareholders or the remaining shareholder contend that Mr Theo was not acting in good faith or did not hold a belief that the Company was insolvent or likely to become insolvent when the resolution was passed under s 436A of the Act. No basis was advanced for this contention apart from the fact there is an ongoing dispute between the shareholders. The fact that there is an ongoing dispute between shareholders does not, of itself, mean that the sole director did not hold these beliefs or was not acting in good faith.
On the basis of the information before the court, I do not consider there is any substance to the contention the sole director did not hold a belief that the Company was likely to become insolvent when the resolution was passed or that there is any evidence that the resolution was passed for an improper purpose.
The report to creditors from the plaintiffs supports the view that the Company, while not insolvent at the time of their appointment, is likely to become insolvent.
In these circumstances, I consider it is appropriate to make the declaration sought under s 447C of the Act. Given this, it is unnecessary for me to consider the alternative application under s 447A of the Act.
The plaintiffs sought an order for the costs of the application to be the costs in the voluntary administration. The position expressed by the shareholders of the Company was not entirely withdrawn prior to the filing of the application and, in the case of Ms Christie, has never been formally withdrawn. In my view, this application was required as part of the voluntary administration of the company and it is appropriate for the costs to form part of the voluntary administration.

Conclusion

Given these reasons, I consider it is appropriate to make orders in terms of the minute of proposed orders dated 18 December 2023 in terms of orders 1 and 3.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
KC
Associate to the Honourable Justice Hill
15 JANUARY 2024