Re Builders Associated (Admin Apptd)

[2001] NSWSC 626

Reported Decision: (2001) 39 ACSR 1
(2001) 19 ACLC 1592
[2001] NSWSC 626
[2001] ACL Rep 120 NSW 114

New South Wales

Supreme Court

CITATION:	Re Builders Associated (Admin Apptd); ex parte Lord [2001] NSWSC 626
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 3569/01
HEARING DATE(S):	16 & 19 July 2001
JUDGMENT DATE:	25 July 2001
PARTIES :	John Frederick Lord (P)
JUDGMENT OF:	Austin J

COUNSEL :	S D Robb QC (P) G Boland (Sol) Australian Securities and Investments Commission (amicus curiae)
SOLICITORS:	Le Compte Davey (P) Jan Redfern, Solicitor for Australian Securities and Investments Commission (amicus curiae)
CATCHWORDS:	CORPORATIONS - voluntary administration - meeting of creditors - whether administrator may use general proxies to vote against a motion to remove him or her from office
LEGISLATION CITED:	Corporations Act, ss 256C(2), 257D(1), 260B(1), 436E, 447D Corporations Regulations, regs 5.6.11, 5.6.29, 5.6.33
CASES CITED:	Employers' Mutual Indemnity (Workers' Compensation) Ltd v J S T Transport Services Pty Ltd (1997) 23 ACSR 197; 15 ACLC 314 Re Honeysuckle Kitchens Ltd ( In liq); Exotic Building Supplies Ltd v Debcich (1991) 5 NZCLC [96-508] Re TC Bricklayers Pty Ltd (Admin Apptd) (Supreme Court of Queensland, Dowsett J, unreported, 29 October 1997)
DECISION:	Administrator directed that reg 5.6.33(1) did not prevent him from voting general proxies held by him against the proposed resolution to remove him from office and appoint a replacement

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

WEDNESDAY 25 JULY 2001

3569/01 IN THE MATTER OF BUILDERS ASSOCIATED PTY LIMITED (ADMINISTRATOR APPOINTED); APPLICATION BY JOHN FREDERICK LORD

JUDGMENT

1   HIS HONOUR: These proceedings raise a short point, but one with some practical importance for voluntary administrators. Did Corporations Regulation 5.6.33 prevent Mr Lord, the administrator of Builders Associated Pty Ltd, from using general proxies to vote against a motion to remove him from office?

2   Although the expression ‘general proxy’ is not defined in the Regulations, I take it to refer to an instrument of proxy that authorises the proxyholder to act generally on behalf of the creditor at a meeting, in contrast with a special proxy in which the authority is confined to a particular subject or particular subjects. Form 532, prescribed by reg 5.6.29 (1), treats a special proxy as a closed proxy, in which the creditor stipulates whether the proxyholder is to vote for or to vote against a specified motion or specified motions. A general proxy is of its nature an open proxy that gives the proxyholder discretion as to how to vote on any motions moved at the meeting.

3   The question is important because at the first meeting of creditors after the appointment of a voluntary administrator, one of the matters that may be raised is whether to remove the newly appointed administrator from office: s 436E (4). Since the meeting must be held within five business days after the administration begins (s 436E (2)), and the motion for removal may not be known to the administrator when the meeting is convened, it is unlikely that there will be many special proxies (if any) with respect to the removal motion. Even if administrators are acceptable to the vast majority of creditors, they may find themselves outnumbered at the meeting if general proxies cannot be used.

4   The sole director of Builders Associated appointed Mr Lord administrator of the company on 5 July 2001. On 6 July Mr Lord forwarded a circular to all of the creditors of whom he was aware, attaching notice of the first creditors’ meeting, to be held on 12 July 2001. The circular attached a form of proof of debt and a form for the appointment of a proxy. The proxy form was in the nature of a general proxy, but (in accordance with Form 532) the following additional words appeared in brackets: ‘in a special proxy add the words ‘to vote for’ or the words ‘to vote against’ and specify the particular resolutions’. The circular did not give notice of any motion to remove Mr Lord from office. Subsequently Mr Lord received some general proxies appointing him as proxyholder.

5   The first meeting of creditors was held, as notified, on 12 July 2001, and Mr Lord was the chairman. One of the motions put before the meeting was
‘That Mr John Lord of Lord & Brown be removed as Administrator of the company and that Mr Brian Silvia of Ferrier Hodgson be appointed as Administrator of the company’.
6   During the course of the meeting Mr Mark Franklin, an accountant acting for one of creditors, stated that Regulation 5.6.33 prohibited Mr Lord from voting on that motion pursuant to any of the general proxies that he had received. According to his affidavit made on 16 July 2001, Mr Lord responded in the following way:
‘I advised the meeting that:
(a) I had a responsibility to all of the creditors of the company;
(b) If I accepted Mr Franklin's interpretation of Regulation 5.6.33 then the creditors who voted against the Motion may be disadvantaged in that they are not only voting against the removal of the Administrator they are also voting against the appointment of Mr Silvia;
(c) If I took the opposite view to Mr Franklin of the interpretation of Regulation 5.6.33 then the Creditors voting in favour of the Motion may be disadvantaged;
(d) In the circumstances I would not declare the poll but would make an Application to the Court for a Direction as to the proper interpretation of Regulation 5.6.33 to ensure that no creditor would be disadvantaged or be placed in a situation that would require that creditor to incur legal costs to obtain the Court's interpretation of the Regulation.’

7   Although, for those reasons, Mr Lord did not declare the poll, there were 14 votes with a total value of $850,651.81 in favour of the motion, and (after counting votes cast by him pursuant to general proxies) 16 votes with a total value of $8,111,864.67 against the motion. Mr Lord informed the meeting of these figures and said that he would promptly make an application to the Court for directions, as he has done.

8   By an originating process filed on 16 July 2001, Mr Lord seeks directions under s 447D of the Corporations Act as to ‘what the plaintiff should do in relation to declaring the outcome of the vote of creditors (in relation to whether the administrator should be removed from office)’. He does not seek to persuade the Court that he is entitled to use the general proxies to vote against the motion, although he believes that the correct interpretation of the regulation would permit him to do so. His objective in bringing the proceedings is to clarify the position so that the validity of the vote at the creditors' meeting, and consequently the validity of the appointment of whoever purports to occupy the role of administrator thereafter, is not left under a cloud.

9   When the matter first came before me on 16 July 2001, I was informed that Mr Lord did not intend to serve the originating process on anyone. I adjourned the proceedings and gave directions that notice of the application be given to Mr Franklin and to the Australian Securities and Investments Commission. When the matter returned to me on 19 July 2001, after notice had been given in accordance with my directions, ASIC appeared as amicus curiae but neither Mr Franklin nor his client creditor appeared.

10 The meeting of creditors was held before the commencement of the Corporations Act, which commenced on 15 July 2001. The application for directions was brought after the commencement of the Act. Therefore the proceedings seek relief under a provision of the Corporations Act, s 447D (which, as it happens, is in identical terms to its predecessor provision under the Corporations Law), in respect of events that have occurred prior to the commencement of the Corporations Act. The only provision of the previous law that is in issue is a provision of the Corporations Regulations made under the Corporations Law. The commencement of the Corporations Act has not extinguished the old Corporations Regulations. Section 1380 of the Act states that the old Corporations Regulations made for the purposes of the Corporations Law, as in force immediately before the commencement of the Corporations Act, continue to have effect (and may be dealt with) after the commencement as if they were regulations in force under the Corporations Act, made for the purposes of the corresponding provisions of the Corporations Act. In this case, therefore, nothing turns on the transition from the Corporations Law to the Corporations Act.

11 Regulation 5.6.33 appears in a part of the Corporations Regulations headed ‘Part 5.6 - Winding up generally’, rather than in the regulations concerning Part 5.3A. However, reg 5.6.11 (2) states that regs 5.6.12 to 5.6.36A apply (inter alia) to the convening and conduct of, and voting at, a meeting convened under Part 5.3A that is a meeting of creditors. Regulation 5.6.11 (2) is expressed to be subject to reg 5.6.11 (3), which relevantly states that regs 5.6.12 to 5.6.36A do not apply to a meeting of creditors of a company to the extent that they are inconsistent with a specific requirement of the Corporations Law, the Corporations Regulations or the rules Court.

12   Regulation 5.6.33 is in the following terms:
‘(1) Subject to subregulations (2) and (3), a person acting under:
(a) a general proxy; or
(b) a special proxy;
must not vote in favour of any resolution which would directly or indirectly place:
(c) the person; or
(d) the person's partner; or
(e) the person's employer;
in a position to receive any remuneration out of the assets of the company except as a creditor rateably with the other creditors of the company.
(2) If a person holds a special proxy to vote for an application to the Court in favour of his or her appointment as liquidator, he or she may use the proxy and vote accordingly.
(3) If a person holds a special proxy to vote:
(a) in favour of his or her appointment as the administrator of a company under administration or a deed of company arrangement; or
(b) against the termination of his or her appointment as the administrator of a company under administration or of a deed of company arrangement;
he or she may use the proxy and vote accordingly.’


13   There are two grounds for saying that reg 5.6.33 did not prevent Mr Lord from using the general proxies to vote against the motion to remove him and appoint Mr Silvia in his place. First, subregulation (1) prohibits a person from voting ‘in favour of’ a motion of the specified kind. Mr Lord's vote was against the motion, and is therefore not within subregulation (1). Secondly, subregulation (1) applies where the resolution ‘would directly or indirectly place [the person] in a position to receive any remuneration out of the assets of the company’. The resolution in the present case would remove the person (Mr Lord) from a position to receive remuneration out of the assets of company. It would place Mr Sylvia, but not Mr Lord, in a position to receive remuneration.

14   On the other hand, as ASIC pointed out, an administrator in the position of Mr Lord has a conflict between his interest in preserving his position and his duty to exercise general proxies in the best interests of the creditors who gave them. There is a risk that the administrator's personal interest will cloud his or her judgment with respect to voting. It is arguable that in terms of legislative policy, this is a situation that should be covered by a regulation constraining an office-holder from voting in respect of open proxies when his or her financial interest is at stake. Moreover, subregulation (1) is expressed to be subject to subregulation (3). Subregulation (3) (b) permits the holder of a special proxy to use it to vote against the termination of his or her appointment as administrator. If subregulation (1) does not apply to the use of proxies to vote against a motion, in any circumstances, then subregulation (3) (b) is otiose. In other words, the drafting of subregulation (3) (b) seems to assume that subregulation (1) applies to a vote against a motion to terminate the administrator's appointment.

15   In my opinion, subregulation (1) does not apply where the administrator uses general proxies to vote against a motion to terminate his or her appointment. I accept both of the grounds for this conclusion. It may be that this interpretation is contrary to the public policy underlying the regulation. Professor James O'Donovan ( Company Receivers and Administrators , 2nd ed, 2000) has expressed the view (at para [17.320]) that this interpretation ‘could defeat one of the primary objects of the first meeting of creditors which is intended to give creditors the opportunity to replace the incumbent administrator’. If, as a matter of public policy, the administrator should be prohibited from voting general proxies in these circumstances, the regulation should be amended to achieve that objective. It does not do so now, as a matter of construction of its plain wording.

16   I agree with ASIC's submission that if (as I now hold) subregulation (1) does not on its proper construction prevent an administrator from using general proxies to vote against a motion for his or her removal, the drafting of the regulation should be reviewed to consider whether an amendment is desirable.

17   The inevitable consequence of this construction is that subregulation (3) (b) is indeed otiose. It could be regarded as a provision intended to remove doubt about a specified situation, ex abundanti cautela , except that it would be odd to provide expressly for the relatively uncommon situation where the administrator holds a special proxy to vote against termination of his or her appointment, while not providing for the much more common situation where the administrator has general proxies. The better view is that subregulation (3) (b) is simply misconceived, in light of the wording of subregulation (1).

18   This, in effect, was the conclusion reached by Dowsett J in Re TC Bricklayers Pty Ltd (Administrator Appointed) (Supreme Court of Queensland, unreported, 29 October 1997). The facts were relevantly indistinguishable from the present case. Since the decision was given in chambers and is not readily available, I shall set out the salient parts of his Honour's reasoning in full. He said:
‘The applicant submits that Regulation 5.6.33 must be construed so as to give sub-regulation (3) meaning. The obvious meaning … would leave no room for sub-regulation (3) (b) to operate because such a use of a proxy would not be forbidden by sub-regulation (1).
‘Whilst there may be something in this argument, the language used in subsection (1) is quite clear. I find myself unable to conclude that use of the expression ‘must not vote in favour of any resolution’ should be construed as meaning ‘must not vote in favour of or against any resolution’.
‘As to the type of resolution to which the regulation applies, it is submitted by counsel for the applicant that the decision of Branson J in Employers Mutual Indemnity v JST Transport (1997) 15 ACLC 314 [23 ACSR 197] is to the effect that a resolution to remove an administrator is within the prohibition. That was a case in which the administrator cast his proxies in favour of a proposed deed. The basis of her Honour's decision appears at page 320 [23 ACSR at 202] and appears to be that the adoption of the deed would have automatically led to the appointment of the administrator of the company as administrator of the deed, in the absence of any provision appointing another person. In those circumstances, to vote for the resolution adopting the deed had the effect of appointing the administrator to be the administrator of the deed and therefore was placing him in a new position in which he would receive remuneration.
‘That is not the present case. This resolution was for the administrator's removal. I cannot construe the words ‘would directly or indirectly place (the person) in a position to receive any remuneration’ as meaning ‘would directly or indirectly remove (the person) from a position to receive any remuneration’.
‘In those circumstances, the resolution in question was not one to which sub-regulation 5.6.33 (1) applied. Further, as I have said, the sub-regulation operates only to prohibit a proxy from voting in favour of a resolution and not from voting against it.
‘Although there may be some superficial logicality in this outcome, the language is quite clear. I suppose it is understandable that the regulation should treat differently resolutions conferring or terminating a right to receive remuneration. It assumes that in granting a general proxy, a creditor accepts the status quo.
‘It might also, I suppose, be arguable that sub-regulation (3) was intended to deal exclusively with a special situation there described, in particular the circumstances in which the proxy is a person who is to be appointed or has been appointed administrator. However, the sub-regulation deals only with special proxies. It does not purport to deal with general proxies. It may be argued that the reference to the express excludes the more general, but that would leave the position regarding general proxies to be dealt with according to sub-regulation (1). As I have said, the language of that provision is clear and does not assist the applicant.’

19   I respectfully agree with these observations, including his Honour's treatment of the Employers’ Mutual Indemnity case. Much the same conclusion has been reached in New Zealand: Re Honeysuckle Kitchens Ltd (in liq); Exotic Building Supplies Ltd v Devcich (1991) 5 NZCLC [96-508]. In that case a resolution was passed for voluntary winding up, and some creditors and the company made different nominations for liquidator. The relevant provision stated that no-one acting under a general or special proxy was permitted to vote in favour of any resolution which would place that person in a position to receive remuneration out of the estate of the company otherwise than as a creditor. Henry J held that this provision did not prohibit the use of proxies to vote against a motion.

20 The legislative history of reg 5.6.33 is not very helpful, but lends some slight support to the view that subregulation (1) is strictly limited to voting ‘in favour of’ a motion. Regulation 5.6.33 (3) was made at the time of the amendments to the Corporations Law which introduced the voluntary administration regime of Part 5.3A. Subregulations (1) and (2) appeared in their present form from the commencement of the Corporations Law. There was a regulation substantially the same as them in content under the previous co-operative scheme: eg Companies (New South Wales) Regulations, reg 105. Regulation 76 of the Companies Regulations made under the Companies Act 1961 (NSW) was substantially the same as the present reg 5.6.33 (1), but there was no subregulation (2) and reg 76 began with the words ‘except in the case of an official manager voting in favour of a resolution to extend the period of official management of the company’. Two points emerge: first, the exception to the old reg 76 is a true exception to a proposition about voting in favour of a motion, consistently with the view that those words bear their ordinary and specific meaning; secondly, the fact that subregulation (3) was injected into a well-established regulation, rather than being part of the same legislative plan, is consistent with the view that subregulation (3) (b) misapprehended the effect of subregulation (1) and is otiose.

21   During the course of submissions, I expressed concern that a wide interpretation of the words ‘in favour of’ in reg 5.6.33 might have implications for other uses of those words in the Corporations Act. Counsel's computer search of the use of the words ‘in favour of’ in the Corporations Act produced 32 hits. Having considered at least some of those usages (see ss 256C (2), 257D (1), and 260B (1)), I am persuaded that a wide interpretation of the words ‘in favour of’ in the present context would have had no consequences for other provisions of the Corporations Act. This is because the legislative policies at issue in the various provisions are quite different from one another, and a wide construction of reg 5.6.33 would have been justified only in light of subregulation (3) (b), to which there is no counterpart elsewhere. However, the question does not now arise, since in my view the narrower interpretation of reg 5.6.33 is correct. I express no view on the meaning of the words ‘in favour of’ elsewhere in the Corporations Act, except to say that my construction of those words in reg 5.6.33 appears to me to accord with their plain and natural meaning.

22   My conclusion, therefore, is that reg 5.6.33 did not prevent Mr Lord from using the general proxies in his possession to vote against the motion to remove him from office and replace him with Mr Silvia. This is an appropriate case for an administrator to approach the Court for directions under s 447D. I shall therefore direct Mr Lord that Regulation 5.6.33 of the Corporations Regulations does not prevent him from voting, under valid proxies held by him, against the motion moved at the meaning of creditors on 12 July 2001 that he be removed as administrator and that Mr Silvia be appointed to that office.

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Last Modified: 09/04/2001