Re CCS Equipment Pty Ltd (Subject To Deed Of Company Arrangement)
[2019] WASC 431
•26 NOVEMBER 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: RE CCS EQUIPMENT PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT); EX PARTE SHAW [2019] WASC 431
CORAM: VAUGHAN J
HEARD: 15 NOVEMBER 2019
DELIVERED : 15 NOVEMBER 2019
PUBLISHED : 26 NOVEMBER 2019
FILE NO/S: COR 188 of 2019
BETWEEN: CAMERON HUGH SHAW as joint and several administrator of CCS EQUIPMENT PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT)
First Plaintiff
RICHARD ALBARRAN as joint and several administrator of CCS EQUIPMENT PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT)
Second Plaintiff
Catchwords:
Corporations - Deed of company arrangement - Rectification - Turns on own facts
Legislation:
Corporations Act 2001 (Cth) s 447A(1)
Result:
Application granted
Category: B
Representation:
Counsel:
| First Plaintiff | : | J E Scovell |
| Second Plaintiff | : | J E Scovell |
Solicitors:
| First Plaintiff | : | Edwards Mac Scovell Legal |
| Second Plaintiff | : | Edwards Mac Scovell Legal |
Case(s) referred to in decision(s):
Adelaide Brighton Cement Ltd, Re Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 2) [2018] FCA 1003.
Brandrill v Newmont Yandal [2006] NSWSC 974; (2006) 24 ACLC 1179.
VAUGHAN J:
(These reasons were delivered orally at the conclusion of the hearing. They have been edited to correct matters of grammar and infelicity of expression. Authorities and other references have also been footnoted rather than appearing in the body of the reasons.)
Introduction
The plaintiffs, the purported deed administrators of a deed of company arrangement (DOCA) dated 16 August 2018 executed by CCS Equipment Pty Ltd (Company), make application by a further amended originating process for orders under s 447A(1) of the Corporations Act 2001 (Cth) to rectify the DOCA.
The application is supported by a number of affidavits, namely:
1.The affidavits of one of the purported deed administrators, Cameron Shaw, sworn 27 September 2019 and 23 October 2019.
2. The affidavits of one of the solicitors acting for the purported deed administrators, that is, the affidavits of Paul Pascoe sworn 9 October 2019 and 14 November 2019.
Background
The affidavits establish the following background facts:
1.On 19 June 2018 the plaintiffs were appointed as voluntary administrators of the Company.
2.On 16 July 2018 the plaintiffs issued a report to creditors. The report included a proposal for a DOCA. That proposal is found at pages 58 to 64 of Mr Shaw's second affidavit.
3.The second meeting of creditors was held on 24 July 2018. The creditors resolved that the Company execute a DOCA in terms of the DOCA proposal. Thus, the DOCA to be executed was to be in the terms of the DOCA proposal as attached to the report to creditors.
4.A draft DOCA was prepared.
5.The Company executed the DOCA on 14 August 2018. That was 15 business days after 24 July 2018, ie, 15 business days after the second meeting of creditors. The purported deed administrators signed the DOCA on 16 August 2018.
6.Since 16 August 2018 the plaintiffs have proceeded to administer the DOCA as if it were a valid DOCA and they had been validly appointed as deed administrators. It is said, for example, that over 270 hours have been spent on attending to matters in the administration of the DOCA. Chief among the tasks so undertaken has been coordinating litigation the Company has been pursuing in this court against an entity called Galaxy Lithium Australia Ltd (Galaxy).
I have referred to the plaintiffs as the purported deed administrators. This is because, on consideration, there are two potential deficiencies as to the DOCA as executed.
The deficiencies in the DOCA
The DOCA included terms as follows:
2. COMMENCEMENT AND OPERATION OF DEED
2.1 Commencement Date
This Deed shall commence from the time that this instrument becomes a deed of company arrangement pursuant to section 444B(6) of the Act.
2.2 Conditions Precedent:
(a)It is a condition to the formation of this Deed that the (sic):
(i)Company execute this Deed within 15 days [note: not 15 business days] after the meeting of creditors which passes the resolution to execute this deed of company arrangement and
(ii)The contribution to the Fund in clause 6.1(a)(i) is made at the time the Company executes this Deed.
Accordingly, cl 2.2(a)(i) contemplated that the DOCA would be executed by the Company within 15 days after the second creditors' meeting. The DOCA was not executed until 21 days after the second creditors' meeting. Prima facie this was contrary to the terms of the DOCA.
Clause 2.2(a)(ii) also contemplated that a contribution referred to in cl 6.1(a)(i) - an amount of $100,000 - would be paid at the time the Company executed the DOCA. In fact, as disclosed in Mr Shaw's affidavits, full payment was not made until 16 August 2018, that is, two days after execution by the Company.
The difficulty that these two matters create is that cl 2.2(a), by its chapeau, contemplates that it is a condition to the formation of the DOCA that there is compliance with the two matters. As there has not been compliance it is, at the very least, strongly arguable that the DOCA did not come into operation.
There is a further difficulty: the DOCA as drafted in the respects I have referred to does not reflect the DOCA proposal which accompanied the report to creditors and which creditors resolved that the Company execute.
The DOCA proposal was silent on the time for execution of the DOCA. As to the time for payment of the $100,000, the DOCA proposal only said:
Deed Fund
3.A 'Deed Fund' will be made available for the benefit of the creditors of the Company, comprising:
…
(iii) A Deed contribution of $220,000 received as follows:
a. $100,000 as one upfront payment upon execution of the DOCA; and
b. $120,000 payable by the Company as 12 equal monthly instalments of $10,000 commencing 30 September 2018.
There was nothing which made it a condition to the formation of the DOCA that the initial $100,000 contribution be made at the time the Company executed the DOCA. The proposal referred to execution generally.
Mr Shaw deposes, and I find, that the incongruities in the terms of the DOCA as drafted were drafting errors on the part of the solicitors who prepared the DOCA.
Section 439C of the Corporations Act 2001 (Cth) provides that at a s 439A meeting the creditors may resolve, among other things, 'that the company execute a deed of company arrangement specified in the resolution (even if it differs from the proposed deed (if any) details of which accompanied the notice of meeting)'. Section 444A(3) then provides that where the creditors so resolve the administrator of the company must prepare an instrument setting out the terms of the deed. The deed referred to in s 444A(3) must mean the deed specified in the resolution that was mentioned in s 439C and a deed that does not conform with the resolution cannot be 'the deed'. While s 444B then provides that where an instrument is prepared under s 444A the company and the administrator must execute it, so that when executed it becomes a deed of company arrangement, the instrument would not be the instrument setting out the terms of 'the deed' unless it conforms with the deed specified in the s 439C resolution.
In short, a deed of company arrangement that does not accord with the terms of the creditors' resolution at the s 439A meeting is not, at least to the extent of any disconformity, entered into in accordance with or in compliance with pt 5.3A of the Act.
Accordingly, there are two possible problems going to the validity of the DOCA as executed. First, the DOCA may never have come into operation. Second, even if the DOCA did come into operation, the DOCA did not conform with the creditors' resolution. Either way there is an issue as to validity.
The plaintiffs' application
Earlier this year Galaxy raised with the plaintiffs perceived issues regarding the validity of the DOCA. However, Galaxy made no application to the court. Ultimately the plaintiffs deemed it appropriate to do so. After some fits and false starts the application now takes the form of an application seeking orders under s 447A of the Corporations Act to rectify the DOCA.
Notice of the application has been given to the Company's creditors. In particular notice has been provided to Galaxy. Galaxy has not appeared. Rather, via an email sent to the plaintiffs' solicitors on 14 November 2019 the solicitors acting for Galaxy informed the plaintiffs' solicitors that: 'We are instructed that our client will not appear at tomorrow's hearing. We would be grateful if your clients would let us know the outcome of (sic) hearing tomorrow'.
The order sought by way of rectification is in the following terms:
1.Pursuant to section 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to CCS Equipment Pty Ltd (ACN 169 265 436) (subject to Deed of Company Arrangement) (the Company) as if the terms of the deed of company arrangement executed by the Company on 14 August 2018 (Deed) included the below amendments, which are made by way of rectification:
1.1The wording of clause 2.2(a)(i) of the Deed is amended to read as follows: 'Company execute this Deed within 15 Business Days after the meeting of creditors which passes the resolution to execute the deed of company arrangement and';
1.2.The wording of clause 2.2(a)(ii) of the Deed is amended to read as follows: 'The contribution to the Fund in clause 6.1(a)(i) is made at the time the Deed is executed by the Administrators.'; and
1.3The wording of clause 6.1(a)(i) of the Deed is amended to read as follows: '$100,000 to be paid by the Contributors to the Administrators on the same day as execution of this Deed by the Administrators.'
Disposition
Section 447A of the Corporations Act 2001 (Cth) has been described as a plenary power. It empowers the court to make such orders as it thinks appropriate about how pt 5.3A of the Act is to operate in relation to a particular company. There is no doubt that s 447A(1) may be employed to vary a DOCA. As was said by Besanko J in Adelaide Brighton Cement:[1]
The Court has the power to vary a deed of company arrangement by an order made under s 447A as an alternative to a deed administrator seeking a variation of the deed of company arrangement by a creditors' resolution under s 445A. Specifically, s 447A(1) of the Act gives the Court power to alter the operation of Part 5.3A of the Act as it operates in relation to a particular company. Section 447A has been held to confer wide discretionary power on the Court.
The Court's power to vary a deed of company arrangement pursuant to s 447A(1) is well-established. The power conferred by s 447A(1) is not subject to the limitations found in other sections within Part 5.3A of the Act. Relevantly, s 447A(1) of the Act grants the Court power to alter the operation of s 445A (or any other section in Part 5.3A), thereby empowering the Court itself to vary a deed of company arrangement.
It has been said that whilst the Court should be reluctant to exercise its power under s 447A to vary a deed of company arrangement and thereby deprive the creditors of their role under s 445A, it may do so in circumstances that are uncontentious, in the sense that no prejudice to creditors is involved. (citations omitted)
[1] Adelaide Brighton Cement Ltd, Re Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 2) [2018] FCA 1003 [11] - [13].
The circumstances of the present case bear a strong resemblance to the situation that confronted Austin J in Brandrill v Newmont Yandal.[2] There, contrary to the intention of the creditors, some clauses inserted into various DOCAs executed by insolvent companies did not give effect to the creditors' resolution. Austin J stated as follows:[3]
The breadth of the court's power under s 447A(1) was confirmed by the High Court in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270. The particular question before the court in that case was whether s 447A(1) confers on the court the power to make an order altering the time fixed by s 439A within which the second meeting of creditors must be held. The High Court found that the section was wide enough to permit such an order to be made, and their Honours (Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ) made some more general observations about the scope of s 447A and the limitations inherent in it. They held that there was nothing on the face of s 447A suggesting that should be read down (at 279). They recognised that the scope of the section was limited by the words 'how this Part is to operate', an expression looking to the future, not the past. But those words are satisfied if the order has effect only from the time of its making, although the order relates to past matters or events (at 282).
In the present case, orders can be made that Part 5.3A (which includes such provisions as ss 444D, 444E, 444G and 444H) is to operate in relation to [a company] as if the deed of company arrangement adopted on 8 September 2003 was the deed in rectified form. The order has the effect that hereafter, Part 5.3A is to be applied as if the DOCA was in the rectified form from the time of its execution.
It is now well established that orders of this kind, amounting to orders for the rectification or amendment of a deed of company arrangement, can be made under s 447A(1). (emphasis in original)
[2] Brandrill v Newmont Yandal [2006] NSWSC 974; (2006) 24 ACLC 1179 .
[3] Brandrill v Newmont Yandal [48] - [50].
Consistent with the principles discussed in those two cases I consider it is appropriate for the court to exercise its power under s 447A(1) to give effect to the intention that the creditors had when the proposed DOCA was considered by the creditors. Such rectification will ensure the ongoing validity of the DOCA. It will also put all parties in the position they were led to believe would prevail when the proposed DOCA was considered and accepted at the second creditors' meeting. In that sense the rectification orders as sought can only benefit the creditors. There is, in my view, no prejudice to the creditors involved in rectification of the DOCA by means of an order under s 447A. It is also appropriate to ensure validity, via remedial s 447A orders, so that those who have acted on the faith of the DOCA are not disadvantaged.
Rectification by court order under s 447A will have the effect that hereafter pt 5.3A of the Act is to be applied as if the DOCA was in its rectified form from the time of its execution.
In that respect, I note that par 2 of the amended originating process seeks a further order in these terms:
2.Pursuant to section 447A of the Act, alternatively section 90-15(1) of the Schedule, the plaintiffs, in their capacity as deed administrators of the Company be indemnified from any personal liability in having carried out and in continuing to carry out their obligations under the Deed.
In my view that order is redundant once an order is made in the terms proposed in par 1 of the amended originating process. Once an order is made in terms of par 1 the plaintiffs' right to an indemnity will fall to be determined by the references to an indemnity found in the DOCA as rectified. In any case, there are other problems with the proposed order in par 2. For example, who is to indemnify the plaintiffs and from what?
For these reasons I will not make an order in terms of par 2 of the amended originating process.
Conclusion and orders
I will make orders as follows:
1.Pursuant to section 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to CCS Equipment Pty Ltd (ACN 169 265 436) (Subject to Deed of Company Arrangement) (the Company) as if the terms of the deed of company arrangement executed by the Company on 14 August 2018 (Deed) included the below amendments, which are made by way of rectification:
(a) The wording of clause 2.2(a)(i) of the Deed is amended to read as follows: 'Company execute this Deed within 15 Business Days after the meeting of creditors which passes the resolution to execute the deed of company arrangement and';
(b) The wording of clause 2.2(a)(ii) of the Deed is amended to read as follows: 'The contribution to the Fund in clause 6.1(a)(i) is made at the time the Deed is executed by the Administrators.'; and
(c) The wording of clause 6.1(a)(i) of the Deed is amended to read as follows: '$100,000 to be paid by the Contributors to the Administrators on the same day as execution of this Deed by the Administrators.'
2.The plaintiffs' costs and expenses of this application be paid from the assets of the Company.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
ZC
Associate to the Honourable Justice Vaughan26 NOVEMBER 2019
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