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Re Centro Properties Ltd

Re Centro Properties Ltd

Case [2011] NSWSC 1171 5 October 2011

Jurisdiction

Corporate Reconstruction

Directors' Duties

Maintenance of Capital

Corporate Law & Governance

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Supreme Court

New South Wales

Medium Neutral Citation: In the matter of Centro Properties Limited and CPT Manager Limited in its capacity as responsible entity of Centro Property Trust [2011] NSWSC 1171
Hearing dates: 29, 30 September 2011
Decision date: 05 October 2011
Jurisdiction: Equity Division - Corporations List
Before: Barrett J
Decision:
Orders for the convening of scheme meetings to be made

Catchwords: CORPORATIONS - arrangements and reconstructions - proposed Part 5.1 scheme between companies and a group of their creditors - application under s 411(1) for orders for the convening of meetings of creditors - objections taken by persons given leave to be heard without becoming parties - where funds will be paid to "junior stakeholders" including equity holders - objectors are plaintiffs in other proceedings seeking unliquidated damages against the companies - objection that proposed payment is contrary to principle of maintenance of capital, entails breach of directors' duties where company approaching insolvency and entails impermissible departure from order of application of assets in a winding up - role of court upon s 411(1) application discussed - objections not fanciful but raised at level of generality in circumstances where a full understanding may not be available - no objection seen at this stage to represent a "knock-out blow" - appropriate exercise of s 411(1) discretion is to order convening of meetings and to revisit objections if and when pressed in fully formulated form at any s 411(4)(b) hearing
Legislation Cited: Corporate Law Review Act 1992 (Cth)
Corporations Act 2001 (Cth), Parts 5.1, 5.3A, ss 95A, 180(1), 254T(1), 256B(1), 411(1), 411(4)(b), 601FD(3)
Cases Cited: Australian Securities and Investments Commission v Healey [2011] FCA 717; (2011) 278 ALR 618
Bank of Australasia v Hall [1907] HCA 78; (1907) 4 CLR 1514
Box Valley Pty Ltd v Kidd [2006] NSWCA 26; (2006) 24 ACLC 471
Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24
Davis Investments Pty Ltd v Commissioner of Stamp Duties [1958] HCA 22; (1958) 100 CLR 392 at 413
New Cap Reinsurance Corporation Ltd (in liq) v A E Grant [2008] NSWSC 1015; (2008) 221 FLR
Re Bluebrook Ltd [2010] EWHC 2114 (Ch); [2010] 1 BCLC 338
Re Brian Cassidy Electrical Industries Pty Ltd (1984) 9 ACLR 140
Re Bulong Nickel Pty Ltd [2002] WASC 126; (2002) 42 ACSR 52
Re Critchin's Oil Co [1902] 2 Ch 86 at 95
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252
Re HIH Casualty & General Insurance Ltd [2005] NSWSC 240; (2005) 190 FLR 398
Re Tea Corporation Ltd [1903] 1 Ch 12
Re Uniq plc [2011] EWHC 749 (Ch)
Thomas A Edison Ltd v Bullock [1912] HCA 72: (1912) 15 CLR 679
Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1
Category: Procedural and other rulings
Parties: Centro Properties Limited - First Plaintiff
CPT Manager Limited in its capacity as responsible entity…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Re Centro Properties Ltd

Details

AGLC: Re Centro Properties Ltd [2011] NSWSC 1171
Case: [2011] NSWSC 1171
Decision Date: 05 October 2011

CaseChat Overview and Summary

In this case, Re Centro Properties Ltd, the court dealt with an application for convening meetings of creditors and shareholders under section 411(1) of the Corporations Act 2001 (Cth). The application was made by the administrators of Centro Properties Ltd and Centro Retail Group Ltd in relation to a proposed Part 5.1 scheme involving the companies and their creditors. Various objectors, who were not parties to the proceedings, were given leave to be heard. These objectors contested the proposed payments to "junior stakeholders," including equity holders, on several grounds, such as the maintenance of capital principle, potential breaches of directors' duties, and an improper distribution of assets in the event of a winding up.

The primary legal issues the court needed to address were whether the objections raised by the objectors were sufficient to prevent the convening of meetings under section 411(1) of the Corporations Act. The objectors argued that the proposed payments to equity holders were contrary to the principle of maintenance of capital and that the directors' approval of such payments constituted a breach of their duties, especially as the companies were approaching insolvency. Additionally, the objectors contended that the distribution of funds in the proposed scheme deviated impermissibly from the legal order of asset distribution in a winding up.

The court held that while the objections were not frivolous, they were raised at a general level, and a full understanding of the implications might not be readily available. The court noted that the objections did not constitute a "knock-out blow" that would prevent the convening of meetings. It was determined that the appropriate exercise of the discretion under section 411(1) was to order the convening of meetings and to revisit the objections if and when they were presented in a fully formulated manner during any subsequent hearing under section 411(4)(b) of the Act.

Orders