Re Chilia Properties Pty Ltd

[1997] FCA 209

IN THE FEDERAL COURT OF AUSTRALIA  )
NEW SOUTH WALES DISTRICT REGISTRY  )
GENERAL DIVISION  )         No. NG 3046 of 1997

In the matter of Chilia Properties Pty Ltd (Administrator Appointed)
  (ACN 005 296 864)

BETWEEN:RODERICK MACKAY SUTHERLAND

Applicant

CORAM:Lehane J

PLACE:Sydney

DATE:28 February 1997

EXTEMPORE REASONS FOR JUDGMENT

LEHANE J: This is an application by Mr Roderick Mackay Sutherland, who was appointed administrator, under Pt 5.3A of the Corporations Law (the Law), of a company called Chilia Properties Pty Limited (the company).  The company is a subsidiary of Chilia Australia Pty Limited.  Chilia Australia Pty Limited is in liquidation and a Mr Lee, who is Mr Sutherland's partner, is the liquidator of that company.  That, by itself, is of no particular concern, except in relation to the mechanism by which the company was placed in administration.  In order to bring about the passage of the necessary resolution it was necessary that a meeting of the directors of the company be held.  There was apparently one director only.  It might be that that director alone was in any event incapable of acting as the board of the company, but in any event he was absent from the jurisdiction and it could reasonably be expected that he would not co-operate in arranging for the passage of the necessary resolution.  Thus Mr Lee, in his capacity as the liquidator of the company's holding company, brought about the appointment, as directors
of the company, of two persons, one of whom was Mr Wykes, a partner of Mr Sutherland.  The resolution appointing Mr Sutherland as administrator was then passed.

The difficulty with that procedure was that s 448C of the Law provides, among other things, that a person must not, except with the leave of the Court, consent to be appointed as, or act as, administrator of a company if the person is a partner of an officer of the company. Mr Sutherland is the partner of Mr Wykes. Mr Wykes was a director and therefore an officer of the company. Thus the section required that Mr Sutherland not consent to be appointed as, or act as, administrator. Unfortunately that was not realised at the time and now, after the event, Mr Sutherland applies, in the alternative, for leave to act as administrator, and for a declaration under s 1322 of the Law that his appointment as administrator and his continuing to act in that capacity are not invalid by reason of any contravention of s 448C.

Notice of Mr Sutherland's application has been given to the creditors of the company and to certain other persons.  Although no creditor or other party has appeared this morning on the application, one creditor, Southern Dragon Australia Pty Limited, has notified Mr Sutherland's solicitors that it objects to Mr Sutherland continuing to act as administrator of the company.  The basis of the objection appears to be in part that Mr Lee is the liquidator of the holding company which is itself, at least so it is claimed, a creditor of the company and that therefore there arises a conflict of interest between Mr Lee, as liquidator of the holding company, and his partner acting as the administrator under any form of external administration of the company.
I can perhaps deal with that objection first because it is easily disposed of.  Section 448(C) quite plainly contemplates that a person who is a liquidator of a creditor of a company may nevertheless be appointed as administrator of the debtor company.  Similarly, the fact that one's partner is liquidator of a company and, therefore, an officer does not mean that one may not be appointed administrator or liquidator of a related company.  That appears from para 448(C)(1)(c) of the Law, and it is well established that in the absence of any real, as opposed to theoretical, conflict of interest it is generally desirable that the external administration of a group of companies should be placed in the hands of one administrator.

I was referred, for example, to the decision of Santow J in the Supreme Court of New South Wales in Re St George Builders Hardware Pty Limited (1995) 18 ACSR 451. There is also a useful discussion of the authorities in the decision of Master Redmeyer in Re Nida Pty Ltd (1993) 10 ACSR 195. The reason is not far to seek. A principal task of a liquidator is to protect the interests of unsecured creditors. The fact that a liquidator is additionally an unsecured creditor, or a representative of one, merely means that the interests of the liquidator in that capacity, are the same as the interests of a substantial class of those whom the liquidator is obliged to protect.

The other objection raised in the correspondence received by Mr Sutherland from Southern Dragon Australia Pty Limited is more complex.  The suggestion is that there is a conflict of interest because Southern Dragon is not merely a creditor of the company but has a claim against it which, it says, arises out of the circumstance that funds of
Southern Dragon were misappropriated by the company and applied by the company in the acquisition of property which, therefore, the company holds on constructive trust for Southern Dragon.

Thus, as I understand it, a conflict of interest is said to arise between an administrator, who is the partner of the liquidator of a creditor, and Southern Dragon, which asserts an entitlement as beneficiary of a constructive trust to substantially all the property of the company.  Again, however, I cannot see that this amounts to a disqualification.  The position of Mr Sutherland as administrator in relation to that claim, or indeed his position as liquidator of the company, were he to be appointed as liquidator, would be no different in substance from the position of any other person as administrator or liquidator.  Because of the obligations arising from his position, the administrator or liquidator would in any event be bound to examine a claim such as that advanced by Southern Dragon with care and, if it appeared that the claim was one which might not be sound, might well be bound, having regard to the interests of others having claims against the company, to resist it.  I am unable to see that in that context the fact that Mr Sutherland is a partner of Mr Lee, the liquidator of the holding company, makes any substantial difference.

It may, of course, be said also that none of this is, in any event, relevant to the circumstance which disqualified Mr Sutherland from consenting to be appointed as or to act as administrator of the company.  That circumstance was not the fact that Mr Lee is the liquidator of the holding company but the circumstance that Mr Wykes was for a short time a director.  Nevertheless I think it is right, as Mr Gollege who appeared for
Mr Sutherland accepted, that circumstances such as those alleged by Southern Dragon are properly examined by the Court in exercising the discretion conferred upon it by s 448(C).

If, before Mr Sutherland's appointment, the question had arisen whether leave should be granted to him to accept appointment and to act as administrator, despite the position of Mr Wykes, I think the answer would have been clear.  The section is intended to operate in circumstances where there arises a real possibility of a conflict of interest.  The appointment of Mr Wykes for a brief period, not in order that he might participate in any way in the management of the company or of its business but merely so that he might facilitate the appointment of an administrator, seems to me not a circumstance giving rise to any serious possibility of a conflict.

Accordingly, had leave been sought before the appointment was made I have little doubt that it would have been granted.  The question then is whether leave should (or indeed can) be granted now on a nunc pro tunc basis after the event.  I have been referred to no authority on this question in relation to s 448(C) itself and I know of none.  I have, however, been referred to authority relevant to a similar question arising in relation to voluntary winding up under s 276 of the Companies Act 1961.  That section provided that where a petition had been presented to the Court to wind up a company on the ground that it was unable to pay its debts, the company should not without the leave of the Court resolve that it be wound up voluntarily.

The decision to which I was referred is that of Gowans J in the Supreme Court of Victoria in Re Horsham Kyosan Engineering Co Ltd [1972] VR 403. Gowans J considered in some detail whether a provision such as s 276 should be treated as mandatory (so that a failure to comply should be given invalidating effect) or whether on the other hand it should be regarded as directory only, so that the effect of a contravention might be cured by the grant of leave after the event. His Honour held that the appropriate construction was one which gave to the provision a directory effect only, so that subsequent leave might cure what otherwise would be the effect of contravention.

I can see no reason why similar principles ought not to be applied in relation to s 448C. Similar considerations of public policy seem to me to apply in relation to that section as Gowans J held to apply to the provision with which he was concerned.

A similar view seems in substance to have been taken by Ashe J in the Supreme Court of the Northern Territory in Aboriginal & Torres Strait Island Commission v Jurnkurakurr Aboriginal Resource Centre Aboriginal Corporation (1992) 10 ACSR 121. That was a case involving s 532(2) of the Law, a provision relating to the appointment of liquidators in terms substantially similar to those of s 448C. In that case leave was not granted because, as a result of other supervening circumstances, his Honour was persuaded that it was appropriate to make an order to remove a provisional liquidator from office. His Honour did nevertheless make a declaration under s 1322 of the Law to the effect that a contravention of s 532 did not invalidate the appointment of the provisional liquidator or his acts.
In my view the position in relation to an administrator is, if anything, a fortiori that which applies to a liquidator, simply because of the limited functions which an administrator has. Indeed, the only purpose for which an administrator is to form a view as to the validity and amount of claims against the company is for the purpose of admitting those who claim to be its creditors to vote at meetings. No question is likely to arise, in an administration under Pt 5.3A, of dealing with matters of the sort alleged in the correspondence from the solicitors for Southern Dragon.

For those reasons in my view the orders sought should be made. I am inclined both to grant leave under s 448C(1) of the Law and to make a declaration under s 1322. The appropriate orders in my view are the following:

1. Leave be granted to the applicant pursuant to s 448C(1) of the Corporations Law to consent to be appointed and to act as administrator of Chilia Properties Pty Limited.

1. Declare under s 1322(4)(a) of the Corporations Law that the appointment of the applicant as administrator of Chilia Properties Pty Limited and his acts in that office are not invalid by reason of any contravention of s 448C of the Corporations Law.

1. Direct that copies of the application, the affidavit in support and my orders be served on each creditor of the company not later than 5 pm on Monday, 3 March 1997.

   I certify that this and the preceding 7 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.

   Associate:

   Dated:  28 February 1997

Heard:  28 February 1997

Place:  Sydney

Decision:  28 February 1997

Appearances:  Mr S Golledge of Parish Patience appeared for the applicant.