Re Great Southern Ltd (Receivers and Managers Appointed) (in liq);
[2012] WASC 59
•22 FEBRUARY 2012
RE GREAT SOUTHERN LTD (Receivers and Managers Appointed) (in liq); EX PARTE THACKRAY [2012] WASC 59
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2012] WASC 59 | |
| Case No: | COR:182/2011 | 8 DECEMBER 2011 | |
| Coram: | MASTER SANDERSON | 22/02/12 | |
| 14 | Judgment Part: | 1 of 1 | |
| Result: | Both sections apply | ||
| A | |||
| PDF Version |
| Parties: | JAMES GERARD THACKRAY ANTHONY GREGORY McGRATH SHAUN ROBERT FRASER and MURRAY CAMPBELL SMITH in their capacities as Joint and Several Receivers and Managers of Great Southern Ltd (Receivers and Managers Appointed) (in liq) |
Catchwords: | Corporations Law Operation of s 433 and s 561 of Corporations Act Receivers appointed after administrators who subsequently became liquidators Which section applies |
Legislation: | Corporations Act 2001 (Cth), s 433, s 513B, s 513C, s 558, s 561 |
Case References: | Cook v Italiano Family Fruit Co Pty Ltd (in liq) (2010) 190 FCR 474 Energy and Resource Conservation Co Ltd (in liq) v Abigroup Contractors Pty Ltd (Unreported, NSWSC, Library No 3962 of 1996) McEvoy v Incat Tasmania Pty Ltd (2003) 130 FCR 503 Re Custom Card (New South Wales) Pty Ltd; Hunter v Bank of New South Wales (1979) 1 NSWLR 241 Re Lewis Merthyr Consolidated Collieries Ltd (1929) 1 Ch 498 Stein v Saywell [1969] HCA 16; (1969) 121 CLR 529 Steinberg v Hubert (1988) 14 ACLR 80 Vickers v Challenge Australian Dairy Pty Ltd (2011) 190 FCR 569 Whitton v ACN 003 266 886 Pty Ltd (1996) 42 NSWLR 123 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
JAMES GERARD THACKRAY
ANTHONY GREGORY McGRATH
First Plaintiffs
SHAUN ROBERT FRASER and MURRAY CAMPBELL SMITH in their capacities as Joint and Several Receivers and Managers of Great Southern Ltd (Receivers and Managers Appointed) (in liq)
Second Plaintiffs
Catchwords:
Corporations Law - Operation of s 433 and s 561 of Corporations Act - Receivers appointed after administrators who subsequently became liquidators - Which section applies
(Page 2)
Legislation:
Corporations Act 2001 (Cth), s 433, s 513B, s 513C, s 558, s 561
Result:
Both sections apply
Category: A
Representation:
Counsel:
First Plaintiffs : Mr J C Vaughan
Second Plaintiffs : Mr J C Vaughan
Solicitors:
First Plaintiffs : Minter Ellison Lawyers
Second Plaintiffs : Minter Ellison Lawyers
Case(s) referred to in judgment(s):
Cook v Italiano Family Fruit Co Pty Ltd (in liq) (2010) 190 FCR 474
Energy and Resource Conservation Co Ltd (in liq) v Abigroup Contractors Pty Ltd (Unreported, NSWSC, Library No 3962 of 1996)
McEvoy v Incat Tasmania Pty Ltd (2003) 130 FCR 503
Re Custom Card (New South Wales) Pty Ltd; Hunter v Bank of New South Wales (1979) 1 NSWLR 241
Re Lewis Merthyr Consolidated Collieries Ltd (1929) 1 Ch 498
Stein v Saywell [1969] HCA 16; (1969) 121 CLR 529
Steinberg v Hubert (1988) 14 ACLR 80
Vickers v Challenge Australian Dairy Pty Ltd (2011) 190 FCR 569
Whitton v ACN 003 266 886 Pty Ltd (1996) 42 NSWLR 123
(Page 3)
1 MASTER SANDERSON: Voluntary administrators were appointed to Great Southern Ltd (GSL) on 16 May 2009. By reason of a creditors' resolution pursuant to s 439C(c), on 19 November 2009, GSL became subject to a creditors voluntary winding-up and the voluntary administrators became its liquidators. In the interim on 18 May 2009, receivers and managers were appointed to GSL pursuant to a fixed and floating charge.
2 These simple facts give rise to previously undecided and important questions as to the proper operation of s 433 and s 561 of the Corporations Act 2001 (Cth) (the Act) - in particular how those provisions interact together and with s 513B, s 513C and s 558 of the Act. The plaintiffs, the receivers appointed to GSL, seek directions on these questions.
3 The proper starting point is the legislation. The relevant sections are in the following terms.
433 Payment of certain debts, out of property subject to floating charge, in priority to claims under charge
(2) This section applies where:
(a) a receiver is appointed on behalf of the holders of any debentures of a company or registered body that are secured by a floating charge, or possession is taken or control is assumed, by or on behalf of the holders of any debentures of a company or registered body, of any property comprised in or subject to a floating charge; and
(b) at the date of the appointment or of the taking of possession or assumption of control (in this section called the relevantdate):
(i) the company or registered body has not commenced to be wound up voluntarily; and
(ii) the company or registered body has not been ordered to be wound up by the Court.
- to any claim for principal or interest in respect of the debentures:
(a) first, any amount that in a winding up is payable in priority to unsecured debts pursuant to section 562;
(b) next, if an auditor of the company had applied to ASIC under subsection 329(6) for consent to his, her or its resignation as auditor and ASIC had refused that consent before the relevant date - the reasonable fees and expenses of the auditor incurred during the period beginning on the day of the refusal and ending on the relevant date;
(c) subject to subsections (6) and (7), next, any debt or amount that in a winding up is payable in priority to other unsecured debts pursuant to paragraph 556(1)(e), (g) or (h) or section 560.
- (4) In the case of a registered body, the receiver or other person taking possession or assuming control of property of the registered body must pay, out of the property of the registered body coming into his, her or its hands, the following debts or amounts in priority to any claim for principal or interest in respect of the debentures:
(a) first, any amount that in a winding up is payable in priority to unsecured debts pursuant to section 562;
(b) next, any debt or amount that in a winding up is payable in priority to other unsecured debts pursuant to paragraph 556(1)(e), (g) or (h) or section 560.
(5) The receiver or other person taking possession or assuming control of property must pay debts and amounts payable pursuant to paragraph (3)(c) or (4)(b) in the same order of priority as is prescribed by Division 6 of Part 5.6 in respect of those debts and amounts.
(6) In the case of a company, if an auditor of the company had applied to ASIC under subsection 329(6) for consent to his, her or its resignation as auditor and ASIC had, before the relevant date, refused that consent, a receiver must, when property comes to the receiver’s hands, before paying any debt or amount referred to in paragraph (3)(c), make provision out of that property for the reasonable fees and expenses of the auditor incurred after the relevant date
- but before the date on which the property comes into the receiver’s hands, being fees and expenses in respect of which provision has not already been made under this subsection.
- (7) If an auditor of the company applies to ASIC under subsection 329(6) for consent to his, her or its resignation as auditor and, after the relevant date, ASIC refuses that consent, the receiver must, in relation to property that comes into the receiver’s hands after the refusal, before paying any debt or amount referred to in paragraph (3)(c), make provision out of that property for the reasonable fees and expenses of the auditor incurred after the refusal and before the date on which the property comes into the receiver’s hands, being fees and expenses in respect of which provision has not already been made under this subsection.
(8) A receiver must make provision in respect of reasonable fees and expenses of an auditor in respect of a particular period as required by subsection (6) or (7) whether or not the auditor has made a claim for fees and expenses for that period, but where the auditor has not made a claim, the receiver may estimate the reasonable fees and expenses of the auditor for that period and make provision in accordance with the estimate.
(9) For the purposes of this section, the references in Division 6 of Part 5.6 to the relevant date are to be read as references to the date of the appointment of the receiver, or of possession being taken or control being assumed, as the case may be.
- …
513B Voluntary winding up
Where a company resolves by special resolution that it be wound up voluntarily, the winding up is taken to have begun or commenced:
(a) if, when the resolution was passed, a winding up of the company was already in progress - when the last mentioned winding up is taken because of this Division to have begun or commenced; or
(b) if, immediately before the resolution was passed, the company was under administration - on the section 513C day in relation to the administration; or
- (c) if, immediately before the resolution was passed, a deed of company arrangement had been executed by the company but had not yet terminated - on the section 513C day in relation to the administration that ended when the deed was executed; or
(d) if the resolution is taken to have been passed because, at a meeting convened under section 445F, the company’s creditors:
(i) passed a resolution terminating a deed of company arrangement executed by the company; and
(ii) also resolved under section 445E that the company be wound up;
on the section 513C day in relation to the administration that ended when the deed was executed;
(e) otherwise - on the day on which the resolution was passed.
- 513C Section 513C day in relation to an administration under Part 5.3A
The section 513C day in relation to the administration of a company is:
(a) if, when the administration began, a winding up of the company was in progress - the day on which the winding up is taken because of this Division to have begun; or
(b) otherwise - the day on which the administration began.
…
561 Priority of employees’ claims over floating charges
So far as the property of a company available for payment of creditors other than secured creditors is insufficient to meet payment of:
(a) any debt referred to in paragraph 556(1)(e), (g) or (h); and
(b) any amount that pursuant to subsection 558(3) or (4) is a cost of the winding up, being an amount that, if it had been payable on or before the relevant date, would have been a debt referred to in paragraph 556(1)(e), (g) or (h); and
(c) any amount in respect of which a right of priority is given by section 560;
- payment of that debt or amount must be made in priority over the claims of a chargee in relation to a floating charge created by the company and may be made accordingly out of any property comprised in or subject to that charge.
4 The difficulty which arises has to do with employee's entitlement. Section 558 of the Act is in the following terms:
Debts due to employees
(1) Where a contract of employment with a company being wound up was subsisting immediately before the relevant date, the employee under the contract is, whether or not he or she is a person referred to in subsection (2), entitled to payment under section 556 as if his or her services with the company had been terminated by the company on the relevant date.
(2) Where, for the purposes of the winding up of a company, a liquidator employs a person whose services with the company had been terminated by reason of the winding up, that person is, for the purpose of calculating any entitlement to payment for leave of absence, or any entitlement to a retrenchment amount in respect of employment, taken, while the liquidator employs him or her for those purposes, to be employed by the company.
(3) Subject to subsection (4), where, after the relevant date, an amount in respect of long service leave or extended leave, or a retrenchment amount, becomes payable to a person referred to in subsection (2) in respect of the employment so referred to, the amount is a cost of the winding up.
(4) Where, at the relevant date, the length of qualifying service of a person employed by a company that is being wound up is insufficient to entitle him or her to any amount in respect of long service leave or extended leave, or to any retrenchment amount in respect of employment by the company, but, by the operation of subsection (2) he or she becomes entitled to such an amount after that date, that amount:
(a) is a cost of the winding up to the extent of an amount that bears to that amount the same proportion as the length of his or her qualifying service after that relevant date bears to the total length of his or her qualifying service; and
(b) is, to the extent of the balance of that amount, taken, for the purposes of section 556, to be an amount referred to in paragraph 556(1)(g), or a retrenchment payment payable to the person, as the case may be.
(Page 8)
- (5) In this section, retrenchment amount , in relation to employment of a person, means an amount payable to the person, by virtue of an industrial instrument, in respect of termination of the employment.
5 In the affidavit material filed in support of this application, the plaintiffs say that the amount of the secured debt is approximately $37.7 million. They estimate disposal of the remaining assets of GSL may realise somewhere between $30.4 million and $60 million. The employee entitlements are in the region of $3.8 million. So there may or may not be an amount over and above the secured amount available for distribution without the priority provided to employees by s 433 and s 561. The difficulty is employee entitlements are different depending on which of two sections apply. I will have more to say on this issue later in these reasons. But the point which must be determined is whether s 433 or s 561 applies or whether both apply.
6 There is a preliminary question - whether this is an appropriate case for directions under s 424. Clearly it is. There are legal questions of complexity and novelty as to the performance and exercise of the plaintiffs' receivers' function as receivers. The liquidators in correspondence have raised the question as to which of two sections apply. It is entirely proper and appropriate for the receivers to seek directions from the court.
7 Section 433 and s 561 provide for certain priorities as concern debts or claims within s 556(1). The statutory purpose of s 433 and s 561 is readily identifiable. The legislation is intended to benefit the employees of companies which cannot pay their debts in full: see Stein v Saywell [1969] HCA 16; (1969) 121 CLR 529, 544, 550. The provisions establish a potential priority right to payment out of floating charge assets. The provisions recognise the efforts of employees can enhance the floating charge assets and the employees as thus entitled to a priority: see Re Lewis Merthyr Consolidated Collieries Ltd (1929) 1 Ch 498, 507.
8 Section 433 and s 561 and their statutory predecessors have been said to be 'complementary': see Stein v Saywell (545). Cook v Italiano Family Fruit Co Pty Ltd (in liq) (2010) 190 FCR 474. In Cookv Italiano, Finkelstein J explained the interaction between the provisions in these terms [74]:
Section 433 becomes enlivened upon the appointment of a receiver or agent in possession prior to the commencement of a winding up. Section 561 is triggered upon the company being wound up, regardless of whether s 433 already applies. The operation of s 433 continues notwithstanding the subsequent winding up of the company.
(Page 9)
9 In Stein v Saywell, Barwick CJ (in dissent) was to a slightly different effect. In considering the interaction of the predecessors to s 433 and s 561, the Chief Justice suggested that, when winding-up commenced, the statutory predecessor to s 561 would prevail: see pages 545 and 546. That view was incompatible with the prevailing acceptance that the operation of s 433 continues despite a subsequent winding-up: see Re Custom Card (New South Wales) Pty Ltd; Hunter v Bank of New South Wales (1979) 1 NSWLR 241.
10 Despite being complementary, there are some subtle differences between s 433 and s 561. First, s 433(3) expressly cast the payment obligation on the receiver or controller. Section 561 is silent as to who is to make the payment. Presumably the s 561 payment obligation is to be satisfied by the person holding the floating charge assets for the time being. No-one else can make the payment. The priority right is meaningless unless the person in control of the fund is under an obligation to effect the payment.
11 Secondly, although not an absolute payment obligation, s 433 casts a positive obligation to pay the priority debts or claims out of the floating charge assets before paying the secured creditors' debt. The operation of s 561 is now to be understood in light of the observations of Finkelstein J in Cook v Italiano [69] - [79]. Section 561 only mandates payment of priority claims out of floating charge assets when it is clear the liquidation will not realise free assets sufficient to meet those claims: see particularly [73].
12 Thirdly, in a winding-up, s 558 will apply for the purposes of s 561. Section 558 effectively deems a termination of employment as at the commencement of the winding-up, thus avoiding a technical issue that leave payments may not be due and payable at the winding-up. However, the prevailing view is that s 558 does not apply for the purposes of s 433: see McEvoy v Incat Tasmania Pty Ltd (2003) 130 FCR 503 [26]; Vickers v Challenge Australian Dairy Pty Ltd (2011) 190 FCR 569 [62] - [63]. Neither of these two cases considered a concurrent receivership and winding-up. What is important is employees whose employment is brought to an end following the commencement of a receivership, do not, by s 433 obtain any priority for accrued leave entitlement.
13 Fourthly, there is a difference between the two sections as to when payment to employees is to be made. Section 433 says it has to be paid and it has to be paid before any amount is paid to the secured creditor. Section 561 says that you wait and see whether or not the secured creditor
(Page 10)
- is satisfied and then if the amount realised is not satisfied, there is not sufficient to pay both the secured creditor and the employees, the employees are to be paid out of the fund otherwise available to the secured creditor.
14 The position asserted by the liquidators of GSL is s 433 of the Act is not applicable. Their submissions can be summarised as follows (the liquidators did not appear at the hearing of this application although they were served and were invited to make submissions. The liquidators' position was summarised in detail in written correspondence submitted to the receivers).
15 First, it was submitted pursuant to s 439C(c) that creditors may resolve at a meeting convened under s 439A of the Act that a company be wound up. That is what happened in this case. The company is then deemed to have passed a special resolution under s 491 of the Act that the company be wound up voluntarily. The creditors of GSL are therefore taken to have passed a resolution under s 491 of the Act that GSL be wound up voluntarily.
16 For the purposes of pt 5.6 of the Act, and pursuant to s 513B and s 513C of the Act, if a company is in administration immediately before a special resolution is passed that the company be wound up voluntarily, the winding-up is taken to have commenced on the day in which the administration began. The winding-up of GSL is therefore taken to have commenced on 16 May 2009, being the date on which the liquidators of GSL were originally appointed as joint and several administrators of GSL. As a consequence as at the date of the appointment of the plaintiffs, GSL had 'commenced to be wound up' for the purposes of s 433 of the Act such that s 433 of the Act is not applicable to the receivership of GSL. Consequently, the plaintiffs are not required to comply with s 433. To the extent the property available for payment of creditors other than secured creditors, is insufficient to pay the priority debts and amounts referred to in s 561, s 561 of the Act (rather than s 433 of the Act) will be the applicable provision.
17 On behalf of the plaintiffs, it was submitted s 433 applies. It was said that as a matter of fact GSL had not commenced to be wound up voluntarily as at the date on which the plaintiffs were appointed as joint and several receivers and managers of GSL. As a precursor to that submission, counsel pointed to the confusion which could arise if in the circumstances of this case s 433 did not apply. It is not uncommon for receivers and managers to be appointed after the company has appointed
(Page 11)
- administrators. Sometimes, but by no means always, the creditors resolve the company should be wound up. Receivers will never know whether or not the creditors will resolve to wind up the company. The Act allows the court to extend the second meeting of creditors in appropriate circumstances. In large administrations - and this is an example of a large administration - it may be appropriate to extend the period for the holding of the second creditors' meeting for a lengthy period. If receivers are uncertain as to whether s 433 will apply, the process of the receivership is complicated. Counsel for the plaintiffs referred to s 513 of the Act. This is the first section in pt 5.6 'Winding Up Generally'. The section reads as follows:
Except so far as the contrary intention appears, the provisions of this Act about winding up apply in relation to the winding up of a company whether in insolvency, by the Court or voluntarily.
19 It was further submitted that there was a distinction to be drawn between references to s 433 and s 513B make to the 'commencement' of the winding-up. Specifically, s 433 of the Act is stated not to apply where ' … the company or registered body has not commenced to be wound up voluntarily …(2) '. On the other hand, s 513B of the Act states ' … where a company resolves by special resolution that it be wound up voluntarily the winding up is taken to have begun or commenced … '. Thus, s 433(2)(b)(i) of the Act refers to the date on which the company or registered body actually commenced to be wound up, whereas s 513B refers to the date on which the company or registered body is taken to have commenced to be wound up.
20 Although there is no decision directly on point, the plaintiffs did refer to the decision of McLelland CJ in Energy and Resource Conservation Co Ltd (in liq) v Abigroup Contractors Pty Ltd (Unreported, NSWSC, Library No 3962 of 1996). At (526) his Honour said:
In my opinion the proposition that an administrator who becomes a liquidator by virtue of a resolution of creditors under section 439C(c) is to
(Page 12)
- be retrospectively treated as not being an administrator cannot be accepted. It depends upon the view that because the winding up that came into being as a result of such a resolution is by force of section 513B and section 513C taken to have begun or commenced on the day on which the administration began, the appointment of the liquidator should be taken to have begun or commenced at the same time. That the latter is not the consequence of the former.
…
In such cases it has never been considered that the appointment of a liquidator operated retrospectively to the deemed commencement of the winding up. It has been a common place of company law that there is a clear distinction between 'the date when the liquidation is deemed to commence ie the date of the presentation of the position' and 'the date when the administration of the winding up commences ie the date of the winding up order' see Day & Dent Constructions v North Australian Properties (1981 - 1982) CLR 85 at 98 - 99 per Mason J.
21 The plaintiffs submit, and I accept, the Abigroup decision supports the argument s 433 of the Act applies to the receivership of GSL notwithstanding s 513B and s 513C of the Act.
22 It was submitted the decisions in McEvoy and Vickers show statutory provisions applicable to winding-up are not necessarily to be imported into s 433. Section 433 is a stand-alone priority provision that continues to operate despite a subsequent winding-up. Further, so far as s 433 applies, the order and extent of priority is fixed as at the date of appointment: see Steinberg v Hubert (1988) 14 ACLR 80. It would be inconsistent with the proposition were s 433 not to apply due to a post-appointment event which, by reason of a deeming provision, is given an earlier effect for the purpose of the winding-up provisions. That is all the more so where the post-appointment event is a mere contingent possibility on the receivers' appointment.
23 Taking that submission further, s 433 is confined in its operation to property in existence at the time of the receiver's appointment and thereafter coming into his hands. The extent of the obligation is measured by the reference to the value of the property at that time: see Whitton v ACN 003 266 886 Pty Ltd (1996) 42 NSWLR 123, 137, 146 - 147.
24 Finally, it was submitted that Stein and Saywell considered a similar type of issue - that is whether for the purposes of the then predecessor of s 433, the 'commencement of the winding-up' meant the date of the winding-up order or the date of filing of the winding-up application.
(Page 13)
- Although not directly on point, the decision is broadly supportive of the plaintiffs' position.
25 The possibility that both sections apply, relies heavily on the decision of Finkelstein J in Cook v Italiano. His Honour concluded the two provisions were intended to be 'complementary'. But as a discussion of the provisions above had indicated, they are not really complementary at all, at least so far as employee entitlements are concerned. If both sections were to apply, the practical result would be as follows. Receivers applying the floating charge assets would meet the debts or claims within s 433. That would not include certain accrued annual leave or long service entitlements within the principles established in McEvoy and Vickers. The distribution would be in accordance with s 433.
26 If administrators had already been appointed, the receivers would hold sufficient of the floating charge assets to meet payment of the remaining s 556(1) debts or claims - this time determined on the basis of s 558 is applicable. The receivers would need to hold that amount on trust pending determination whether GSL's available property is sufficient or insufficient to make a payment of the s 561 priority debts or claims.
27 The 'trust' obligation in s 561 as developed by Finkelstein J in Cook v Italiano, ought not prevent the plaintiff receivers' retiring if the receivers have otherwise affected their purpose and fulfilled their duties. That would needlessly protract the receivership to the detriment of the unsecured creditors. The receivers should be entitled to retire by bringing about appropriate arrangements for the liquidators to become substitute trustees of the remaining s 561 floating charge assets.
28 On balance, I am satisfied both sections operate. In my view, s 433 operates as at the date of the appointment of the receiver and there is no warrant in any section for suggesting it would cease to act.
29 Equally, the terms of s 562 are clear. Once a resolution is taken by the creditors to wind up the company, then s 561 applies. Any receiver who is appointed after an administrator will need to be mindful of the prospect of the company being wound up and s 561 applying. While that creates an inconvenience, it does not present an insurmountable difficulty. As outlined above, it would not prevent a receiver retiring in appropriate circumstances. Any other conclusion would in my view, emasculate the operation of one or other of the sections. The proper course is in my view they be treated as complementary.
(Page 14)
30 The plaintiffs should bring in a minute of orders which reflects the conclusion I have reached.
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