Re Leeuwin Ocean Adventure Foundation Limited (in Administration)
[2023] WASC 480
•20 DECEMBER 2023
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE LEEUWIN OCEAN ADVENTURE FOUNDATION LIMITED (IN ADMINISTRATION); EX PARTE JOHN ALLAN BUMBAK AND RICHARD SCOTT TUCKER as joint and several administrators of LEEUWIN OCEAN ADVENTURE FOUNDATION LIMITED [2023] WASC 480
CORAM: HILL J
HEARD: 8 SEPTEMBER 2023
DELIVERED : 8 SEPTEMBER 2023
PUBLISHED : 20 DECEMBER 2023
FILE NO/S: COR 141 of 2023
MATTER: IN THE MATTER OF LEEUWIN OCEAN ADVENTURE FOUNDATION LIMITED (IN ADMINISTRATION)
EX PARTE
JOHN ALLAN BUMBAK AND RICHARD SCOTT TUCKER as joint and several administrators of LEEUWIN OCEAN ADVENTURE FOUNDATION LIMITED
First Plaintiff
LEEUWIN OCEAN ADVENTURE FOUNDATION LIMITED
Second Plaintiff
Catchwords:
Corporations - Insolvency - Whether plaintiffs validly appointed by directors as administrators - Validation of appointment of administrators - Turns on own facts
Corporations - Insolvency - Application by administrators for directions that the liquidator is justified and would be acting properly in utilising certain funds - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 447A, sch 2, s 90-15
Result:
Orders made in terms of originating process
Category: B
Representation:
Counsel:
| First Plaintiff | : | A D McDonald |
| Second Plaintiff | : | A D McDonald |
Solicitors:
| First Plaintiff | : | Pragma Lawyers |
| Second Plaintiff | : | Pragma Lawyers |
Case(s) referred to in decision(s):
Calabretta v Redpen Developments Pty Ltd (in liq) [2010] FCA 81; (2010) 183 FCR 47
Correa v Whittingham [2013] NSWCA 263; (2013) 278 FLR 310
Grain Technology Australia Ltd v Rosewood Research Pty Ltd (No 3) [2023] NSWSC 238
Hayes v Doran [No 2] [2012] WASC 486
Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 201 FLR 456
Re Ansett Australia Ltd (No 3) [2002] FCA 90; (2002) 115 FCR 409
Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674
Re GGA Lifestyle Pty Ltd (admin apptd); ex parte Woodhouse [2019] WASC 167
Re New Tel Ltd [2004] FCA 1154; (2004) 210 ALR 270
Re Pasdonnay Pty Ltd (ACN 009 131 622) (admin apptd); McDonald [2005] FCA 335; (2005) 53 ACSR 717
HILL J:
On 6 September 2023, the first plaintiffs filed an originating process seeking orders under s 447A of the Corporations Act 2001 (Cth) (Act) to validate the appointment of the first plaintiffs as voluntary administrators of the second plaintiff (Company) under s 436A of the Act. The plaintiffs also sought a direction under s 90‑15 of sch 2 of the Act (Insolvency Practice Schedule) in relation to the use of funds in the second plaintiff's bank accounts to meet operational expenses, and, in the event of liquidation, as property of the Company.
The originating process came before me for hearing on an urgent basis. The urgency arose out of both the uncertainty surrounding the appointment of the first plaintiffs as the Company's voluntary administrators, and their ability to use the funds in the Company's bank accounts.[1]
[1] Certificate of urgency dated 6 September 2023.
In support of the application, the plaintiffs relied on two affidavits; an affidavit of John Allan Bumbak filed 6 September 2023 and an affidavit of service of Katie Elizabeth Noseda filed 7 September 2023. Ms Noseda confirmed the originating process and affidavit of Mr Bumbak had been served on both the Australian Securities and Investments Commission (ASIC) and the Australian Charities and Not‑for‑Profits Commission (ACNC).
At the conclusion of the hearing, I made the orders sought by the plaintiffs. At the time, I indicated I would subsequently publish reasons for my decision. These are those reasons.
Factual background
These proceedings concern the Leeuwin Ocean Adventure Foundation Limited, a company limited by guarantee and registered as a charity with the ACNC. The major asset of the Company is the STS Leeuwin II (Leeuwin II), which is a three masted 1850's style barquentine and Australia's largest sail training tall ship.[2]
[2] Affidavit of John Allan Bumbak filed 6 September 2023 [15].
On 21 August 2023, at what was said to be a meeting of the directors of the Company, it was resolved to appoint the first plaintiffs as administrators pursuant to s 436A of the Act.[3] Since this date, the first plaintiffs have taken control of the Company. They intend to continue trading the Company's operations to allow for a proper marketing campaign for the Company or its assets.
[3] Affidavit of John Allan Bumbak filed 6 September 2023 [2].
From their investigations, the first plaintiffs formed the view that the company has net assets of $1.873 million. The Company's primary assets are cash at bank of approximately $293,371.42, as well as the Leeuwin II.[4] The Company's cash at bank is deposited in four separate bank accounts, two of which are in the name of 'Public Fund Leeuwin Ocean Adventure Foundation Limited'.[5] Mr Bumbak considers that these two accounts are 'Public Funds' for the purpose of the Company's constitution.[6] Mr Bumbak's evidence is that it was common practice for funds to be intermingled between the 'Public Funds' accounts and the Company's other accounts.[7]
[4] Affidavit of John Allan Bumbak filed 6 September 2023 [14], [24].
[5] Affidavit of John Allan Bumbak filed 6 September 2023 [27].
[6] Affidavit of John Allan Bumbak filed 6 September 2023 [32].
[7] Affidavit of John Allan Bumbak filed 6 September 2023 [33].
Following their appointment, the first plaintiffs became aware that:
(a)the directors who resolved to appoint them as voluntary administrators of the Company were not recorded as directors in the records of ASIC;[8]
(b)the records of ASIC are inconsistent with the records of the ACNC. The ACNC lists the people who were present at the meeting on 21 August 2023 as the directors of the Company.[9]
[8] Affidavit of John Allan Bumbak filed 6 September 2023 [10], 'JAB-5'.
[9] Affidavit of John Allan Bumbak filed 6 September 2023 [9], 'JAB-3'.
On further inspection of the books of the Company, Mr Bumbak believes that the Company has not updated its records with ASIC since at least 2015.[10]
[10] Affidavit of John Allan Bumbak filed 6 September 2023 [18] ‑ [19], 'JAB-5'.
The first plaintiffs intend to use the funds of the Company's accounts to continue the Company's trading operations during the voluntary administration of the Company, which is proposed to include a marketing campaign for the sale of the Leeuwin II.
Position of ASIC
After service of the originating process and Mr Bumbak's affidavit on ASIC and the ACNC, ASIC made enquiries about whether the Company had conducted ASIC searches prior to the first plaintiffs accepting their appointment as voluntary administrators.
ASIC's view was that if prior searches had not been done, it was not appropriate for creditors to bear the cost of the application.[11]
[11] Affidavit of Katie Elizabeth Noseda filed 7 September 2023 'KEN-5'.
The solicitors of the first plaintiffs responded to ASIC and indicated an ASIC search had been conducted on 17 August 2023, four days prior to the first plaintiffs accepting their appointment. There was no evidence as to whether the first plaintiffs considered who the directors were or the conflict with the records of the ACNC.
At the hearing on 8 September 2023, counsel for the first plaintiffs brought to my attention an email response from ASIC. While ASIC did not oppose the application, it was ASIC's view that their records could have been updated before the first plaintiffs' appointment.[12]
[12] ts 2 ‑ 3.
Legal principles
Application under s 447A of the Act
Section 447A of the Act empowers the court to make such orders as it thinks appropriate about how pt 5.3A is to operate in relation to a particular company.
Pursuant to s 447A(4)(f) of the Act, an administrator, who has been invalidly appointed and acted on the basis of the purported appointment, has standing to make an application as an 'interested person'.[13]
[13] Re Pasdonnay Pty Ltd (ACN 009 131 622) (admin apptd); McDonald[2005] FCA 335; (2005) 53 ACSR 717 [17].
In exercising the broad discretion conferred by s 447A(1), the court should have regard to all the circumstances of the case that have been brought to the court's attention by the applicant for relief and by those who have an interest in the matter and who may be affected by the granting of that relief.[14]
[14] Calabretta v Redpen Developments Pty Ltd (in liq) [2010] FCA 81; (2010) 183 FCR 47, 53 [37].
While the court's power under s 447A is broad, it is not unlimited.[15] The power vested in a court by s 447A is a statutory power which may be exercised only for the purpose for which it was granted. For this reason, an order made under s 447A must have a nexus with the objects of pt 5.3A and how pt 5.3A is to operate in relation to a particular company.[16]
[15] Correa v Whittingham [2013] NSWCA 263; (2013) 278 FLR 310 [2] - [8], [97] - [105], [304], citing Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 201 FLR 456 and Re New Tel Ltd [2004] FCA 1154; (2004) 210 ALR 270 [7].
[16] Honest Remark Pty Ltd v Allstate Explorations NL [66].
Other relevant considerations the court may consider on an application under s 447A of the Act were summarised by Kenneth Martin J in Hayes v Doran [No 2].[17] These include:[18]
(a)the likely insolvency of the company;
(b)whether the administrator(s) made inquiries to confirm the validity of their appointment, including seeking independent legal advice;
(c)whether it would be potentially disruptive to the affairs of the company for there to be the capacity to challenge the validity of what has occurred in the administration to date;
(d)whether it would be wrong to give the imprimatur of the court to the conduct giving rise to the purported appointment; and
…
(g)whether any creditor opposes the application.
Application for directions
[17] Hayes v Doran [No 2] [2012] WASC 486.
[18] Hayes v Doran [No 2] [406] (citations omitted).
Section 90-15(1) is in wide terms and allows the court to make such orders as it thinks fit in relation to the external administration of a company.
The approach of the court on an application for directions by an external administrator is well‑established. As Goldberg J stated in Re Ansett Australia Ltd (No 3):[19]
There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, that decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised.
[19] Re Ansett Australia Ltd (No 3)[2002] FCA 90; (2002) 115 FCR 409 [65].
Subject to the liquidator making full and fair disclosure of the material facts, the effect of a direction is to protect the liquidator from claims that they have acted unreasonably, inappropriately, or in breach of their duties; it does not determine rights and liabilities that arise out of the proposed transaction.[20] Put another way, the order of the court sanctions a proposed course of conduct by the liquidator.[21]
[20] Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, 679 - 680.
[21] Re GB Nathan & Co Pty Ltd (in liq) (679 ‑ 680).
As was noted by Vaughan J in Re GGA Lifestyle Pty Ltd (admin apptd); ex parte Woodhouse:[22]
A direction that an external administrator may properly and justifiably carry out a proposed course of conduct is used to signify that it is appropriate that he or she do so. It is a conventional form of direction in common use. It is implicit in such an order that the court is approving the proposed conduct. Often a proposed direction in this form will raise an issue of propriety or reasonableness. Directions are available and appropriate on that basis.
[22] Re GGA Lifestyle Pty Ltd (admin apptd); ex parte Woodhouse [2019] WASC 167 [23] (citations omitted).
Disposition
I accept that the first plaintiffs have standing to bring the application under s 447A(4)(f) of the Act.
Validation of appointment
For the following reasons, I am satisfied the appointment of the first plaintiffs should be validated under s 447A of the Act.
First, I accept that there is uncertainty as to whether the first plaintiffs have been validly appointed as the administrators of the Company. The records of the Company are not consistent in recording who are the current directors of the Company. While I accept that, pursuant to s 1274B of the Act, the ASIC records are prima facie evidence of their contents in the absence of evidence to the contrary, in this case there is evidence to the contrary. The evidence before the court is that the ASIC records have not been updated since at least 2015, and that these records are inconsistent with those maintained by the ACNC as well as the information on the Company's website. I accept that the records maintained by the ACNC and the Company's website are more up to date and, on this basis, accept these reflect who are the current directors of the Company.
Second, the minutes of the Company of the meeting held on 21 August 2023 record that each of the directors who are recorded as directors in the ACNC records and on the Company's website were present and voted in favour of the appointment of the first plaintiffs. On this basis, I accept that the people who are the current directors of the Company intended to resolve and did resolve to appoint the first plaintiffs as administrators of the Company.
Third, on the evidence before me, I accept that the Company is presently insolvent and that it is proper for it to be the subject of external administration.
Fourth, no-one opposed the validation of the appointment of the first plaintiffs.
Fifth, there is no evidence that there would be any prejudice to any party if the orders were made. In contrast, if the orders are not made, I consider it would be potentially disruptive to the Company if there is a capacity to challenge the validity of anything that has occurred in the voluntary administration to date. I also consider that there would be potential prejudice to the first plaintiffs in relation to their entitlement to a statutory indemnity as well as remuneration.
In these circumstances, I consider it is consistent with the objects of pt 5.3A of the Act that any uncertainty concerning the appointment of the first plaintiffs be resolved by making the orders sought. This will enable the first plaintiffs to proceed with their proposals to recapitalise the Company by way of entry into a deed of company administration.
Directions sought
For the following reasons, I was also satisfied it was appropriate to give the direction sought by the first plaintiffs that they would be justified and acting properly in utilising the Company's 'Public Funds' as the Company's funds during the voluntary administration.
First, I accept there is a legal issue of substance as to whether these funds can be used for the day‑to‑day running of the Company or whether these funds are held on trust by the Company. The question as to whether funds held as 'Public Funds' by a company limited by guarantee for a specified charitable purpose are held on trust by that company is not settled.[23] In the recent decision of Grain Technology Australia Ltd v Rosewood Research Pty Ltd (No 3), Parker J of the Supreme Court of New South Wales expressed the view that 'a charitable corporation is not a trustee in the strict sense, but only a quasi‑trustee'.[24]
[23] Grain Technology Australia Ltd v Rosewood Research Pty Ltd (No 3) [2023] NSWSC 238 [353].
[24] Grain Technology Australia Ltd v Rosewood Research Pty Ltd (No 3) [352].
Second, it is unclear as to the extent of funds of the Company that are Public Funds. The Company's Constitution requires the Company to maintain, for its principal purposes and principal activity in Australia, a fund called the Leeuwin Ocean Adventure Foundation Limited Public Fund (Public Fund). The Public Fund is to contain gifts of money or property for those purposes and activity, and not any other money or property.[25] On any winding up of the Company, any surplus assets are required to be transferred to an organisation or fund with similar purposes (cl 10.9). The purposes or objects of the Company are set out in cl 6 of the Constitution. However, from Mr Bumbak's review of the books of the Company:
(a)as at early September 2016, the bank accounts holding Public Funds had balances of less than $4,000;
(b)it was not clear whether all the bank accounts of the Company were 'Public Funds' for the purposes of the Constitution, although it appeared at least two of the bank accounts of the Company held Public Funds;
(c)he believes it was common practice for funds to be transferred between the 'Public Fund' accounts and the other bank accounts of the Company;
(d)it is unclear which part of the funds in the Company's bank accounts are 'Public Funds' and which are not.
[25] Affidavit of John Allan Bumbak filed 6 September 2023, 'JAB-7' cl 10.1.
Third, the first plaintiffs propose to use the funds for the day‑to‑day running of the Company, including to continue to trade during the voluntary administration (with a view to carrying out its charitable purpose), whilst a marketing campaign is undertaken for the sale of the Company's main asset, the Leeuwin II ship. This is consistent with the objects of the Company set out in the Constitution.
Fourth, I accept that the costs of undertaking a forensic tracing exercise (to ascertain what funds in the bank accounts of the Company are 'Public Funds' and which are not) are likely to significantly outweigh any benefit that would be obtained from such an exercise.
Costs of the application
The plaintiffs sought an order for the costs of the application to be costs in the voluntary administration.
Counsel for the plaintiffs quite properly referred me to ASIC's position and confirmed an ASIC search had been done prior to the first plaintiffs accepting the position as voluntary administrators, although it appears it was not properly considered.
While I accept that it would have been preferable for the first plaintiffs to have considered the ASIC search, in my view, even if this had been done, it is unlikely that this would have obviated the need for this application. There is a conflict between the records of ASIC and the ACNC. It is not clear as to the basis on which ASIC considers this conflict could have been resolved without the necessity of an application or how the records of ASIC could have been updated given the length of time that has passed since they were last updated and the significant changes in personnel involved. In my view, it was highly likely that an application under s 447A was required to resolve this conflict.
In any event, it was necessary for the administrators to seek directions from the court as to the use of the funds in the Company's bank accounts. For this reason, I consider the application was required as part of the voluntary administration of the Company and it is appropriate for the costs to form part of the voluntary administration.
Conclusion
For these reasons, it was my view that it was appropriate to make the orders sought by the plaintiffs. At the conclusion of the hearing, I made orders in the terms set out in Annexure A.
Annexure A
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
FD
Associate to the Honourable Justice Hill
20 DECEMBER 2023
1
12
1