Re Malanos
[2007] NSWSC 865
•19 July 2007
CITATION: Malanos [2007] NSWSC 865 HEARING DATE(S): 19 July 2007 JUDGMENT OF: Hammerschlag J EX TEMPORE JUDGMENT DATE: 19 July 2007 CATCHWORDS: CORPORATIONS – Application under s 447A of the Corporations Act 2001 (Cth) for a modified application of s 443A(1)(a) to enable administrator to incur obligations without personal liability to facilitate company’s business to continue as a going concern so as to benefit creditors LEGISLATION CITED: Corporations Act 2001 (Cth) CASES CITED: Re Ansett Australia Limited (all admin apptd) and Mentha (As Administrator) (2001) 40 ACSR 389
Re Spyglass Management Group Pty Limited (2004) 51 ACSR 432
Sims; Re Huon Corporation Pty Ltd (admins apptd) (2006) 58 ACSR 620PARTIES: Nicholas Craig Malanos (in his capacity as administrator of Lanmac Contracting Pty Limited (Administrator Appointed) ACN 093 622 005 FILE NUMBER(S): SC 3708/2007 COUNSEL: A.P.P. Lo Surdo (Plaintiff) SOLICITORS: Kemp Strang (Plaintiff)
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST
HAMMERSCHLAG J
19 JULY 2007
3708/2007 NICHOLAS CRAIG MALANOS (IN HIS CAPACITY AS ADMINISTRATOR OF LANMAC CONTRACTING PTY LTD (ADMINISTRATOR APPOINTED) ACN 093 622 005
EX TEMPORE JUDGMENT
1 HIS HONOUR: This is an application by the Administrator of Lanmac Contracting Pty Limited (Administrator Appointed) (“the Company”) under section 447A of the Corporations Act (Cth) 2001 (‘the Act”) for an order that Pt 5.3A of the Act is to operate in relation to the Company as if section 443A(1)(a) provides that:
(a) Advances and other financial accommodation to be made by James Richard Clouten to the Plaintiff in his capacity as Administrator of the Company in accordance with aFunding Deed (“Deed”), are debts incurred by the Administrator in the performance and exercise of his function and powers as Administrator for services rendered.
(b) Notwithstanding order 1(a), if the property of the Company is insufficient to meet the debt the subject of the Deed after payment of all other liabilities for which the plaintiff as Administrator may be personally liable under section 443A of the Act, then the Plaintiff shall not be personally liable under section 443A of the Act to James Richard Clouten in his capacity as funder pursuant to the Deed, to the extent of that insufficiency.
2 The circumstances giving rise to the application and the desirability of the orders sought are dealt with in some detail in the affidavit of Mr Malanos, sworn 19 July 2007, and a series of documents which are exhibited to it. Essentially, and to put it in brief terms, the Administrator is of the view that it is in the interests of creditors that he obtain funding to allow the Company to complete and obtain the benefits of certain contracts which it has, without which the contracts would not be completed, and which would more than likely be terminated by the counter parties.
3 Mr Malanos deposes to the fact that he has been informed by Mr Clouten, who is the sole director of the Company, that he intends to propose that the Company enter into a deed of company arrangement. A proposal in that respect has, however, not yet been received. The Administrator and his staff have prepared a projected profit and loss statement for the period 6 July 2007 to 3 August 2007, which is exhibited to the affidavit of Mr Malanos.
4 The Administrator has estimated that if the outstanding contracts are continued the Company will generate additional progress payments and income in the estimated sum of $917,866, whereas if the contracts are not continued, it is unlikely the Company will recover the debts owed under the outstanding contracts of approximately $342,506. He deposes to the fact that if the outstanding contracts are not completed, it is likely that they will be terminated by the principal contractors.
5 There is a company called Lanmac Environmental Pty Limited (“Lanmac Environmental”), which provides administration and management staff to the Company. Lanmac Environmental is related to the Company by virtue of the common directorship of Mr Clouten. It provides services to the Company for which Lanmac Environmental invoices on a monthly basis at cost. If the Company continues to trade and completes the outstanding contracts, then the personnel and plant and equipment of Lanmac Environmental will be required by the Company.
6 The Administrator has entered into a funding deed (“the Deed”) with Mr Clouten, which is dated 19 July 2007. It is a condition precedent to that proposed transaction, or rather, to the performance of the obligations under it, that the Court grants the order sought in the originating process, or in substantially the same form as that sought.
7 Under the terms of the Deed, the director will pay to the Administrator $350,000 to be placed in the controlled moneys account to be held by the Administrator’s solicitors. Those funds will be used to meet trading expenses once all of the cash presently at the disposal of the Company has been utilised to pay the Administrator’s liabilities under section 443A of the Act.
8 A further term of the Deed is that after payment of disbursements and expenses, the Administrator will repay to the director any moneys advanced under the Deed, limited to the assets of the Company as a priority expense of the administration. That repayment will be in priority to payment of the Administrator’s remuneration, and any claims of other unsecured creditors. The affidavit of Mr Malanos sets out the Administrator’s calculation of the amount to be paid under the Deed.
9 The Administrator deposes to the fact that without the funds to be advanced it will not be possible for the Company to continue trading, as he may not be able to pay expenses and disbursements as they fall due.
10 In addition to the Deed, there has been entered into a deed of deferral, also of today’s date, under which Lanmac Environmental has agreed to permit the Company to continue making use of its plant and equipment for the period of the voluntary administration. Under that deed, Lanmac Environmental has agreed not to make any claim against the Administrator for payment for the use of its personnel, plant and equipment in the first instance, until the Administrator has received sufficient moneys to pay disbursements and expenses. Then once that threshold is met his liability will be limited to the extent of the assets of the Company available to pay.
11 Applications in the nature of the present have been considered by the Federal Court of Australia: see for example Re Ansett Australia Limited (all admin apptd) and Mentha (As Administrator) (2001) 40 ACSR 389 per Goldberg J and Re Spyglass Management Group Pty Limited (2004) 51 ACSR 432 per Finkelstein J.
12 Section 447A grants a most unusual power which requires careful consideration before exercise. It is not easy to grasp all of the ramifications of such an order in the absence of a contradictor, notwithstanding the assistance of counsel: see Sims; Re Huon Corporation Pty Ltd (admins apptd) (2006) 58 ACSR 620 per Gyles J.
13 As occurred in Sims; Re Huon Corporation Pty Ltd (admins apptd), the arrangements being proposed here are fundamentally financing mechanisms to enable the Company’s business to continue as a going concern. The proposed arrangement is, in my view, to the benefit of creditors because they stand to gain from the Company continuing to trade and to perform the contracts which it has on hand.
14 Mr Malanos deposes to the fact that the application is urgent for a number of reasons, the first of which is that works are due to be completed, and if the carrying out of those works is not proceeded with expeditiously, outstanding contracts will be terminated by principal contractors, potentially leading to substantial damages claims against the Company. They would denude it of its best opportunity to generate a return to creditors.
15 It was put to me by Mr Lo Surdo of counsel, and I accept, that it would not be practical in the present circumstances for the views of creditors to be sought as a prerequisite to the grant of the present order, as there is no time in which that could profitably or reasonably be done.
16 The Administrator deposes to the fact that on 13 July 2007 the first meeting of creditors of the Company was held. He did not raise the issue of this application with the creditors at that time, as he did not know whether funding was required and he did not have sufficient information to provide to the creditors at the time of that meeting.
17 It seems to me that this is an appropriate case in which the orders sought should be made.
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