Re Martco Engineering P/L (Administrator Appointed): Deputy Commissioner of Taxation

[1999] NSWSC 702

Reported Decision: (1999) 32 ACSR 487

New South Wales

Supreme Court

CITATION:	Re Martco Engineering P/L (Administrator Appointed): Deputy Commissioner of Taxation v Martco Engineering P/L [1999] NSWSC 702
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	2498/99
HEARING DATE(S):	12/07/99
JUDGMENT DATE:	12 July 1999
PARTIES :	Deputy Commissioner of Taxation (Plaintiff) Martco Engineering Pty Ltd ACN 060 878 926 (Defendant
JUDGMENT OF:	Santow J

COUNSEL :	Ms C Fierravanti-Wells (Sol.) (Plaintiff) J Hamilton (Sol.) (Administrator)
SOLICITORS:	Australian Government Solicitor (Plaintiff) Baker & McKenzie (Administrator)
CATCHWORDS:	CORPORATIONS LAW — Voting at creditors’ meetings under Regulation 5.6.21 — Casting vote by administrator.
ACTS CITED:	Corporations Law Regulations 5.6.21 Corporations Regulations (Amendment), Statutory Rule 1993, No. 135, para 95 Explanatory Statement
CASES CITED:	Re Bartlett Researched Securities Pty Ltd (1994) 12 ACSR 707
DECISION:	Company to be wound up

REVISED — 12 July, 1999
IN THE SUPREME COURT
OF NEW SOUTH WALES
IN EQUITY

SANTOW J

No. 2498/99

In the matter of MARTCO ENGINEERING PTY LTD (Administrator Appointed) ACN 060 878 926 and in the matter of the Corporations Law

Deputy Commissioner of Taxation
Plaintiff

MARTCO ENGINEERING PTY LTD ACN 060 878 926
Defendant
JUDGMENT — ex tempore

12 July 1999 1    There are some unusual aspects to the orders I have earlier made and what follows are brief reasons for them. The company Martco Engineering Pty Limited has had an unhappy history, having spent some two-third’s of its life under the financial equivalent by way of administration, of a life support system. It seeks further time to rehabilitate itself under a new Deed of Company Arrangement (“DCA”). 2    The application presently before me is a Summons by the Deputy Commissioner of Taxation that the company be now wound-up, with special leave sought as the company is still under administration. Such application is essentially based upon a statutory demand in turn reflecting substantial tax owing from the period of administration. 3    Initially that application was opposed. That opposition was not pressed. That was not surprising in view of the fact that the company has been under administration since 1996 under a Deed of Company Arrangement which was to pay 100 cents in the dollar to creditors over fourteen months but now will pay at best 50 cents. It now transpires that despite the opportunity so to trade out of its difficulties, the company’s position has in fact worsened with further debts to the Deputy Commissioner of Taxation leading it to conclude that there should be no further administration but a beneficial winding-up. 4    The Company through the Administrator, on the other hand, sought originally that it should continue to trade under a new deed of company administration with the same administrator, notwithstanding the opposition of the Deputy Commissioner of Taxation. That opposition in voting terms meant that the Deputy Commissioner of Taxation alone would outweigh in the terms of value of debts the votes of all other creditors were they unanimously to vote for the new DCA. In fact, it appears that two other significant creditors at present would also have voted against the DCA. On the other hand, a majority in number of creditors would have voted for the DCA. In all the circumstances, whilst drawing my attention to the legal position that would result if such a vote were to take place, the Administrator has accepted that liquidation is the appropriate course. Though against the reservations of the Deputy Commissioner of Taxation in view of the past post-administration failures in relation to taxation, I have concurred in the Administrator now become liquidator. That is on the strict basis that the former Administrator Mr Fiorentino will act impartially as between creditors and on the basis that his responsibility is not to the former directors and his own interests in respect of any debt owed from the administration is not to enjoy any preference save that allowed by the Corporations Law itself. That should produce some cost savings compared to someone new taking over. 5    The feature which leads me to set out reasons is the potential voting position as it results from Regulations 5.6.21 under the Corporations Law which I first quote below so far as relevant:

5.6.21(2) [Required majority] A resolution is carried if:
(a) a majority of the creditors voting (whether in person, by attorney or by proxy) vote in favour of the resolution; and
(b) the value of the debts owed by the corporation to those voting in favour of the resolution is more than half the total debts owed to all the creditors voting (whether in person, by proxy or by attorney).
5.6.21(3) [Majority vote against resolution] A resolution is not carried if:
(a) a majority of creditors voting (whether in person, by proxy or by attorney) vote against the resolution; and
(b) the value of the debts owed by the corporation to those voting against the resolution is more than half the total debts owed to all creditors voting (whether in person, by proxy or by attorney).
5.6.21(4) [Casting vote] If no result is reached under subregulation (2) or (3), then:
(a) the person presiding at the meeting may exercise a casting vote in favour of the resolution, in which case the resolution is carried; or
(b) the person presiding at the meeting may exercise a casting vote against the resolution, in which case the resolution is not carried.”

6    I also quote below what is stated in the Explanatory Statement to the Corporations Regulations (Amendment), Statutory Rule 1993, No. 135, para 95:

“The term ‘casting vote’ thus has a broader meaning in this context than is usual and will allow the chairperson to effectively decide between the interests of the creditors with the preponderance in numbers and the interests of the creditors with the preponderance in value. It is envisaged that the exercise of such a casting vote would be most appropriate in circumstances where:
(a) the creditors with a majority in value have such an overwhelming interest that it is inappropriate to allow a majority in number, who do not have the same monetary interest, to carry the day, or vice versa; or
(b) the inability to arrive at any decision, because of continuing deadlocks, affects the welfare of the company concerned.”

7    What is apparent from a close reading of the Regulation in relation to the casting vote, borne out by the Explanatory Statement, is this. If the effect of the poll is that only one of the two conditions for the resolution being carried is fulfilled, this is deemed to be a situation where “no result is reached”. That in turn gives rise to the administrator having the discretion to exercise a casting vote, though any creditor may apply to the court for a review of such outcome and appropriate orders; see Re Bartlett Researched Securities Pty Ltd (1994) 12 ACSR 707. 8 This means that instead of such a voting result representing a vote against, as would ordinarily be expected, it is to be taken as a situation akin to deadlock where casting votes are not infrequently allowed. However, it does not follow that the Court would automatically accept the exercise of such a casting vote as appropriate. This will be depend on factors such as whether the administrator has properly exercised the casting vote in the interests of creditors as a whole, such as in circumstances where the vote or votes which prevent one of the two conditions being fulfilled would represent an outcome unfair to the remaining creditors if not reversed by a casting vote. I should add that the present circumstances appear far from that. There is nothing in the apparent interests of the Deputy Commissioner of Taxation, which would lead to it having fundamentally divergent interests from other creditors. That is evidenced by the fact that two other significant trade creditors evidently share the same view that the Company should be wound up.

**********

Last Modified: 07/12/1999