Re Pindan Group Pty Ltd (Administrators Appointed) [No 3]
[2021] WASC 480
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: RE PINDAN GROUP PTY LTD (ADMINISTRATORS APPOINTED) AND ORS [No 3] [2021] WASC 480
CORAM: STRK J
HEARD: 16 DECEMBER 2021
DETERMINED : 16 DECEMBER 2021
DELIVERED : 24 DECEMBER 2021
FILE NO/S: COR 102 of 2021
MATTER: IN THE MATTER OF PINDAN GROUP PTY LTD (ADMINISTRATORS APPOINTED)
EX PARTE
VINCENT ANTHONY SMITH, COLBY RHYS O'BRIEN AND SAMUEL JOHN FREEMAN, as joint and several administrators of PINDAN GROUP PTY LTD (ADMINISTRATORS APPOINTED) ACN 611 922 386
Plaintiff
Catchwords:
Corporations law - External administration - Application by the administrators pursuant to the Corporations Act 2001 (Cth) s 447A seeking an order as to how Pt 5.3A is to operate in relation to a particular company in administration - Meeting of creditors convened in accordance with s 439A of the Corporations Act 2001 (Cth) - Incorrect term sheet appended to the supplementary report to creditors issued pursuant to the Insolvency Practice Rules (Corporations) 2016, r 75-225(3) - Resolution at a second meeting of creditors to execute a deed of company arrangement - Whether the proposed order has a nexus with how Pt 5.3A is to operate in relation to the company - Exercise of discretion
Legislation:
Corporations Act 2001 (Cth), s 447A, and sch 2 (Insolvency Practice Schedule (Corporations)), s 105-1
Insolvency Practice Rules (Corporations) 2016, r 75-225(3)
Rules of the Supreme Court 1971 (WA), O 3 r 5
Supreme Court (Corporations) WA Rules 2014, r 1.10
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | J Hynes and F Tao |
Solicitors:
| Plaintiff | : | Squire Patton Boggs |
Case(s) referred to in decision(s):
AFG Insurances Ltd (2002) 20 ACLC 1588; [2002] NSWSC 735
Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270
BE Australia WD Pty Ltd (subject to a deed of company arrangement) & Ors v Sutton (2011) 82 NSWLR 336; [2011] NSWCA 414
Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607
Correa v Whittingham (2013) 278 FLR 310; [2013] NSWCA 263
Honest Remark Pty Ltd v Allstate Explorations NL (2006) 234 ALR 765
Kruger; Re Kruger Engineering Pty Ltd (2006) 60 ACSR 191; [2006] NSWSC 1063
R v Toohey; Ex parte Northern Land Council (1981) 151 CLR 170
Re Greg Sewell Forgings Pty Ltd (1995) 17 ACSR 602
Re New Tel Ltd (2004) 210 ALR 270
Re Pindan Group Pty Ltd (Administrators Appointed) and Ors [2021] WASC 347
Re Pindan Group Pty Ltd (Administrators Appointed) and Ors [No 2] [2021] WASC 358
STRK J:
Introduction
Samuel John Freeman, Colby Rhys O'Brien and Vincent Anthony Smith (together the plaintiffs) are the joint and several administrators of Pindan Group Pty Ltd (administrators appointed) ACN 611 922 386.
On 25 November 2021, the plaintiffs issued a supplementary report to the creditors of Pindan Group prior to the second meeting of creditors. The second meeting was to be reconvened on 3 December 2021. The supplementary report described a revised deed of company arrangement (DOCA) proposal, that had been received from Oxley Sparkle Pte Ltd for Pindan Group. The plaintiffs had intended that a copy of the term sheet received from Oxley Sparkle Pte Ltd's solicitors would be appended to the supplementary report. Instead, the term sheet for a DOCA proposal for another company, Pindan Contracting Pty Ltd (administrators appointed), was appended to the supplementary report in error.
At the reconvened meeting on 3 December 2021, the creditors of Pindan Group resolved that Pindan Group '… execute a Deed of Company Arrangement as proposed by Oxley Sparkle Pte Ltd'.[1] The error in relation to the term sheet was later discovered.
[1] Affidavit of SJ Freeman, SJF8, page 344.
By an interlocutory process provided to the court on 15 December 2021 and filed on 16 December 2021, the plaintiffs sought orders on an urgent basis. The purpose of the application was to give practical effect to a creditors' resolution for Pindan Group to execute a DOCA giving effect to the revised DOCA proposal, and to remedy the error made by the plaintiffs.
The plaintiffs sought an order pursuant to the Corporations Act 2001 (Cth) s 447A, nunc pro tunc, that pt 5.3A of the Corporations Act is to operate in relation to Pindan Group as if the resolution of creditors of Pindan Group made on 3 December 2021 for Pindan Group to enter into a DOCA be a reference to a DOCA in accordance with the term sheet attached to the affidavit of Mr Freeman sworn on 15 December 2021 as SJF10 (that is, the correct term sheet). Ancillary orders were also sought.
On behalf of the plaintiffs it was submitted that the appending of the incorrect document to the supplementary report to creditors was an honest, minor, clerical mistake by the plaintiffs, and that the plaintiffs' subsequent enquiries with creditors of Pindan Group indicated that voting decisions were not affected by the error.
Notice of the application was given to the Australian Securities and Investments Commission (ASIC). Prior to the hearing, ASIC confirmed that it considered that the matter was properly left for the determination of the court, and that ASIC did not propose to intervene.[2]
[2] Affidavit of M Zaki, pars 6 and 7, MZ2.
On 16 December 2021, I granted the relief sought by the plaintiffs. The orders that were made at the conclusion of the hearing are reproduced at sch A to these reasons. These are my reasons for decision.
Evidence
An affidavit sworn by Mr Freeman on 15 December 2021, attaching documents marked SJF1 to SJF15, was read by counsel in support of the application, together with an affidavit sworn by Masiullah Zaki, a partner of Squire Patton Boggs and solicitor for the plaintiffs, sworn on 16 December 2021. Counsel also referred to and relied upon an outline of submissions filed on 16 December 2021, together with a supplementary outline of submissions filed shortly prior to the hearing. I had regard to the same and to the submissions made by counsel on 16 December 2021 in determining the application.
Urgency
The circumstances giving rise to urgency were deposed to by Mr Freeman in his affidavit at par 48. In short, the plaintiffs sought an urgent hearing of the application because pursuant to s 444B(2)(a) of the Corporations Act, following the creditors' resolution pursuant to s 439C(a) of the Corporations Act, the plaintiffs were required under s 444A(3) to prepare the DOCA and cause it to be executed within 15 business days after the end of the second meeting of creditors.
Upon reading the papers filed on behalf of the plaintiffs, I was satisfied of the urgency of the application, and it was listed for hearing at 4.00 pm (WST) on 16 December 2021.
Background
Pindan Group is part of a broader Pindan group of companies, which is primarily a Western Australian property and construction group. Oxley Holdings Ltd is the ultimate parent company of each entity comprising the corporate group.
On 18 May 2021, by resolution of each of the directors of Pindan Group, the plaintiffs were appointed as joint and several voluntary administrators of Pindan Group, and other related entities.
On 28 May 2021, the first creditors meeting for Pindan Group and related companies was held. The creditors resolved that a committee of inspection would be appointed for each of the companies, including Pindan Group. There were two nominations, and I understand that Peter Kohlmann (representing Insurance Australia Limited) and Evan Putranto (representing Diviv Group Pty Ltd) comprise the committee of inspection for Pindan Group.[3]
[3] Affidavit of SJ Freeman, SJF4, pages 89 and 90.
Since their appointment, the plaintiffs have sought various forms of relief and directions from the court. Orders made by the court include the following.
On 10 June 2021, an order was made extending the convening period for Pindan Group's administration to 16 September 2021.
On 13 September 2021, an order was made further extending the convening period for Pindan Group's administration to 28 October 2021, and requiring a second meeting of creditors to be held within five business days from the conclusion of the extended convening period: see Re Pindan Group Pty Ltd (Administrators Appointed) and Ors [2021] WASC 347.
Orders were also made authorising the plaintiffs in their capacity as joint and several liquidators of a number of Pindan entities to enter into transaction agreements pursuant to s 477(2B) of the Corporations Act. The transaction agreements were intended to facilitate a refinance by Oxley Holdings Ltd of moneys owed by various Pindan companies to BankWest, a division of Commonwealth Bank of Australia. Further, orders were made pursuant to s 447A(1) of the Corporations Act limiting the plaintiffs' liabilities in their capacity as joint and several administrators of Pindan Group and Pindan Contracting under the proposed transaction agreements, to the extent that those liabilities could be satisfied out of the assets of Pindan Group and/or Pindan Contracting pursuant to the administrators' indemnity under s 443(D) of the Corporations Act.
On 7 October 2021, the plaintiffs sought directions pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations), that the plaintiffs would be justified and acting reasonably in entering into and implementing updated transaction documents. The plaintiffs also sought variation to the orders made on 13 September 2021 which concerned the plaintiffs' liabilities in their capacity as joint and several administrators of Pindan Group and Pindan Contracting under the updated transaction documents; and approval pursuant to s 477(2B) of the Corporations Act for the plaintiffs in their capacity as joint and several liquidators of related entities, to enter into the updated transaction documents. Orders were made on 8 October 2021 in terms sought on behalf of the plaintiffs: Re Pindan Group Pty Ltd (Administrators Appointed) and Ors[No 2] [2021] WASC 358.
Recent developments
In the affidavit sworn on 15 December 2021, Mr Freeman described recent developments and the factual context in which the application filed on 16 December 2021 was pressed. He deposed as follows.
On 27 October 2021, the plaintiffs issued a report to creditors in respect of Pindan Group, which report contained a DOCA proposal received from Oxley Sparkle Pte Ltd.[4] I understood Oxley Sparkle Pte Ltd to be a subsidiary of Oxley Holdings Ltd.[5] A second meeting of Pindan Group creditors was scheduled to take place on 4 November 2021.
[4] A copy of the report is annexed to SJ Freeman's affidavit at SJF5.
[5] Affidavit of SJ Freeman, SJF9, page 416.
The day prior to the scheduled second meeting of creditors, the plaintiffs received a revised DOCA proposal from Oxley Sparkle Pte Ltd. Given the timing of receipt, the material changes proposed, and the complexities and interconnectedness of the various external administrations, the plaintiffs formed the view that an adjournment of the second meeting of creditors was necessary. At the second meeting of creditors convened on 4 November 2021, it was resolved to adjourn the meeting for a maximum period of 45 business days, pursuant to r 75-140(3) of the Insolvency Practice Rules (Corporations) 2016.
Mr Freeman deposes that in the period between 4 November 2021 and 25 November 2021, the plaintiffs facilitated various meetings with stakeholders of Pindan Group, including Oxley Sparkle Pte Ltd, the deed proponent. The plaintiffs' efforts were aimed at facilitating receipt of a further revised DOCA proposal by the deed proponent which would further the objects of Pt 5.3A of the Corporations Act, that is, in the event Pindan Group's business could not continue, to provide Pindan Group's creditors with a better return than what they would obtain in a liquidation scenario.
On 22 November 2021, Oxley Sparkle Pte Ltd put forward a further revised DOCA proposal.
The second meeting of creditors was scheduled to resume on 3 December 2021, and the notice of resumed meeting of creditors was issued on 26 November 2021.[6]
[6] Affidavit of SJ Freeman, par 17, SJF7 and SJF8.
On 25 November 2021, in anticipation for the resumed meeting, the plaintiffs issued a supplementary report to creditors of Pindan Group pursuant to r 75-225(3) of the Insolvency Practice Rules (Corporations) 2016 (supplementary report), which was prepared in the days leading up to 25 November 2021, based on, among other things, the work undertaken by the plaintiffs since having issued the report to creditors on 27 October 2021 and receipt of the further revised DOCA proposal on 22 November 2021.[7]
[7] Affidavit of SJ Freeman, par 20, SJF9.
Section 4 of the supplementary report was titled 'Deed of Company Arrangement', and included the following statement:
At the Reconvened Second Meeting to be held on 3 December 2021, creditors may resolve that [Pindan Group] should enter into a DOCA. A DOCA enables a company to be restructured returning it to a position of solvency.
On 22 November 2021, we received the Revised Oxley DOCA, a copy of which is provided at Appendix G to this report. This section of the report sets out the proposed DOCA process along with details of the Revised Oxley DOCA proposal.
The abbreviation 'Revised Oxley DOCA' in the supplementary report was a refence to the revised proposal for a DOCA by Oxley Sparkle Pte Ltd in respect of Pindan Group and Pindan Contracting dated 22 November 2021.[8]
[8] Affidavit of SJ Freeman, SJF9, page 416.
Appended to the supplementary report as Appendix G was a term sheet. The heading of Appendix G and the first part of the term sheet titled 'Parties, commencement and purpose' are reproduced below:[9]
[9] Affidavit of SJ Freeman, SJF9, page 455.
Mr Freeman says that although the incorrect term sheet was appended to the supplementary report, the correct term sheet was properly summarised and outlined in the supplementary report.[10] In the supplementary report, among other things, the plaintiffs:
(a)summarised the Revised Oxley DOCA presented by Oxley Sparkle Pte Ltd in relation to Pindan Group: s 1 and s 3.1;
(b)described the key features of the Revised Oxley DOCA: s 4.1;
(c)described the key events required in order to give effect to the Revised Oxley DOCA: s 4.2;
(d)described the key consideration for creditors, which included an explanation of the conditions precedent that must be satisfied or waived by Oxley Sparkle Pte Ltd in order to avoid the termination of the proposed DOCA: s 4.3.1; and the intended differential treatment of Pindan Group creditors: s 4.3.2;
(e)provided an analysis of the estimated return to creditors under the Revised Oxley DOCA and if Pindan Group was placed into liquidation: s 5;
(f)gave their opinion about whether it would be in the creditors' interests for the administration to end and control of Pindan Group to be returned to the directors: s 6.2; whether it would be in the creditors' interests for Pindan Group to execute a DOCA: s 6.3; or whether it would be in the creditors' interests for Pindan Group to be wound up: s 6.4; and
(g)recorded that it remained the plaintiffs' opinion that the creditors' best interests that Pindan Group execute the 'Revised Oxley DOCA', on the terms explained to creditors in the body of the supplementary report, and the basis for that opinion: s 6.5 and Appendix E.
[10] Affidavit of SJ Freeman, par 29.
Mr Freeman explains that the term sheet appended as Appendix G was a late addition to the supplementary report. He says that the final version of the term sheet was provided by Allens Linklaters, the solicitors for Oxley Sparkle Pte Ltd, to the plaintiffs at approximately 1.59 pm (AEDT) on Thursday, 25 November 2021. A copy of the final version of the Pindan Group term sheet is annexed to Mr Freeman's affidavit at SJF10. Mr Freeman says that at about the same time, the plaintiffs received revised DOCA proposals for the two related entities of the Pindan Group, Pindan Contracting and Pindan Asset Management.
Mr Freeman says that upon receipt of the term sheet for Pindan Group, he with members of his staff working under his supervision, undertook an urgent review of the term sheet to satisfy themselves that the substance of the terms accorded with the revised DOCA proposal put forward by Oxley Sparkle Pte Ltd, and as summarised in the body of the (then) draft supplementary report. Mr Freeman says that he was so satisfied, and he understood that his staff were of a similar view.
Mr Freeman says that in the final stages of the preparation of the supplementary report, an incorrect term sheet was annexed as Appendix G, and the plaintiffs failed to identify the error. He says that the mistake occurred in circumstances where, shortly after the term sheet was received, the supplementary report was finalised and converted to a single PDF document at approximately 6.09 pm (AEDT) on 25 November 2021.
The supplementary report was then issued via email to all creditors of Pindan Group shortly after 6.40 pm (AEDT) on 25 November 2021, and the plaintiffs caused the supplementary report to be lodged with ASIC on Friday, 26 November 2021.
Mr Freeman deposes that the plaintiffs did not receive any substantive enquiries from or on behalf of creditors before or after the resumed meeting on 3 December 2021 in respect of the supplementary report.
Vote on revised DOCA proposal
Of the 48 creditors present at the resumed meeting on 3 December 2021 and entitled to vote, 44 voted in favour of entering into the DOCA proposed by Oxley Sparkle Pte Ltd, representing $38,276,527.03 (90%); and four voted against entering into the DOCA, representing $4,354,158.95 (10%). Mr Freeman notes that among those to have voted in favour of the resolution were Oxley Sparkle Pte Ltd, Oxley Holdings Ltd, and Mr Ian Downs, in his capacity as representative of the employee creditors.[11]
[11] Affidavit of SJ Freeman, pars 32 - 33.
Mr Freeman says that the plaintiffs have conducted a review of the voting outcomes and consider that the error in respect of Appendix G of the supplementary report would not have altered the outcome of the vote concerning the DOCA proposal, nor any other resolution passed during the resumed meeting on 3 December 2021. He says that the plaintiffs have formed the view that the voting outcomes would not have been different by reason of the following:[12]
(a)the body of the supplementary report outlined all the information necessary for creditors to properly inform themselves as to how to vote;
(b)the correct DOCA terms were referred to in the meeting of creditors on 3 December 2021, and displayed in summary on the power point presentation shown to creditors at the resumed meeting; and
(c)the key voting blocks of creditors have since confirmed that their votes would not have been different.
Identification of the error
[12] Affidavit of SJ Freeman, par 36.
The error with respect to Appendix G to the supplementary report was identified on Thursday, 9 December 2021 by Squire Patton Boggs, the plaintiffs' lawyers. Mr Freeman was informed of the error on the same day. Mr Freeman says that once he found out about the mistake, he formed the view, which he then discussed with the other plaintiffs, that appropriate steps would need to be taken to inform creditors of the issue and to remedy the irregularity.[13]
Engagement with creditors and notice to ASIC
[13] Affidavit of SJ Freeman, pars 37 - 39.
On 14 December 2021, Mr Freeman caused a circular to all creditors of Pindan Group to be prepared and issued, bringing the error to the attention of all creditors of Pindan Group and foreshadowing this application. A copy of the circular is attached to Mr Freeman's affidavit as SJF11. By that circular, among other things, creditors were invited to inform the plaintiffs if they wanted to receive a copy of the court application or details of the anticipated hearing; or if they wished to be heard on the court application.
Mr Freeman further deposes that he has spoken with each of the following regarding the error and whether their vote may have been cast against the proposed DOCA had they been aware of the error:
(a)Mr Quentin Olde, a representative of Oxley Sparkle Pte Ltd and Oxley Holdings Ltd;
(b)Mr Ian Downs, in his capacity as representative of 27 employee creditors (representing $1,048,631.03, being 2.5% of the vote by value and 57% of the value by number);
(c)Mr Peter Kohlmann, a representative of Insurance Australia Limited and a member of the committee of inspection for Pindan Group; and
(d)Mr Evan Puntranto, a representative of Diviv Group Pty Ltd and the other member of the committee of inspection for Pindan Group.
Mr Freeman says that Mr Puntranto did not attend the meeting or vote but Mr Puntranto informed Mr Freeman that he was supportive of the proposed relief sought by the plaintiffs in this application.
Mr Freeman deposed that each of the other persons he contacted maintained that their votes would not have changed, and each confirmed that they continued to support the revised DOCA proposal.
Mr Freeman further deposed that on 15 December 2021, he caused a further updating circular to be issued to creditors. A copy of the circular is attached to Mr Freeman's affidavit as SJF13. By that circular, creditors were advised that this application would be heard at 4.00 pm (WST) on 16 December 2021.
He deposed that at the time of making his affidavit, neither the plaintiffs nor their solicitors had received any communication from creditors who wished to be heard on the application. I note that no creditor appeared at the hearing of the application.
As noted above, ASIC was also given notice of the application and had been served with a copy of the interlocutory process and the supporting affidavit of Mr Freeman. By an email communication from ASIC to a representative of the plaintiffs, ASIC confirmed that it considered that this was a matter properly left for the determination of the court, and that it did not propose to intervene in the proceeding.[14]
[14] Affidavit of M Zaki, pars 6 - 7, MZ2.
Applicable principles
This application was made pursuant to s 447A of the Corporations Act, which 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.
While the power is broad, it is not unlimited.[15] It is well established that 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.[16] As was noted by Brereton J in Honest Remark Pty Ltd v Allstate Explorations NL at [66], in reliance on Re New Tel Ltd at [7], 'an order under s 447A must have a nexus with how Pt 5.3A is to operate in relation to a particular company'.
[15] Correa v Whittingham (2013) 278 FLR 310; [2013] NSWCA 263 at [2] - [8] , [97] - [105] and [304]; citing Honest Remark Pty Ltd v Allstate Explorations NL (2006) 234 ALR 765 and Re New Tel Ltd (2004) 210 ALR 270 at [3].
[16] R v Toohey; Ex parte Northern Land Council (1981) 151 CLR 170, cited in Correa v Whittingham [4].
Further, Barrett JA in Correa v Whittingham at [4] observed:
The 'nexus' with the operation of Pt 5.3A to which reference is made in the decided cases must be understood accordingly. The relevant purpose is to be ascertained by reference to the language of the statute, its subject matter and objects and the consequences of a decision that the power has been exceeded: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355. The principal source of constraint and limitation upon the power is therefore the statement of the object of Pt 5.3A in s 435A, coupled with the nature, incidents and aims of the particular form of external administration as gathered from the provisions of Pt 5.3A as a whole.
I accept that any order granted pursuant to s 447A must be designed to achieve in relation to a particular company the objects of Pt 5.3A as stated in s 435A of the Corporations Act.[17]
[17] Correa v Whittingham [4].
As to the scope of the power vested in a court by s 447A, counsel for the plaintiffs submitted that the section confers 'plenary powers' on the court 'to do whatever it thinks is just in all the circumstances' having regard to the rights of the various groups of persons affected by an administration.[18] Counsel also noted that the power under s 447A has been frequently deployed by courts to attend to irregularities in procedural steps which have consequential flow-on effects. Such instances include validating premature or late convened meetings of creditors in order to ensure that resolutions passed at those meetings were effective.[19]
[18] Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607 (per Young J) at 611, cited in the plaintiffs' submissions par 18.
[19] Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; and Re Greg Sewell Forgings Pty Ltd (1995) 17 ACSR 602, cited in the plaintiffs' submissions par 19.
Prior to the hearing of the application, I asked that counsel consider and address AFG Insurances Ltd (2002) 20 ACLC 1588; [2002] NSWSC 735. I referred counsel to [23] of the decision of Barrett J, where after noting the comprehensive operation of s 447A accepted by the High Court in Australasia Memory Pty Ltd v Richard Campbell Brien, Barrett J made the following observation:
Section 447A(1) appears in Pt 5.3A. It empowers the court to make orders 'about how this Part is to operate in relation to a particular company'. Such an order may modify the operation of a statutory provision, in so far as it already operates or will in future operate upon or in relation to a particular company, provided that the provision in question is located in Pt 5.3A. It seems to me to be clear from the joint judgment in Australasian Memory that, before any order can properly be made under s. 447A(1), it is necessary to identify the Pt 5.3A provision (or the effect produced, or to be produced, by a Pt 5.3A provision) the operation of which is to be modified and then to articulate the modification that the order is to achieve. I do not think it is possible to identify any Pt 5.3A provision as relevant for present purposes; and none was suggested in the course of submissions. Section 581(4) is, of course, in Pt 5.6.
In advance of the hearing of the application, counsel was asked to identify the provision in Pt 5.3A the operation of which was sought to be modified by the application, and to articulate the proposed modification. The supplementary submission filed on behalf of the plaintiffs addressed my requests. As preliminary points, among other things, counsel for the plaintiffs made the following observations:[20]
(a)AFG Insurances Ltd concerned an application under s 447A to introduce power into Pt 5.3A of the Corporation Act to sanction an order for the issuance of a letter of request to a foreign jurisdiction. Counsel for the plaintiffs noted that it was unsurprising that no provision in Pt 5.3A could be identified which required modification;
(b)Barrett J's reasons for decision suggest that an application for relief may identify, in the alternative to the modification of a particular provision, the 'effect produced' by a Pt 5.3A provision the operation of which is to be modified; and
(c)the order of the court made under s 447A need not expressly identify the provisions in Pt 5.3A the operation of which are sought to be modified, rather, Barrett J's observations at [23] are to be regarded as being directed to 'part of the judicial reasoning process'.[21]
[20] Plaintiffs' supplementary submissions par 2.
[21] Plaintiffs' supplementary submissions par 2(b), citing BE Australia WD Pty Ltd (subject to a deed of company arrangement) & Ors v Sutton (2011) 82 NSWLR 336; [2011] NSWCA 414 [192].
As to whether it is necessary for an applicant to identify the provision in Pt 5.3A the operation of which is sought to be modified and to articulate the proposed modification so as to establish a sufficient nexus, I accept the submission made on behalf of the plaintiffs that it is not.
This is supported by a careful reading of Barrett J's decision in AFG Insurances Ltd, with particular regard to the words in parentheses. It is also supported by the decision of his Honour in Correa v Whittingham at [6], where his Honour observed:
The proper purpose limitation does not mean that s 447A is confined to modifying what would otherwise be the operation of a provision within Pt 5.3A itself. In Re Octaviar Ltd (No 8) (2010) 237 FLR 315, the section was held to allow an order making inoperative in relation to the particular company not only a provision within Pt 5.3A but also a related and complementing provision of the Corporations Regulations 2001 (Cth) (see also Re Porter (2006) 57 ACSR 206 at [8] - [11]). In cases of that kind, the s 447A order facilitates the operation of Pt 5.3A within the whole of the context envisaged by the Act of which it forms part.
Counsel for the plaintiffs further referred to and relied upon Barrett JA's reasons for decision in Kruger; Re Kruger Engineering Pty Ltd (2006) 60 ACSR 191; [2006] NSWSC 1063, which concerned an application under s 447A to cause a purported DOCA to be a DOCA. The decision was cited as authority for the proposition that s 447A may be engaged to validate an irregular determination of creditors, such as a resolution that a company execute a DOCA.[22]
[22] Plaintiffs' submissions par 20.
It is helpful to set out in some detail the context in which relief was granted pursuant to s 477A by Barrett JA in Kruger; Re Kruger Engineering Pty Ltd, described from [4] of that decision and summarised below.
On 16 February 2006, Kruger Engineering Australia Pty Ltd became subject to voluntary administration under Pt 5.3A of the Corporations Act as a result of a determination of its sole director, Mr Kruger. Mr Louttit became the administrator. On 7 March 2006, Mr Louttit sent a report to creditors pursuant to s 439A of the Corporations Act in connection with the meeting of creditors under that section which was to be held on 15 March 2006. Mr Louttit recommended that creditors accept a DOCA proposal. A draft deed did not accompany the report and notice of meeting (nor was a draft deed tabled at the meeting). The report summarised the deed terms. It appears that Mr Kruger was the proponent of the DOCA proposal.
At the meeting of creditors held on 15 March 2006, it was resolved that 'the company execute the deed of company arrangement pursuant to s 439C of the Corporations Act'. Votes in favour were cast by six creditors accounting for $395,446.01. Votes against were cast by five creditors accounting for $138,576.98.
At that point, s 444A required that an instrument setting out the terms of the deed be prepared. Mr Louttit, upon whom that task fell pursuant to s 444A(3), caused his solicitors to prepare such an instrument. This was forwarded to Mr Kruger on or about 31 March 2006. By virtue of s 444B, Kruger Engineering was required to execute the deed within 21 days after the end of the meeting held on 15 March 2006, or within such further period as the court might allow within the 21 day period. On 5 April 2006, the court made, on Mr Kruger's application, an order extending until 26 April 2006 the deadline for execution of the DOCA.
Also, on 5 April 2006, Mr Louttit gave notice of a meeting of creditors to be held on 13 April 2006. At that meeting, Mr Louttit tabled the proposed deed which had been drawn up to give effect to the creditors' decision of 15 March 2006. Mr Woodgate, an insolvency practitioner separately consulted by Mr Kruger, was invited to address the meeting and to 'explain any potential amendments and variations to the DOCA'. Mr Woodgate then proceeded to express an opinion that certain aspects of the deed proposal were unachievable and that a financier had stated that Mr Kruger would not be able to play the funding role envisaged for him.
Mr Woodgate then outlined a revised DOCA proposal involving retention (rather than sale) of the company's equipment and a smaller financial contribution by Mr Kruger. Mr Louttit, as chairman, said that he would circulate any revised DOCA upon it being received.
On 18 April 2006, Mr Louttit, as administrator, called a further meeting of creditors to be held on 26 April 2006. The notice of meeting outlined the terms of a revised DOCA but was not accompanied by any instrument embodying the precise and complete terms. Such an instrument (consistent with the description in the notice of meeting) was, however, tabled at the meeting on 26 April 2006. It was resolved that the company 'execute the revised the varied deed of company arrangement pursuant to s 439C of the Corporations Act'. Votes in favour were cast by 20 creditors accounting for $887,216.18. Votes against were cast by seven creditors accounting for $478,636.24. The instrument was then executed on that day, 26 April 2006. Mr Woodgate was the deed administrator. He commenced immediately to carry out the terms of what he believed to be a DOCA.
On 15 September 2006, a further meeting of creditors was held. It was purportedly convened pursuant to s 445F and purported to make a minor variation to the DOCA pursuant to s 445A. Creditors voted by a large majority in favour of the variation.
Mr Kruger and Mr Woodgate subsequently developed doubts about the procedure followed which caused them to make an application to the court pursuant to s 477A. Barrett JA noted that their doubts were well founded,[23] and his Honour concluded that the meeting held on 26 April 2006 was not a meeting convened under s 439A:[24]
… The meeting convened under that section had proceeded to business and concluded on 15 March 2006. That meeting had, as envisaged by s 439C(a), resolved that the company execute a deed of company arrangement. But the deed executed on 26 April 2006 was not executed in conformity with the resolution. It was in different terms. Failure of the company to execute, within the period specified in s 444B(2) (that is, in the particular circumstances, the period ending on 26 April 2006), the deed the subject of the resolution of creditors passed on 15 March 2006 caused s 446A(1)(b) to operate at the expiration of that period. The effect of s 446A(1)(b) was to cause the company to enter the particular form of creditors voluntary winding up imposed by s 446A, with Mr Louttit as liquidator. The resolution of 26 April 2006 that the company execute the revised deed of company arrangement 'pursuant to s 439C of the Corporations Act' was not effective for the purposes of Pt 5.3A since, having regard to s 439C, a resolution that the company execute a deed of company arrangement can be passed only at a meeting convened under s 439A. The meeting held on 26 April 2006 was not such a meeting.
[23] Kruger; Re Kruger Engineering Pty Ltd [10].
[24] Kruger; Re Kruger Engineering Pty Ltd [10].
Barrett JA from [20] considered whether s 447A would support orders to the effect that Pt 5.3A was to operate in relation to Kruger Engineering as if the resolution with respect to the DOCA in fact passed at the meeting of 26 April 2006 had been passed at a meeting convened and held in accordance with s 439A. His Honour noted that:[25]
… The creation of such deemed character for the meeting of 26 April 2006 would make it, in terms of s 439C, a meeting at which it was open to creditors to resolve that the company execute a deed of company arrangement in the form of the instrument in fact executed.
[25] Kruger; Re Kruger Engineering Pty Ltd [20].
It was in this context that Barrett JA relevantly made the following observations as to the power and scope of s 447A of the Corporations Act:
[21]Section 447A empowers the court to 'make such an order as it thinks appropriate about how the part is to operate in relation to a particular company'. The scope and effect of the section were the subject of extensive analysis in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; 172 ALR 28; 34 ACSR 250; [2000] HCA 30. As the joint judgment in that case emphasised at [24], s 447A does not create a general power standing apart from Pt 5.3A. Rather, it is 'an integral part of the legislative scheme provided for by Pt 5.3A'. Because of the inclusion of s 447A, Pt 5.3A carries within itself the means of its modification, with the result that its own modification in relation to a particular company is part of the scheme created by Pt 5.3A.
[22]Australasian Memory itself was described in these terms by Mandie J in Re Centaur Mining & Exploration Ltd (2005) 194 FLR 203; 55 ACSR 293; [2005] VSC 367 at [32]:
[32]Australasian Memory was a case where the administration had terminated at a time and in a manner other than that which was intended as a result of failure to comply with a provision of Pt 5.3A and in which s 447A was utilised to alter the relevant provision (that is the time fixed by such provision) so as to 'cure the irregularity' and to achieve what was originally intended and 'rescue' the intermediate transactions.
[23]The essence of Australasian Memory has recently been stated by Austin J in Brandrill v Newmont Yandal Operations Pty Ltd [2006] NSWSC 974 at [48]:
[48]The breadth of the court's power under s 447A(1) was confirmed by the High Court in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270. The particular question before the court in that case was whether s 447A(1) confers on the court the power to make an order altering the time fixed by s 439A within which the second meeting of creditors must be held. The High Court found that the section was wide enough to permit such an order to be made, and their Honours (Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ) made some more general observations about the scope of s 447A and the limitations inherent in it. They held that there was nothing on the face of s 447A suggesting that should be read down (at 279). They recognised that the scope of the section was limited by the words 'how this Part is to operate', an expression looking to the future, not the past. But those words are satisfied if the order has effect only from the time of its making, although the order relates to past matters or events (at 282).
[24]The present case is one in which creditors have, by a significant majority (twenty to seven by number and $888,216.18 -$478,636.24 by value) expressed concurrence in the proposition that the instrument tabled on 26 April 2006 should be executed by Kruger Engineering so as to have effect as a deed of company arrangement under Pt 5.3 A. They did so, so far as the evidence shows, on the understanding that their actions would have such a legal significance and effect that the rights of the company and the creditors would become those created by a deed of company arrangement in that form. Furthermore, the evidence contains no basis for thinking that creditors made their decision otherwise than on the basis of appropriate disclosure and explanation. Intervention pursuant to s 447A would, as in Australasian Memory, be by way of 'rescue' of the result of a clear expression of creditors' wishes from the consequences of non-compliance with Pt 5.3A. The purpose of that aspect of Pt 5.3A which contemplates its own modification by way of remediation would thereby be served. And the remedial order would be one having effect from the time of its making, although relating to past events.
[25]I am satisfied, therefore, that this is a case in which resort to s 447A is possible in order to validate the defective determination of creditors that the company should execute a deed of company arrangement in the form tabled on 26 April 2006. In addition and having regard to the clear expression of creditors' wishes and the circumstance that all relevant persons have, for more than 5 months, conducted themselves as if a deed of company arrangement were in place accordingly, I am satisfied that the court should exercise the remedial jurisdiction. It is significant that, notwithstanding notice of the application (given on two occasions to all creditors), no creditor ultimately saw fit to seek to make submissions to the court.
Disposition
Standing
By operation of s 447A(4)(c), the plaintiffs had standing to apply for an order pursuant to s 447A(1).
Power
I accepted that the court had the power to make the orders promoted on behalf of the plaintiffs, in that the order sought under s 447A had a nexus with how Pt 5.3A was to operate in relation to Pindan Group.
The resolution in question was put to creditors at a meeting concerned to decide the future of Pindan Group pursuant to s 439A of the Corporations Act. There was no suggestion that the second meeting of creditors, resumed on 3 December 2021, was not properly convened pursuant to s 439A.
The Insolvency Practice Rules (Corporations) 2016 are rules made by legislative instrument under s 105-1 of sch 2 to the Corporations Act. Part 3 of the Insolvency Practice Rules (Corporations) 2016 contains general rules relating to external administrations, and div 75 of that part concerns meetings. Sub-division F of div 75 is headed 'Additional rules for particular kinds of external administration', and r 75-225, within sub-div F, is headed 'Companies under administration - how certain meetings are convened'.
Rule 75-225(3) provides as follows:
…
(3)If the meeting is convened under section 439A of the Act, the notice must also be accompanied by:
(a)a report by the external administrator about the company’s business, property, affairs and financial circumstances; and
(b)a statement setting out the following:
(i)whether, in the administrator's opinion, it would be in the creditors' interests for the company to execute a deed of company arrangement;
(ii)whether, in the administrator's opinion, it would be in the creditors' interests for the administration to end;
(iii)whether, in the administrator's opinion, it would be in the creditors' interests for the company to be wound up;
(iv)the reasons for the opinions referred to in subparagraphs (i) to (iii);
(v)such other information known to the administrator as will enable the creditors to make an informed decision about each matter covered by subparagraph (i), (ii) or (iii);
(vi)whether there are any transactions that appear to the administrator to be voidable transactions in respect of which money, property or other benefits may be recoverable by a liquidator under Part'5.7B of the Act;
(vii)if a deed of company arrangement is proposed ‑ details of the proposed deed.
In compliance with r 75-225(3), the plaintiffs' notice of resumed meeting was accompanied by a supplementary report to creditors. Details of a proposed DOCA were provided and analysed. The supplementary report was titled 'Administrators' Supplementary Report to Creditors Pursuant to Rule 75-225(3) of the Insolvency Practice Rules (Corporations) 2016'.
It was in the preparation of the supplementary report issued to fulfil the requirements prescribed in the Insolvency Practice Rules (Corporations) 2016, that the error which grounds this application was made.
Section 439C of the Corporations Act provides that creditors may resolve at a meeting convened under s 439A that the company execute a DOCA specified in the resolution (even if it differs from the proposed deed (if any) details of which accompanied any notice of meeting).
Section 444A applies where, at a meeting convened under s 439A, a company's creditors resolve that the company execute a DOCA.[26] By operation of s 444A(3), the administrators of the company must prepare an instrument setting out the terms of the deed. In this case, the creditors of Pindan Group having resolved to '… execute a Deed of Company Arrangement as proposed by Oxley Sparkle Pte Ltd',[27] the plaintiffs must prepare an instrument setting out the terms of the deed.
[26] Corporations Act s 444A(1).
[27] Affidavit of SJ Freeman, SJF8, page 344.
If it is necessary in the determination of this application to identify a particular provision within Pt 5.3A, then this application can be characterised as an application to modify the effect of s 439C of the Corporations Act, to make plain that the resolution of the creditors of Pindan Group on 3 December 2021 was a resolution to execute a DOCA as proposed by Oxley Sparkle Pte Ltd for Pindan Group, and not a DOCA as proposed by Oxley Sparkle Pte Ltd for Pindan Contracting. In any event, I was satisfied that a nexus to Pt 5.3A had been demonstrated, and having regard to the statement of administrators' opinion recorded in the supplementary report,[28] I was satisfied that the proposed order was entirely consistent with, and in furtherance of the objects of Pt 5.3A as set out in s 435A.
Discretion
[28] Affidavit of SJ Freeman, SJF 9, Appendix E.
There did not appear to be any significant discretionary factors which counted against making an order under s 447A of the Corporations Act.
As noted above, there was no suggestion that the second meeting of creditors was not properly convened.
There was no evidence of any prejudice to creditors. Rather, it was submitted that the relief sought by the application, if granted, would give effect to the wishes of the majority of creditors of Pindan Group at the second meeting of creditors, being 91% by number and 90% by value. Mr Freeman's affidavit made good the submission. The evidence reveals that there were key voting blocks, and representatives of each had confirmed that their respective votes would not have changed had the correct term sheet been attached to the supplementary report. This evidence weighed heavily in the balance.
I accept counsel's submission that a perusal of the supplementary report reveals that the plaintiffs provided an accurate summary and thorough analysis of the key terms of the revised DOCA proposal promoted by Oxley Sparkle Pte Ltd in relation to Pindan Group. This evidence also weighed heavily in the balance.
Further, following the identification of the mistake, all creditors were advised of the error for the purpose of ensuring that no miscarriage of their interests had occurred. The enquiries resulted in no query, challenge or objection to the application being taken by any creditor.
Finally, ASIC had been notified of the application and had raised no opposition.[29]
[29] Affidavit of M Zaki, pars 6 and 7, MZ2.
In all of the circumstances, I accepted that the grant of relief pursuant to s 447A of the Corporations Act would, adopting the language of Barrett JA in Re Kruger at [24], be by way of 'rescue' of the result of a clear expression of creditors' wishes from the consequence of an honest mistake.
Conclusion and orders
For these reasons, I determined it was appropriate for the court to exercise its remedial jurisdiction to grant to the plaintiffs the relief sought. After hearing from counsel as to the form of orders, minor variations were made to the orders promoted on behalf of the plaintiffs, which included the introduction of order 4 (notice of the orders to be provided to ASIC).
I also ordered that the costs of and incidental to the interlocutory process be costs and expenses in the administration of Pindan Group and paid out of the assets of Pindan Group. I was satisfied that the error was an honest one, which occurred in the performance of the plaintiffs' proper function while under unfortunately tight time constraints.
Sch A - Orders made on 16 December 2021
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EH
Associate to Justice Strk
24 DECEMBER 2021
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