Rods Plumbing Pty Ltd v Andeco Construction Group Pty Ltd
[2010] VSC 655
•11 June 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. SCI 2010 01656
| RODS PLUMBING PTY LTD (ACN 070 186 631) | Plaintiff |
| v | |
| ANDECO CONSTRUCTION GROUP PTY LTD (ACN 102 566 576) (ADMINISTRATORS APPOINTED) | Defendant |
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JUDGE: | Gardiner AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11 June 2010 | |
DATE OF JUDGMENT: | 11 June 2010 | |
CASE MAY BE CITED AS: | Rods Plumbing Pty Ltd v Andeco Construction Group Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 655 | |
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CORPORATIONS – Application for winding up in insolvency pursuant to s 459P of the Corporations Act 2001 (Cth) – Application for adjournment by administrators pursuant to s 440A of the Corporations Act 2001 (Cth) to adjourn winding up application until after the second meeting of the creditors convened pursuant to s 439A of the Corporations Act 2001 (Cth) – Finding that there was persuasive evidence that it was in the interest of creditors that company continue under administration rather than be wound up.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R. Antill of Counsel | Scammell Black Mileo, Solicitors |
| For the Defendant | Dr O. Bigos of Counsel | Koroneos Lawyers |
| For Metacorp Aust Pty Ltd, a Supporting Creditor | Mr M. Lhuede, Solicitor | Piper Alderman |
| For East Gippsland Shire Council, a Supporting Creditor | Ms M. Hibberd, Solicitor | Maddocks Lawyers |
HIS HONOUR:
On 19 May 2010, after the first return of the winding up application commenced by the plaintiff, the defendant went into administration pursuant to Part 5.3A of the Corporations Act and Stephen Robert Dixon and Michael James Humphris were appointed as administrators.
On 26 May 2010, at the second return of the winding up application, the administrators sought an adjournment of the winding up application until after the second meeting of creditors required to be convened under s 439A of the Corporations Act. The plaintiff and certain of the creditors consented to the adjournment. One, Metacorp Australia Pty Ltd neither opposed nor consented to the adjournment and another Coldflow Airconditioning Pty Ltd, whose credit controller was given leave to speak on its behalf opposed the adjournment. Because I considered that the affidavit material filed in support of the application, the affidavit of Stephen Robert Dixon sworn 26 May 2010 did not sufficiently explain why it was in the interests of the creditors to adjourn the further hearing of the winding up application until after the second meeting, I granted a short adjournment in order that the administrators could file further evidence in support of an application until after the meeting.
The administrators have now filed two further affidavits, being those of Mr Dixon sworn 9 June 2010 and 11 June 2010. In the 9 June affidavit, Mr Dixon sets out the events which have occurred since swearing his last affidavit and describes the results of his investigations thus far in the administration. It is his opinion for the reasons deposed to in that affidavit that it would be in the best interests of the creditors of the defendant for the administration to continue rather than the company to be wound up today. There are unsatisfactory aspects of the matter, including the fact that the director of the company, Mr Nadinic, is yet to provide a statement as he is required to under s 438B of the Act. Nonetheless, the administrators appear to have been able to conduct reasonably detailed investigations in order to compile the information contained in the affidavit and give the opinion that it is more likely that the creditors will benefit by an administration than by a liquidation.
Mr Lhuede, who appeared on behalf of a creditor with whom the defendant is engaged in litigation in this Court, Metacorp Australia Pty Ltd, criticised various aspects of Mr Dixon’s investigations including the absence of the investigation, as to if, as alleged, the company is trading on behalf of a trust, what investigations have occurred in relation to identifying what the assets of that trust are. Metacorp and the defendant are awaiting a decision of Vickery J of this Court which will go towards determining what the net position is as between them.
Today, Ms Hibberd of the firm Maddocks appeared on behalf of East Gippsland Shire Council which is also involved in litigation with the company and she, like Mr Lhuede, opposed the further adjournment of the winding up application.
Mr Lhuede’s criticisms of the material have some force but I consider his client is not totally disinterested by reason of the existence of the litigation between his client and the defendant.
Mr Dixon deposes in his affidavit of 9 June 2010 that, in a liquidation scenario, the estimated dividend to ordinary unsecured creditors is 2.01 cents in the dollar, which is to be contrasted with the estimated dividend under the revised DOCA proposal of 9.31 cents in the dollar. In his subsequent affidavit of 11 June 2010, Mr Dixon revises the figure available to unsecured creditors in the liquidation to 1.44 cents in the dollar, the difference being explained by him failing to take into account in his earlier calculation that related creditors were entitled to prove in a winding up.
In his affidavit of 11 June 2010, Mr Dixon exhibits, as a confidential exhibit, the draft documentation which is being prepared in respect of the second meeting of creditors. Although in draft form, it is obvious that the administration process is well under way. The meeting is to occur by 24 June 2010.
Dr Bigos pointed to the following factors in favour of an adjournment of the application:
(i)The adjournment is for a short period, until 24 June 2010.
(ii)The administrators’ report which is to be submitted to the creditors for their consideration, is at an advanced draft stage and even in that form contains a substantial amount of detail which will enable the creditors to make an informed decision about their own interests at the second creditors’ meeting. He contends that the administrators have done more than merely accept the position being put by the director of the company.
(iii)The directors should be allowed to consider the proposed DOCA which the administrators have recommended the company execute.
(iv)Under the DOCA, a fund of $725,000 will be available for distribution after deduction of costs to the non‑related unsecured creditors. This results in a dividend of 9.31 cents in the dollar. This is to be contrasted with the liquidation scenario where no such fund of $725,000 would be available. Even if there is 50% recovery of voidable transactions, which are presently put at $750,000, resulting in recovery net of costs of $341,946, this results in a dividend to creditors of 1.44 cents in the dollar.
(vi)On either a liquidation or DOCA scenario, the priority creditors of $45,113 would be paid in full.
(vii)Under either scenario, collections from trade debtors would be distributed amongst creditors however in a liquidation scenario the related creditors would also participate in such a distribution.
(viii)Although an insolvent trading claim could be brought against the director of the company if it is put into liquidation, this would require indemnities from creditors and the outcome of and such recovery from such proceedings is unknown.
(ix)The defendant is not trading and is not incurring any further trading debts.
(x)The two creditors who most strongly oppose the adjournment of the winding up application, Metacorp and East Gippsland Shire Council, are involved in litigation or arbitration against the company. Their representatives will have the ability at the second meeting of creditors to voice their concerns about the proposal and the material being put up by the administrators and the creditors will have the opportunity to vote for winding up.
(xi)There is a sufficient possibility, not mere optimistic speculation, that an adjournment of the winding up application is in the interest of creditors and the decision in regard to the future of the company should be put to a vote of the creditors at a second meeting of creditors.
The application for the adjournment is made pursuant to s 440A(2) which provides:
A court is to adjourn the hearing of an application from an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company’s creditors for the company to continue under administration rather than be wound up.
This section has been the subject of numerous authorities. In Creevey v DCT,[1] McPherson JA, Davies and Pinkus JJA stated as follows:
The question of whether an administration should continue rather than that there be a winding up, is obviously closely related to the further question of whether the creditors could hope to get more by way of payment of their debts from one form of process of administration than from the other.
[1](1996) 19 ACSR 456 at 457.
In order to satisfy the Court of the matter referred to in s 440A(2) of the Corporations Act, one would expect that there would have to be some persuasive evidence to enable it to be seen that there were assets which, if realised under one form of administration rather than the other, would produce a larger dividend than a winding up, or at least an accelerated dividend for the creditors.
The question is, does the material filed by the administrators constitute “persuasive evidence” to result in the ordering and adjournment of the matter. In my view, it does. Although Mr Lhuede pointed to certain deficiencies in the material, it is clear that after conducting considerable investigations which are not yet complete, Mr Dixon is in a position to make an informed recommendation that the matter be adjourned rather than the winding up order made. In particular he points to the difference in the amount of dividend which will be available under the respective scenarios. Of course, like most administrations, he has to make such a recommendation in a relatively short period of time without conducting all the investigations which would ideally be made. In my view, the body of the company’s creditors should be entitled to have the opportunity to consider what is proposed. No doubt the deficiencies which have been pointed out today can be raised at the creditors’ meeting and the creditors can take it into account. However, it is my view that I should pay proper consideration to the material filed by the administrators and give the creditors the opportunity to decide whether they wish to accept the deed of company arrangement rather than proceed to a winding up. Mr Lhuede submitted that the proposal involved a rather drawn out payment proposal but no doubt the creditors will take this into account in deciding whether they wish to accept it or not.
In my view, under the terms of s 440(2), I consider that it has been established to the requisite standard it is in the interest of the company’s creditors that an adjournment of the winding up application be ordered until a date after the second meeting of creditors so that the creditors of the company may exercise their own judgment about the proposal.
I order as follows:
1.The further hearing of the application for the winding up of the defendant be adjourned to 25 June 2010 at 10.30 am in Court 5.
2.Costs reserved.
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