Sandler v Francis
[2016] WASC 242
•8 AUGUST 2016
SANDLER -v- FRANCIS [2016] WASC 242
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 242 | |
| 08/08/2016 | |||
| Case No: | COR:168/2016 | 3 AUGUST 2016 | |
| Coram: | BANKS-SMITH J | 3/08/16 | |
| 6 | Judgment Part: | 1 of 1 | |
| Result: | Application granted | ||
| B | |||
| PDF Version |
| Parties: | ANTONY SANDLER CLITECH PTY LTD IAN CHARLES FRANCIS MICHAEL JOSEPH PATRICK RYAN |
Catchwords: | Administration Application to adjourn second creditors' meeting Section 447A Corporations Act 2001 (Cth) |
Legislation: | Corporations Act 2001 (Cth), s 447A |
Case References: | Re Palandri Ltd; Ex parte Cussen [No 2] [2008] WASC 154 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- First plaintiff
CLITECH PTY LTD
Second plaintiff
AND
IAN CHARLES FRANCIS
MICHAEL JOSEPH PATRICK RYAN
Defendant
Catchwords:
Administration - Application to adjourn second creditors' meeting - Section 447A Corporations Act 2001 (Cth)
Legislation:
Corporations Act 2001 (Cth), s 447A
Result:
Application granted
Category: B
Representation:
Counsel:
First plaintiff : Mr M J Feutrill
Second plaintiff : Mr M J Feutrill
Defendant : Mr R M Johnson
Solicitors:
First plaintiff : Culshaw Miller
Second plaintiff : Culshaw Miller
Defendant : HWL Ebsworth Lawyers
Case(s) referred to in judgment(s):
Re Palandri Ltd; Ex parte Cussen [No 2] [2008] WASC 154
- BANKS-SMITH J:
(This judgment was delivered extemporaneously on 3 August 2016 and has been edited from transcript)
1 This application came before me this afternoon by way of an urgent application to adjourn a meeting of creditors of ACN 122 262 414 Pty Ltd (previously OEM Group 2006 Pty Ltd) (Administrators Appointed) (company) scheduled for 11 am tomorrow.
2 The application is brought under s 447A and s 447B of the Corporations Act 2001 (Cth).
3 The first plaintiff claims to be a creditor of the company and that entitlement is said to arise as a result of an arbitration decision in his favour. The second defendant says it has a potential claim as a minority shareholder. By way of background, I refer to the affidavit of Mr Antony Sandler, which has been filed in support of the application on 3 August 2016. The affidavit includes a chronology prepared by the administrators. I will note some particular facts based upon that chronology.
4 The company was the sole WA agent, distributor and service centre for Spitwater high pressure cleaners and various other equipment. The company's business was sold on 18 May 2016 to a purchaser known as Blacktower Investments Pty Ltd. The company became insolvent when the business was sold on that date, if not earlier. The first plaintiff contends that the assets of the business were dissipated or sold as part of a scheme to prevent him receiving payment with respect to the arbitration decision made in his favour.
5 The amount of the claim under the arbitration decision has yet to be formally quantified, but information as to its quantum has been provided and for the purposes of today, it is sufficient to note that a proof of debt has been lodged in the sum of approximately $500,000. The plaintiffs have various concerns with respect to the conduct of the sole director of the company, Mr DeMol:
(a) there are concerns that the business was sold and the proceeds were paid to a related company, which is also controlled by Mr DeMol or family members; and
(b) allegations are made as to payments to various employees while the company was still conducting its business.
6 I will not go into detail about the allegations (which are at this stage no more than that), suffice to say that the plaintiffs say they require time to investigate the circumstances surrounding the nature of the transactions. The plaintiffs say that they wish to consider:
(a) whether a derivative action can be brought with respect to the conduct of Mr DeMol and the company;
(b) whether or not the administration process is, being used by way of an abuse of process to avoid payment of the debt due to the first plaintiff; and
(c) whether they may have a claim under s 89 Property Law Act with respect to fraudulent disposition of property.
7 They say they will be hindered in pursuing those claims if the company goes into liquidation tomorrow. Ordinarily, I would not accept that the need to further investigate such potential causes is a valid reason to adjourn a conventionally and properly called creditors' meeting. In that regard, I have taken into account the following.
8 First, the company is currently hopelessly insolvent and so the usual course of the administration should generally proceed. The provisions of the Corporations Act are designed, in fact, to protect creditors.
9 Second, the processes under the Corporations Act allow for adjournment of meetings and it is clear that the administrators in this case are fully aware of their obligations in that regard.
10 Third, I am conscious of the fact that the plaintiffs seek to consider claims against the company which ordinarily could and should be brought within the framework of the provisions of the Corporations Act and particularly the antecedent transaction provisions which apply in the case of liquidation. Those provisions exist and apply to ensure that claims are dealt with fairly and independently by a liquidator on behalf of all creditors.
11 I consider that the provisions of the Corporations Act potentially favour the plaintiff, in the sense that there are provisions by which the transactions can be closely considered by the liquidator. I should also note that one related matter in question is the grant of a general security agreement to a company associated with Mr DeMol, and there are issues with respect to whether or not that general security agreement might be set aside under s 558FJ of the Corporations Act.
12 From a liquidator's perspective, those kind of voidable transaction proceedings are streamlined and can generally be brought relatively efficiently. I also note that a liquidator has broad powers of investigation. The administrators, in their preliminary report to creditors, have indicated that should they become liquidators, they will investigate the matters that the plaintiff has raised. Additionally, even if the plaintiffs were not satisfied that the voidable transaction provisions and other investigative armoury would be deployed by the liquidators, there is always the potential for an application to be brought for leave to proceed against the company in liquidation.
13 Ordinarily, it is in the interests of all creditors and in the interests of orderly process, that the provisions of the Corporations Act be complied with and that meetings that have been regularly convened proceed. There are provisions within the Corporations Act to deal with issues that may arise as to resolutions passed at meetings, including resolutions to adjourn meetings where related entities are involved (see s 600A, s 600B).
14 However, having said that, the facts in this case are quite unusual, in that there is not a body of general creditors whose interests need to be protected. Leaving aside the first plaintiff, on the information currently before me, there are two independent creditors and the quantum of their debts is, relatively speaking, very low. There is a real prospect that any resolution to adjourn tomorrow's meeting would not succeed because of the make-up of the creditors and the fact that the majority of the creditors by quantum are related parties. Taking into account the urgency with which this matter has needed to be addressed and some question marks as to the ability of the plaintiffs to pursue some of their causes of action outside a liquidation, I have some sympathy for the plaintiffs' position that they would like a short window in which to consider whether there is any value in bringing proceedings based on, for example, the use of the administration regime as an abuse. There is no apparent real prejudice to the administrators or other creditors in such an adjournment, save for the administrators' costs of reconvening the meeting.
15 The plaintiffs have suggested that they need only a short period and I would hold them to that short period. I am prepared to order that the meeting be adjourned and am satisfied that I can do so under s 447A of the Corporations Act (see Re Palandri Ltd; Ex parte Cussen [No 2] [2008] WASC 154) but I will only do so on terms and those terms are that it is adjourned for a period of seven days. The meeting can be reconvened on short notice and costs incurred by the administrators flowing directly from the adjournment are to be met by the plaintiffs. The costs of this application will be otherwise reserved. The fact that I am granting the short adjournment should not be taken to reflect any criticism of the administrators.
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