Selim v McGrath - [2003] NSWSC 927

No judgment structure available for this case.

Reported Decision:
47 ACSR 537
(2004) 22 ACLC 112

Supreme Court

CITATION: Selim v McGrath [2003] NSWSC 927

HEARING DATE(S): 13/10/03, 14/10/03

JUDGMENT DATE:
17 October 2003

JURISDICTION:
Equity Division
Corporations List

JUDGMENT OF: Barrett J

DECISION: Originating process dismissed.

CATCHWORDS: CORPORATIONS - voluntary administration - meetings of creditors - who are creditors - claimants in tort for economic loss - proof or particulars for voting - documents lodged to be considered in context known to decision-maker - rejection where particulars are merely bald assertion - CORPORATIONS - meetings of creditors - notice of meeting - whether any duty upon convenor to seek out creditors except by notices required by legislation - CORPORATIONS - meetings of creditors - whether chairperson may seek direction from court as to admission of proofs for voting - whether chairperson may adjourn meeting unilaterally for such purpose - adjournment and suspension contrasted

LEGISLATION CITED: Corporations Act 2001 (Cth), Pt 5.3A, ss.199A, 199C, 439A, 447A, 447D, 1321,
Corporations Regulations 2001 (Cth), 5.6.11, 5.6.12, 5.6.17(1)(c), 5.6.21(4), 5.6.23, 5.6.26

CASES CITED: Re Ansett Australia Ltd (2002) 115 FCR 395
In re Armstrong Whitworth Securities Co Ltd [1947] 1 Ch 673
Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270
Re Autolook Pty Ltd (1983) 8 ACLR 419
Bechrose v Jefferson (1999) 94 FCR 494
Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612
Brash Holdings Ltd v Katile Pty Ltd (1996) 1 VR 24
Byng v London Life Ltd [1990] 1 Ch 170
Cresvale Far East Ltd v Cresvale Securities Ltd (2001) 37 ACSR 394
Derwinto v Lewis (2002) 42 ACSR 645
Re Dodds; Ex parte Vaughan's Executors (1890) 25 QBD 529
Eastland Technology Australia Pty Ltd v Whisson [2002] WASC 150
Re Equity Funds of Australia (1976) 2 ACLR 238
Fielding v Vagrand Pty Ltd (1992) 9 ACSR 505
Health and Life Care Ltd v South Australian Asset Management Corporation (1995) 18 ACSR 153
Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] VSC 27
Khoury v Zambena Pty Ltd [1999] NSWCA 402
Kirwan v Cresvale Far East Pty Ltd (2002) 44 ACSR 21
Re Magic Australia Pty Ltd (1992) 7 ACSR 742
MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636
Re Oriel Homes Pty Ltd (1997) 15 ACLC 564
Re Pan Pharmaceuticals Ltd (2003) 46 ACSR 77
Re Pasminco Ltd [2002] FCA 231
Perre v Apand Pty Ltd (1999) 198 CLR 180
Petrochemical Industries Ltd v Dempster Nominees Pty Ltd (WASC, 24 November 1994, unreported)
Re Pyramid Building Society (1994) 13 ACSR 566
Spiteri v Lindholm [2003] VSC 42
Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332
Vincent White & Associates Pty Ltd v Vouris (1998) 28 ACSR 93
Westpac Banking Corporation v Totterdell (1998) 29 ACSR 448
Young v Sherman (2001) 166 FLR 96
Young v Sherman (2002) 170 FLR 86

PARTIES :
James Selim - Plaintiff
Anthony Gregory McGrath and Christopher John Honey - Defendants

FILE NUMBER(S): SC 5062/03

COUNSEL: Mr C R C Newlinds SC/Ms E M Frizell - Plaintiff
Mr J C Sheahan SC/Ms R A Pepper - Defendants
Mr M Garner - F H Faulding & Co Ltd
Mr P B Walsh - Atlas Copco Ltd & 34 Ors
Mr D B Studdy - Pharmacy Guild of Australia
Mr A Searle - Australian Workers Union
Ms S Cockayne, Solicitor - Australian Pharmaceutical Industries Ltd

SOLICITORS: Aitken McLachlan Thorpe - Plaintiff
Blake Dawson Waldron - Defendants
Freehills - F H Faulding & Co Ltd
Australegal - Atlas Copco Ltd & 34 Ors
Minter Ellison - Pharmacy Guild of Australia
PricewaterhouseCoopers Legal - Australian Pharmaceutical Industries Ltd

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

FRIDAY, 17 OCTOBER 2003

5062/03 – JAMES SELIM v ANTHONY GREGORY McGRATH & ANOR

JUDGMENT

The proceedings

1 Pan Pharmaceuticals Limited (which I shall call “Pan”) is – or, at least, was - a manufacturer of medicines which, for present purposes, may be referred to as pharmaceuticals, although they are perhaps more commonly understood as vitamin and natural health products. Pan became subject to voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth) on 22 May 2003 in consequence of a resolution of its directors under s.436A of the Act. Mr McGrath and Mr Honey, the present defendants, became the administrators. The second meeting of creditors required by Part 5.3A, being the meeting called for by s.439A, commenced on 1 September 2003 and was adjourned in the first instance to 8 September 2003 and afterwards to 23 September 2003. The convening period for that meeting had been extended by order made by the Federal Court of Australia (Lindgren J) on 6 June 2003: Re Pan Pharmaceuticals Ltd (2003) 46 ACSR 77.

2 It will be necessary to refer in some detail to events at and relating to the adjourned meeting of creditors held on 23 September 2003. For the moment, it is sufficient to record that the meeting had before it the central question whether a deed of company arrangement propounded by the present plaintiff, Mr Selim, and Mr Bart should be approved or whether Pan should be wound up. In accordance with regulation 5.6.17(1)(c) of the Corporations Regulations 2001 (Cth), Mr McGrath, one of the administrators, was the chairperson of the meeting. Three polls were taken in the course of the meeting. The first was upon a proposed resolution to the effect that the meeting be adjourned so that the administrators might approach the court seeking directions on the admissibility of certain votes proposed to be tendered on the substantive resolutions. After the poll on that question was taken, Mr McGrath declared the proposed resolution not passed. A poll was subsequently taken on a proposed resolution that Pan execute a deed of company arrangement specified in the resolution. Mr McGrath, as chairman, also declared that proposed resolution not passed. The third poll was in relation to a proposed resolution that Pan be wound up. Mr McGrath, as chairman, declared that proposed resolution passed.

3 As a result of the events at the meeting on 23 September 2003, s.446A operated to cause Pan to become subject to the form of creditors voluntary winding up created by that section. The plaintiff accepts this. So much is clear from the form of the relief the plaintiff seeks in his originating process filed on 25 September 2003. The plaintiff claims orders that various steps taken in relation to the meeting be “reviewed and/or reversed”, thus acknowledging that, in the absence of such orders, the steps in question are effectual. The claims to have the several steps reviewed or reversed are part of an overall claim to the effect that the decisions reached by the meeting of 23 September 2003 by means of the polls I have mentioned should be made ineffective. To be more specific, the substantive orders sought, as set out in the originating process, are as follows:

“1. An order that the decision of the Defendants in relation to the proxies and proofs of debt in respect to the meeting of creditors of Pan Pharmaceuticals Limited (in liquidation) (‘Pan’) on 23 September 2003 (‘the meeting of creditors’) be reviewed and reversed where applicable.

2. An order that the decision of the Defendants to exercise its casting vote in favour of a resolution to wind up Pan at the meeting of creditors be reviewed and/or reversed.

3. An order that the resolution of creditors to wind up Pan be set aside pursuant to section 600B of the Corporations Act.

4. An order that the decision of the Defendants not to properly advertise and circularise reports to potential creditors of Pan be reviewed and/or reversed.

5. An order that the decision of the Defendants not to seek the direction of this Honourable Court in relation to the proofs of debt referred in order 1 above be reviewed and/or reversed.

6. An order that there be a further meeting of creditors of Pan for the purposes of passing a resolution pursuant to section 439C of the Corporations Act, on such terms and conditions as the Court directs.

7. An order that the convening period of Pan for the purpose of section 439A of the Corporations Act be extended on such terms and conditions as the Court directs.”

4 The substance of the plaintiff’s complaints emerges from points of claim which, by direction, were filed by the plaintiff on 3 October 2003:

“ Outline of basic facts

1. Leading up to and at the meetings of creditors on 1 September 2003 and 23 September 2003 (‘the Meetings’), the defendants made a series of omissions and decisions regarding or relating to the admission for voting purposes of proofs of debt of purported creditors.

2. The defendants’ omissions and decisions affected the outcome of the meeting on 23 September 2003 (‘the 23 September Meeting’) in that in a practical sense they caused the proposed Deed of Company Arrangement (‘the Proposed Deed’) to be rejected and the Company to be wound up.

Outline of the classes of decisions sought to be reviewed

3. The admission for voting purposes at the 23 September Meeting of the votes of 357 members of the Pharmacy Guild of Australia (‘the Pharmacy Guild proofs’).

4. The rejection of 417 of a total of 470 proofs of debt lodged on the morning of 23 September 2003 (‘the 417 proofs’) in circumstances where there was no legal or factual basis for differentiating between the 417 proofs and the Pharmacy Guild proofs.

5. The failure to take any, or any appropriate, steps to notify:

(a) potential overseas creditors;

(b) potential consumer creditors;

(c) potential retail creditors; or

(d) health care professionals,

of the fact that they may be entitled to prove for the purpose of voting at the Meetings and of what particulars the defendants would consider adequate for the purpose of accepting such proofs.

6. The rejection of the 417 proofs on the basis of inadequate particularisation.

7. The failure of the defendants to advise the 417 creditors of what particulars the defendants would consider adequate and the failure of the defendants to seek any particulars of the 417 proofs if the basis of the defendants’ decision to reject any of the 417 proofs was lack of particularisation.

8. The failure of the defendants to advise the 417 creditors of what particulars the defendants would consider adequate in circumstances where the defendants engaged in lengthy and detailed negotiations and communications with representatives of the Pharmacy Guild creditors so as to consult with, and advise, them as to the form and substance of the proofs of debt that were ultimately lodged by them and accepted by the defendants.

9. The failure of the defendants to take any, or any adequate, steps to advise potential creditors, including but not limited to the 417 creditors, of the defendants’ preliminary decision in principle to accept proofs of debt from consumer creditors and retail creditors.

10. The failure of the defendants to recommend to the 23 September Meeting that creditors resolve to adjourn the meeting so as to enable the defendants to seek from the 417 creditors whatever particulars they thought appropriate, the 417 creditors to provide those particulars, and the defendants to make a decision as to those proofs.

11. The failure of the defendants not to recommend to the meeting that it resolve to adjourn the meeting so as to enable the defendants properly to notify all other potential creditors of the defendants’ preliminary decision to accept proofs of debt from consumer creditors and retail creditors.

12. The decisions of the defendants not to take the steps, give the advice, or do the things, referred to in 5, 7, 8, 9, 10 and 11.

Corporations Act

14. The decision to admit for voting purposes the votes of the 357 Pharmacy Guild members in relation to the resolution that the 23 September Meeting be adjourned for the purposes, inter alia, of seeking the Court’s directions as to the validity of the admission of the votes of the Pharmacy Guild members.

Outline of the grounds on which it is alleged there should be a review of any such decision

15. The Administration is large and complex.

16. The proposed Deed was the result of lengthy negotiations between the defendants and those propounding a deed.

17. Prior to the 23 September Meeting, the defendants had formed the view that the return to creditors under the Proposed Deed was more beneficial to creditors than if the company was to go into liquidation.

18. It is the fact that the proposed Deed is more likely to produce a better return to creditors generally than if the company is to go into liquidation.

19. One of the effects of the decisions and omissions for review is that the Pharmacy Guild creditors have been treated in a preferential way which is unfair to other creditors and potential creditors.

20. The decision to admit the Pharmacy Guild creditors was wrong as a matter of law.

21. In the alternative, in the event that the decision to admit the Pharmacy Guild creditors to prove for voting purposes was correct as a matter of law, the decisions and omissions in relation to the 417 creditors and other potential creditors are manifestly unreasonable, discriminatory and unfair.

22. The effect of the decisions and omissions altered the outcome of the 23 September 2003 Meeting, which otherwise would have resolved to accept the Proposed Deed.”

The plaintiff’s contentions

5 Mr C R C Newlinds SC, with whom Ms E M Frizell of counsel appeared for the plaintiff, made it clear in opening his client’s case (and in an outline of submissions furnished to the court), that not all the matters foreshadowed in the points of claim would be pursued. In particular, he indicated that the plaintiff did not rely principally on the claim that the proofs referred to in the points of claim (and in these reasons) as “the Pharmacy Guild proofs” had been wrongly admitted for voting purposes. So far as proofs are concerned, the plaintiff’s main case became that the proofs referred to in the points of claim (and below) as “the 417 proofs” had been wrongly rejected for voting purposes and that this was so essentially because there was nothing to distinguish the 417 proofs from the Pharmacy Guild proofs which, it was submitted, had been admitted (and, according to the plaintiff’s principal thesis, correctly admitted) for voting purposes.

6 The plaintiff’s main contention is that there were no valid grounds for differentiation between the Pharmacy Guild proofs and the 417 proofs. If, contrary to the position the plaintiff was ultimately willing to prefer with respect to the Pharmacy Guild proofs, those proofs were wrongly admitted, then, according to this main contention, the 417 proofs should not have been admitted either. In other words, the plaintiff says that the Pharmacy Guild proofs and the 417 proofs should have stood or fallen together, the preferred position being that they should have stood.

7 The significant point, in that part of the case, is that, in the plaintiff’s submission, either of the correct outcomes based on wrongful differentiation would have caused the result of voting at the meeting on the deed of company arrangement proposal to be different. There would have been a different result if the 417 proofs had been admitted in the same way as the Pharmacy Guild proofs; and there would also have been a different result if the Pharmacy Guild proofs had been rejected in the same way as the 417 proofs. In either such case, it is said, the twofold majority required on such a resolution (a majority by number of voters and a majority by value) would not have been obtained but one such majority would have been obtained, with the result that, under regulation 5.6.21 of the Corporations Regulations 2001 (Cth), it would have been open to the chairperson of the meeting to exercise a casting vote.

8 The plaintiff’s second main contention (in response, effectively, to an assertion in an affidavit of Mr McGrath that he, as chairperson, would have exercised his casting vote against the deed of company arrangement and in favour of winding up) is that Mr McGrath would have secured approval of the deed of company arrangement by exercise of his casting vote in such an eventuality. Furthermore, the plaintiff contends, Mr McGrath should, in all the circumstances, have acted to prefer the deed of company arrangement had the occasion for him to exercise a casting vote upon the deed of company arrangement arisen.

9 The plaintiff’s third main contention is that, having regard to the breadth of the creditor base, the defendants, as administrators, did not adequately and properly discharge their duty to give notice of the meeting.

10 The plaintiff’s fourth main contention is that Mr McGrath, as chairperson, acted wrongly in not adjourning the meeting or suspending proceedings to obtain guidance from the court under s.447D as to the correct course to adopt in relation to the 417 proofs.

11 The substantive relief the plaintiff seeks is such order or orders as will

(a) reverse the meeting’s adverse decision with respect to the deed of company arrangement (as well as its decision that the company be wound up) and cause matters to be in the state that would have existed if the resolution for approval of the deed had been passed at the meeting; or

The position of the defendants and other parties

12 The defendants were represented by Mr J C Sheahan SC, with whom Ms R A Pepper appeared. The position of the defendants is that the relief the plaintiff seeks is not warranted. The defendants also say that relief in terms of (a) above is not claimed in the originating process and for that reason should not be granted. In the defendants’ submission, if any relief at all is granted, it should be such as to commit relevant decisions to a new meeting of creditors.

13 A number of persons were granted leave to be heard in the proceedings without becoming parties. Mr M Garner of counsel appeared for F H Faulding & Co Ltd, a significant creditor. He supported the contentions of the defendants. Certain other creditors were represented by Mr P B Walsh of counsel. They supported the plaintiff’s secondary claim for orders having the effect of causing matters to go back to a meeting of creditors, but on condition that clause 14.1 and related provisions of the proposed deed of company arrangement (to be mentioned in greater detail presently) should somehow be excised.

14 Mr A Searle of counsel who appeared for employee creditors, being members of the Australian Workers Union, supported the contentions of the plaintiff, laying particular emphasis on the role that a deed of company arrangement might be expected to play in maintaining employment.

15 Mr D B Studdy of counsel appeared for the Pharmacy Guild of Australia which played a co-ordinating role in the generation of the Pharmacy Guild proofs. He, like Mr Garner, supported the contentions of the defendants but also expanded on submissions in support of recognition of the Pharmacy Guild members as creditors and what he saw as significant points of distinction between particulars of claim furnished by them and those furnished as or with the 417 proofs. The Pharmacy Guild is a trade association made up of retail pharmacists.

The factors leading to administration

16 The respective claims and contentions will be better understood in the context of a brief statement of the circumstances in which Pan found itself in early 2003 and the events that caused Pan’s directors to put it into voluntary administration.

17 Pan was, as I have said, a manufacturer of pharmaceuticals. In late January 2003, the Therapeutic Goods Administration (“TGA”), a Commonwealth statutory authority, conducted an unannounced audit of Pan’s manufacturing processes to assess compliance with manufacturing standards and conditions forming part of Pan’s licence to manufacture. Further audits were conducted in February and April 2003. An audit report was issued on 27 April 2003. It identified serious deficiencies in Pan’s processes. On the next day, 28 April 2003, the TGA suspended Pan’s licence to manufacture therapeutic goods for a period of six months and required Pan to take immediate steps to recover all products manufactured and supplied by it since 1 May 2002. As a result, persons who had purchased such products were compelled to surrender products held by them. Losses were thereby sustained and questions about recourse and redress arose.

18 Pan did not market its products to the public. Sales by Pan were to intermediaries known as “sponsors”. The principal sponsor, in terms of volume and value, was F H Faulding & Co Ltd (better known, in the particular context, by the trade name “Mayne”). Pan manufactured goods specifically for the sponsors. The details of the arrangements with the several sponsors are, at this stage, not important, except to note that no products were marketed as “Pan” products and that all carried some other brand. The significant point is that Pan stood in a direct contractual relationship with each sponsor but had no contractual relationship with a wide range of other persons affected by the compulsory recall of Pan products. The sponsors with whom Pan had contracts for manufacture and supply or for supply only were obviously affected. So too were commercial concerns which held stocks of Pan products for re-sale, whether at retail level or by way of wholesale, including health professionals who had products on hand to meet the needs of their patients or clients, and retailers such as pharmacies and health food shops. Also affected were consumers who had purchased products for their own use. The potential claims of all these classes arise for consideration.

The second meeting of creditors

19 The meeting required by s.439A began at 11 am on 1 September 2003. A motion that Pan enter into a deed of company arrangement as proposed by Mr Selim and Mr Bart was not carried upon a poll. Votes in favour were cast by 123 creditors representing some $28 million in value. Votes against were cast by 301 creditors representing approximately $65 million in value.

20 After the result of the poll on the proposed resolution concerning the deed proposal had been declared, there were requests for information about who had voted and the values they represented. Mr McGrath undertook to make the information available after the meeting. There was a degree of discomfort with the result since some people had formed ideas about the numbers represented at the meeting, in terms of both head-count and value, and could not reconcile those with the numbers announced on the declaration of the poll. The transcript of the meeting records that, after some discussion of these matters, Mr McGrath said:

“People can vote via being present or via proxy. There are a number of proxies being held. In particular, there is a proxy from one creditor which I believe the Pharmacy Guild, which represents approximately 200 odd pharmacies throughout the country.”

21 Mr McGrath went on to say that 200 individual pharmacists were entitled to vote and had done so. The solicitor for Mr Selim and Mr Bart, Mr Thorpe, asked whether recognition of the pharmacists meant that Mr McGrath had decided to recognise “soft claims” as well as “hard claims” – “hard claims” being, in essence, those of customers of Pan for losses directly sustained (such as the cost of products rendered unsaleable by the recall) and “soft claims” being remoter claims by such parties (such as claims for consequential loss) and claims by persons not in a direct customer relationship with Pan. Mr McGrath replied that most of the pharmacists had been allowed to vote for $1.00. He added:

“For the purposes of today, the just estimates have been made and some soft claims have been admitted for various reasons including contractual obligations due and some soft claims have not been admitted for voting purposes.”

22 Mr McGrath was criticised by Mr Thorpe for having taken this approach which Mr Thorpe considered to be at odds with the way in which Mr McGrath had said he intended to proceed. There were also other expressions of strong disapproval and resentment.

23 When the meeting resumed on 8 September 2003, Mr McGrath outlined improvements to the deed of company arrangement proposal advanced by Mr Selim and Mr Bart. A motion to adjourn until 23 September 2003 was declared carried on the voices.

24 Upon the resumption on that day, two matters – one substantive and the other procedural – were at the centre of discussion. The substantive matter was the revised deed of company arrangement proposal put forward by Mr Selim and Mr Bart. The procedural matter was recognition of creditors for voting purposes. On the morning of the meeting, a Mr Schildkraut, a consultant working for Mr Bart, produced for the purposes of voting at the meeting 470 proofs of debt and instruments of proxy. These were in part from retailers and in part from persons who said either that they had bought relevant Pan products by retail or that they were health professionals who had them on hand. These are the 470 proofs referred to in paragraph 4 of the points of claim. Of these, 53 were admitted for voting purposes and 417 (“the 417 proofs” referred to in the points of claim) were rejected. There was much discussion at the meeting about who should be recognised as creditors and as to the validity of proxies lodged by pharmacies, other retailers, health professionals and consumers, as distinct from persons such as sponsors, trade creditors and employees who stood in a direct contractual relationship with Pan. It was these concerns that prompted a motion that the meeting be adjourned so that the administrators might seek appropriate directions from the court. That motion was lost by both number of persons voting and value represented, there being 332 votes (representing $40,397,830.19 in value) in favour and 390 votes (representing $55,336,467.22 in value) against.

25 The meeting then moved on to the substantive question for decision, that is, whether or not to approve the execution of a deed of company arrangement. By the time the meeting reconvened on 23 September 2003, the deed proposal had developed from the state it had been in when the meeting was adjourned for the second time on 8 September 2003. Indeed, Mr McGrath said at the meeting on 23 September, after referring to ongoing attempts to negotiate a deed:

“Considerable time has been spent in that tack and we now have a DOCA that was released to many of you electronically on Friday of last week and it reflects the position that where we still say that we have a deed of arrangement that as the administrator we can recommend.”

26 At a later point in the proceedings, Mr McGrath said:

“Since our last meeting on 8 September the DOCA has taken an enormous amount of time and effort to get into the shape it is now in and to get to a point where we can formally recommend to creditors that the deed of arrangement provided a better alternative than liquidation.”

27 In a report of 18 August 2003 previously sent to creditors, the administrators did not recommend the deed proposal then before them. Mr McGrath referred to this when addressing the meeting on 23 September and went on to outline the significant revisions that had been made. The factors he mentioned included a potentially higher return to creditors than would be achieved in a winding up, preservation and protection of all employee entitlements, an efficient means of determining sponsor claims and an expectation that business would be continued and, if possible, re-licensing achieved. Mr McGrath also mentioned possible disadvantages, including the fact that no business plan had been furnished by the proponents of the deed, the absence of a working capital guarantee and possible adverse effects of a release to be given under the deed to the present plaintiff, Mr Selim, in respect of claims Pan might have against him. One comment made by Mr McGrath in relation to it was:

“The value of the Selim release does not in our view reflect the true value of a commercial settlement of the claim against him.”

28 The proponents of the deed (Mr Selim and Mr Bart) were to contribute $3 million to a deed fund for creditors’ benefit. Mr McGrath’s concluding comment about the deed proposal generally was:

“Overall, because of the prospect of the company continuing and offering employment, I consider that on balance the DOCA is a superior option to liquidation albeit by a small margin.”

29 The comments made by Mr McGrath at the meeting were generally in line with his evaluation of the deed proposal in a report to creditors dated 15 September 2003, prepared for the purposes of the adjourned meeting. In that report, the administrators reported on the revised deed proposal which had by then emerged and was about to be considered by creditors. In terms of estimated funds available for distribution, the amended deed was valued at a high of $50 million and a low of $45 million, while winding up was valued at a high of $68.9 million and a low of $47.2 million. Several areas of continuing “particular concern” were identified and discussed. On the positive side, the potential for continued employment under the deed was highlighted although the liquidators were “concerned as to the level of comfort provided to creditors and employees that trading will recommence”.

30 The aspect of the proposed deed involving release of Mr Selim from liability he might have to Pan arising directly or indirectly from the product recall was dealt with in clause 14.1 and associated provisions of the proposed deed. A question was raised about the efficacy of these provisions in the light of ss.199A and 199C of the Corporations Act. There were also questions about the wisdom and desirability of giving the release. Some people considered it morally wrong that Mr Selim, who had been managing director of Pan at the time of events giving rise to the product recall and at the time of the recall itself, should be released from anything.

31 A poll was in due course taken on the motion for the approval of the deed of company arrangement. There were 224 persons (representing $24,998,198.06 in value) in favour and 416 persons (representing $69,700,354.94 in value) against. A majority both in number and by value being against, the resolution was not passed.

32 The meeting then dealt with a proposed resolution that the company be wound up. Again, a poll was taken. There were 84 persons (representing a value of $72,214,748.63) in favour and 609 persons (representing a value of $20,172,077.18) against. Mr McGrath, as chairman, exercised his casting vote in favour of winding up and the resolution was declared duly passed.

33 Had the 417 proofs been admitted, even for a nominal value in each case, and had the resultant 417 proxy votes at the disposal of Mr Schildkraut or, failing him, Mr Bart, been exercised in favour of the resolution to approve the deed of company arrangement, there would have been, on the head-count 641 votes in favour and 416 against, with a majority by value still being against. On the assumption that the 357 votes, as to the head-count, arising from the Pharmacy Guild proofs had not been exercised (and, as was the fact, the 417 proofs were not admitted), there would have been 224 persons in favour and 59 persons against, with a majority by value still being against. In each of these hypothetical outcomes, it would have been open to Mr McGrath, as chairperson, to exercise a casting vote on the proposed resolution for the approval of the deed of company arrangement.

34 These hypothetical situations are the source of the argument before me as to how Mr McGrath would have exercised the casting vote on the deed of company arrangement proposal had he been put in a position where it was open to him to exercise it. I think the best approach to that matter, at this stage, is to defer further attention to it until there has been a consideration of the issues relevant to the question whether either of the hypothetical situations might have arisen or ought properly to have been allowed to arise.

The issues and the court’s approach to them

35 Several issues about the operation of Part 5.3A were raised in the course of the proceedings: first, who are to be regarded as “the company’s creditors” for the purposes of s.439A(1) of the Corporations Act; second as to requirements of the Corporations Act and the Corporations Regulations regarding the giving of notice of a s.439A meeting; third as to the provisions of those regulations concerning entitlement of creditors to vote; and fourth as to the exercise of what is effectively a casting vote under regulation 5.6.21(4). There is also the separate and incidental matter concerning ss.199A and 199C of the Corporations Act.

36 The jurisdiction the plaintiff invokes is the statutory jurisdiction to alter the incidents of a Part 5.3A administration. The points of claim refer specifically to s.1321, as well as other provisions, including ss.447A and 447E. The grounds on which it is said that the court should exercise one aspect or another of its statutory jurisdiction go entirely to the regularity of conduct of the administrators (or one of them, as chairperson of the meeting of creditors). Mr Sheahan submitted that the general approach the court should take is the approach appropriate to the determination of appeals against decisions of liquidators. He regarded as relevant the observations of Bowen CJ in Eq in Re Equity Funds of Australia (1976) 2 ACLR 238:

“In my view, the test to be applied under s 279 is similar to that applying to the exercise of a discretion which is committed by statute to some particular official. The principles applied by the court in such cases are reasonably well settled. The court will recognize that the discretion has been vested by the statute in the liquidator and will not interfere unless it is shown that he did not address himself to the correct question or that, he made errors of law or that he failed to take into account relevant matters or that he took into account irrelevant matters, to which may be added that if his decision in the circumstances appears such that no reasonable man could arrive at it, the Court will interfere (see generally Avon Downs Pty Ltd v FC of T (1949) 78 CLR 353; Re Mineral Securities Ltd [1973] 2 NSWLR 207; Leon v Yorkomatic [1966] 3 All ER 277; [1966] 1 WLR 145).”

37 That case concerned a decision to compromise certain claims. As was pointed out in Westpac Banking Corporation v Totterdell (1998) 29 ACSR 448, however, the task performed by a liquidator when determining whether a debt should be admitted to proof is not a discretionary management decision on which the court should not seek to substitute its own opinion where it differs from the opinion of the liquidator. It is, rather, a decision taken by a liquidator in a quasi-judicial capacity and in the exercise of an adjudicatory function. As Ipp J observed (Pidgeon and White JJ concurring):

“The liquidator’s duty is to admit and pay out of the assets of the company in liquidation those claims which are legally enforceable, and to hand over any surplus to the contributories. The liquidator has no discretion to admit claims which are not legally enforceable; and has no discretion to reject claims which are legally enforceable: Government of India v Taylor [1955] AC 491.”

38 The issue for determination, where there is an appeal against a liquidator’s rejection of a proof of debt for distribution purposes, was described by Brennan and Dawson JJ in Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 as follows:

“The issue in the proceeding is whether the liability referred to in the proof of debt is a true liability of the company enforceable against it.”

39 As later discussion will emphasise, there are significant differences between proof of debts and claims for voting purposes in relation to Part 5.3A meetings and proof of debts and claims for the purposes of entitlement upon a distribution in a winding up. In the present proceedings, however, I consider the main question to be determined to be whether, so far as the Pharmacy Guild proofs and the 417 proofs are concerned, the provisions of the legislation were properly applied in reaching the conclusions that were reached.

40 The same approach is, in my view, called for in relation to the other main issues raised by the plaintiff, namely, as to the adequacy of the notice given by the defendants in relation to the meeting of creditors and the failure to adjourn to seek guidance from the court. Again, the central question is whether the legal requirements were met.

41 The fact that the controversy arises in relation to a Part 5.3A administration does, however, add a further dimension. It arises from ss.447A and 447E upon which the plaintiff also relies. The jurisdiction created by s.447A goes beyond declaring what the effect of Part 5.3A is or making orders that protect the interests that creditors have in an administration under that part being carried out in accordance with law. So much is made clear by the decision of the High Court in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 at [19]. Section 447A entails a general supervisory and remedial jurisdiction intended to underwrite the integrity and effectiveness of Part 5.3A. Section 447E empowers the court to make “such order as it thinks just”, where satisfied that conduct of an administrator is prejudicial to creditors’ interests. Thus, while in a case of this kind, the court is not reviewing conduct of a liquidator as an officer of the court, a similar supervisory and remedial jurisdiction exists.

Proofs and proxies – Pharmacy Guild

42 The Pharmacy Guild proofs and the 417 proofs – or, more precisely, the 470 proofs of which the rejected 417 formed part – along with related instruments of proxy are all in evidence.

43 The administrators gave consideration to the positions of various classes of claimants in the lead-up to the second meeting of creditors. The sponsors, as I have said, had a contractual relationship with Pan. Such a relationship was the source of debts or claims clearly making sponsors creditors in the sense to which I have referred. Employees were also creditors. So too were suppliers and others with contractual relationships entered into in the course of trading operations. These categories of creditor are not controversial.

44 Remoter candidates are, of course, persons of various kinds who, while having no contractual relationship with Pan, held Pan products which became worthless to them when intervention by the TGA made it legally impossible for the products to be sold. Persons within this category were essentially retailers, and health care professionals. The final group of candidates consisted of end users – persons who had acquired Pan products for consumption, whether from retailers or health care professionals, and who were prevented from using them by the recall.

45 The defendants obtained legal advice on liability issues from Blake Dawson Waldron (“BDW”) on a virtually continuous basis after their appointment. Senior counsel was also consulted. The advice is in evidence. In a report dated 13 May 2003, BDW discussed sponsors’ claims in detail. Dealing with retailers and consumers, they said that they were not aware of any claims by the former and referred to claims by consumers who had suffered ill-effects after taking Pan products. None was mentioned as having made a claim for the price of goods made worthless by the recall. A section of the report was devoted to potential claims in negligence, apart from those relating to illness. There was reference to the “more difficult question” whether persons such as retailers and consumers had a cause of action in negligence for purely economic loss. The decision of the High Court in Perre v Apand Pty Ltd (1999) 198 CLR 180 and that of the Victorian Court of Appeal in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] VSC 27 were discussed. The provisional conclusion expressed was that consumers were unlikely to be able to succeed in negligence claims for purely economic loss (because an “indeterminate class”), but that there was a greater possibility that retailers may be successful. The BDW report of 13 May 2003 also canvassed the question of liability under the Trade Practices Act. Sections mentioned as potentially relevant were s.65F, s.52, s.53(a), s.70, s.7l, s.74C, s.74D and s.75AD, as well as the need for damage, in a relevantly connected sense, to be shown.

46 By letter dated 29 August 2003, BDW advised the defendants on a number of matters relevant to voting rights at the meeting of creditors scheduled to be held on 1 September 2003. As that letter makes clear, BDW had already engaged in correspondence with Minter Ellison, solicitors for the Pharmacy Guild, about losses said to have been suffered by retailer members of the Guild. That correspondence had extended over more than two months. Reflecting what had been said in a letter from Minter Ellison dated 18 June 2003, BDW referred in the letter of 29 August 2003 to three heads of claim on behalf of retailers:

· cost of refunds (calculated as refunds to customers less credits from suppliers;

· cost of undertaking recall;

· cost of profits for one month after recall.

47 On 8 August 2003, Miner Ellison wrote to BDW making more specific submissions in relation to each of these categories of loss from the viewpoint of retailers. That letter went on to outline proposed arrangements under which proofs for voting purposes would be assembled and lodged on behalf of Pharmacy Guild pharmacists. Minter Ellison proposed a form of “Statement of Loss” for completion and submission by each pharmacist.

48 There was contact between the two firms thereafter which resulted in the settling of a procedure for the lodgment of particulars of Guild pharmacists’ claims. Each such pharmacist submitted a two page document. The first page was in Form 535 prescribed for the purposes of regulation 5.6.49(2), headed “Formal Proof of Debt or Claim (General Form)” and addressed “To the liquidator of: Pan Pharmaceuticals Limited (Administrators Appointed)”. In the section, “Particulars of the debt are” appears, “SEE ATTACHED SCHEDULE HEADED ’STATEMENT OF LOSS’”. The second page is the attached schedule thus referred to. It contains three sections. Section 1 is headed “Cost of Refunds (28 April 2003 until and including 22 May 2003)” and has provision for the total value of refunds to customers and total value of credits from suppliers, together with the result of subtracting the latter from the former. Section 2 is headed “Cost of undertaking recall” and refers to cost of additional staff, delivery costs and “other”, with provision for the three to be totalled. Section 3 is “Loss of profit for complementary medicines” and has provision for entries for four weeks and a total. There is then provision for various identifying characteristics of the claimant and a signature and a statement of desire “to participate in any distribution of the company accounts of Pan Pharmaceuticals Limited, whether by Deed of Company Arrangement or otherwise, in reliance upon a properly completed Proof of Debt”. The meaning of this statement (particularly the reference to “company accounts”) is not entirely clear, although it was submitted (and I am prepared to assume) that it is intended to indicate that if there are to be, at a later stage, proofs for distribution purposes the claimant will wish to submit a new proof to replace the particular Form 535.

49 There are in evidence a number of documents generated by the Pharmacy Guild in connection with the recall of Pan products. There were several circulars to members and advices to branch presidents and branch directors on 28, 29 and 30 April 2003 and 2 and 5 May 2003, as well as “National Newsletters” of 29 April (two), 30 April, 1 May, 2 May, 5 May, 6 May, 8 May (two) and 27 May and an “Important Notice to Guild Members” dated 28 May. In the earlier documents, Pharmacy Guild members were informed in general terms of the product recall and its implications. They were directed to the TGA website for particulars of the 219 products initially recalled, as well as being told that the list appeared in newspapers. There was later a reference to the Guild’s own website through which access to the product list could be obtained. There were instructions and suggestions about what to do with stock on hand and how to deal with customers seeking to return products. Information was given about suppliers whose products were not manufactured by Pan. As more Pan products were added to the recall, Guild members were informed. By 1 May, the Guild was reporting to its members that confusion about the precise products involved was “easing” and that a full list would be published in newspapers the next day. The National Newsletter of 8 May 2003 informed members that State and Territory health authorities would, at the TGA’s request, “follow up on the Pan recall”, monitoring pharmacies and retail outlets to check that affected products had been removed from shelves. It was also said that inspectors may check that destroyed stock had been properly disposed of and that stock awaiting refund had been “correctly quarantined”.

50 The Guild’s “Important Notice to Guild Members” dated 28 May 2003 referred to arrangements to co-ordinate Guild pharmacists’ claims for the purposes of the creditors meeting. Instructions were given as to the process to be followed and the documents to be completed. One of those documents was the “Statement of Loss” to which I have already referred. Significantly, however, that form was accompanied by a three page document entitled “Explanatory Memorandum and Examples of Working Pages”. This gave guidance for completing the Statement of Loss and making the necessary calculations. It also provided a facility for making and recording calculations. Spaces were provided for listing relevant stock items to be taken into account in producing totals to be transferred eventually to the Statement of Loss. Those spaces contained columns including “Product Brand”, “Product Name” and “Batch Number”.

51 So much for the genesis of the Pharmacy Guild proofs. It remains to note, in relation to the advice given by BDW before 1 September 2003, that the issue of claims by consumers was not progressed beyond the earlier discussion of liability to those who had suffered illness through taking Pan products, the cause of action being for negligence.

52 The Pharmacy Guild proofs formed the basis of the proxy voting on 1 September 2003 in the circumstances to which I have referred. It is not suggested that any other retailers or any consumers voted at that meeting or sought to do so.

Proofs and Proxies – Bart/Schildkraut

53 Mr Selim and Mr Bart, the proponents of the deed of company arrangement voted down on 1 September 1, were prompted by the events involving the Pharmacy Guild proofs to do two things. First, Mr Selim approached the Duty Judge in this Division seeking relief by way of effective disallowance of the Pharmacy Guild votes. Those proceedings were eventually overtaken by the present proceedings. Second, steps were taken to solicit proofs and proxies from a number of people. They were predominantly consumers but included some retailers and health professionals.

54 Mr Schildkraut, acting for Mr Bart, played a leading role in the co-ordination of this solicitation, although relatively few of the documents were obtained through approaches made directly by him. Other people were also working on the matter. Two pro-forma documents were used. The documents that were the focus of attention during argument bore the names of V & T Vithal and their address in a Sydney suburb. One document was an adaption of Form 535 under regulation 5.6.49(2). It is addressed to the administrators of Pan and begins by saying that the named persons:

“… state that the company was on 22 May 2003, and still is, justly indebted to [them] for three hundred and thirty three dollars and twenty cents including GST.”

“Cost price goods for which no refund has been received. Items:-“

55 There also appear in the second column several entries in handwriting, one above the pre-printed wording I have just quoted and the others below. These are:

56 There is then a column for “Amount (GST incl)” in which a sum of money appears in handwriting against each handwritten entry. The second document signed by C & T Vithal was a form of proxy for the 23 September 2003 meeting in favour of Mr Schildkraut or, in his absence, Mr Bart.

57 I was not taken during the hearing to other examples of these consumer proofs and proxy forms. It was said by Mr Sheahan (and not disputed by Mr Newlinds) that the Vithal documents were among the better examples, in that, in a comparative sense, they contained comprehensive particulars; while others were less detailed and some contained no particulars at all. I have taken the trouble to look through all the forms in evidence. I mention several of them. One (page 4261 of the tendered documents) refers simply to “ginseng”. Another (page 4224) refers to “vitamin C 100 mg”. In other cases, there are references to “glucosamine” (page 4335) and “evening primrose” (page 4302), being respectively, according to the Shorter Oxford English Dictionary, a sugar derived from glucose and a particular plant or flower and thus generic descriptions rather than brand or trade names. At page 4471 there appears a claim for $80.95 in which the second column (being the column for details of items the cost of which is claimed) is entirely blank except for the pre-printed words. I mention all these merely as examples.

58 The 470 documents (or sets of documents) assembled under the direction of Mr Schildkraut bear dates from 4 September 2003 onwards. All were deposited together on the morning of the adjourned meeting, 23 September. There was a delay in the resumption of the adjourned meeting while Mr McGrath dealt with the 470 claims that had been presented to him. In doing so, he took advice from Mr Sloan of BDW who, in turn, consulted with Mr Sheahan. Mr Sloan prepared in handwritten from what was, in effect, a suggested script for Mr McGrath in relation the new proofs, having settled the wording with Mr Sheahan. I set it out in full:

“This morning I received approximately 500 proxy forms purporting to be from:

· Retailers

· Consumers

· Doctors and Dentists

I immediately sought legal advice from my lawyers in relation to the admission of the claims for voting purposes. My lawyers have sought advice from Senior Counsel retained by them for the purposes of giving advice on voting issues.

On the basis of that advice I have adjudicated on the claims on the following basis:

- Where a creditor has not lodge appropriate particulars of a proof of debt, that creditor has not been allowed to vote

- Pursuant to Regulation 5.6.23(2), where claims are unliquidated or at a value which has not been established, it has not been possible to make to make just estimate and the creditor has not been allowed to vote.

Creditors who have lodged sufficient particulars have been allowed to vote.

The claims filed today are generally, according to legal advice from Senior Counsel, of a different nature from the claims on which adjudication has been made of the Pharmacy Guild. In the case of the Pharmacy Guild a legal basis, process and mechanism was put in place prior to the receipt of the proofs which enabled a just estimate to take place on a proper factual and legal basis.

Where pharmacists have lodged a proof of debt in a form similar to those provided by the Pharmacy Guild, their proof has been adjudicated in the same manner as the adjudication of the Pharmacy Guild vote.

59 Mr McGrath says in his affidavit that, having read this, he asked Mr Sloan some questions and a conversation occurred as follows:

What particulars are lacking in the proofs?’

The proofs do not actually provide details of the precise product. A lot merely say ‘vitamin C’ or ‘stress relief’ or ‘Fat-Blaster’. There is no proof that they are actually Pan products. Most have the date May 2003 pre-printed on them. No supporting documents are attached. They have not set out the legal basis of the claim. In the time available it has not been possible to make a just estimate or to seek particulars. We have previously only allowed consumers to prove if they have suffered ill health from consumption.’

Is this consistent with our previous advice?’

Yes. I have set out the advice in accordance with the approach in cases such as Bovis. Where the same information has been provided by pharmacists as by the members of the Pharmacy Guild, they have been allowed to vote in the same way as the Guild members.’

60 After the meeting, Mr McGrath asked that this oral advice be confirmed in writing. The confirmation was given in a letter from BDW to Mr McGrath and Mr Honey dated 29 September 2003. The letter described the documents as follows:

“2.2 The nature of the proofs of debt and proxies were broadly as follows:

(a) Consumers – the proofs of debt provided by consumers consisted of an assertion that a particular vitamin or supplement was purchased and the amount paid for, or presumably lost in relation to, the product.

In most cases there were no details of the date on which the product was purchased (a generic date of May 2003 had been pre-printed on most of the forms); in many cases the details of the purported creditor were incomplete; in some cases the details of the product purchased were incomplete and it was inconclusive as to whether the product purchased was in fact a Pan product. Most products were generic in nature such as vitamin C or multi-vitamins and were not identified by brand.

None of the consumers claimed to have suffered personal injury from consumption of any product.

(b) Retailers – the proofs of debt lodged by retailers were provided by a number of pharmacists.

In some cases these particulars had been completed; however, in many cases the particulars included on the proofs of debt were undated, insufficiently detailed, incomplete or otherwise unclear.

A large number of the completed forms were in an almost identical form to the statements of loss completed by the Pharmacy Guild of Australia ( Guild ).

(c) Doctors, dentists and other health care professionals – these proofs of debt purported to be claims for losses arising out of the purchase of Pan products and the consequential effects on the businesses of the relevant professionals.

Essentially these proofs of debt only set out the product claimed to have been purchased and the amount paid or lost. In a similar way to the consumer claims, these claims often lacked details as to date of purchase and were often inconclusive as to the product purchased. There were no details as to the means by which the products were used in any professional capacity, nor were there any details of any consequential loss of profits claimed or alleged.”

61 The letter went on to confirm advice previously given, including the following:

meeting were of a different nature to those lodged by the Guild on behalf of the individual pharmacists they represent. In the case of the Guild a legal basis, process and mechanism were put in placed, based on our discussions and correspondence with their lawyers, Minter Ellison, prior to the receipt of formal proofs of debt which enabled their proofs to be adjudicated on and, where necessary, a just estimate of the value of any contingent claim to be made on a proper factual and legal basis.

(e) The late hour at which these more recent claims were submitted meant that it was impossible to liaise with the purported creditors in order to clarify the claims and seek further particulars which might have allowed us to have clarified the factual and legal basis on which they were seeking to vote.”

62 The letter then reports the result, under a heading “Outcome of adjudication”:

“Accordingly, based on the advice given, the adjudication of the 470 proxies and proofs of debt received proceeded in the following way:

(a) We obtained a representative sample of the proofs to determine what (if any) issues were relevant to the adjudication of the proofs.

(b) We determined, in consultation with senior counsel, the general principles concerning the adjudication based upon the relevant authorities, our previous advice (in particular relating to Pan’s liability to consumers and to our voting advice) and the regulations.

(c) The proofs were sorted into the categories of consumers, retailers and doctors/dentists.

(d) We ensured that the staff undertaking the review were familiar with the relevant legal principles as to the adjudication of proofs of debt, including as to the application, where necessary of a just estimate to contingent claims, and applied a consistent approach to the adjudication process. Those staff had also been involved in the design of the questionnaire to consumers and had dealt with issues relevant to claims by consumers.

(e) Consumers – all claims were rejected on the basis of a lack of appropriate particulars and the inability to make a proper adjudication or a just estimate in the time available.

(f) Retailers – where retailers’ claims were sufficiently completed with appropriate particulars, and were in a form broadly similar to the claims submitted by the Guild, those proofs were admitted to vote in the same way as the claims of the Guild had been previously admitted.

Other claims by retailers which were incomplete or otherwise lacking in appropriate particulars were rejected.

(g) Doctors, dentis, health care professionals – as these claims were in the same form as the consumer claims and were lacking in the appropriate particulars and detail required to allow them to be admitted for voting purposes, all of the claims were rejected.

(h) There were a small number of proofs from trade creditors which were dealt with consistently with the principles outlined above and in the same way that other claims by trade creditors had previously been dealt with.”

63 The 417 proxies rejected were part of a total of 470 rejected. The 53 admitted related in the main to pharmacists analogous to the Pharmacy Guild members. There were also some proofs from health professionals. I have not checked all these 53 admitted proofs against the poll results on the resolution for approval of the deed of company arrangement. A sample check shows, however, that a number of positive votes were cast by Mr Schildkraut as proxy for persons within the group of 53.

Who are “creditors”?

64 I turn now to a brief analysis of the first of the legal issues raised in the proceedings. The Corporations Act does not define “creditors” for the purposes of Part 5.3A (or, indeed, at all). It is therefore appropriate to approach the search for the meaning of “the company’s creditors” in s.439A by considering the context. Looking at s.439A itself, there is a clear expectation and contemplation that an administrator will be able, as a matter of reasonable practicability, to identify at least some creditors in such a way as to be able to give them notice in writing (see s.439A(3)(a)) but also that others may be capable of being contacted only through the insertion of a notice in a newspaper (see s.439A(3)(b)). The same message emerges from regulation 5.6.12 which proceeds on the footing that there will be “persons appearing on the company’s books or otherwise” as its creditors and that those persons will be capable of being identified so as to be served in one of the ways specified. There may be a question whether, in light of s.439A(3)(b) and regulation 5.6.11(3)(c), the regulation 5.6.14A requirement with respect to a newspaper advertising applies to a s.439A meeting, but the better view is that it does: see Re Ansett Australia Ltd (2002) 115 FCR 395. In any event, the co-existence of regulation 5.6.14A with regulation 5.6.12 reinforces the notion that there will be cases in which creditors are not confined to “persons appearing on the company’s books or otherwise” to be creditors – in other words, that there may be creditors of whom those in charge of the company’s affairs are not aware and have no ready means of discovering internally.

65 The second contextual element to be mentioned is found in regulation 5.6.23 headed “Creditors who may vote”. It is there contemplated that a creditor is a person who has a “debt or claim”. Creditor status may thus derive from a “claim” as distinct from a “debt”; and the “claim” may be “unliquidated or a contingent claim”. Regulation 5.6.26 proceeds on the basis that the chairperson of a meeting will, in respect of each person who seeks to vote at a meeting, “admit or reject a proof of debt or claim for the purposes of voting”.

66 A person having an unliquidated claim or a contingent claim against the relevant company is within the relevant concept of “creditor” for the purposes of the provisions with which I am now dealing. Such a conclusion is consistent with the decision of the Victorian Court of Appeal in Brash Holdings Ltd v Katile Pty Ltd (1996) 1 VR 24 where it was held that, unless a particular provision otherwise indicates, the “creditors” of a company for Part 5.3A purposes are “those who would have been creditors had the company gone into liquidation”, thus importing into Part 5.3A the criteria laid down by s.553 in relation to winding up:

“In short, we think that whatever the ambit of the words of s.553, the same will be so in relation to s.444D.”

67 Since the enactment of the Corporate Law Review Act 1998 (Cth), all claims against the company (present or future, certain or contingent, ascertained or sounding only in damages) are provable in a winding up. This includes claims sounding in tort only which were previously excluded through the application of s.82(2) of the Bankruptcy Act 1966 (Cth). For these purposes, I think that claims for damages based on statutory provisions such as ss.82 and 87 of the Trade Practices Act 1974 (Cth) must be treated in the same way as claims for damages in tort. The close analogy between the two, so far as proof in a winding up is concerned, was noted in Fielding v Vagrand Pty Ltd (1992) 9 ACSR 505.

68 In summary, therefore, “creditors”, for the purposes of a s.439A meeting of creditors in a voluntary administration are all persons who have, as against the company concerned, “debts” or “claims” provable in a winding up. The boundaries are therefore those set by s.553(1) which refers to “all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages) …”.

69 In the end, there was no real debate before me as to the creditor status of either the pharmacists represented by the Pharmacy Guild or the various persons on whose behalf the 470 proofs were lodged on the morning of the adjourned meeting. Claims in negligence were apparently accepted as sufficiently open. I therefore do not pursue the matter, except to observe that the assumption that all the persons in question were creditors is one that I am content for present purposes to accept, particularly in light of the references to “claims” as well as debts in the legislation.

The role of the Corporations Regulations

70 It is necessary to refer next to the role played by provisions of the Corporations Regulations 2001 (Cth) in Part 5.3A administrations. Regulation 5.6.11(2) says that, subject to regulation 5.6.1l(3), regulations 5.6.12 to 5.6.36A apply to the convening and conduct of and voting at various meetings called for by provisions of the Act, including “a meeting convened under Part 5.3A … that is … a meeting of … creditors … of a company …”. A meeting called for by s.439A is, of course, a meeting of that description.

71 The effect of regulation 5.6.11(3), in the particular context, is that regulations 5.6.12 to 5.6.36A “do not apply to” a meeting of the kind I have just mentioned “if those regulations are inconsistent with a particular requirement of the Act, these Regulations or the rules”. Although the wording here is perhaps not entirely clear, it seems, as I have already said, that the effect of regulation 5.6.11(3), in the case of an inconsistency of the kind to which it refers, is to disapply regulations 5.6.12 to 5.6.36A only to the extent necessary to resolve the inconsistency and to allow the contrary provision elsewhere to operate. It seems unlikely that it is intended that one such inconsistency will displace the whole of regulations 5.6.12 to 5.6.36A.

The requirements as to notice of meeting

72 The provisions with respect to s.439A meetings do not – indeed, cannot – work on the principle reflected in s.249J concerning meetings of members. It is there assumed that the company knows the name and address of each member. That assumption is understandable in light of the requirements for the keeping of a register of members and the concept that membership as such is reflected by entry in the register. In the case of creditors, and particularly since persons with “claims” are within the creditor concept, there can be no corresponding assumption that all names and addresses will be known to the company. Some will be known, others will not. This explains the quite different system of notification adopted by the legislation in relation to meetings of creditors.

73 The leading requirement concerning notice of a s.439A meeting is imposed by s.439A(1)(a):

“The administrator must convene the meeting by:

(a) giving written notice of the meeting to as many of the company’s creditors as reasonably practicable …”

74 One element of the practicality to which s.439A(3)(a) refers must be the administrator’s ability to identify creditors and to ascertain ways of making contact with them. The company’s records will no doubt contain details of creditors such as employees, suppliers and lenders. Those records may also identify some persons who have made claims of certain kinds that bring them within the creditor class to which reference has already been made.

75 This aspect of s.439A is confirmed by regulation 5.6.12 which requires that notice in writing be given to every person “appearing on the company’s books or otherwise” to be a creditor. The requirement is imposed on the “convenor” being, by virtue of s.439A(3), the administrator. It is the administrator who must resort to the company’s books and, with the aid of information found there and any other available information, come to a view as to who the company’s creditors are for the purposes of direct notification. Regulation 5.6.12(2) reflects an important assumption about this identification process, namely, that it will bring to light not only a creditor’s identity but also a place at which personal service can be effected, an address to which notice may be posted, a fax number to which notice may be transmitted or a document exchange number through which notice may be sent. This assumption carries with it a message that the only creditors who are to become the subject of notification in accordance with regulation 5.6.12 are those for whom some such point of contact is available.

76 The qualification is s.439A(3) arising from the words “as many of the company’s creditors as reasonably practicable” does not, in my view, extend the requirement for one-to-one notification beyond those creditors for whom a means of direct contact is readily ascertainable. Its effect, rather, is to cater for situations where considerations of practicality may affect the ability to comply fully with that requirement. This view is consistent with the decision in Ansett Australia Ltd (above).

77 The second and equally important part of the s.439A(3) notification process is advertising in the press. This is dealt with by s.439A(3)(b). The notice of meeting must be published in a “national newspaper” (as defined by s.9) or in a daily newspaper of general circulation in each State or Territory in which the company has its registered office or carries on business. There is a similar, although somewhat wider, requirement in regulation 5.6.14B but that requirement must be regarded as inconsistent with the “particular requirement” of s.439A(3)(b), as referred to in regulation 5.6.11(3), so that the s.439A(3)(b) requirement alone applies.

Proof of debts in voluntary administration

78 It is next necessary to consider the part that a system of proof of debts plays in the system of voluntary administration created by Part 5.3A. Leaving to one side the possibility that a deed of company arrangement may, for purposes of recognising and quantifying debts, incorporate a proof regime that attains binding force through s.444D (and see MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636), Part 5.3A does not contemplate that creditors will prove their debts or claims or that creditor recognition and rights are dependent on any system of proof of debts. In this, Part 5.3A is to be contrasted with the winding up provisions where the Act proceeds on the basis that, in the final analysis, recognition as a creditor (as distinct from a mere claimant to creditor status) will be determined by adjudication of a proof of debt submitted by the claimant.

79 Regulations 5.6.12 to 5.6.36A are applied not only to meetings of creditors under Part 5.3A but also to a variety of other meetings required by the Act, including meetings of creditors in a winding up. As a result, the provisions of those regulations have a tendency to assume certain fundamentals with respect to winding up that have no parallel in Part 5.3A administration, not the least of them being a system of proof of debts which, as I have said, plays no part under Part 5.3A except to the limited extent contemplated by regulations 5.6.12 to 5.6.36A for the purposes of meetings of creditors under Part 5.3A. This, coupled with the approach to the meaning of “creditors”, for Part 5.3A purposes, emerging from Brash Holdings Ltd v Katile Pty Ltd (above), seems to me to indicate that certain aspects of well established processes in a winding up may be taken to be adopted, by implication and so far as necessary, by the provisions in regulations 5.6.12 to 5.6.36A. At the same time, however, the summary nature of the Part 5.3A process and the fact that proof is for voting purposes only means that there are also differences.

80 The way in which the chairperson of a meeting to which regulations 5.6.12 to 5.6.36A apply is to deal with proofs for the purposes of voting is stated in regulation 5.6.26:

“(1) The chairperson of a meeting has power to admit or reject a proof of debt or claim for the purposes of voting.

(2) If the chairperson is in doubt whether a proof of debt or claim should be admitted or rejected, he or she must mark that proof as objected to and allow the creditor to vote, subject to the vote being declared invalid if the objection is sustained.

(3) A decision by the chairperson to admit or reject a proof of debt or claim for the purposes of voting may be appealed against to the Court within 14 days after the decision.”

81 It is clear, despite these unqualified references to proofs being admitted or rejected, that a concept of partial admission of a debt exists. This is referred to in regulation 5.6.23:

Decided cases on regulations 5.6.23 and 5.6.26

82 The way in which regulations 5.6.23 and 5.6.26 operate in the context of a Part 5.3A meeting of creditors has been considered in a number of cases. The effect of those provisions and the treatment of them in earlier case law (particularly Vincent White & Associates Pty Ltd v Vouris (1998) 28 ACSR 93 and Re Oriel Homes Pty Ltd (1997) 15 ACLC 564) were recently reviewed by Austin J in Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612. It is instructive to quote at some length from his Honour’s judgment:

“Regulation 5.6.23(1) provides that a person is not entitled to vote as a creditor at a meeting of creditors of a company in voluntary administration unless his or her debt has been admitted wholly or in part by the administrator, or he or she has lodged with the chairperson particulars of the debt or a formal proof of debt. By reg 5.6.23(2), a creditor must not vote in respect of a contingent or unliquidated debt, or a debt the value of which is not established, unless a just estimate of its value has been made.

Regulation 5.6.26(1) states that the chairperson of a meeting has power to admit or reject a proof of debt or claim for the purposes of voting. Regulation 5.6.26(2) states that if the chairperson is in doubt whether a proof of debt or claim should be admitted or rejected, he or she must mark that proof as objected to and allow the creditor to vote, subject to the vote being declared invalid if the objection is sustained.

The meaning of these provisions was considered by Hodgson CJ in Eq (as his Honour then was) in Vincent, White & Associates Pty Ltd v Vouris (1998) 28 ACSR 93. There a plaintiff lodged a proof of debt for over $1.4 million, and the administrator decided that he would allow the plaintiff to vote in respect of only about $420,000, on the basis that this was a just estimate of the value of the debt for the purpose of voting. A motion for the company to execute a deed of company arrangement was defeated, but it would have been carried on a poll if the proof had been admitted for the full amount of the claim. The plaintiff's appeal against the administrator's decision was unsuccessful.

‘I interpret the effect of [the relevant regulations] as follows. Under reg 5.6.26(1) the power to admit includes the power to admit in part. If the position is clear, the chairperson should make a just estimate of the value of the debt. If, however, he or she is in genuine doubt, the claim must be allowed at the amount that the creditor has claimed and should thereupon be marked as “objected to”. The creditor should then be allowed to vote at that value. Any error, and any effect that the error may have on the result, may be corrected in due course by an appeal to the Court under reg 5.6.26(3).’

I respectfully agree with Hodgson J that this passage is not authority for the proposition that, whenever there is genuine doubt as to the correct amount of the debt, the chairman must allow the creditor to vote in the amount claimed. I would add that in Re Oriel Homes itself, the Court held that the proof should be admitted at a nominal value rather than for the amount claimed.

(e) if a just estimate cannot be made at all, in circumstances where reg 5.6.23(2) applies, then the creditor should not be permitted to vote at all, and reg 5.6.26(2) has no application ( Vincent, White at 101);

“Q. So if a person like you with all the experience in insolvency, with the best legal advice in Sydney available to you, didn't find it an obvious claim, it is reasonably self-evident that it is inevitable that there are and have been many people out in the communities who also wouldn't think that it was obvious that they had a claim who might need a bit of nudging that you had formed a view that they may have a claim, do you accept that?
A. Yes, that's quite possible.

Q. Why didn't you do it? Why didn't you do anything to bring to these people's attention the fact that you might consider them creditors and that they might have a say in the outcome of Pan if they put in a proof of debt?
A. I think we were relying upon what's required within the Corporations Law to notify those creditors that you can determine from the company records. In addition to that, we were relying upon the fact that we have to advertise these meetings of creditors and the fact that the Pan voluntary administration had received considerable media attention and those parties could come forward based upon that.

Q. If they worked out for themselves that you were going to consider them a creditor, but only if, correct?
A. Or that they might feel they have a claim.

Q. But they had to work that out for themselves?
A. Indeed.

126 The proposition that the administrators should, as a matter of duty, have taken active steps to seek out non-obvious creditors such as retailers and consumers who had suffered economic loss only was advanced on a basis of fairness. The postulated duty was said to extend also to non-obvious creditors in the several foreign countries to which products manufactured by Pan were exported.

127 I do not accept that any such legal duty exists. It is true that a liquidator preparing to make a final distribution may not ignore “lost” creditors. So much was held by Hayne J in Re Pyramid Building Society (1994) 13 ACSR 566 where it was decided that, even if the court had a relevant power to grant a dispensation, it should not sanction a liquidator’s proposal that notice of intention to declare a dividend not be sent to building society depositors for whom no current addresses were held or who had not responded to previous mail-outs. But that situation is clearly distinguishable, in that the proposition was that known creditors should be ignored, not that unknown creditors should be sought.

128 Reference may also be made to the observations of Needham J in Re Autolook Pty Ltd (1983) 8 ACLR 419 concerning the duty of fairness to which a liquidator about to distribute assets is subject when aware that a particular creditor has understated his or her claim. Again, however, that is a duty that applies when dealing with a person who has already been identified as within the creditor class.

129 Mr Newlinds submitted that the species of duty for which he contended had been recognised by Goldberg J in Re Ansett Australia Ltd (above). I do not accept that submission. The question for decision by Goldberg J was not about the content of the obligations imposed by the Act and regulations with respect to notice and advertising of meetings of creditors. His Honour was asked to make orders under s.447A altering what would otherwise have been the statutory requirements. At paragraph [24] of the judgment, eight groups of creditors are identified. One of them (frequent flyer members) was estimated to consist of 2.7 million persons. Another (Golden Wing members) was estimated to consist of 1.3 million persons. A third, said to number some 300,000 persons, consisted of persons who had purchased airline tickets that could not be honoured.

130 The proposal before Goldberg J was that creditors such as employees, bankers, lessors, suppliers and other trade creditors should be sent the relevant documents in the usual way but that notification to others should be confined to newspaper advertisement and websites. It was in that particular context of what was effectively an exemption or modification application that Goldberg J said:

“I do not consider that placing advertisements in newspapers and putting the notice of the meeting and the required documentation on the two websites is sufficient notice for the purpose of ensuring that the creditors become aware of the holding of the meeting and their right to attend it, participate in it and vote on resolutions put to the meeting. This method requires creditors either to read a newspaper advertisement, or visit one of the two websites in order to become aware of the convening of the meeting and its date, time and place. I consider that there would be many creditors who would not see or read the advertisements in the newspapers or visit the websites.”

131 His Honour was not in any way suggesting that full and faithful compliance with the provisions of the Act and regulations was somehow insufficient to discharge the administrators’ duty. He was expressing an opinion about an alternative or substitute falling short of such compliance that the court was asked to sanction. His observations are in no way pertinent to the present case.

132 Issues of the kind under discussion arose in In re Armstrong Whitworth Securities Co Ltd [1947] 1 Ch 673 and I should say something about that case before leaving this subject. A company in liquidation had, until 1933, acted as a self-insurer for workers compensation. The liquidator had employee accident records going back to 1918. No steps, other than advertising in accordance with generally applicable requirements, were taken by the liquidator in relation to contingent claims of former employees. Jenkins J held that the liquidator should have sent a circular letter to every former employee (except those with known claims) who appeared from the company’s records to have suffered an accident giving rise to relevant injury, such letter being addressed to the person at the address shown in the company’s books. This decision, of course, relates to identified persons with identified potential claims arising out of a direct relationship. It thus proceeded on the principles referred to in Re Pyramid Building Society and Re Autolook Pty Ltd, rather than any broader principle of the kind for which the plaintiff contended in these proceedings.

133 The real difficulty with any such broader principle is to formulate it in any meaningful way. To what lengths should an administrator go in seeking to identify classes of claimants? If, as most do, the company employed both men and women, would the administrator’s general knowledge that women in the workplace are sometimes the victims of sexual harassment by male co-workers prompt the administrator to seek to establish through national and international advertising whether any woman in the world considered the company, as employer, to be liable in respect of such a claim? Would the answer be different if the administrator knew that one male employee had in the past engaged in such wrongful conduct – or 20 or 100? Of course, if there were any record of complaints amounting to assertions of liability having been made, the administrator would be in a position analogous to that of the liquidator in In re Armstrong Whitworth Securities Co Ltd (above).

134 Advertising is mandated by the Corporations Regulations in a case of the present kind. While a particular administrator may choose to advertise more widely, there cannot, in my view, be any duty to do so.

135 My conclusion on this aspect of the case is that the steps the administrators took to convene the meeting of creditors required by s.439A were in accordance with legislative requirements.

Unilateral adjournment or suspension

136 I deal next with the proposition that Mr McGrath should, of his own motion, have adjourned the meeting of 23 September (or suspended proceedings temporarily) so that he could make a urgent application to the court for directions in relation to the questions surrounding the admission of the various proofs. The suggestion on behalf of the plaintiff was that, although a formal proposal for adjournment to that end had been defeated, that result was contributed to by the Pharmacy Guild sponsored votes and should therefore not have been regarded by the chairperson as precluding his taking unilaterally the course outlined.

137 I do not consider that Mr McGrath acted wrongly or inappropriately in this respect. In the first place, the matter of adjournment is dealt with in regulation 5.6.18 which adopts the common and usual formulation that the chairperson must adjourn the meeting if so directed by the meeting itself and may do so with its consent. The meeting had specifically declined to approve an adjournment for the purpose in question, albeit in circumstances where some of the voters were considered by the plaintiff and others to have been wrongly recognised.

138 Second, the power of a chairperson to adjourn without the kind of direction or consent envisaged by regulation 5.6.18 where such a provision applies is narrow. Its extent was considered by the English Court of Appeal in Byng v London Life Ltd [1990] 1 Ch 170. It is unnecessary, in the present context, to go into the matter in detail. It is sufficient to say that what might be termed a residual unilateral power of the chairperson to adjourn is an emergency power exercisable in cases where the consent of the meeting cannot, as a practical matter, be obtained and the chairperson considers adjournment necessary to ensure that all wishing to do so can in due course speak and vote. While there may be an argument that the purpose of seeking determinative clarification as to who was entitled to speak and vote would be within the contemplation of this emergency power, there is, in my opinion, a third consideration that would militate against resort to the power even if available.

139 The Corporations Regulations do not contain the usual provision (see s.250G in relation to meetings of members) that the chairperson’s decision on a question of entitlement to vote is final. It seems to me, however, that such a principle is to be implied, having regard to the functions of the chairperson under regulations 5.6.23 and 5.6.26 already mentioned. In any event, courts are reluctant to determine such questions in advance. A question as to entitlement to vote, viewed in isolation, is of a hypothetical character. Perhaps, in the long run, the person concerned will purport or attempt to vote. Perhaps he or she will not. Perhaps the vote, if tendered, will affect the result; perhaps it will not.

140 In the present context, of course, this is subject to an important qualification arising from regulation 5.6.26(3) which creates an express right of appeal to the court against a decision of the chairperson to admit or reject a proof for voting purposes. That right is exercisable within 14 days after the decision to admit or reject is made by the chairperson. In most cases, the appeal period will not end until after the conclusion of the meeting, given that the power under review is exercisable by the chairperson and, as already noted, the identity of the chairperson cannot be known with certainty until the meeting begins. The clear expectation is that the chairperson should make a decision as to the admission or rejection of a proof for voting purposes and that the meeting should proceed on that basis, with any challenge to the chairperson’s decision being taken to the court by way of appeal after the decision has been made and, in most cases at least, after the meeting has ended and it can be seen whether the vote of the person in question has affected the result.

141 This aspect of the regulations is another factor which could be expected to make the court wary about deciding questions of entitlement to vote in advance. Indeed, that very consideration caused McLelland J to decline, in analogous circumstances concerning proof for distribution purposes, to give a liquidator directions as to admission or rejection of a proof in Re Magic Australia Pty Ltd (1992) 7 ACSR 742. His Honour said (at 745):

“A direction to the effect that a liquidator would be justified in admitting, or alternatively would be justified in rejecting, a particular proof of debt, would not be determinative of the validity or otherwise of the claim the subject of the proof, and would not preclude a subsequent appeal to the court from the liquidator’s decision in compliance with the direction. It would normally therefore be inappropriate for such a direction to be sought or given.”

(See also Derwinto v Lewis (2002) 42 ACSR 645)

142 There is the point that, as already noted, the function of admitting votes and recognising voters is, in the present context, a function of the chairperson, not the administrator as such. The submissions made on the plaintiff’s behalf proceeded on the assumption that the s.447D jurisdiction to give directions to an administrator in relation to “the performance or exercise of any of the administrator’s functions and powers” would have been available. It is not entirely clear that this is so. It may be that it would have been necessary for any proceedings in which it was sought to determine the correct course of action on the chairperson’s part to be proceedings inter partes.

143 Mr Newlinds submitted that Mr McGrath could have merely suspended the meeting for a time. He said that a suspension of proceedings for administrative or practical purposes is to be distinguished from an adjournment. I accept that this is so. It is commonplace for a chairman to call proceedings to a halt while votes taken upon a poll are counted. In long meetings, it is common for proceedings to be suspended so that those present may eat. These intervals arise as a matter of practicality. Such suspensions are, I agree, distinct from the kind of adjournment with which provisions such as regulation 5.6.18 are concerned. In a case of suspension, it is contemplated that persons present will remain in the meeting room or at least in the general vicinity, rather than dispersing. The concept is one of continuity, albeit with an interval. Adjournment, by contrast, connotes dispersal followed by reconvening on a new and different occasion.

144 To the extent that Mr Newlinds submitted that the objective of seeking guidance from the court could and should have been pursued by means of a suspension of this kind, I agree with Mr Sheahan’s submission that such a course is unlikely to have been either practicable or productive.

145 In summary, therefore, I do not consider that proceedings at and in relation to the meeting were legally deficient because of Mr McGrath’s failure to adjourn or suspend the meeting for the purpose of seeking guidance from the court on the question of admission of proofs for voting purposes.

The casting vote

146 The question of the way in which Mr McGrath would have exercised the casting vote under regulation 5.6.21(4) on the proposed resolution for the approval of the deed of company arrangement was the subject of submissions. Reference was made to a number of judicial observations on the subject, including those of Austin J in Cresvale Far East Ltd v Cresvale Securities Ltd (2001) 37 ACSR 394 and the Court of Appeal in Young v Sherman (2002) 170 FLR 86. There was also reference to the implications for Mr McGrath of the fact that KPMG, the firm of which he is a member, has F H Faulding & Co Ltd (Mayne), the largest sponsor creditor and a competitor of Pan, as one of its largest audit clients.

147 Little was said, however, about the way in which Mr McGrath in fact exercised the casting vote on the winding up resolution. The motion for winding up was voted upon after the proposed resolution for approval of the deed of company arrangement had been rejected on both numbers and value. The winding up proposal was supported by the preponderance of value voted but not by a majority of the persons voting It was in those circumstances that Mr McGrath exercised the casting vote in favour of the resolution.

148 In case there be any doubt on the issue, I am bound to say that I consider this to have been the appropriate course. After the deed of company arrangement had been rejected, failure to pass the resolution for winding up would have been perverse. I say this because, under s.439C, it is open to a meeting of creditors convened under s.439A to make one of only three resolutions. The possibilities are a resolution that the company execute a deed of company arrangement (s.439(a)), a resolution that the company be wound up (s.439C(c)) and a resolution that the Part 5.3A administration end (s.439C(b)). Because of the situation in which Pan was placed – a situation of apparent insolvency and inability to operate – a resolution that the administration end would have been entirely inappropriate. The only extant deed of company arrangement proposal had already been rejected after having been the subject of an earlier rejection on 1 September 2003 before the addition of improvements which caused it to be considered a second time. The only remaining realistic possibility was winding up. The chairperson therefore acted appropriately in bringing about that result.

The position reached

149 For the reasons I have stated, my conclusion to this point is that the plaintiff has not shown that the actions of the administrators and the chairperson of the s.439A meeting were inconsistent with the requirements imposed on them by legislation or that there is any other basis for judicial review of their conduct in relation to the meeting and voting at it.

150 That leaves the question whether some order should, in any event, be made under s.447A or s.447E. Because these are provisions of an essentially remedial kind, resort may be had to them even where all legal requirements have been met. They may be regarded as playing a role akin to that historically played by equity in relation to the rigors of the common law or, in the case of s.447E which is an instrument for redressing prejudice to creditors, a role similar to that played by ss.232 and 233 in protecting the interests of members.

151 It may be that, if adherence to and implementation of legal rules were seen to have entailed unconscionable conduct or to have produced some manifest injustice, the court would act under either or both of those sections. In the present case, however, it cannot be said that due process has involved unconscionability or manifest injustice. While it is no part of the court’s function to prefer one commercial outcome over another, it cannot be said, in this case, that the result that emerged from the s.439A meeting was prejudicial to creditors as creditors, even though some creditors such as employees might have benefited more from the alternative result. (I mention, in that connection, that some two-thirds of the workforce of about 140 has already been retrenched and has received full redundancy benefits; also that, on the evidence, there is no measure of certainty that their jobs would be assured under the deed.) The respective benefits and detriments of the particular deed of company arrangement and winding up, from the viewpoint of creditors, were fully canvassed in the administrators’ report and at the meeting. There were pros and cons with each. It could not be said that the emergence of one rather than the other at the end of the process entailed manifest injustice or prejudice to creditors’ interests warranting intervention by the court.

Other matters

152 The position I have reached makes it unnecessary to consider a number of matters canvassed in the proceedings. I refer in particular to the principles by reference to which a chairperson should be guided in deciding whether and, if so, how the casting vote made available by regulation 5.6.21(4) should be exercised in the hypothetical situations already noticed. I also leave to one side the question of the ambit and application of ss.199A and 199C of the Corporations Act, although I would say, with respect, that I find the reasoning of Templeman J in Eastland Technology Australia Pty Ltd v Whisson [2002] WASC 150 compelling in the light of the purposes for which s.132 of the Companies Act 1936 and identical provisions elsewhere were introduced following the recommendation of the Greene Committee (Report of the Company Law Amendment Committee, Cmd.2657, 1926).

Order

153 The originating process filed on 25 September 2003 is dismissed. The plaintiff will pay the defendants’ costs.

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Last Modified: 10/21/2003

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Citations

Selim v McGrath [2003] NSWSC 927

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Cited Sections

CITATION:	Selim v McGrath [2003] NSWSC 927
HEARING DATE(S):	13/10/03, 14/10/03
JUDGMENT DATE:	17 October 2003
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Originating process dismissed.
CATCHWORDS:	CORPORATIONS - voluntary administration - meetings of creditors - who are creditors - claimants in tort for economic loss - proof or particulars for voting - documents lodged to be considered in context known to decision-maker - rejection where particulars are merely bald assertion - CORPORATIONS - meetings of creditors - notice of meeting - whether any duty upon convenor to seek out creditors except by notices required by legislation - CORPORATIONS - meetings of creditors - whether chairperson may seek direction from court as to admission of proofs for voting - whether chairperson may adjourn meeting unilaterally for such purpose - adjournment and suspension contrasted
LEGISLATION CITED:	Corporations Act 2001 (Cth), Pt 5.3A, ss.199A, 199C, 439A, 447A, 447D, 1321, Corporations Regulations 2001 (Cth), 5.6.11, 5.6.12, 5.6.17(1)(c), 5.6.21(4), 5.6.23, 5.6.26
CASES CITED:	Re Ansett Australia Ltd (2002) 115 FCR 395 In re Armstrong Whitworth Securities Co Ltd [1947] 1 Ch 673 Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 Re Autolook Pty Ltd (1983) 8 ACLR 419 Bechrose v Jefferson (1999) 94 FCR 494 Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612 Brash Holdings Ltd v Katile Pty Ltd (1996) 1 VR 24 Byng v London Life Ltd [1990] 1 Ch 170 Cresvale Far East Ltd v Cresvale Securities Ltd (2001) 37 ACSR 394 Derwinto v Lewis (2002) 42 ACSR 645 Re Dodds; Ex parte Vaughan's Executors (1890) 25 QBD 529 Eastland Technology Australia Pty Ltd v Whisson [2002] WASC 150 Re Equity Funds of Australia (1976) 2 ACLR 238 Fielding v Vagrand Pty Ltd (1992) 9 ACSR 505 Health and Life Care Ltd v South Australian Asset Management Corporation (1995) 18 ACSR 153 Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] VSC 27 Khoury v Zambena Pty Ltd [1999] NSWCA 402 Kirwan v Cresvale Far East Pty Ltd (2002) 44 ACSR 21 Re Magic Australia Pty Ltd (1992) 7 ACSR 742 MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636 Re Oriel Homes Pty Ltd (1997) 15 ACLC 564 Re Pan Pharmaceuticals Ltd (2003) 46 ACSR 77 Re Pasminco Ltd [2002] FCA 231 Perre v Apand Pty Ltd (1999) 198 CLR 180 Petrochemical Industries Ltd v Dempster Nominees Pty Ltd (WASC, 24 November 1994, unreported) Re Pyramid Building Society (1994) 13 ACSR 566 Spiteri v Lindholm [2003] VSC 42 Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 Vincent White & Associates Pty Ltd v Vouris (1998) 28 ACSR 93 Westpac Banking Corporation v Totterdell (1998) 29 ACSR 448 Young v Sherman (2001) 166 FLR 96 Young v Sherman (2002) 170 FLR 86
PARTIES :	James Selim - Plaintiff Anthony Gregory McGrath and Christopher John Honey - Defendants
FILE NUMBER(S):	SC 5062/03
COUNSEL:	Mr C R C Newlinds SC/Ms E M Frizell - Plaintiff Mr J C Sheahan SC/Ms R A Pepper - Defendants Mr M Garner - F H Faulding & Co Ltd Mr P B Walsh - Atlas Copco Ltd & 34 Ors Mr D B Studdy - Pharmacy Guild of Australia Mr A Searle - Australian Workers Union Ms S Cockayne, Solicitor - Australian Pharmaceutical Industries Ltd
SOLICITORS:	Aitken McLachlan Thorpe - Plaintiff Blake Dawson Waldron - Defendants Freehills - F H Faulding & Co Ltd Australegal - Atlas Copco Ltd & 34 Ors Minter Ellison - Pharmacy Guild of Australia PricewaterhouseCoopers Legal - Australian Pharmaceutical Industries Ltd