Shafston Avenue Construction Pty Ltd v McCann

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FEDERAL COURT OF AUSTRALIA

Shafston Avenue Construction Pty Ltd, in the matter of CRCG-Rimfire Pty Ltd (subject to deed of company arrangement) v McCann [2019] FCA 1426

File number: QUD 683 of 2018
Judge: REEVES J
Date of judgment: 30 August 2019
Catchwords: CORPORATIONS – application under s 445D of the Corporations Act 2001 (Cth) (the Act) to set aside a Deed of Company Arrangement (DOCA) – whether the creditors of the company would be better off under the DOCA or a liquidation – where the Administrators considered the DOCA to be in the interests of creditors – whether the DOCA was unfairly prejudicial or contrary to the interests of creditors as a whole pursuant to s 445D(1)(f) of the Act – whether the DOCA could be set aside for some other reason pursuant to s 445D(1)(g) of the Act – where the plaintiffs failed to establish the grounds for the termination of the DOCA prescribed under ss 445D(1)(f)(i) or (ii) or 445D(1)(g) – whether in any event the Court should exercise its discretion to terminate the DOCA – application dismissed
Legislation:

Corporations Act 2001 (Cth)

Insolvency Law Reform Act 2016 (Cth)

Cases cited:

Ausino International Pty Ltd v Apex Sports Pty Ltd (2007) 210 FLR 22; [2007] NSWSC 289
Australian Securities and Investments Commission v Midland Hwy Pty Ltd (ACN 153 096 069) (admin apptd) (2015) 110 ACSR 203; [2015] FCA 1360
Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (2005) 226 ALR 510; [2005] NSWSC 1235
Britax Childcare Pty Ltd (ACN 006 773 600) v Infa Products Pty Ltd (ACN 092 222 994) (admins apptd) (2016) 115 ACSR 322; [2016] FCA 848
Cresvale Far East Ltd (in liq) v Cresvale Securities Ltd (2001) 37 ACSR 394; [2001] NSWSC 89
Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 156 FLR 453; [2000] NSWSC 99
Hagenvale Pty Ltd v Depela Pty Ltd and Another (1995) 17 ACSR 139
Helenic Pty Ltd as trustee of the Mastrantonis Family Trust v Retail Adventures Pty Ltd (Administrators Appointed) [2013] NSWSC 1973
In the matter of Connections Total Fitness for the Family Pty Limited (administrator appointed) [2014] NSWSC 75
In the matter of Mustang Marine Australia Services Pty Ltd (admin apptd) - Perpetual Trustee Company Ltd v Mustang Marine Australia Services Pty Ltd [2010] NSWSC 1429
Khoury v Zambena Pty Ltd (1997) 23 ACSR 344
Lehman Brothers Holdings Inc v City of Swan (2010) 240 CLR 509; [2010] HCA 11
Mediterranean Olives Financial Pty Ltd v Loaders Traders Pty Ltd (Subject to Deed of Company Arrangement) (No 2) [2011] FCA 178
Mentha, In the matter of Griffin Coal Mining Company Pty Ltd (administrators appointed) [2010] FCA 764
Mighty River International Ltd v Hughes (2017) 52 WAR 1; [2017] WASCA 152
Plumbers Supplies Co-operative Limited v Firedam Civil Engineering Pty Limited [2011] NSWSC 325
Richard Albarran, Brent Kijurina and Cameron Shaw as Joint and Several Administrators of Cooper & Oxley Builders Pty Ltd (Administrators…

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Details
Case
[2019] FCA 1426
Decision Date

CaseChat Overview and Summary

Shafston Avenue Construction Pty Ltd v McCann involved an application by the plaintiffs to set aside a Deed of Company Arrangement (DOCA) under section 445D of the Corporations Act 2001 (Cth). The plaintiffs argued that the creditors of the company would be better off if the DOCA were terminated and the company placed into liquidation. The Administrators had previously concluded that the DOCA was in the best interests of the creditors. The primary legal issues before the court were whether the DOCA was unfairly prejudicial or contrary to the interests of creditors as a whole, or if it could be set aside for some other reason. The plaintiffs also sought discretionary termination of the DOCA.

The court examined the evidence and found that the plaintiffs failed to establish any of the grounds for termination prescribed under section 445D(1)(f) or (g) of the Act. The court concluded that the Administrators had conducted a thorough review of the company's financial position and had reasonably determined that the DOCA was in the creditors' best interests. The court found no basis to interfere with the Administrators' decision and dismissed the application. The court exercised its discretion not to terminate the DOCA, given the lack of evidence supporting the plaintiffs' case.

The final orders of the court required the parties to consult and submit a draft set of orders reflecting the reasons for the judgment by close of business on 6 September 2019. Entry of orders was to be dealt with in accordance with Rule 39.32 of the Federal Court Rules 2011.

Orders

Orders of the court

1. By close of business on 6 September 2019, the parties are to consult and submit to my chambers a draft set of orders to reflect the content of these reasons.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

In their Report to creditors dated 27 February 2018, the Administrators undertook a detailed insolvent trading review (pp 42–48). Their conclusions following that review, based on the Cash Flow Test of Insolvency, were as follows:•On the basis of our review of the [Joint Venture] Company’s ability to pay its debts as and when they fall due, it appears the [Joint Venture] Company may have been insolvent from or by 30 September 2017. This is based on the following key factors:–In September 2017, the [Joint Venture] Company had the largest disparity between cash and accounts payables including subcontractor’s debts of $5.1m.–Tax liabilities are outstanding since the September 2017 BAS reporting period and superannuation is outstanding from August 2017.–It was likely evident prior to 4 October 2017, when Mr Moore resigned as a director, that the dispute was not likely to be resolved in the near future and therefore funds may not be provided to the [Joint Venture] Company in the short term.•We have estimated that the quantum of the loss incurred after 30 September 2017 may be in the vicinity of c.$800k.•Further investigations will be undertaken should the [Joint Venture] Company be placed into liquidation.On the alternative Balance Sheet Test of Insolvency, the conclusions were as follows:•On the basis of our review of the [Joint Venture] Company’s books and records, financial position, liquidity ratios and financial performance, it appears the [Joint Venture] Company may have been insolvent from or by 30 September 2017 to 16 November 2017. This is based on the following key factors:–In September 2017 net assets decreased significantly as a result of a loss of c.$560k and continued to decline thereafter indicating that accessing working capital was becoming more and more difficult.–The [Joint Venture] Company incurred operating losses in September 2017, when it was likely foreseeable that discussions between shareholders in respect to the contribution of working capital would be unsuccessful.•Further investigations will be undertaken should the [Joint Venture] Company be placed into liquidation.Recovering a judgment against China Rail Mr McCann addressed this issue in some detail in his main affidavit filed in this proceeding. First, he recorded his understanding as to the assets China Rail held in Australia as follows:At the time of preparing the Report to Creditors, I did not understand that [China Rail] held any assets in Australia. It remains my understanding that [China Rail] holds no, or very few, assets in Australia. The only asset I am presently aware of is a shareholding of 10 ordinary shares in CRCG Australia Pty Ltd ACN 021 [sic – 621] 922 781. CRCG Australia Pty Ltd has capital of only $10 and, based on the following searches, has no substantial assets:(a)National Property Ownership Search - CRCG Australia Pty Ltd dated 23 November 2018 (appearing at page 14 of the Affidavit of Benjamin Rooks sworn on 28 November 2018 and filed in these proceedings);(b)Personal Property Security Register Search - no registrations exist with respect to CRCG Australia Pty Ltd.

Ratio Decidendi

Legal Principle Established

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