Shivnani v Australian Food Co Pty Ltd (Receiver and Manager Appointed)
[2006] WASC 170
SHIVNANI -v- AUSTRALIAN FOOD CO PTY LTD (Receiver and Manager Appointed) [2006] WASC 170
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2006] WASC 170 | |
| Case No: | COR:235/2005 | 13 JULY 2006 | |
| Coram: | MASTER NEWNES | 13/07/06 | |
| 8 | Judgment Part: | 1 of 1 | |
| Result: | Application granted | ||
| B | |||
| PDF Version |
| Parties: | PAVAN SHIVNANI AUSTRALIAN FOOD CO PTY LTD (Receiver and Manager Appointed) |
Catchwords: | Corporations Application to extend time within which second meeting of creditors may be adjourned Corporations Act 2001 (Cth) s 439B(2) Turns on own facts |
Legislation: | Corporations Act 2001 (Cth), s 439B(2) |
Case References: | Cawthorn v Keira Construction Pty Ltd (1994) 33 NSWLR 607 Re LOCM Pty Ltd (Admin Appointed) (1997) 25 ACSR 349 Shivnani v Australian Foods Co Pty Ltd (Receiver and Manager Appointed) (In liq) [2006] WASC 85 Nil |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
AUSTRALIAN FOOD CO PTY LTD (Receiver and Manager Appointed)
Defendant
Catchwords:
Corporations - Application to extend time within which second meeting of creditors may be adjourned - Corporations Act 2001 (Cth) s 439B(2) - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 439B(2)
Result:
Application granted
(Page 2)
Category: B
Representation:
Counsel:
Plaintiff : Mr T Galic
Defendant : Mr R C Ioppolo
Solicitors:
Plaintiff : Galic & Co
Defendant : Wojtowicz Kelly
Case(s) referred to in judgment(s):
Cawthorn v Keira Construction Pty Ltd (1994) 33 NSWLR 607
Re LOCM Pty Ltd (Admin Appointed) (1997) 25 ACSR 349
Shivnani v Australian Foods Co Pty Ltd (Receiver and Manager Appointed) (In liq) [2006] WASC 85
Case(s) also cited:
Nil
(Page 3)
1 MASTER NEWNES: I have before me an urgent application by the plaintiff under s 439B(2) of the Corporations Act 2001 (Cth) for a further extension of the time within which the second meeting of creditors of the defendant company may be adjourned.
2 On 18 January 2005, an order winding up the company was made by the Supreme Court of South Australia. On 12 July 2005, an administrator of the company was appointed by the liquidator under s 436B of the Corporations Act. At all material times, the plaintiff has been the sole director, and a shareholder and creditor of the company. The company has not traded since October 2004.
3 The first meeting of creditors of the company was held on 18 July 2005. The second meeting of creditors was held on 9 August 2005, at which time the creditors resolved that it be adjourned for a period of 60 days. On 22 September 2005 an application was made to this Court, supported by the administrator, to extend the time within which the second meeting of creditors may be adjourned. An order was made extending the period for 60 days from 7 October 2005. The period has been extended on several occasions since.
4 There were at the same time continuing discussions between the administrator and the plaintiff regarding a deed of company arrangement the plaintiff proposed to put to creditors. That seems to have come to a head in late 2005. It appears from the evidence that in the middle of November 2005 the administrator was continuing to press the plaintiff to put forward any deed of company arrangement that he wished to advance. On 29 November 2005, another 60 days extension of the period of adjournment of the second creditors' meeting was granted. On 2 December 2005, the administrator's solicitors wrote to the plaintiff's solicitors pointing out that they had still not received certain information they had requested nor details of the proposed deed of company arrangement.
5 At a meeting of creditors on 5 December 2005, although the fundamental elements of the plaintiff's proposal had been conveyed to creditors, there was still no proposed deed of company arrangement available and nor had the information requested by the administrator been provided. On the recommendation of the administrator, a resolution was passed at that meeting to bring the administration to an end. The resolution, however, depended upon the validity of some 69 proxies which had been excluded by the administrator. If those proxies had been
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- accepted, a majority of creditors would have resolved to adjourn the meeting and the administration of the company would have continued.
6 Subsequently, proceedings were brought by the plaintiff for a declaration that the proxies had been wrongly excluded, and for consequential relief. Those proceedings were heard by Blaxell J on 5 May 2006: Shivnani v Australian Foods Co Pty Ltd (Receiver and Manager Appointed) (In liq) [2006] WASC 85. Judgment was delivered on 18 May 2006. Blaxell J found that the administrator had wrongly rejected the proxies. His Honour declared that the resolutions passed at the creditors' meeting on 5 December 2005 were invalid and ordered the reinstatement of the administrator of the company. At the same time, Blaxell J made an order extending the period under s 439B(2) by a further 60 days. His Honour observed that the position as it would have been had the proxies not been rejected could not be restored and there was no evidence before him to indicate whether or not a majority of creditors still wanted the administration to continue. He went on:
"Given that the administrator was appointed some 10 months ago, I am reluctant to make an order which will prolong the administration for a period well beyond that envisaged by the Act. However, it seems to me that the justice of the case inevitably requires that the creditors must be given the opportunity to decide what should happen in all of the circumstances. They are in the best position to determine what is in their own best interests, and the further delay that will be necessary for them to make that decision is relatively short when compared to the time already lost."
7 In the meantime, Mr Shivnani had travelled to India and, on 18 May 2006, he had his passport seized by the Indian authorities pursuant to what appears to be an order under legislation analogous to the former absconding debtors' legislation in this State. It appears from correspondence in evidence that Mr Shivnani says the debt in respect of which the order was made had been repaid and he is taking steps to have the order set aside and to regain his passport. For the moment he is, according to an affidavit of his wife, Kanchan Shivnani, sworn on 10 July 2006, in India and unable to leave until he is able to procure the return of his passport. It has been submitted on his behalf that this has inevitably resulted in a delay in completing the matters necessary to put forward a deed of company in a form that can be properly considered, and can be the subject of resolution, by the creditors.
(Page 5)
8 The adjourned second meeting of creditors was held on 11 July 2006. Although no proposed deed of company arrangement was put to creditors, the essential terms of a proposed deed had been made available to creditors some time earlier. At the meeting, a resolution that the administration be terminated was defeated and the creditors resolved that the meeting be adjourned for a further period of 60 days. It appears from figures provided by the administrator that the overwhelming majority of creditors by number and amount did not wish the administration to be terminated at this stage and wished to adjourn the second meeting of creditors. It is evident that the purpose of that adjournment was to provide another opportunity for a proposed deed of company arrangement to be put forward and, if put forward, to be the subject of a resolution by the creditors.
9 The resolution to adjourn the second meeting of creditors for a further period of 60 days, of course, requires, in order to be effective, an order of this Court extending the period under s 439B(2). The administrator opposes any extension.
10 In Cawthorn v Keira Construction Pty Ltd (1994) 33 NSWLR 607, Young J examined the legislative history of Pt 5.3A of the Act and said, (at 611):
"Although the flavour from this material is that there is to be a short moratorium, and that the interim administration, before the creditors make the appropriate resolution, is not to be indefinite, there is also the flavour that whilst the court is to keep on the sideline as much as possible, it is to be involved in a supervisory capacity, it is to be involved to ensure that secured creditors are not prejudiced and, indeed, it is to be involved and to use its powers to tailor-make a procedure for each company, so that the spirit and objects of the Part will be implemented.
It seems to me that this reinforces the construction that I have placed on s 447A, that the Court is to have plenary powers to do whatever it thinks is just in all the circumstances, but the court is to bear in mind when exercising those powers the rights of the various groups of people that are affected by voluntary administration, and that there is a very great public interest in not permitting such voluntary administration to go on for a long period of time. Provided that those principles are borne in mind, the court is to ensure that the object of the exercise, that is
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- to consider whether in everybody's interest it is better to have some form of administration short of winding up, is fulfilled."
11 In Re LOCM Pty Ltd (Admin Appointed) (1997) 25 ACSR 349, Goldberg J (at 354) said:
"In my opinion there is manifested a legislative intention that administrations under Pt 5.3A are to proceed expeditiously. Paragraphs 449 and 507 of the explanatory memorandum make it clear that it is of the essence of Pt 5.3A that there be an expeditious administration and the minimum of meeting procedures. In particular, para 507 in referring to s 439A states:
'The Court will be given the power to extend these periods … [proposed subs (6)] though it is not expected that this power would be exercised frequently, since it is an important objective of the new provisions for creditors to be fully informed about the company's position as early as possible, and to have an opportunity to vote on its future as soon as possible.'
As Young J observed in Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 at 612:
'Indeed, there is much in Pt 5.3A, and particularly in Div 6 of that Part, to underline the necessity of an administration proceeding very speedily. Whilst the administration is in place no winding up can be commenced or enforcement of process carried out and thus it would be quite contrary to the whole spirit of the Part to allow administration to be unduly extended or, indeed, to over-encourage administrators to apply to the court.'"
(Page 7)
- or more, far in excess of any period contemplated by the legislature; thirdly, there is still not any detailed deed of company arrangement proposal which could be considered by the creditors; and fourthly, if the company is ultimately wound up, further delay is likely to prejudice investigations by the liquidator to recover moneys on behalf of creditors, including in respect of any voidable transactions. It might also hamper the possible recovery of funds following any successful such action.
13 It has not, however, been suggested that, if the extension were granted, any relevant time period would expire so as to bar such proceedings. The prejudice is put substantially on the basis of prejudice inherent in delay in the liquidator conducting investigations and bringing legal action, should such action be warranted, to recover money for the benefit of creditors.
14 I accept that there has been very great delay in bringing forward any proposal for a deed of company arrangement. Not all of that, however, can be laid at the feet of the plaintiff. In particular, the rejection of the proxies in December 2005 led to a delay of some five months until the outcome of the challenge to the rejection was known. Ultimately, as I have said, the plaintiff in these proceedings was successful in establishing that the proxies should not have been rejected.
15 Notwithstanding that, there has been very significant delay on the plaintiff's part and that weighs heavily against a further extension of time. On the other hand, the extension has the support of the overwhelming majority of creditors and such evidence as there is indicates that on a winding up the return to creditors would be minimal, unless the liquidator was able to bring proceedings in respect of voidable transactions or otherwise and to recover a substantial amount in those proceedings. There is no evidence as to whether there is any reason to believe that such proceedings would be warranted. In their absence, it would seem that the return to creditors is unlikely to exceed one cent in the dollar.
16 It has also been submitted on behalf of the administrator that if the company were now wound up the liquidator could return the company to administration if an acceptable deed of company arrangement was subsequently put forward. Counsel for the plaintiff expressed some reservations about the prospect of that happening in circumstances where, as it was submitted, the administrator now seeks effectively to thwart the resolution of the creditors passed two days ago. I do not think that any inference can be drawn that the liquidator would fail to return the
(Page 8)
- company to administration if circumstances warranted a return to administration.
17 On balance, I consider that the period under s 439B(2) should be extended for a further period of 60 days. The circumstances of this case are somewhat unusual. The delay, in part, has been caused by the action of the administrator in rejecting the proxies at the meeting of 5 November 2005. The extension will reflect the wishes of the overwhelming majority of creditors by number and amount. It is not suggested by counsel for the administrator that those creditors are comprised wholly or in large part of related party creditors. The resolution, passed two days ago, that there be a further extension of time appears to reflect the continuing desire of the majority of independent creditors to attempt to salvage something more than the relatively token amount likely to be available if the winding up of the company proceeds.
18 Although the possible prejudice to creditors in this case may be less than would normally be the case, because an order for winding up has already been made, the prejudice that is put forward on behalf of the administrator is real. On the other hand, the creditors are in a situation where they stand to gain very little out of a winding up unless the liquidator is able subsequently to bring proceedings that result in the recovery of substantial funds for the company. That in turn obviously depends upon the liquidator having the funds to bring proceedings, upon a good cause of action, against a party or parties able to meet any judgment obtained by the liquidator. The administrator has, understandably, told creditors that any assessment of the prospects of recovery must await a detailed investigation.
19 It is plainly important that administrations are completed quickly and in normal circumstances a delay of the magnitude in this case would be an insuperable barrier to a further extension of time. But the prompt completion of an administration is not the ultimate consideration to be applied on an application of this nature. In the end, on such an application the Court must be guided by what in all the circumstances is likely most effectively to promote the objects of Pt 5.3A of the Act. In the somewhat unusual circumstances of this case it seems to me that the interests of justice require a further extension of time to enable the creditors one last opportunity to get a better return than is otherwise likely to be available to them.
20 I would therefore order that the period be extended by a further period of 60 days.
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