SNSH Pty Ltd (ACN 129 607 076) v SNSH as C.J. Reid and Sons

[2010] VSC 660

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

SC I 2010 2038

SNSH PTY LTD (ACN 129 607 076) and GEORGE WESTON FOODS LIMITED	Plaintiffs
v
SNSH trading as C.J. Reid & Sons	Defendant

---

JUDGE:	GARDINER AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	23 June 2010
DATE OF JUDGMENT:	23 June 2010
CASE MAY BE CITED AS:	SNSH Pty Ltd (ACN 129 607 076) & Anor v SNSH as C.J. Reid & Sons
MEDIUM NEUTRAL CITATION:	[2010] VSC 660

---

CORPORATIONS – External administration – Application for winding up in insolvency – Company appoints administrators after first return of winding up application – Whether winding up application should be adjourned until after second meeting of creditors of the company under administration – Whether there was persuasive evidence that it was in the interest of the creditors that company continues under administration rather than be wound up – Application for adjournment granted.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Ms B. Johnston, Solicitor	Rothwell Lawyers
For the Defendant	Mr M. McKillop of Counsel	Yates Beaggi Lawyers

HIS HONOUR:

1. On 1 June 2010, after the first return of the winding-up application commenced by the plaintiff, the defendant went into administration pursuant to Part 5.3A of the Corporations Act (“the Act”) and Blair Pleash and Richard Albarran were appointed as administrators.  I note that when the matter came before the Court on the first return date it was indicated to Associate Justice Efthim that the parties were “negotiating” and an adjournment was sought to 9 June 2010. 

1. When the matter came before me on 9 June, I was informed that administrators had been appointed and that an adjournment of the winding-up application was sought pursuant to section 440A of the Act until after the second meeting of creditors required to be convened under s 439A of the Act.  In support of that application for an adjournment, the administrators relied on an affidavit of Mr Pleash sworn 8 June 2010.  Because I did not consider that the administrators had established to the relevant degree that the Court should be satisfied that it was in the interests of the company’s creditors for the company to continue under administration rather than be wound up, I adjourned the hearing of the winding‑up application until today’s date in order that the administrators could better inform the Court of the position in that regard. 

1. Mr Pleash has sworn an affidavit of 22 June 2010 in support of the application for an adjournment until after the second meeting of creditors, which is due to take place by 7 July 2010.  Mr Pleash indicates in his affidavit that a proposal has been put up by the director of the company, Glenn Christopher Reid whereby the business and undertaking of the company would be purchased by a company with which he is also associated, Open Plains Wholesale Meats Pty Ltd under the terms of a deed of company arrangement (DOCA).  I note that Open Plains Wholesale Meats Pty Ltd was incorporated on 18 May 2010 and Mr Reid became a director of that company on that day, i.e. some two weeks before the company went into administration and after the first return date of the winding-up application. 

1. When the matter was first called on today I requested Mr McKillop, who appeared on behalf of the administrators to obtain instructions as to what the attitude of the major creditors of the company was to the application for the adjournment.  Those major creditors are identified in paragraph 19 of his affidavit of 22 June.  They and the alleged amount of their debts as follows:

Aussie Pork Suppliers Pty Ltd	$1,466,720.58
Pigs and Co Pty Ltd	602,638.66
George Weston Foods Limited (the plaintiff in the winding-up application)	309,788.22
High Stakes Pty Ltd	297,556.00
Riverside Meats	268,644.50

1. There were 66 other unsecured creditors in number whose debts on the information currently available total $1,102,078.54.  The debt mentioned above said to be owing to George Weston Foods Limited is controversial as to its amount, as George Weston Foods Limited contends it is owed some $584,967, being the amount of its statutory demand which is the basis of the winding up application.  Of the major creditors identified above, all consent to the adjournment except George Weston Foods Limited, who opposed the adjournment, and High Steaks Pty Ltd, which has yet to decide its attitude. 

1. Mr McKillop indicated that a combination of their vote as to value is greater than 50% of the total of the amount owed to the unsecured creditors of the company.  It was not possible to say whether or not a majority in number of the creditors will vote in favour of an adjournment until after the meeting of creditors as it was not practicable to ascertain the attitude of the 66 other unsecured creditors who are owed a total of $1,102,078.50. 

1. In paragraph 24 of his affidavit, Mr Pleash sets out a table comparing the estimated return to unsecured creditors in the DOCA and liquidation scenarios based on the assets that have been collected to date and the DOCA proposal.  That table contends that there would be a return of ten cents in the dollar to ordinary unsecured creditors if the company were to enter in a DOCA whereas under a liquidation scenario only two cents per dollar would be available. 

1. In addition, Mr Pleash states that based on his investigations to date, there are no voidable transactions which could be recovered in a liquidation scenario.  Further, he details why he does not consider that proceedings for insolvent trading, which might be theoretically available to be commenced against Mr Reid, are not practicable. 

1. I have considerable misgivings about granting the application for an adjournment because, prima facie, Mr Reid is using the administration provisions to create a “Phoenix” company.  Mr McKillop, counsel for the administrators submitted that there are differences between the usual Phoenix scenario, where creditors usually receive no distribution at all, and the present scenario.  In addition, it has to be said that by the company exposing itself to the administration provisions, it does at least provide for some scrutiny as to the company’s internal affairs.  In addition, if the proposal goes to a creditors’ meeting, it is those most affected by the company’s demise who determine its fate.  If it was not for the fact that the major creditors of the company save for the Plaintiff and one other undecided creditor are apparently content for the winding-up application to be adjourned, I would have seriously considered making a winding-up order today despite the significant difference in the funds available to creditors.  As the authorities considering this section of the Corporations Act state, while the increased dividend under a DOCA proposal is an important element in the exercise of a discretion whether to grant an adjournment, there are other considerations.  The scenario which emerges from Mr Pleash’s affidavits is a very unsatisfactory one.  The company has several very significant creditors.  It is evident from the date that Open Plains Wholesale Meats Pty Ltd was incorporated and Mr Reid became a director that the present scenario was in train before the first return of the winding‑up application on 19 May.  On that occasion when the matter came before the Court it was indicated as I have observed that the parties were negotiating a resolution whereas it appears Mr Reid had put in train the process to put the company into administration. 

1. The second meeting of creditors is required to be held by 7 July.  The matter is finely balanced but I consider that the creditors should be given the opportunity to vote on the proposal for a DOCA.  The evidence indicates that the DOCA scenario will produce a larger dividend than a winding-up.  The evidence in that regard is “persuasive evidence” and my decision in that regard is fortified by the attitude of the major creditors. 

1. In the circumstances, I will adjourn the further hearing of the application to 16 July 2010 at 10.30 am in Court 5 and I will reserve the plaintiff’s costs.

---