Soia v Internet Tuition College Pty Ltd (Administrator Appointed) - [2002] WASC 125

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: SOIA & ORS -v- INTERNET TUITION COLLEGE PTY LTD (ADMINISTRATOR APPOINTED) [2002] WASC 125

CORAM: WHITE AUJ

HEARD: 18 APRIL 2002

DELIVERED : 29 MAY 2002

FILE NO/S: COR 205 of 2001

BETWEEN: KIM PETER SOIA
DONNA MARIE L'HERPINIERE
PERSONALIZED TUITION SERVICES PTY LTD
Plaintiffs
AND
INTERNET TUITION COLLEGE PTY LTD (ACN 008 143 917) (ADMINISTRATOR APPOINTED)
Defendant

Catchwords:

Corporations Act - Company under administration - Meeting of creditors to consider adoption of a deed of company arrangement - Majority in number voting against resolution and majority in value voting in favour of the resolution - Chairperson (a nominee of the administrator) giving a casting vote in favour of the resolution - Application to set aside the resolution and to wind up the defendant - Whether appropriate in the circumstances - Turns on own facts

Legislation:

Corporations Act 2001, s 439A(4), s 600A, s 600B and s 600D

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiffs:     Mr K G Robson & Mr G N Galic
Defendant:     Ms E McCloskey
Cityfield Holdings Pty Ltd   :     Mr R W Richardson

Solicitors:

Plaintiffs:     Galic & Co
Defendant:     Tottle Christensen
Cityfield Holdings Pty Ltd   :     Bennett & Co

Case(s) referred to in judgment(s):

Codelfa Construction Pty Ltd v State Railway Authority of New South Wales (1981‑82) 149 CLR 337
Cresvale Far East Ltd v Cresvale Securities Ltd (2001) 37 ACSR 394

Case(s) also cited:

Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 156 FLR 453
Hawkwood Holdings Pty Ltd v Christopher Williamson the Liquidator of Merlino Construction Services Pty Ltd (In Liq) (Receivers & Managers Appointed) [2000] WASC 73
House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 14 ACLC 1536
Jones v Dunkel (1959) 101 CLR 298
Kekatos v Holmark Construction Co Pty Ltd (1995) 13 ACLC 1581
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 72 ALJR 873
R v Bradford Council; Ex parte Corris [1989] 3 All ER 156
Re Imobridge Pty Ltd (In Liq) [2002] 2 Qd R 28
Re Spedley Securities Limited (In Liq) (1992) 9 ACSR 83
Switz Pty Ltd v Glowbind Pty Ltd (No 1) (2001) 19 ACLC 532
Yoemans v Walker (1986) 5 NSWLR 378

WHITE AUJ: The plaintiffs, claiming to be creditors of the defendant, seek orders under s 600A, s 600B or s 600D of the Corporations Act 2001 setting aside a resolution purportedly passed at a meeting of creditors of Internet Tuition College Pty Ltd (ACN 008 143 917) (Administrator Appointed), held pursuant to s 439A(4) of the Corporations Law on Wednesday 20 June 2001, together with an order that the Administrator pay the Applicant's costs of the application.
Specifically, the plaintiffs sought orders that:
"1.1the purported resolution passed at a meeting of creditors of the Defendant made under Section 439A(4) of the Corporations Act on Wednesday 20 June 2001 that the company execute a Deed of Company Arrangement ('DOCA') be set aside; and
1.2the Defendant be wound up under Sections 447A(2)(c), 600A(2)(d), 600B(3)(b) or Regulation 5.3A.07(1) of the Corporations Act.
..."
The grounds upon which the application is based are:
"2.1the resolution was invalidly passed by the presiding chairperson who was not entitled (as she did in this case) to exercise a casting vote in favour of the resolution. See Cresvale Far East Ltd v Cresvale Securities Ltd (2001) 37 ACSR 394 at 415‑418. The Administrator surprisingly relied on a wrong 'IPAA approach', even though Cresvale was already 6 months old: she merely voted with the majority in value of the debt without considering the merits at all. See Affidavit ML Henville p5.;
2.2alternatively the interests of the Plaintiffs as creditors are unfairly prejudiced by the DOCA, which is biased entirely in favour of Mr Martin Lawrence Bennett ('Bennett') and Cityfield Holdings Pty Ltd ('Cityfield'), is manifestly unreasonable and ignores the interest of the Plaintiffs altogether (the terms of the DOCA flying directly in the face of the Shareholders' Agreement made between Bennett and Kim Peter Soia ('Soia')). See affidavit of Soia 22 June 2001 at para: 14.3, p 7, Ex KPS‑5 pp 120‑126."
The application is opposed by the defendant and also by Mr Martin Lawrence Bennett ("Mr Bennett") and Cityfield Holdings Pty Ltd ("Cityfield"), who are interested parties and who were given leave to be heard in opposition to the application. Mr Bennett is a solicitor and principal of the firm of Bennett & Co and Cityfield is a Company under Mr Bennett's control.
The plaintiffs are Kim Peter Soia ("Mr Soia"), Ms Donna Marie L'Herpiniere ("Ms L'Herpiniere") and Personalised Tuition Services Pty Ltd ("PTS"). Mr Soia is an experienced tuition master and PTS is a company controlled by him and which operated a tuition business. Ms L'Herpiniere is Mr Soia's de facto spouse.
In 1999, Mr Bennett and Mr Soia agreed to establish the defendant to operate a tuition business to be conducted on the Internet and they both became directors of the defendant. An equal number of shares in the defendant was allotted to each of Cityfield and Jeneva Holdings Pty Ltd ("Jeneva"), a company under the control of Mr Soia. A written Shareholders' Agreement ("the Agreement") was entered into between Cityfield and Jeneva and dated 29 October 1999.
Clauses 2.2 and 3.1 of the Agreement provided:
"2.2In the day to day operations of the Company Bennett and Soia agree as follows:
(a)Soia shall be in charge of and responsible for the preparation and compilation of the academic material for use by the Company;
(b)Bennett shall be responsible for the legal and administrative affairs relating to the operations of the Company;
Provided that both Bennett and Soia agree that each of Bennett and Soia shall contribute and shall be entitled to contribute in the operation of all areas of the Company's business.
...
3.1The Company is creating valuable intellectual property based upon the experience and expertise of Soia. Accordingly, Bennett and Cityfield acknowledge that:
(a)for the purpose of the operations of the Company there shall be no use of the intellectual material or property being the academic material upon which the business of the Company is based in whatever form without the consent of Soia;
(b)the Company is the owner of all copyright in the intellectual material prepared by the Company and for use by the Company provided that in the event of the Company's business not proceeding for any reason whatsoever including (without limiting the generality of the foregoing) lack of economic success of the business, a disagreement between Cityfield and Jeneva of a fundamental nature or Cityfield disposing of its shares in the Company or otherwise and without the consent of Jeneva then Soia shall have the right to acquire all right, title and property in the intellectual property free from all encumbrances, charges or claims whatsoever and howsoever arising for the sum of $100.00."
An agreement between Mr Bennett and Mr Soia is recorded as follows in a letter written by Mr Bennett to Mr Soia and dated 28 August 2000 in which he said:
"It is worth going back to the fundamentals:
(a)we agreed to pursue this joint endeavour on the basis that having put up the idea, I would provide funding to enable us to pursue the idea; and
(b)having contributed significantly to the idea, you would devote your creative energy and time (together with your years of experience in the tuition industry) to producing the product."
Mr Robson, appearing for the plaintiffs, made submissions at some length in relation to the three drafts of the Agreement which passed between the parties before the engrossment of the Agreement in its final form, but I ruled that evidence of those negotiations was inadmissible in accordance with the decision in Codelfa Construction Pty Ltd v State Railway Authority of New South Wales (1981‑82) 149 CLR 337 at 347, per Mason J.
By his solicitor's Notice of Demand dated 29 September 2000, Mr Soia claimed to be entitled to payment of the sum of $104,243 for outstanding management fees and demanded payment of that sum by Notice dated 29 September 2000. I note that that demand was by Mr Soia and not by Jeneva.
By Notices of the same date, Ms L'Herpiniere demanded payment of the sum of $53,333.00 for outstanding wages and PTS demanded payment of the sum of $21,150.00 for outstanding rental and outgoings on premises situate at 8 Boag Place, Morley.
Mr Bennett responded by letter dated 3 October 2000 denying that the plaintiffs were creditors of the defendant and saying that neither he nor Cityfield would pay the demands.
On 3 October 2000, Mr Soia resigned as a director of the defendant. On 13 December 2000 he served on the defendant a statutory demand for payment of the moneys claimed by him and subsequently, on 22 February 2001, made application to this Court for the winding-up of the defendant. That application was listed to be heard on 28 March 2001 but was adjourned by consent as Mr Soia's solicitors received notice from Mr Giovanni M Carello, of accounting firm PKF, that he had, on 27 March 2001, been appointed Administrator of the defendant.
By a Notice dated 27 March 2001, Mr Carello called a first creditors' meeting of the defendant, which was held on 2 April 2001. Thereafter a further meeting of creditors was held on 20 June 2001, presided over in the absence of Mr Corello, by his nominee, Ms Michelle Lisa Henville. At that meeting, a proposed Deed of Company Arrangement was put to creditors and voted upon. A majority in value but not in number of creditors (namely Cityfield and Accounting Management Services – an entity associated with Mr Bennett) voted in favour of the proposed Deed of Company Arrangement, while a majority in number, but not in value (namely the plaintiffs) voted against the proposed Deed of Company Arrangement. Ms Henville utilised a casting vote in favour of the proposed Deed of Company Arrangement and held that the resolution that the Deed of Company Arrangement be executed by the defendant had therefore been passed at the meeting. It is that resolution that is the subject of the present proceedings.
The proposed Deed of Company Arrangement was in the following terms:
"1.During the term of the proposed Deed:
1.1There shall be a moratorium of the creditors' debts.
1.2The intellectual property assets of the Company are to be recovered and sold.
1.3Cityfield shall:
1.3.1fund the Company's actions to recover its intellectual property;
1.3.2fund the Deed Administrator's remuneration and costs and expenses;
1.3.3take an assignment from the Company of the Lease Agreement with the CBA for plant and equipment.
2.From the proceeds of the sale of the Company's intellectual property assets, the money shall be applied as follows;
2.1the expenses of any recovery action shall be first reimbursed;
2.2the costs and remuneration of the Administrator be next reimbursed;
2.3the costs and remuneration of the Deed Administrator for resolving any proof of debt be next reimbursed;
2.4any priority creditors be next paid;
2.5the balance is distributed to the remaining creditors pari passu.
3.The Deed Administrator shall be entitled to defer calling for proofs of debt until such time as the intellectual property assets of the Company are reviewed and commercially disposed of.
4.In the event that:
4.1the intellectual property assets of the Company are recovered and sold and the proceeds distributed in accordance with this Deed;
4.2within 18 months (or such longer period as the creditors may resolve) the assets are not recovered or sold;
the debts shall be fully extinguished.
5.Cityfield shall meet the costs of the administration and in return therefore shall be issued 1 fully paid ordinary share in the Company.
6.The proposed Deed Administrator shall not have the control of the proceedings to recover the intellectual property assets which control shall vest in Mr ML Bennett and he will conduct that litigation to the exclusion of any other directors of the Company.
7.In respect of the conduct of the litigation, Mr Bennett:
7.1shall cause the prosecution of any action in relation to the intellectual property assets to be proceeded with all due expedition and diligence;
7.2shall not settle, compromise or discontinue any such action without the consent of the Deed Administrator, which consent shall not be unreasonably withheld;
7.3shall cause and so instruct the Company's solicitors to, as reasonably possible, deliver or otherwise communicate, as the case may be to the proposed Deed Administrator;
7.3.1any offer to settle or compromise any such action;
7.3.2any advice given in respect of the prosecution of such action;
7.3.3a copy of all accounts incurred in the prosecution of the action or any agreement in respect to the fees or expenses of the action.
7.4shall provide or cause the Company's solicitors to provide report every month on the progress of any such action to the Deed Administrator.
8.The proposed Deed Administrator is Giovanni Carrello."
As I have indicated, the application is based on the provisions of s 600A, s 600B and s 600D of the Corporations Act 2001. Those sections read as follows:
"SECTION 600A POWERS OF COURT WHERE OUTCOME OF VOTING AT CREDITORS' MEETING DETERMINED BY RELATED ENTITY
600A(1) [Related entity vote affected passing of resolution] Subsection (2) applies where, on the application of a creditor of a company or Part 5.1 body, the Court is satisfied:
(a)that a proposed resolution has been voted on at:
(i)in the case of a company – a meeting of creditors of the company held:
(A)under Part 5.3A or a deed of company arrangement executed by the company; or
(B)in connection with winding up the company; or
(ii)in the case of a Part 5.1 body – a meeting of creditors, or of a class of creditors, of the body held under Part 5.1; and
(b)that, if the vote or votes that a particular related creditor, or particular related creditors, of the company or body cast on the proposed resolution had been disregarded for the purposes of determining whether or not the proposed resolution was passed, the proposed resolution:
(i)if it was in fact passed – would not have been passed; or
(ii)if in fact it was not passed – would have been passed;
or the question would have had to be decided on a casting vote; and
(c)that the passing of the proposed resolution, or the failure to pass it, as the case requires:
(i)is contrary to the interests of the creditors as a whole or of that class of creditors as a whole, as the case may be; or
(ii)has prejudiced, or is reasonably likely to prejudice, the interests of the creditors who voted against the proposed resolution, or for it, as the case may be, to an extent that is unreasonable having regard to:
(A)the benefits resulting to the related creditor, or to some or all of the related creditors, from the resolution, or from the failure to pass the proposed resolution, as the case may be; and
(B)the nature of the relationship between the related creditor and the company or body, or of the respective relationships between the related creditors and the company or body; and
(C)any other relevant matter.
600A(2) [Powers of Court] The Court may make one or more of the following:
(a)if the proposed resolution was passed – an order setting aside the resolution;
(b)an order that the proposed resolution be considered and voted on at a meeting of the creditors of the company or body, or of that class of creditors, as the case may be, convened and held as specified in the order;
(c)an order directing that the related creditor is not, or such of the related creditors as the order specifies are not, entitled to vote on:
(i)the proposed resolution; or
(ii)a resolution to amend or vary the proposed resolution;
(d)such other orders as the Court thinks necessary.
600A(3) ['related creditor'] In this section:
related creditor, in relation to a company or Part 5.1 body, in relation to a vote, means a person who, when the vote was cast, was a related entity, and a creditor, of the company or body.
SECTION 600B REVIEW BY COURT OF RESOLUTION OF CREDITORS PASSED ON CASTING VOTE OF PERSON PRESIDING AT MEETING
600B(1) [Resolution passed on casting vote] This section applies if, because the person presiding at the meeting exercises a casting vote, a resolution is passed at a meeting of creditors of a company held:
(a)under Part 5.3A or a deed of company arrangement executed by the company; or
(b)in connection with winding up the company.
600B(2) [Application to set aside resolution] A person may apply to the Court for an order setting aside or varying the resolution, but only if:
(a)the person voted against the resolution in some capacity (even if the person voted for the resolution in another capacity); or
(b)a person voted against the resolution on the first‑mentioned person's behalf.
600B(3) [Court may set aside or vary resolution] On an application, the Court may:
(a)by order set aside or vary the resolution; and
(b)if it does so – make such further orders, and give such directions, as it thinks necessary.
600B(4) [Effect of varied resolution] On and after the making of an order varying the resolution, the resolution has effect as varied by the order.
...
SECTION 600D INTERIM ORDER ON APPLICATION UNDER SECTION 600A, 600B OR 600C
600D(1) [Interim order] Where:
(a)an application under subsection 600A(1), 600B(2) or 600C(2) has not yet been determined; and
(b)the Court is of the opinion that it is desirable to do so;
the Court may make such interim orders as it thinks appropriate.
600D(2) [Time limit on interim order] An interim order must be expressed to apply until the application is determined, but may be varied or discharged."
Mr Soia's real complaint appears to be that he would like to avoid being sued by the defendant for "recovery" (as it is termed) of the defendant's intellectual property which Mr Soia claimed pursuant to cl 3 of the Shareholders' Agreement. While one can understand that attitude, it would appear that Mr Soia's objection is made in his personal capacity and not as a creditor. A successful action against him for "recovery" of the intellectual property would cause him loss, but would benefit the other creditors of the defendant. (I express no view as to the prospects of success of such an action which is, on its face, incompatible with the provisions of the Shareholders' Agreement between Cityfield and Jeneva.)
The plaintiffs submit that the Deed of Company Arrangement is prejudicial to them and advance several reasons in support of that submission, namely:
"24.The proposed treatment of the intellectual property assets by the DOCA in terms of recovering and selling the same flies directly in the face of Soia's exercise of rights conferred under clause 3.1(b) of the Shareholders' Agreement to acquire the intellectual property assets.
25.The DOCA has numerous other fatal flaws about it:
25.1it is not clear from the terms of the DOCA just how it is proposed to take action to recover the intellectual property assets (which in any event belong to Soia) and accordingly are not realisable. The Shareholders' Agreement cannot be an uncommercial transaction under Section 588FB because ITC was not a party to it (Soia's intellectual property was never 'vended into' ITC in the first place);
25.2Similarly there is no factual support for the proposition made by the Administrator in his first report that the Shareholders' Agreement represents a voidable transaction under Section 588FE (for example, there is no basis for asserting the necessary pre‑condition that ITC was insolvent at the time of the supposed transaction, ie when the Shareholders Agreement was executed).
25.3the Administrator concedes (and for good reason) in his second report that:
'a legal action to recover the intellectual property assets for the company will be difficult.'
It would be impossible to recover the intellectual property assets in this case and such action would be a fruitless wasted exercise if not an abuse of process.
25.4Under the terms of the DOCA, failure to recover and sell the intellectual property assets within eighteen (18) months (or such longer period as the creditors may resolve) results in the full extinguishment of the debts owed by ITC to Soia himself, Soia's defacto wife Ms Donna L'Herpiniere and Soia's private tuition company PTS. (See clause 4).
25.5It is also an abdication of the Administrator's duty for him to divest himself (as he has done in this case) of the control of any such proceedings (to recover the intellectual property assets) in favour of one of two competing shareholders; Mr Bennett in this case being authorised by the DOCA to conduct the litigation to the exclusion of any other directors (of which there are none but Mr Bennett himself).
25.6The so‑called 'meeting of creditors' on 20 June 2001 was to all intents and purposes a contest between the original two shareholders of ITC and/or their related/associated entities because all unrelated creditors (or in this case employee entitlements) were satisfied by Mr Bennett (or his related entity) prior to the Administrator's appointment. The CBFC did not participate in and was not represented at the meeting. A DOCA is not intended to settle a civil dispute between two competing and equal shareholders who happen to be creditors (or claim to be creditors in the case of Cityfield), the two competing groups in this case being:
(a)the Bennett Parties, represented by:
·Cityfield; and
·Accounting Management Services Pty Ltd ('AMS'), a Bennett related company. See affidavit of Soia 2 July 2001 para: 10 (note that the purported 'accounts', unsigned, that the Administrator exhibits were prepared by AMS); and
(b)the Soia Parties, represented by the Plaintiffs:
·Kim Peter Soia;
·Donna L'Herpiniere; and
·Personalised Tuition Services Pty Ltd ('PTS').
25.7It is also not apparent from the DOCA just how Cityfield could take control of the recovery action without an assignment by ITC to Cityfield. (See clause 6). A liquidator would have the power to sell (not give away) a cause of action under Section 477(2)(c) but only with the approval of creditors (which is not what happened here). Here the creditors (or Soia parties) receive no benefit whatsoever and further, Cityfield obtains control of ITC (via an extra share) and becomes a priority creditor ahead of Soia. (See clause 5).
25.8The purported share issue is itself beyond power and improper. See Cresvale at [209] – [212] and [218] – [224].
25.9Further, neither Bennett nor the Administrator is able to place any value on the intellectual property assets, which in any case are not realisable. See Affidavit of ML Henville, pp16‑17. In the circumstances, the Court is entitled to infer that the practical effect of the DOCA will be to extinguish ITC's debt to Soia and his related parties and to finalise the affairs of ITC without any proper inquiry or investigation into the affairs of ITC to determine if any breaches of law were committed by directors. See Cresvale at [136]. Note that here, the Administrator gave no reason at all for voting in favour of the resolution. Compare Cresvale at [142]. This means that her vote must be ignored and the resolution must now be declared to have been lost.
26.Note that the Administrator found (in his first report) that the company was insolvent and recommended that it be wound up and expressly recommended against a DOCA as not being in the best interests of Creditors. See affidavit of Soia 22 June 2001 Ex KPS‑14, pp 150‑184 at 162. There are no reasons put forward for this 180 degree reversal of opinion.
27.The effect of the DOCA is to:
27.1unjustly compel Soia to defend his right to the legal ownership of his intellectual property (which is unassailable on its face) and by successfully doing so he will only succeed in extinguishing ITC's liability to pay him the outstanding management fees of $104,243.00;
27.2effectively preclude any action ever being taken against Mr Bennett by ITC to recover the unpaid management fees."

In relation to the casting vote by Ms Henville, the plaintiffs submit:
"28.The resolution (poll demanded) in this case required a majority of creditors in both number and value – See Regulation 5.6.21. In this case the dollar majority in value (the Bennett parties) voted in favour of the resolution with the numerical majority (the Soia Parties) voting against.
29.Even if the Administrator did have the power to exercise a casting vote (which is denied) it is not a bona fide exercise of such discretion if its practical effect would be to give effect to the improper purpose of resolving what is in effect a civil dispute between two shareholders with obviously competing interests at stake."
In relation to the matters set out in par 24 of the plaintiffs' submissions, which are set out above, I am of the opinion that there is no evidence to suggest that Mr Soia transferred to the defendant any of his interests in the intellectual property which he owned prior to the execution of the Shareholders' Agreement. Furthermore, it seems clear that the intellectual property which Mr Soia thereafter developed as a director and employee of the defendant is (or was) the property of the defendant, subject to Mr Soia's rights under the Shareholders' Agreement. Mr Soia has purported to exercise his rights to acquire the defendant's intellectual property developed by him in accordance with the Shareholders' Agreement. The question of the extent, if any, to which the defendant might be obliged to give effect to the Shareholders' Agreement was not argued before me and I make no finding as to that question. One may imagine that certain difficulties could be experienced in this regard.
In relation to the complaint in par 25 of the plaintiffs' submissions, I am not persuaded that the matters in pars 25.1 to 25.3 constitute "fatal flaws" in the Deed. The fact that there are difficulties in the way of the proposed action is not in dispute.
As to par 25.4, the complaint seems to overlook the fact that the defendant is insolvent and, without the realisation of the intellectual property, the subject of the proposed action, the defendant will have no funds with which to pay its creditors, so that the claims referred to would in any event not be paid.
I do not think that the complaint in par 25.5 is valid – the defendant cannot itself (whether by an Administrator or a liquidator) fund the proposed action. Accordingly, unless the action is instituted in accordance with the Deed, it will not be instituted at all.
As to par 25.6, the fact is that the parties concerned are apparently creditors and have been so dealt with. In fact, the shareholders of the defendant are Cityfield and Jeneva and accordingly, Accounting Management Services Pty Ltd, Mr Soia, Ms Donna L'Herpiniere and Personalised Tuition Services Pty Ltd, while they are creditors, are not shareholders in the defendant. Accordingly, I do not accept the submission that Part 5.3A of the Act has no application.
The matter raised in par 25.7 is not one with which it is necessary for me to deal – it is a problem for Cityfield, as I see it and does not concern the issues now before me.
As to par 25.8, the passages in Cresvale Far East Ltd v Cresvale Securities Ltd (2001) 37 ACSR 394 upon which the plaintiffs rely read as follows:
"[209] The powers of a deed administrator derive from the Corporations Law and the deed of company arrangement. The deed must specify the matters listed in s 444A(4), but the list does not include the powers of the administrator. The deed is also taken to include the prescribed provisions, except so far as it provides otherwise: s 444A(5). The prescribed provisions are set out in Sch 8A cl 2 of which is a long list of administrators' powers. Clause 2 is not excluded by the DCA. The list in cl 2 does not include the power to allot and issue shares, although there is a power 'to enter into and complete any contract for the sale of shares in the company': cl 2(zc).
[210]     In my opinion, a power to allot and issue shares cannot be extracted from cl 2(zc). The clause does not purport to give the administrator authority to perform the corporate act of issuing shares, but only to enter into and complete a contract. The contract is for the sale of shares rather than for the creation of new shares by allotment and issue. Thus, cl 2(zc) permits the administrator to dispose of any shares forfeited to the company under its constitution, for the purpose of administering the deed. Literally, it also authorises the administrator to sell and dispose of shares belonging to a shareholder, in which the company has no proprietary interest. If, therefore, shareholders consent to the disposal of their shares in accordance with the terms of a deed, the administrator has the power to enter into and complete the contracts by which the shares are disposed of. It may be much more convenient for the administrator to do so, than to have a separate contract made by each shareholder.
[211]     It seems, however, that the administrator cannot rely on cl 2(zc) to bind a shareholder to the sale of his or her shares, if the shareholder disagrees or is absent. In Mulvaney v Wintulich (unreported, Fed C of A, O'Loughlin J, SG 3184 of 1995, 29 September 1995, BC9507148); for later proceedings before Branson J, see (1995) 18 ACSR 384, a provision of a deed of company arrangement required certain shareholders to transfer their shares for a nominal consideration. It was contended that dissenting shareholders were bound by this provision under s 444G, according to which a deed of company arrangement binds, inter alios, the members. O'Loughlin J rejected that submission, saying that s 444G had a more limited operation, and could not be used to force a dissenting shareholder to do something to his or her detriment, such as confiscation of his or her shares for no adequate consideration.
[212]     Thus, cl 2(zc) has quite a restricted field of operation. It certainly does not authorise a deed administrator to allot and issue new shares against the wishes of the existing shareholders. The administrator has no other power to do so. It is not necessary for me to consider whether, if the administrator had the power to allot and issue shares to Mr Kirwan, either under cl 2(zc) or otherwise. Capital would not be bound by the new issue because of the limited operation of s 444G."
However, it is relevant to cite also the passage in par [215] of Cresvale, where Austin J says:
"In my opinion, the power of the company to allot and issue shares, and the authority of the directors to exercise that power under typical provisions of the constitution of the company, are not necessarily extinguished or suspended when the company is subject to a deed of company arrangement. The power is still there, but the company and its officers are bound by the deed under s 444G. The directors are bound not to use the power inconsistently with the terms of the deed and the arrangement which it reflects, and a use of the power which undermines the arrangement approved by creditors might amount to an exercise of the power for an improper purpose. But at least on some occasions, the power can be used to allot and issue shares validly."
With respect, I adopt his Honour's remarks and conclude that the submission in par 25.8 of the plaintiffs' submissions is not made out.
As to par 25.9, the fact that neither Mr Bennett nor the administrator was able to place a specific value on the intellectual property does not necessarily mean that it has no value. It is reasonable to suppose, from the fact that it appears that there is a desire to recover and to sell the intellectual property which is manifested in the deed, that the intellectual property is believed to have some significant value, at this stage unidentified. Mr Robson criticised Ms Henville's reasons for casting her vote as she did submitting that she had acted in reliance with a guideline of the Insolvency Practitioners Association of Australia (IPAA) which the decision in Cresvale (supra), par 114, indicates is of doubtful validity. As her report shows, Ms Henville referred to a guideline issued by IPAA which stated that in situations where a deadlock exists in the voting and the chairperson elects to cast a deciding vote, the chairperson should have regard to the wishes of the creditors with the greatest pecuniary interest. Cityfield was the largest creditor and had voted in favour of the resolution. However, her report indicates that Ms Henville gave her casting vote in favour of the resolution, based on the recommendation of the Administrator's report.
It is therefore incorrect to say that Ms Henville gave no reason at all for voting in favour of the resolution.
The matters set out in pars 26 ‑ 29 of the plaintiffs' submissions are not, in my opinion, matters which should result in the resolution being set aside by me. I cannot at this stage conclude that it would be unjust to compel Mr Soia to defend a claim in relation to the intellectual property and I have pointed out above that fact that the defendant is insolvent so that Mr Soia's claim as a creditor of the defendant cannot be met from the defendant's current assets. The contention in par 27.2 ignores the issue of the Shareholders' Agreement and any rights Jeneva may have thereunder. It is not apparent as to the legal basis upon which the defendant has any claim against Mr Bennett to recover the unpaid management fees. As to par 28, the contention as to the requirement under Reg 5.6.21 is not in dispute – it is in fact the reason for the requirement of a casting vote. I do not think that par 29 of the plaintiffs' submissions is a correct statement of the position.
Mr Robson contended that Cityfield is not a creditor of the defendant, save to the extent of some $80,000.00. As to the balance of its alleged claims, he contended that the monies in question constituted equity funding. He accepted that there is no evidence which establishes that position but submitted that I could infer from the absence of any written evidence that the funds were a loan and from the fact that Mr Bennett is an experienced commercial lawyer that the moneys constituted equity funding. However, in the absence of any evidence that Mr Bennett was acquiring shares in exchange for the moneys and in the light of the agreement between Mr Soia and Mr Bennett that they would be equal shareholders in the defendant, I do not find that the moneys put up by Mr Bennett were other than loans to the defendant. It is relevant, in this regard, to point out the express provisions of cl 2.1(a) of the Shareholders' Agreement, namely:
"(a) Cityfield and Jeneva shall equally hold shares in the Company."
There is no evidence of that provision having been varied at any time.
In reviewing the validity of a resolution passed as a result of the exercise of a casting vote, Austin J in Cresvale (supra), said at par [111]:
"[111] In my opinion, the court's power under s 600B, to set aside or vary a resolution passed because of the exercise of the casting vote, permits it to review the administrator's reasons for the exercise of the casting vote. The court need not confine itself to the question whether the administrator has acted honestly as chairman, because it is given a specific statutory power to hear an application to set aside or vary the resolution. As Santow J said in Re Martco Engineering, the court does not automatically accept the (honest) exercise of the casting vote as an appropriate one. The court's attitude will 'depend on factors such as whether the administrator has properly exercised the casting vote in the interests of creditors as a whole, such as in circumstances where the vote or votes which prevent one of the two conditions being fulfilled [approved by numerical majority and by value of debts] would represent an outcome unfair to the remaining creditors if not reversed by a casting vote': at 489."
In all the circumstances, I am not persuaded that it would be appropriate to grant the relief sought by the plaintiffs.
Accordingly, the plaintiffs' application is dismissed.