Unifor Office Systems Aust Pty Ltd v Brewer Partnership Pty Ltd

[1999] NSWSC 137

Reported Decision: (1999) 17 ACLC 642

New South Wales

Supreme Court

CITATION:	UNIFOR OFFICE SYSTEMS AUST. PTY. LTD. V. BREWER PARTNERSHIP PTY. LTD. [1999] NSWSC 137
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	No. 1157 of 1999
HEARING DATE(S):	2nd March 1999
JUDGMENT DATE:	2 March 1999
PARTIES :	Unifor Office Systems Aust. Pty. Ltd. Ptff Brewer Partnership Pty. Ltd. Def.
JUDGMENT OF:	Hodgson CJinEq

COUNSEL :	Mr. Davidson for plaintiff Ms. K. Davies, Solicitor, for defendant
SOLICITORS:	M. Rosenblum & Co., Sydney for plaintiff Henry Davis York, Sydney for defendant
CATCHWORDS:	CORPORATIONS - Winding up - Administration. After summons for winding up served, company appoints administrators and applies for adjournment. Administrators notify creditors of administration, but not of winding up proceedings, and obtain proxies from 80% of value. HELD that, while weight should be given to views of creditors, less weight could be given to the views of those not asked to choose between administration and winding up; that it was generally in the interests of creditors that an insolvent company be administered by someone not selected by directors; and that the onus of proving administration was in the interests of creditors was not discharged.
ACTS CITED:	Corporations Law s.440A.
DECISION:	See pars.10, 11 and 12 of judgment

4

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

CORAM: HODGSON,CJ IN EQ.

Tuesday 2nd March 1999

NO. 1157 OF 1999
UNIFOR OFFICE SYSTEMS AUSTRALIA PTY. LIMITED V. BREWER PARTNERSHIP PTY. LIMITED

JUDGMENT

1 HIS HONOUR: I am dealing with an application for adjournment of proceedings to wind up the defendant company, on the grounds set out in s.440A(2) of the Corporations Law.
2 In this case, the winding up summons was filed and served on 22nd January this year. On 22nd February this year, two registered liquidators under the Corporations Law, Mr. Lord and Mr. Kerr, were appointed joint and several administrators of the defendant. Accordingly, the first requirement for an adjournment under the provision I have referred to is satisfied, and the question which I have to determine is whether I am satisfied that it is in the interests of the company's creditors for the company to continue under administration.
3 For the company, it has been submitted that the evidence shows that the company has no assets, but that the administrators are negotiating with the previous principals of the company for an arrangement which they say is likely to result in a distribution to creditors of between five and ten cents in the dollar. The administrators have obtained proxies from 80 percent in value of the creditors, and to that extent, the evidence suggests that the administration has the support of those creditors. It is put that the administrators have similar duties to a liquidator to investigate the affairs of the company and to act in the interests of the creditors. In any event, it is put that there is no evidence of any matters which suggest that proceedings by a liquidator or by the administrators against the former principals of the company is likely to yield any benefit for creditors.
4 For the plaintiff, it is submitted that the onus of satisfying the Court that the continuance of the administration is in the interests of creditors has not been satisfied. The plaintiff, with a debt amounting to about 20 percent of the unsecured debts, is the only creditor who has taken an active interest in the matter. Reliance was placed on the long history of the plaintiff's attempts to obtain payment: the obtaining of a District Court judgment in September 1997; the service of a statutory demand on 16th February 1998; the de-registration of the company on 27th February 1998; the obtaining of reinstatement of registration; a further statutory demand served on 23rd October 1998, followed by the summons in these proceedings, followed again by the appointment of the administrators. Reliance was placed on the advantage of having a relation-back period commencing one month earlier. I was referred also to the cases of DCT v. Yates Securities (1998) 26 ACSR 269 and Creevey v. DCT (1996) 19 ACSR 456.
5 I accept the submission that the onus is squarely on the company to satisfy the Court that continuance in administration is in the interests of the creditors. The views of the creditors themselves is of some importance. It seems to me, however, that the views of the 80 percent of creditors relied on for the company must be assessed having regard to the circumstance that, while they were notified of the administration, they were not notified of the pendency of winding up proceedings, and they were not, so far as the evidence goes, squarely given a choice as to whether they preferred administration or winding up. So far as the evidence goes, they were simply advised of administration and, perhaps unsurprisingly, were in those circumstances prepared to give their proxies to the administrators. The one creditor who, on the evidence, plainly does know of the alternatives, plainly is pursuing the winding up alternative.
6 This Court, in winding up proceedings, has acted on a general principle that liquidators should not be chosen by the directors or other principals of the company. It is considered to be in the interests of creditors that someone entirely independent undertake that role. There is no evidence as to the complete independence of the administrators, although it was asserted from the Bar Table that they were independent, and had no prior connection with the company or its principals.
7 Even if this is so, however the selection by directors of the person who is to have the responsibility to investigate possible breaches of the law is against the policy of the Court. That policy is not itself given weight in s.440A; but as I understand it, one basis of the policy is that it is considered in the interests of creditors that someone completely independent have this role. The history of this matter, and the timing of the various steps apparently taken by the directors of the company in response to steps taken by this creditor, give further reasons for being concerned about the directors being able to choose who is to have the responsibility of administering the company.
8 It seems to me there is nothing in the proposal for an arrangement for a small dividend to creditors which suggests that this arrangement could better be negotiated by the administrators than by a liquidator, if this is the best that is available for creditors.
9 For these reasons, I am not satisfied that the requirements of s.440A(2) of the Corporations Law are made out, and I refuse the adjournment. In those circumstances, as I understand it, no other opposition is raised to the making of a winding up order, and I propose to make such an order.
10 I make Orders 1 and 2 in the summons.
11 I order that the defendant pay the plaintiff's costs of the proceedings.
12 I refer the matter to the Registrar for the selection of the liquidator.

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