Vero Insurance Ltd v Kassem

[2010] NSWSC 838

Reported Decision: 79 ACSR 330

New South Wales

Supreme Court

CITATION:	Vero Insurance Ltd v Kassem [2010] NSWSC 838
HEARING DATE(S):	22/06/10, 23/06/10
JUDGMENT DATE :	30 July 2010
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Short minutes to be brought in.
CATCHWORDS:	CORPORATIONS - voluntary administration - meeting of creditors - party with unliquidated equitable claim - whether creditor for voting purposes - need for "just estimate" of amount of claim - where the party's assertion of right to recover is contradicted by solicitors' letter saying claim not maintainable - "just estimate" can be nominal only - function of chairperson in making "just estimate" - adjournment of meeting - where chairperson finds proxy invalid - whether chairperson should have adjourned meeting to give opportunity to repair proxy - no unilateral power of chairperson to adjourn - proxies - proxy purportedly given by company signed by person designated "executive manager" - chairperson given nothing to show actual authority of "executive manager" - manner of execution not attracting entitlement to make statutory assumptions - proxy correctly rejected
LEGISLATION CITED:	Corporations Act 2001 (Cth), Part 5.3A, ss 127, 128, 129(5), 250D, 439A, 439B, 445D, 1321 Corporations Regulations 2001 (Cth), Schedule 2, Form 532, regulations 5.6.18(1) and (2), 5.6.21(1), 5.6.21(2), 5.6.21(4), 5.6.23, 5.6.26(1), 5.6.28, 5.6.29 Home Building Act 1989, s 18E
CATEGORY:	Principal judgment
CASES CITED:	Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd [2006] NSWSC 560; (2006) 58 ACSR 22 Byng v London Life Association Ltd [1990] Ch 170 Campbell v Australian Mutual Provident Society (1906) 7 SR (NSW) 99 Colonial Gold Reef Ltd v Free State Rand Ltd [1914] 1 Ch 382 McKerlie v Drillsearch Energy Ltd [2009] NSWSC 488; (2009) 74 NSWLR 673 Re Bosnjak Holdings Pty Ltd [2005] NSWSC 527; (2005) 23 ACLC 1285 Re John L O’Brien Consolidated Industries Pty Ltd (1975) 1 ACLR 311 Re NRMA Ltd [2000] NSWSC 82; (2000) 33 ACSR 594 Re Vouris; Epromotions Australia Pty Ltd v Relectronic-Remech Pty Ltd [2003] NSWSC 702; (2003) 177 FLR 289 Salisbury Gold Mining Co Ltd v Hathorn [1897] AC 268 Selim v McGrath [2003] NSWSC 927; (2003) 47 ACSR 537 Stoughton v Reynolds (1735) 2 Stra 1045; 93 ER 1023 Vero Insurance Ltd v Nicejade Pty Ltd [2010] NSWSC 556
PARTIES:	Vero Insurance Limited - Plaintiff Ozem Azzam Kassem and Andrew James Barnden as Joint Administrators of Ungul Properties Pty Ltd - First Defendants Ungul Properties Pty Ltd - Second Defendant
FILE NUMBER(S):	SC 2009/289555
COUNSEL:	Mr S D Robb QC/Mr A Lo Surdo - Plaintiff Mr A P Spencer - First Defendants Mr C M Harris SC - Second Defendant
SOLICITORS:	Mills Oakley Lawyers - Plaintiff Leonard Legal - First Defendants Colin Biggers & Paisley - Second Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

FRIDAY 30 JULY 2010

2009/289555 VERO INSURANCE LTD v OZEM AZZAM KASSEM & ORS

JUDGMENT

The proceedings

1 The plaintiff (”Vero”) attacks a deed of company arrangement executed by the second defendant (“Ungul”) on 11 June 2009. The first defendants, Mr Kassem and Mr Barnden, are the administrators of the deed of company arrangement.

2 The principal orders Vero seeks are, first, an order pursuant to s 1321 of the Corporations Act 2001 (Cth) reversing a decision of Mr Barnden rejecting a proxy sought to be relied on by Vero at the meeting of creditors of Ungul at which it was resolved that the deed of company arrangement be executed and, second, an order pursuant to s 445D of that Act terminating the deed of company arrangement.

The facts in brief

3 The basic facts are uncontroversial. The second meeting of creditors in the Part 5.3A administration of Ungul took place on 11 June 2009. Six creditors were present by proxy. Of these, four were associated with Ungul or its directors, the fifth was a firm of solicitors which had provided services to Ungul and the sixth was a firm of accountants which had provided services to Ungul. The six creditors voted unanimously in favour of the proposed resolution that the deed of company arrangement be executed. The creditors and the amounts for which they were recognised for voting purposes are:

Warburtons Chartered Accountants	$ 825 . 00
United Pacific Properties Pty Ltd	10,450 . 00
Colin Biggers & Paisely	18,521 . 00
M J Pursche	2,500 . 00
W A Pursche	30,000 . 00
R J Burton	2,500 . 00

4 Mr Barnden, one of the administrators, was the chairman of the meeting.

5 Vero which, at the time, considered itself to be a creditor of Ungul (and still does so) tendered a form of proxy in favour of its employee, Ms Montgomery, with a view to her attending the meeting on its behalf and exercising its voting power. The chairman rejected Vero’s proxy in favour of Ms Montgomery, ruling that it was not properly executed. The meeting therefore proceeded to business without participation, in any formal sense, by Ms Montgomery, although both she and Vero’s solicitor, Mr Jurdeczka, were physically in attendance as “observers” and spoke at the meeting.

6 The question whether there should be an adjournment to allow Vero an opportunity to prepare another instrument of proxy was discussed at the meeting. There was, however, no motion or other formal step taken towards adjournment; nor was the meeting adjourned.

The contentions

7 The basic contentions of Vero are that the proxy in favour of Ms Montgomery was regular and valid on its face and that Mr Barnden, as chairman, should not have rejected it; alternatively, that Mr Barnden should have adjourned the meeting to enable Vero to prepare another instrument of proxy.

8 Mr Barnden and Mr Kassem, although having filed defences, took no part in the hearing. They were, at their request, given leave to withdraw. As a result, no evidence was received from them. Ungul, however, did participate and opposed the grant of the relief sought by Vero.

9 Ungul’s basic contentions are, first, that Vero’s proxy was correctly rejected; second, that it was not open to Mr Barnden, as chairman, to adjourn the meeting in the way that Vero says he should have; and, third, that, in any event, Vero either was not a creditor entitled to attend and vote at the meeting or, if a creditor, would properly have been recognised as entitled to vote, as to value, for a nominal sum only.

10 Ungul further says that, if the true position is that Vero should have participated in the meeting as a creditor entitled to vote for a nominal sum only, the result of the voting would not have been different, even assuming that Vero had voted against the execution of the deed of company arrangement; whereas if Vero had participated as a creditor entitled to vote for the full amount of its claim ($794,012.80), the result would have been a majority by number in favour of the deed of company arrangement proposal and a majority by value against, whereupon the chairman’s casting vote would have become exercisable under regulation 5.6.21(4) of the Corporations Regulations 2001 (Cth). In that eventuality, Ungul says, the chairman would have exercised the casting vote in favour of execution of the deed, so that the ultimate result would have been the same as that which in fact emerged. A finding that Mr Barnden, as chairman, would have supported the deed proposal is, Ungul says, warranted by evidence of what was said by the chairman at the meeting about any exercise of the casting vote.

Vero’s creditor status

11 In the light of the competing contentions, it is desirable that the issues concerning Vero’s creditor status be considered first. If it is seen that Vero was not a creditor, there will be no need for the other matters to be addressed (added to which it will be clear that Vero lacks standing to bring these proceedings). If the true position is that Vero was a creditor but that the correct course would have been for it to be recognised for voting purposes for a nominal sum only, the result will be that participation by Vero and effective casting of its vote against the deed of company arrangement would not have changed the result that in fact emerged. Only if Vero should have been recognised as a creditor for the claimed $794,012.80 or some other substantial amount will it be relevant to consider the questions concerning the validity of the Vero proxy and adjournment of the meeting.

12 Vero’s view that it was (and is) a creditor of Ungul comes, in an immediate sense, from the fact that Vero wrote home warranty insurance under the Home Building Act 1989 in relation to the construction of home units at Blue Bay and paid a claim under the insurance. Ungul was the developer of the property. The builder was Lusted Pty Ltd. Upon the registration of the strata plan, the home units vested in Ungul and the common property vested in the newly constituted owners corporation. The building was affected by water penetration said to be attributable to faulty workmanship by Lusted. Under the legislation, Ungul was liable to the owners corporation for the same warranties as Lusted. In due course, the owners corporation and the individual lot owners sued Vero as insurer. Those proceedings were compromised on the basis of payments by Vero to the owners corporation and the lot owners of $808,621.70.

13 Proceedings were later commenced against Ungul. The plaintiffs named in those proceedings are the owners corporation and the lot owners. They claim, as against Ungul, breach of the statutory warranties. The owners corporation and the lot owners are, however, suing at the instigation of Vero which, having made payments to the owners corporation and the lot owners as just mentioned, considers itself to be subrogated to their rights against Ungul.

14 Vero’s claim to be a creditor of Ungul is thus, in effect, based on a combination of what is regarded as a right at law on the part of the owners corporation and the lot owners to sue Ungul for breach of statutory warranties and a right of Vero in equity to stand in the shoes of the owners corporation and the lot owners in respect of recovery as against Ungul.

15 The claim of Vero against Ungul may therefore be described, in a general sense, as an unliquidated equitable claim. It is unliquidated because it is a claim for damages for breach of warranty. It is equitable because Vero cannot, at law, sue in its own name and is compelled to sue in the names of the owners corporation and the lot owners.

16 In the part 5.3A context, creditor status is broadly understood. It was said in Selim v McGrath [2003] NSWSC 927; (2003) 47 ACSR 537 at [68]:

“In summary, therefore, ‘creditors’, for the purposes of a s 439A meeting of creditors in a voluntary administration are all persons who have, as against the company concerned, ‘debts’ or ‘claims’ provable in a winding up. The boundaries are therefore those set by s 553(1) which refers to ‘all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages) …’.”

17 Consistently with this, it has been held that a beneficial holder of convertible notes (that is, a person on whose behalf a registered holder holds the notes) is an equitable creditor to whom a prospective debt is owed, the prospective element coming from the circumstances that a right actually to be paid does not arise until some relevant event of default occurs: Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd [2006] NSWSC 560; (2006) 58 ACSR 22.

18 In the present case, there is clearly a claim, being the claim pursued in the proceedings commenced against Ungul in the names of the owners corporation and the unit owners. It has an element of prospectivity to it in that an adjudication favourable to the success of the claim has not been made. And Vero is beneficially entitled to it because of its subrogation rights. That is sufficient, in my view, to make Vero a creditor of Ungul for Part 5.3A purposes.

The need for a “just estimate”

19 The circumstances are, however, such as clearly to bring into play regulation 5.6.23(2) of the Corporations Regulations. It is convenient, at this point, to set out regulation 5.6.23 in full:

“(1) A person is not entitled to vote as a creditor at a meeting of creditors unless:
(a) his or her debt or claim has been admitted wholly or in part by the liquidator or administrator of a company under administration or of a deed of company arrangement; or
(b) he or she has lodged, with the chairperson of the meeting or with the person named in the notice convening the meeting as the person who may receive particulars of the debt or claim:
(i) those particulars; or
(ii) if required — a formal proof of the debt or claim.

(2) A creditor must not vote in respect of:
(a) an unliquidated debt; or
(b) a contingent debt; or
(c) an unliquidated or a contingent claim; or
(d) a debt the value of which is not established;
unless a just estimate of its value has been made.

(3) A creditor must not vote in respect of:
(a) a debt or a claim on or secured by:
(i) a bill of exchange; or
(ii) a promissory note; or
(iii) any other negotiable instrument or security;
held by the creditor unless he or she is willing:
(b) to treat the liability to him or her on the instrument or security of a prescribed person as a security in his or her hands; or
(c) to estimate its value; and
(d) for the purposes of voting (but not for the purposes of dividend), to deduct it from his or her debt or claim.

(4) For paragraph 5.6.23 (3) (b), a prescribed person is a person whose liability is mentioned in paragraph 5.6.23 (3) (a) who:
(a) is liable to the company directly; or
(b) may be liable to the company on the default of another person with respect to the liability;
at the time of voting, but who is not:
(c) an insolvent under administration; or
(d) a person against whom a winding up order is in force.”

20 Vero’s claim is of the kind dealt with in regulation 5.6.23(2)(c). It therefore could not have been used as a basis for voting by Vero unless and until the “just estimate” required by regulation 5.6.23(2) had been made.

Vero’s proof of debt

21 I digress, at this point, to consider what actually happened regarding proof of Vero’s claim.

22 On 21 May 2009, Vero’s solicitor sent to the administrators of Ungul a proof of debt signed by him on Vero’s behalf. The debt or claim was described as follows:

“

DATE	CONSIDERATION	AMOUNT	REMARKS (include voucher substantiating payment)
20/5/2009	Indemnity of $808,621.70 paid by Vero Insurance Limited under 7 certificates of insurance issued pursuant to Part 6 of the Home Building Act 1989 (NSW) in relation to the construction of 7 strata units at 120-122 Ocean Parade, Blue Bay by Lusted Pty Ltd on behalf of Ungul Properties Pty Ltd, less an amount of $100,113.80 received by way of dividend from the Liquidation of Lusted Pty Ltd, plus legal and expert costs of $85,504.90 incurred in pursuing a recovery against Ungul Properties Pty Ltd including in Supreme Court proceedings (File No. 55074 of 2007) “	$794.012.80	See attached schedule and documents

23 It will thus be seen that the sum claimed was the $808,631.70 paid by Vero to the owners corporation and the lot owners, less $100,113.80 recovered in the winding up of Lusted, plus legal costs (which, it needs to be said, had been neither ordered nor assessed) incurred in pursuing the proceedings against Ungul in the names of the owners corporation and the lot owners.

24 The solicitor’s covering letter asked the administrators to indicate whether the proof was accepted. On 1 June 2009, Vero’s solicitor forwarded particulars of the amounts claimed for legal costs. Mr Kassem, one of the administrators, wrote to Vero’s solicitor on 10 June 2009 as follows:

“Based on the information contained in your client’s proof of debt, for the sum of $794,012.80, and your further letter dated 1 June 2009, your client’s claim will be admitted in full for the purposes of any distributions paid to unsecured creditors in this matter. However, in the event that further information becomes available in relation to your client’s claim, the Administrators reserve the right to re-adjudicate on the proof of debt.”

25 It is clear that there had, at that point, been, in the administrators’ view, an “adjudication” of the proof of debt of 21 May 2009 and that it had been found to be such that it would be admitted in full for distribution purposes. This indication was clearly as to the future (“will be admitted in full”), which is not surprising when it is noticed that the positive indication was “for the purposes of any distributions paid to unsecured creditors in this matter”. There would (and could) be no such distributions unless and until the then extant voluntary administration was superseded by either winding up or a deed of company arrangement.

26 For present purposes, three points of relevance emerge from this correspondence: first, that the positive message in Mr Kassem’s letter of 10 June 2009 related to any future distributions only; second, that the possibility of a need in the future to “re-adjudicate on the proof of debt” was recognised; and third, the letter said nothing about admission for voting purposes.

27 This leads to a consideration of aspect of the processes envisaged by regulation 5.6.23 and allied provisions.

The “just estimate” and related processes

28 As I have said, Vero’s claim could not have been used as a basis for voting by Vero unless and until a “just estimate” of it had been made pursuant to regulation 5.6.23(2). It seems that it is the chairperson of the meeting who must make the “just estimate” (see Selim v McGrath (above) at [100]) and, in so doing, assess the likely loss to the creditor in respect of the particular liability of the company. An allied function given explicitly to the chairperson is that of admitting or rejecting “a proof of debt or claim for the purposes of voting”: regulation 5.6.26(1). These two functions of the chairperson are quite distinct from the function of the administrator under regulation 5.6.23(1)(a).

29 The chairperson’s functions under regulation 5.6.26(1) and regulation 5.6.23(2) have to be performed in relation to the meeting chaired by him or her. The necessary decision-making therefore becomes necessary in the particular context existing at the time of the meeting. And given that context, the chairperson is required to act fairly quickly on the basis of what is produced: see Selim v McGrath (above) at [104].

30 Mr Barnden was the chairman of the meeting of 11 June 2009. He did not admit any proof of debt of Vero “for the purposes of voting”; nor did he make a “just estimate” of Vero’s unliquidated and contingent claim. This is because he had already decided that Vero’s purported proxy was invalid. Had he proceeded to the task of making a “just estimate”, Mr Barnden would have had regard to matters to which he in fact referred in discussion with Vero’s solicitor, Mr Jurdeczka, and Mr Harkin of Ungul.

31 Mr Jurdeczka gave evidence that, before the meeting started, Mr Barnden said words to the effect:

“Colin Biggers & Paisley wrote to the Administrator regarding the previous Supreme Court proceedings brought against the company, which was received yesterday afternoon.”

32 According to Mr Jurdeczka, Mr Harkin said words to the effect:

“Colin Biggers & Paisley Lawyers acted previously in the Supreme Court proceedings brought by Vero against the company. We say there were significant arguments as to liability, and the claim was an un-liquidated one. As such, there are issues as to the admission of the Proof of Debt currently lodged by Vero. However, we do not object to the admission of the Proof of Debt for the purposes of voting with a value of one dollar.”

33 Mr Jurdeczka says that Mr Barnden then said words to the effect:

“I note that my letter accepting the Proof of Debt indicated that it was based upon the evidence at that time. I will have to consider this further evidence, and decide whether or not the Proof of Debt will be accepted and upon what basis.”

34 The letter from Colin Biggers & Paisley to which reference is here made is a letter of 10 June 2009 addressed to Mr Barnden which outlined “concerns regarding the admittance of the Vero claim for the amount sought” (stated as $794,012.80). The “concerns” were, in brief, that:

(a) the claim was statute-barred by operation of s 18E of the Home Building Act under which proceedings for breach of statutory warranty must be commenced within seven years after completion of the work to which it relates;
(b) the claim was defeated by circuity – a matter explained by reference to an earlier letter stating that it “is well established that where a defendant is insured by the insurer in respect of a loss the action will be defeated because of circuity: see Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127 and Placer v Dyno [1999] NSWSC 1292 at [162] and [164].”

35 Certain documents said to support these propositions were enclosed with the letter.

36 Mr Barnden, as I have said, did not in fact make any estimate of Vero’s claim. Had he done so, however, the only conclusion he could have reached is that a “just estimate of its value” was a nominal sum. All he had before him was Vero’s essentially unsupported assertion that its unliquidated equitable claim had a value of $794,012.80 and the unsupported but nevertheless clearly articulated assertions of solicitors for the director of Ungul, first, that the relevant limitation period had expired and, second, that any action by Vero would be defeated by circuity of action. The unsupported assertion of Vero that the claim should be valued at $794,012.80 was thus balanced by legal opinion that such a claim could never be made good in legal proceedings.

37 The letter from Colin Biggers & Paisley was dated 10 June 2009 and was received by Mr Barnden on the afternoon before the meeting of creditors that took place at 11am on 11 June 2009. The matters the letter raised were technical legal issues about which Mr Barnden could not have been expected to come to any conclusion of his own. Nor, it is likely, could a lawyer have given him definitive guidance on the matters raised without a careful consideration of the facts and the applicable law. Apart from anything else, there is considerable room for debate about the “completion” concept relevant to calculation of the limitation period and just what constitutes “completion”: Vero Insurance Ltd v Nicejade Pty Ltd [2010] NSWSC 556 at [13] to [18].

38 With this information before him and faced with the task of making a “just estimate”, Mr Barnden could not reasonably have done otherwise than to make an estimate of a nominal sum that would see Vero enabled to vote but with token power only on any calculation of votes by value.

The outcome if Vero had been recognised as entitled to vote

39 It follows that if, contrary to the course of events that actually occurred, Vero had been admitted to vote at the meeting of 11 June 2009 and had voted against the proposed resolution to execute the deed of company arrangement, the position upon a poll would have been that, by number, six persons voted in favour and one voted against and, by value, creditors accounting for $64,796.00 voted in favour and a creditor accounting for a nominal sum only voted against. In those circumstances, the resolution would have been carried: regulation 5.6.21(2).

The power to adjourn the meeting

40 I consider next the proposition that, as Vero submits, Mr Barnden, as chairman of the meeting, should have adjourned the meeting to allow Vero time to repair the alleged defect in the proxy in favour of Ms Montgomery.

41 The meeting was convened under and governed by s 439A. Section 439B also applied to it:

”(1) At a meeting convened under section 439A, the administrator is to preside.

(2) A meeting convened under section 439A may be adjourned from time to time, but the period of the adjournment, or the total of the periods of adjournment, must not exceed 45 business days.”

42 These provisions of the Act are silent on the question of how and by whom any decision to adjourn is to be made. It cannot, I think, be doubted that, if the provisions governing a meeting do not deal with that question, any decision to adjourn can only be made by the meeting itself which is master of its own procedure (see, for example, Stoughton v Reynolds (1735) 2 Stra 1045; 93 ER 1023; Re Bosnjak Holdings Pty Ltd [2005] NSWSC 527; (2005) 23 ACLC 1285 at [5]) – unless the case comes within the extraordinary and limited power of the chairperson to adjourn unilaterally, which power is related exclusively to disruption and disorder and exists solely “to facilitate the presence of those entitled to debate and vote on a resolution at a meeting where such debate and voting is possible”: Byng v London Life Association Ltd [1990] Ch 170; and see Re Vouris; Epromotions Australia Pty Ltd v Relectronic-Remech Pty Ltd [2003] NSWSC 702; (2003) 177 FLR 289 at [92]-[94] per Campbell J.

43 Here, however, there are relevant governing provisions. They are found in regulation 5.6.18(1) and (2) of the Corporations Regulations:

“(1) The chairperson of a meeting:
(a) if so directed by the meeting — must; or
(b) with the consent of the meeting — may;
adjourn the meeting from time to time and from place to place.

(2) A meeting convened under section 439A of the Act must not be adjourned to a day that is more than 60 days after the first day on which the meeting was held. “

44 The applicability of regulation 5.6.18(1) to a s 439A meeting is confirmed by regulation 5.6.18(2).

45 Under regulation 5.6.18(1), the power to adjourn rests with the chairperson. Any inherent power of the meeting itself is therefore excluded. But a decision of the meeting itself is an indispensable part of the adjournment machinery: there can be no adjournment unless the meeting directs adjournment (in which event the chairperson must give effect to the direction by adjourning the meeting) or consents to adjournment (in which case the chairperson has a discretion whether or not to adjourn: Salisbury Gold Mining Co Ltd v Hathorn [1897] AC 268; and the discretion must be exercised in good faith and for a proper purpose: McKerlie v Drillsearch Energy Ltd [2009] NSWSC 488; (2009) 74 NSWLR 673). The chairperson’s extraordinary and limited power of unilateral adjournment already noticed should be understood as supplementing these explicit powers.

The chairman had no unilateral power in this case

46 As matters stood at the start of the 11 June 2009 meeting of creditors, Mr Barnden, as chairman, had no power to adjourn unless the meeting itself so directed (in which event he would have been bound to exercise the power), or the meeting consented (in which it would have been open to exercise a discretion), or circumstances were such that, as an objective matter, those entitled to debate and vote had, as a body, no proper opportunity to exercise that entitlement and an adjournment was necessary “to facilitate the presence of those entitled to debate and vote on a resolution at a meeting where such debate and voting is possible”. No direction or consent of the meeting was in fact given on the matter of adjournment; and the ability of those with an entitlement to debate and vote to exercise that entitlement was in no way compromised by any aspect of the prevailing circumstances. Mr Barnden, as chairman, could therefore not have acted to adjourn the meeting in order to give Vero an opportunity to put its house in order.

47 I do not accept the submission made on behalf of Vero that silence in s 439A as to the manner of exercise of the power to adjourn, coupled with the explicit provisions in regulation 5.6.18(1), indicates a general and discretionary power of the chairperson. If there were any gap (and I do not think there is), it would be filled by the common law rule which, as I have said, regards the power to decide upon adjournment as residing with the meeting itself as the master of its own procedure.

The validity of the proxy

48 I turn now to the question whether Mr Barnden acted correctly in declining to recognise the purported proxy appointment of Ms Montgomery by Vero.

49 Regulation 5.6.29 requires that a proxy for a meeting of this type be in accordance with Form 532 which is contained in Schedule 2 to the regulations. The form says nothing about how a proxy is to be signed or authenticated (except in the case of an appointor who is blind or cannot write) and merely makes provision at the end for “Signature”. Regulation 5.6.29 says that, except in those special cases, “the person appointing the proxy must sign the instrument of proxy”. There is nothing indicating exclusion of the common law principle qui facit per alium facit per se which allows signing of a proxy by an agent: Re NRMA Ltd [2000] NSWSC 82; (2000) 33 ACSR 594 at Appendix B paragraph (7).

50 The form circulated by the administrators for the purposes of the 11 June 2009 meeting was in accordance with Form 532 but with an instruction or direction added as follows:

‘Execution (in accordance with Sections 82A, 127 or 250D of the Corporations Act 2001)”.

51 There were then three spaces for signatures. The first was marked “Signature of individual or person authorised by corporation resolution to represent corporation”. The other two appeared together under a heading “The Common Seal was affixed hereto in the presence of” and were marked respectively “Director” and “Director/Company Secretary”.

52 In the document tendered by Vero, “Neil Blount” was written in the first space, “Suncorp/Vero” was written in the second and “Executive Manager” was written in the third. On its face, therefore, the document was signed by Neil Blount who was represented to be executive manager of “Suncorp/Vero”. This was in a context where the appointing creditor was named at the start of the form as “Vero Insurance Limited” the address of which was given as 18 Jamison Street, Sydney NSW 2000.

53 Before addressing the manner in which the form was actually completed, I should say something about the instruction or direction set out at paragraph [50] above.

54 First, the reference to s 82A of the Corporations Act is meaningless since that section (which contained a definition of “officer” similar to that now in s 9) was repealed in 2004. Second, it is not meaningful to speak of execution “in accordance with” s 250D, a provision enabling a body corporate to “appoint an individual as a representative to exercise all or any of the powers the body corporate may exercise” at, among others, “meetings of creditors” but saying nothing about the manner of execution of any document.

55 Section 127, alone of the provisions mentioned in the instruction or direction, is concerned with the manner of execution of documents by companies. It says that a company with a common seal “may execute a document” if the seal is affixed and the affixing of the seal “is witnessed by” a person or persons described in the section (s 127(2)); and that a company “may execute a document without using a common seal” if the document is signed by a person or persons described in the section

(s 127(1)).

Examination of proxies

56 Under regulation 5.6.28, it is a pre-condition of an appointee’s right to attend and vote as proxy that the instrument of proxy (or a faxed or emailed copy of it) be lodged with the person named in the notice of meeting as the person to receive proxies or with the chairperson (I leave to one side here the special provisions about electronic appointment of proxies). In this case, the relevant instrument was produced to Mr Barnden, the chairman of the meeting, and, in that respect, the regulation 5.6.28 pre-condition was satisfied.

57 Implicit in regulation 5.6.28 is the expectation that the person with whom the proxy is lodged will perform a function of examining it and ascertaining the voting power exercisable at the meeting by the person appointed: Campbell v Australian Mutual Provident Society (1906) 7 SR (NSW) 99 at 120. Part of that task – or, at all events, the task of the meeting’s chairman – is to consider the regularity and validity of instruments of proxy. No one could possibly say that the chairman was not entitled (indeed, bound) to reject and rule out of order a proxy purporting to be given by John Brown on which there appeared no signature at all or the signature of John Black, without any evidence of the authority of Black to sign for Brown.

Authority

58 In some cases, the chairperson may be required to assume the authority of a person who purports to sign for another. Thus, a proxy purporting to be signed for a company by two directors (Colonial Gold Reef Ltd v Free State Rand Ltd [1914] 1 Ch 382) or by a managing director (Re John L O’Brien Consolidated Industries Pty Ltd (1975) 1 ACLR 311) has been regarded as sufficiently given. This is because of the implied authority indicated by the position held.

59 Attention was paid in argument to s 129(5) of the Corporations Act:

“A person may assume that a document has been duly executed by the company if the document appears to have been signed in accordance with subsection 127(1). For the purposes of making the assumption, a person may also assume that anyone who signs the document and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices.”

60 Section 127(1) and its effect are referred to at paragraph [55] above. Section 129(5) provides protection for an outsider who relies on a document signed for a company by a person or persons specified in s 127(1). But the scope of the protection really comes from s 128:

“(1) A person is entitled to make the assumptions in section 129 in relation to dealings with a company. The company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.

(2) A person is entitled to make the assumptions in section 129 in relation to dealings with another person who has, or purports to have, directly or indirectly acquired title to property from a company. The company and the other person are not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.

(3) The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings.

(4) A person is not entitled to make an assumption in section 129 if at the time of the dealings they knew or suspected that the assumption was incorrect.”

61 Viewed in isolation, the “entitlement” arising from s 129 leads nowhere. It is useful only “in relation to” a relevant matter identified in s 128, the principal such matter being “dealings with the company”. It is to that that I now turn.

62 I am satisfied that a person with whom a company lodges a proxy for the purposes of a meeting of creditors engages in a “dealing” with that company by virtue of the lodgment. As a result, s 129(1) entitles the person to assume, as provided in s 129(5), that the proxy has been duly executed by that company if it bears a signature or signatures conforming to one of the specification in s 127(1).

63 The proxy document purportedly executed by Vero in favour of Ms Montgomery was not signed in a manner specified in s 127. Sections 128 and 129 therefore did not combine to create in Mr Barnden any “entitlement” to make any assumption regarding due execution by Vero. He was left to rely entirely on the content of the document itself supplemented by what he was told about the document. It is to that that I now turn.

Relevant events

64 Mr Jurdeczka, Vero’s solicitor, spoke to Mr Newell, an employee of the administrators, on 10 June 2009. His account of the part of the conversation relevant to the matter under discussion is as follows:

“I said: ‘Vero will be having an Executive Manager attend the meeting. I have two questions. Firstly, what do you require for the proxy? The pro forma proxy provided by you provides for execution and seems to require a director to sign it or the common seal to be affixed. This presents problems for my client. They are a large insurance company. The directors are spread around and don’t deal with this type of thing. As I understand it the common seal is kept in Brisbane. To the extent an appointed individual can sign it, how are they to be appointed? My understanding is that there are provisions under the Corporations Act for internal management systems and authority to do this, without directors having to sign it. Can you please advise what will satisfy you? Secondly, Vero may wish more time to investigate the relevant transactions, and review its own records. It may seek an adjournment for this purpose. What is the procedure for this? Do you require advance notice, or can we simply seek it at the meeting?’
He said: ‘In relation to your first question, I will get back to you today. In relation to your second question, there is no need for written notice. I will regard us on notice as of now. You can make a verbal request for an adjournment tomorrow.’”

65 Mr Jurdeczka and Mr Newell spoke again at about 4.50 on the same day. Mr Jurdeczka’s account of the conversation is:

“I said: ‘I am chasing up the issue of this proxy.’
He said: ‘I cannot see any way round the proxy issue, and needing it to be signed by a director or bear the common seal.’
I said: ‘My client has dealt with this issue before, and may be able to advise the solution. I will also check the internal management authority provisions of the Corporations Act. I expect the client will attend tomorrow, and seek an adjournment to review the matter further.’
He said: ‘If the company is put into liquidation, there are no funds available for liquidation.’
I said: ‘My client and I are aware of this, and my client would likely fund investigations if it voted for the liquidation. Otherwise, there would be no point in seeking liquidation.’”

66 Mr Jurdeczka and Ms Montgomery went to the meeting venue on 11 June 2009. Mr Jurdeczka handed the proxy document to Mr Barnden and said to him:

“I note we have previously had discussions about the proxy, and whether it has to be executed by directors of Vero or have the common seal attached. Noting that my firm only received the Notice of Meeting and report on Tuesday 9 June 2009, which was dated 2 June 2009, my client has been unable to arrange for a proxy executed by directors or bearing the seal within that time frame. This is due to the nature and size of my client, which is one of the largest insurers in Australia. The directors are a diverse group in various locations, and do not normally deal with the day to day affairs such as this meeting. Further, as I understand it the common seal is held in Brisbane. It was simply not possible to obtain a proxy signed by a director or bearing the seal within the time provided. However, the proxy I have just handed you has been signed by Mr Neil Blount, the executive manager at Vero. Mr Blount is authorised by Vero to deal with matters such as these, and to sign a proxy such as this on behalf of Vero. I confirm previous indications that Vero wishes to seek an adjournment of up to 45 days to undertake further investigations as previously indicated. If Vero was forced to vote upon the proposed Deed today, it would oppose it being approved, seek Liquidation and fund the costs of any investigations required by you. I note that we received confirmation in writing yesterday that the Proof of Debt lodged on behalf of Vero has been accepted both for the purposes of voting and any dividend.”

67 It may be noted that the last part of Mr Jurdeczka’s statement did not accurately reflect the content of the letter to which he was referring (see paragraph [24] above). The letter referred to distribution purposes and did not mention voting purposes.

68 The exchange involving Mr Jurdeczka, Mr Barnden and Mr Harkin set out at paragraphs [31] to [33] above then took place. According to Mr Jurdeczka, Mr Barnden then said:

“Section 127 of the Corporations Act requires the proxy to be signed by the directors or bear the common seal. This proxy does not comply with the Act, and would not appear capable of being acceptable.”

69 Ms Montgomery then said:

“Vero have used similar proxies in dealing with other creditors’ meetings for other companies, and such has been accepted.”

70 Mr Barnden replied:

“I understand that may be the case. However, I can’t speak for other Administrators. Unfortunately, the proxy does not comply with the requirements of the Act, and I will reject the proxy on that basis.”

71 After declaring the meeting open, Mr Barnden made some introductory remarks and said:

“Vero’s proxy had been rejected as not complying with Section 127 of the Corporations Act. I note that Ms Montgomery indicated prior to the meeting being opened that similar proxies have been admitted by other Administrators. However, the proxy is not compliant.”

Mr Barnden’s decision was correct

72 Mr Barnden was given no document of Vero evidencing Mr Blount’s appointment as “executive manager” or the authority an “executive manager” had from Vero. Indeed, he was led by the document itself to think that Mr Blount was “executive manager” of “Suncorp/Vero”. All Mr Barnden had, in addition to the proxy document, was Mr Jurdeczka’s statement that Mr Blount was “an executive manager at Vero” and was “authorised by Vero to deal with matters such as these, and to sign a proxy such as this on behalf of Vero”, supplemented by Ms Montgomery’s statement that Vero had “used similar proxies in dealing with other creditors’ meetings for other companies, and such has been accepted”.

73 This was clearly not sufficient to satisfy Mr Barnden’s legitimate expectations. The office of “executive manager” does not imply any particular authority to bind a company. In addition, there was no holding out of Mr Blount by anyone shown to have Vero’s actual authority. In the absence of signatures sufficient to bring s 128(1) into operation, appropriate documentary proof of Mr Blount’s authority and any basis for assuming implied authority (such as a representation of managing director status, as in Re John L O’Brien Consolidated Industries Pty Ltd (above)), Mr Barnden was in no position to form an opinion that signing by Mr Blount (described as “executive manager”) was effective to bind Vero. It was for Vero to establish the authority of the signatory where the s 128(1) assumption did not operate and the stated office was not such as to imply authority. Vero failed to do that. Mr Barnden really had no option but to act as he did.

Mr Blount’s authority

74 Mr Blount’s actual authority is a matter that was canvassed in the proceedings. Vero relied on a document which is signed by Mr Blount himself. The document begins:

“The undersigned is licensed to manage claims in accordance with the terms of the document”

and ends:

“I confirm that I have read and understand my Warranty Claims Management Licence and agree to operate within the parameters set out herein.”

75 The document goes on to set out a number of paragraphs each of which begins with the word “Authority”. Two of these on which Vero now relies, together with their headings, are:

“ Signing contracts under seal
Authority to sign all contracts under seal including deeds and proxy’s [sic] relating to Vero’s position and standing as a creditor in relation to any debtor being either a personal debt or the debt of a body corporate.
Signing contracts not under seal
Authority to bind Vero in regard to contracts of a general or supply nature.”

76 The first thing to be said about this document is that the only attempt Vero made to prove it was by means of a statement in the affidavit of its solicitor, Mr Jurdeczka:

“A copy of a document by which Mr Neil Blount, an Executive Manager of the plaintiff is authorised by the plaintiff to, amongst other things, sign proxies on behalf of the plaintiff is Document 15.”

77 As I have said, the document is signed by Mr Blount himself and evidences, in effect, an acknowledgment by him, not a grant of authority by Vero. It does not evidence any independent representation or authorisation by Vero.

78 In any event, it is far from clear that the signing of the relevant proxy was within either of the parts of the document set out at paragraph [75] above.

79 In the case of the first quoted part, the heading gives an immediate impression that it is concerned with “contracts under seal”. That impression is confirmed by the opening words, “Authority to sign all contracts under seal”. The next word, “including”, would, in its ordinary sense, indicate that the items following it were specific instances of the “contracts under seal” with which the paragraph is concerned. That impression is, however, called into question by the words “and proxy’s [sic]”, since a proxy would not normally be regarded as a “contract under seal”. Alternatively, perhaps, the only proxies to which the paragraph extends are those which are in the form of “contracts under seal” – a concept that would be consistent with the notion that the appointment of a proxy is no more than the appointment of an agent and that, except in cases of implication, conduct and necessity, it can generally be expected that an agent will be appointed by express agreement.

80 The uncertainty about the meaning and scope of the first paragraph is compounded by the second paragraph and its heading which implies that “contracts” not within the first paragraph may be within the second.

81 I do not need to come to any conclusion about the correct construction of the two parts of the document set out at paragraph [75] above. Because it has not been proved either that the document in reality records authority conferred on Mr Blount by Vero (any holding out it effects is by Mr Blount himself) or that it was produced to Mr Barnden in support of the lodgment of the purported proxy in favour of Ms Montgomery, the document is of no relevance to the matter before me.

Other matters canvassed

82 A question canvassed in the course of the hearing is when the notice convening the 11 June 2009 meeting reached Vero, to which address it was sent and whether (as stamps on it may imply) it was passed from one department or office within Vero to another before receiving substantive attention. Vero’s address in the proof of debt discussed at paragraph [22] above is an address in William Street, Melbourne. The address in the proxy document, as stated, is an address in Jamison Street, Sydney. It was not, I think in dispute that the head office of Vero (or, at least, its parent company) is in Brisbane. If the administrators did send the notice of meeting and accompanying report to William Street, Melbourne, they did no more than recognise the address in the proof of debt.

83 Another matter canvassed was the residential addresses of the directors and secretaries of Vero as disclosed in ASIC records, no doubt with a view to showing that it would have been possible to obtain in Sydney signatures for the proxy form conforming to one of the applicable s 127 specifications. I do not consider that a relevant matter. Most large companies have in place well documented systems of delegation to officers of different ranks. Internal delegations are often accompanied by powers of attorney executed under the common seal embodying, by way of safeguard, limitations and requirements for multiple signatures and sometimes allowing sub-delegation. Arrangements of that kind give those companies a ready and convenient means of proving the authority of officers on any occasion on which it becomes necessary or desirable to do so, particularly in a legal context. On the evidence before me, Vero is not shown to have had any such system in place.

Decision

84 The central conclusions may be re-stated as follows:

1. Vero was entitled to be regarded as a creditor of Ungul for the purposes of the meeting of creditors on 11 June 2009.
2. Had Mr Barnden, as chairman of the meeting, addressed the question of the amount for which Vero should be recognised for voting purposes,
(a) it would have been necessary for him to make a “just estimate” under regulation 5.6.23(2); and
(b) the “just estimate” would have been a nominal amount.
3. Participation by Vero in voting at the meeting and exercise of its voting rights against the measures unanimously supported by the six creditors who actually voted would not have changed the voting outcome.
4. Mr Barnden, as chairman, was correct in rejecting the purported proxy given by Vero in favour of Ms Montgomery.
5. Mr Barnden, as chairman, had no unilateral power to adjourn the meeting (that is, a power exercisable without a direction of the meeting that there be an adjournment or a consent of the meeting to adjournment) in order to give Vero an opportunity to validate the purported proxy.
6. There being no direction of the meeting that there be an adjournment and no consent of the meeting to an adjournment, Mr Barnden had no power to adjourn the meeting in order to give Vero an opportunity to validate the purported proxy.

85 In view of these conclusions just stated it is not necessary to address the matter referred to at the end of paragraph [10] above, that is, how Mr Barnden would have exercised the casting vote.

86 It follows from the conclusions that Vero is not entitled to any order under s 1321 of the Corporations Act reversing or modifying any act or decision of Mr Barnden in relation to the matters about which Vero complains.

87 As to Vero’s claim under s 445D, no reason under any of the paragraphs of s 445D(1) has been shown for the making of an order terminating the deed of company arrangement executed by Ungul pursuant to the resolution of creditors passed on 11 June 2009.

88 I should formally record, however, that Vero has standing under both s 1321 (as a “person aggrieved”) and under s 445D (as, at least, an “interested person”), given the valid claim it had to be recognised as a creditor for the purposes of the meeting, if only for a nominal sum.

89 Vero’s originating process will be dismissed. I have the impression that, if that happens, there will be no point in making any order on Ungul’s interlocutory process (by way of cross claim).

90 The desirable course is that the parties bring in agreed short minutes - including as to costs the outcome in relation to which will be as indicated by the conclusions stated.

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