Young v Brachdale Pty Ltd (Subject to Deed of Company Arrangement)
[2010] VSC 654
•10 May 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
List E
No. SCI 2009 10750
IN THE MATTER of Brachdale Pty Ltd (ACN 008 263 974) (Subject to Deed of Company Arrangement)
| MICHAEL JOHN YOUNG AND ELIZABETH MARY YOUNG | Plaintiffs |
| v | |
| BRACHDALE PTY LTD (ACN 008 263 974) | Defendant |
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JUDGE: | GARDINER AsJ | ||
WHERE HELD: | Melbourne | ||
DATE OF HEARING: | 4 May 2010 | ||
DATE OF JUDGMENT: | 10 May 2010 | ||
CASE MAY BE CITED AS: | Michael John Young & Anor v Brachdale Pty Ltd | ||
MEDIUM NEUTRAL CITATION: | [2010] VSC 654 | ||
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CORPORATIONS – External administration – Application for leave to proceed in County Court pursuant to s 444E of the Corporations Act 2001 (Cth) to establish proprietary claim against company – Application for leave granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr L. Armstrong | Nevin Lenne & Gross |
| For the Defendant | Mr M. Goldblatt | Septimus Jones & Lee |
HIS HONOUR:
By an originating process filed on 17 December 2009, the plaintiffs seek leave pursuant to s 444E of the Corporations Act 2001 (“the Act”) to proceed nunc pro tunc in County Court proceeding CI 09-04390. That proceeding was commenced on 15 September 2009 (”the County Court proceeding)”and seeks a declaration that the defendant holds the property known as Unit 18, Enzian Apartments, Site 69, Mount Buller in the Mt Buller Alpine Resort (“the unit”) on trust for them. It also seeks specific performance of an agreement referred to in the statement of claim.
The need for the application arises because on 16 June 2006, the defendant went into administration pursuant to s 436A of the Act. Mr Dean McVeigh was appointed as administrator. On 21 July 2006, the defendant entered into a Deed of Company Arrangement (“the DOCA”). Following a meeting of the defendant’s creditors in March 2007, a varied Deed of Company Arrangement dated 2 April 2007 was executed. On 16 April 2010 Mr McVeigh was replaced as the deed administrator by Craig Ivor Bolwell.
The plaintiffs rely on the affidavits of their solicitor, Charles Morgan sworn 11 December 2009 and of the second plaintiff, Elizabeth Mary Young sworn 27 January 2010. The defendant, which opposes the application for leave, relies on an affidavit of Mr Bolwell sworn 21 April 2010.
In the statement of claim filed in the County Court proceeding, the plaintiffs allege that in October 2003 they made an agreement with the defendant to purchase the unit. The agreement was said to be initially oral and was to the effect that the defendant would convert certain rooms in the defendant’s development to an apartment to be known as Unit 18, create a sub-lease and sell that sub-lease interest to the plaintiffs. It is apparently not possible to buy freehold lands within the resort and the plaintiffs purchased sub-leases from the defendant. The head leases were long-term leases granted by the Mount Buller Alpine Management Board. As consideration, the plaintiffs alleged that it was agreed that they would supply $200,000 worth of scaffolding suitable for use by the defendant in another property development which the defendant was then contemplating. In addition, the plaintiffs would pay in cash the amount required by the defendant to convert the rooms according to directions given by the plaintiffs. It was contemplated that the Plaintiffs would take possession of the unit in time in the commencement of the 2004 ski season. Shortly afterwards the plaintiffs sent drawings to the defendant and works commenced.
The agreement was allegedly then varied to increase the purchase price to $300,000, which would be paid by the supply of the $200,000 worth of scaffolding with the budget for the renovation work now to be up to a figure of $100,000. This agreement, the varied agreement, was in writing signed by a director of the company Mr Matern.[1]
[1]The varied agreement is Exhibit CRCM 4 to Mr Morgan’s affidavit.
In late October 2003, the defendant provided a formal contract of sale of the unit to the plaintiffs, which they signed and returned to the defendant’s solicitors.[2] By the start of the 2004 ski season, the plaintiffs had paid a deposit of $8,000 and supplied approximately $111,000 worth of scaffolding to the defendant. They paid head lease charges and overheads required to be met by owners of the apartment and they participated in meetings with the owners’ committee. They then occupied the apartment as if it was their own during several ski seasons and they permitted Mr Matern to let it during another ski season.
[2]The document is Exhibit CRCM 7 to Mr Morgan’s affidavit. An executed copy of that document is not in evidence in this application and the plaintiffs rely upon the varied agreement.
In May 2004, the defendant surrendered the head lease to a related company, Chamois 69 Pty Ltd, but retained a sub-leasehold interest for the unit. In the same month, the plaintiffs, at Mr Matern’s suggestion, executed a loan agreement whereby they are said to have loaned the defendant $120,000. In the schedule in the segment designated “repayments” are the words “not applicable/settlement Unit 18”. At the time of signing the loan agreement, the plaintiffs allege that they were informed that the loan agreement was intended to be “additional security” for the scaffolding that Mr Young had provided under the agreement. They executed the loan agreement without obtaining legal advice on the understanding that it was only an additional precaution and did not vary the agreement they had.
In June 2006, the defendant went into administration pursuant to the provisions of Part 5.3A of the Corporations Act 2001. Mr Matern approached the plaintiffs and requested them to lodge a proof of debt for the value of the scaffolding they had provided and additional fixtures and furnishings. He requested them to appoint him as their proxy at creditors’ meetings conducted in the administration of the company. The plaintiffs signed and provided an informal proof of debt and proxy.
In July 2006, the defendant entered into the DOCA. The DOCA is Exhibit CRCM 14 to Mr Morgan’s affidavit. The defendant failed to comply with its obligations to make payments under the DOCA. The DOCA was subsequently varied in April 2007.
It appears from the minutes of the meetings of the creditors that the plaintiffs’ claims were admitted, at least for voting purposes. The total creditors in the administration were approximately $1.8 million. There was a very significant sum, over $3 million, owed to a secured creditor, Quest Pty Ltd.
The deed administration, for want of a better description, is dormant and it is said that the defendant may ultimately go into liquidation. I am informed by counsel at the hearing of this matter that the creditors have received no dividend to date. The creditors have recently resolved to adjourn the consideration of the question as to whether the defendant should be put into liquidation until 25 February 2011. In practical terms, the position of the creditors is no further advanced since the defendant went into administration. In that sense, it would not appear that the general body of unsecured creditors is practically affected by the current application.
The DOCA[3] defines “creditor” as meaning “any person who at the commencement date had an unsecured pecuniary claim against the company present or future or ascertained or sounding only in damages including any person … who would have been entitled to prove in the winding up of the company, had an order been made for the winding up of the company by the Court pursuant to Part 5.6 of the Corporations Act on the commencement date”. The plaintiffs’ claim as pleaded in the County Court proceeding would not be so characterised.
[3]The deed as varied in April 2007 does not alter the definition of creditor.
The plaintiffs voted in favour of the defendant entering into the deed through the proxies that they had given to Mr Matern. I infer that their vote would not have been material to the outcome of whether the deed would have been passed or not; it is noted in the minutes that the creditors who were related to the defendant voted in favour of the company entering into the deed and even their combined vote was not material to the outcome of the resolution.
The current application gives rise to the issues of first, whether having regard to the terms of the Deed of Company Arrangement and the Deed of Company Arrangement as varied and the Corporations Act, the plaintiffs require leave to begin or proceed with their proceeding in the County Court and, secondly, if so, whether such leave should be granted.
Mr Goldblatt, counsel for the defendant, contends that the plaintiffs are bound by the terms of the Deed of Company Arrangement and that leave should not be granted to them. That submission is based on the fact that the plaintiffs, through the proxies they have provided, have voted in favour of the DOCA. Further, it is submitted that the DOCA binds all creditors of the defendant to the extent provided by the Deed.[4] Mr Goldblatt says that the plaintiffs cannot on the one hand participate in the administration process as creditors, and then on the other hand seek leave to begin or proceed with the proceeding, which is entirely inconsistent with that position.
[4]See s.444D.
In Lawless v MacKendrick(No 2)[5] Newnes J considered that there was no material difference between the principles to be applied on an application under s 471B of the Act and those applied under s 444E(3) of the Act. The cases considering the issue of granting leave in insolvency administrations generally involve an analysis of whether the claim made is one which is otherwise capable of being the subject of proof in the winding up or the deed as the case may be. If it is provable (and discharged by the Corporations Act or the terms of the deed), there would be no point to granting leave. If, on the other hand, the applicants for leave need to agitate the matters the subject of the claim because they have a proprietary claim e.g. the company holds property to which the claimant is entitled, which property stands outside the winding up and is not available as an asset of the company, the claimant for leave should normally be given leave. Where what the applicant for leave is claiming from the company is in reality no more than their own property, leave to proceed will normally be granted as a matter of course.[6] The underlying principle is said to be that the company should not, merely because of the fact that if it is under insolvency administration, be permitted to withhold the applicant’s property and the Court will permit proceedings to be taken.[7]
[5][2008] WASC 15.
[6]See Re David Lloyd & Co (1887) 6 339; Re Canada Western Steel Corp Limited (1922) 69 DLR 689.
[7]See David Lloyd & Co (1887) 6 339 at 344. See also generally McPherson Law of Company Liquidation at [7.1000].
The plaintiffs primary submission is that having regard to the nature of the claim they make, they are not “creditors” within the terms of the DOCA and therefore, they are not bound by it so as to require leave to bring proceedings under s 444E. To assess the position in this regard, it is necessary to analyse the nature of the County Court proceeding.
In essence, the plaintiffs seek to agitate a claim that they have an equitable interest in the unit and they seek a declaration in that regard and consequent relief by way of specific performance. The plaintiffs contend that while the defendant might hold the legal title to the unit, it does so on trust for them subject to an equitable lien in favour of the defendant for the balance of the purchase price that remains unpaid. They contend that the value of that lien diminishes as the purchase price is paid over until it is converted into a position whereby the defendant is a bare trustee pending transfer of the legal title. Up to that time, the property which the defendant holds is the legal title and the lien for the balance of the purchase price. Thus, the County Court proceeding seeks to agitate a claim of a proprietary nature that the defendant is not, in equity, the owner of the unit.
The plaintiffs contend that, because of the operation of the DOCA, which catches claims of persons who come within the definition of “creditor” being “any person who, at the commencement date had an unsecured pecuniary claim against the company, present or future, ascertained or sounding only in damages” leave is not required. While this might be so, I consider a more appropriate approach, so as to resolve any doubt, is to assume that such leave is required, particularly as the parties are before the court. Section 444E of the Act provides that the plaintiffs cannot begin or proceed with any proceeding against the defendant or in relation to any of its property. In this context, the section defines property as including “property used or occupied by or in the possession of the company”. In these circumstances, the evidence is such that the unit is presently used or occupied by the defendant.
I acknowledge Mr Goldblatt’s submission that the plaintiffs have “nailed their colours to the mast” by their participation in the administration process. However, there are other factors which in my view overcome that conduct. The plaintiffs will only be bound by the DOCA and the award of leave only made pointless if they are “creditors” as defined by the DOCA. The County Court proceeding seeks a declaration that the defendant effectively has the plaintiffs’ property and presently hold it on trust. The question is whether there a serious question to be tried which requires agitation in the County Court proceeding, which the plaintiffs should be allowed to litigate.[8] In Vagrand the Full Court of the Federal Court stated that:
“Upon a close reading of the relevant authorities, it is apparent to us that the courts have not in fact required applicants for leave to demonstrate a prima facie case against the company in liquidation, in the technical sense of that term. They have required to be affirmatively satisfied that the claim has a solid foundation gives rise to a serious dispute. Having regard to the course actually taken by the courts, the term ‘prima facie case’ is misleading. Perhaps it should be avoided in the future.”
[8]Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 at 556.
Thus, the test that should actually be applied is akin to that used in considering whether interlocutory relief should be granted to grant an injunction: “a serious question to be tried”. In Tolhurst Druce & Emerson (a firm) v Maryvell Investments Pty Ltd (in liq)[9] Dodds-Streeton J said:
“In my opinion, although the authorities establish that an applicant need not prove every element of its claim, mere assertion, which is unsupported by a solid foundation, will not suffice. In Vagrand, the Full Federal Court emphasised that ‘the question of leave is always a matter of discretion’. Where, as in the present case, an applicant presents an inconsistent and fluctuating account of his claim based on a contradictory document with a false factual foundation, and repeatedly makes false assertions under oath without any credible explanation or excuse, it is unlikely that the Court could be affirmatively satisfied that his claim has a solid foundation or gives rise to a serious dispute.”
[9][2007] VSC 271.
I consider that when one considers the statement of claim together with the affidavit material filed in support of this application, the plaintiffs have met the test that there is “a serious question to be tried” which warrants the grant of leave. The factual scenario including the manner in which they participated in the meetings with creditors, the enforceability of the contract and their execution of the “loan agreement” are matters that will perhaps have to be confronted by them in the County Court proceeding. I should not presume to express any view as to the likely outcome of the County Court proceeding other than it is based on cogent and plausible evidence (which does not appear to be disputed). The legal position for which the Plaintiffs contend that the defendant holds the plaintiffs’ interest on trust subject to the defendant’s lien for payment of the balance of the purchase monies, is supported by a line of authority recently collected and considered in the decision of Mandie J, as he then was in Trust Company of Australia Limtied v Commissioner of State Revenue[10].
[10][2007] VSC 451 at [29]-[39].
In considering applications of this kind, as I have said, much the same considerations as those which apply in circumstances of applying for leave against companies in liquidation are appropriate. Obviously, these factors will vary depending on the circumstances of the particular case. In the present context the relevant factors are as follows:
(a)Whether a good cause of action has been shown on the merits i.e. have the plaintiffs established a “serious question to be tried”. In my view, the County Court proceeding as pleaded, supported by the affidavits filed by the Plaintiffs in this application, gives rise to such a question.
(b)The applicant for leave ought not to obtain an advantage to which under the Act it is not properly entitled. Here the Plaintiffs seek to litigate a claim that the defendant currently retains property which they are equitably entitled to once they pay the balance of the purchase moneys, which they indicate they are ready and able to do. There is no element of unfairness in this, because if they establish what they claim, the property is not that of the Defendant.
(c)There must be no prejudice to the creditors or to the administration or the winding up if the litigation is allowed to proceed. Again, the County Court proceeding litigates the issue of whether the defendant holds the property on trust for the plaintiffs or not.
(d)The plaintiffs’ claim must be of a type which should proceed to action by judgment rather than be dealt with by way of proof. The plaintiffs’ claim clearly cannot be dealt with by way of proof in the administration (or the winding up, if that occurs). Under the terms of the Deed, the claim as expressed in the statement of claim in the County Court proceeding is not a provable claim.
(e)Delay in applying for leave will not prevent the leave being granted. Here, because of the dormant state of the administration, there would not appear to be any prejudice ensuing from the grant of leave. It would appear that their vote was immaterial to the outcome of the creditors’ resolutions and there has not been any payment of dividends to creditors.
I will grant the leave sought by the Plaintiffs in the originating process. I will hear the parties on the question of costs.
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