Deputy Commissioner of Taxation of the Commonwealth of Australia v Comcorp Australia Ltd ACN 053 361 621 PTY LTD (Subject to Deed of Company Arrangement) & Anor [1995] FCA 857

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CORPORATIONS - Deed of company arrangement - Deed not entered into in accordance with Part 5.3A - Power to declare deed valid despite contravention - Power to terminate deed where relevant material omitted from administrator's report or statement - Discretion to refuse relief notwithstanding omission

Corporations Law, ss.439A(4), 439C, 445D, 445G, 1322.

Re Dorman Long & Co Ltd [1934] Ch 635

Re Metropolitan Fuel Pty Ltd [1962] VR 675

Re Pheon Pty Ltd (1986) 11 ACLR 142

Hagenvale Pty Ltd v. Depela (1995) 17 ACSR 139

Re Burlock (1994) 121 ALR 168

The Commonwealth v. Ermayne Pty Ltd, unreported 17 August 1995

Re Vanfox Pty Ltd (1994) 13 ACSR 209

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v COMCORP AUSTRALIA LIMITED ACN 053 361 621 PTY LTD (Subject to Deed of Company Arrangement) and DEAN ROYSTON McVEIGH (As Administrator of the Deed of Company Arrangement of COMCORP AUSTRALIA LIMITED) VG 3525 of 1995; DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v ACN 053 013 255 PTY LIMITED (ACN 053 013 255) (Subject to a Deed of Company Arrangement) and DEAN ROYSTON McVEIGH (As Administrator of the Deed of Company Arrangement of ACN 053 013 255) VG 3526 of 1995; DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v
ACN 053 318 308 PTY LIMITED (ACN 053 318 308) (Subject to a Deed of Company Arrangement) and DEAN ROYSTON McVEIGH (As Administrator of the Deed of Company Arrangement of ACN 053 318 308) VG 3527 of 1995; DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v ACN 053 006 170 PTY LTD (Subject to a Deed of Company Arrangement) and DEAN ROYSTON McVEIGH (As Administrator of the Deed of Company Arrangement of ACN 053 006 170 Pty Ltd) VG 3528 of 1995; DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v ACN 053 006 269 PTY LTD (Subject to a Deed of Company Arrangement) and DEAN ROYSTON McVEIGH (As Administrator of the Deed of Company Arrangement of ACN 053 006 269 Pty Ltd) VG 3529 of 1995; DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v ACN 053 006 312 PTY LTD (Subject to a Deed of Company Arrangement) and DEAN ROYSTON McVEIGH (As Administrator of the Deed of Company Arrangement of ACN 053 006 312 Pty Ltd) VG 3530 of 1995; DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v ACN 057 596 479 PTY LTD (Subject to a Deed of Company Arrangement) and DEAN ROYSTON McVEIGH (As Administrator of the Deed of Company Arrangement of ACN 057 596 479 Pty Ltd) VG 3531 of 1995.

COURT: Sundberg J

PLACE: Melbourne

DATE: 25 October 1995

IN THE FEDERAL COURT OF AUSTRALIA )

VICTORIA DISTRICT REGISTRY ) No VG 3525 of 1995

GENERAL DIVISION )

BETWEEN: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

AND: COMCORP AUSTRALIA LIMITED ACN 053 361 621 PTY LTD

(Subject to Deed of Company Arrangement)

First Respondent

AND: DEAN ROYSTON McVEIGH

(As Administrator of the Deed of Company Arrangement of COMCORP AUSTRALIA LIMITED)

Second Respondent

COURT: Sundberg J

DATE: 25 October 1995

PLACE: Melbourne

MINUTES OF ORDER

1. The Court declares that the meeting of creditors of the first respondent held on 10 February 1995 and the resolution passed at that meeting are not invalid by reason of the contraventions of section 439A(4) of the Corporations Law.

2. The Court declares that the Deed of Company Arrangement made 20 February 1995 between the first respondent and the second respondent is valid despite the contraventions of section 439A(4).

3. The Court orders that the Application be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

VICTORIA DISTRICT REGISTRY ) No VG 3526 of 1995

GENERAL DIVISION )

BETWEEN: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

AND: ACN 053 013 255 PTY LIMITED

(ACN 053 013 255)

(Subject to a Deed of Company Arrangement)

First Respondent

AND: DEAN ROYSTON McVEIGH

(As Administrator of the Deed of Company Arrangement of ACN 053 013 255)

Second Respondent

COURT: Sundberg J

DATE: 25 October 1995

PLACE: Melbourne

MINUTES OF ORDER

1. The Court declares that the meeting of creditors of the first respondent held on 3 February 1995 and the resolution passed at that meeting are not invalid by reason of the contraventions of section 439A(4) of the Corporations Law.

2. The Court declares that the Deed of Company Arrangement made 20 February 1995 between the first respondent and the second respondent is valid despite the contraventions of section 439A(4).

3. The Court orders that the Application be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

VICTORIA DISTRICT REGISTRY ) No VG 3527 of 1995

GENERAL DIVISION )

BETWEEN: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

AND: ACN 053 318 308 PTY LIMITED

(ACN 053 318 308)

(Subject to a Deed of Company Arrangement)

First Respondent

AND: DEAN ROYSTON McVEIGH

(As Administrator of the Deed of Company Arrangement of ACN 053 318 308)

Second Respondent

COURT: Sundberg J

DATE: 25 October 1995

PLACE: Melbourne

MINUTES OF ORDER

1. The Court declares that the meeting of creditors of the first respondent held on 6 February 1995 and the resolution passed at that meeting are not invalid by reason of the contraventions of section 439A(4) of the Corporations Law.

2. The Court declares that the Deed of Company Arrangement made 20 February 1995 between the first respondent and the second respondent is valid despite the contraventions of section 439A(4).

3. The Court orders that the Application be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

VICTORIA DISTRICT REGISTRY ) No VG 3528 of 1995

GENERAL DIVISION )

BETWEEN: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

AND: ACN 053 006 170 PTY LTD

(Subject to a Deed of Company Arrangement)

First Respondent

AND: DEAN ROYSTON McVEIGH

(As Administrator of the Deed of Company Arrangement of ACN 053 006 170 Pty Ltd)

Second Respondent

COURT: Sundberg J

DATE: 25 October 1995

PLACE: Melbourne

MINUTES OF ORDER

2. The Court declares that the Deed of Company Arrangement made 20 February 1995 between the first respondent and the second respondent is valid despite the contraventions of section 439A(4).

3. The Court orders that the Application be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

VICTORIA DISTRICT REGISTRY ) No VG 3529 of 1995

GENERAL DIVISION )

BETWEEN: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

AND: ACN 053 006 269 PTY LTD

(Subject to a Deed of Company Arrangement)

First Respondent

AND: DEAN ROYSTON McVEIGH

(As Administrator of the Deed of Company Arrangement of ACN 053 006 269 Pty Ltd)

Second Respondent

COURT: Sundberg J

DATE: 25 October 1995

PLACE: Melbourne

MINUTES OF ORDER

2. The Court declares that the Deed of Company Arrangement made 20 February 1995 between the first respondent and the second respondent is valid despite the contraventions of section 439A(4).

3. The Court orders that the Application be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

VICTORIA DISTRICT REGISTRY ) No VG 3530 of 1995

GENERAL DIVISION )

BETWEEN: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

AND: ACN 053 006 312 PTY LTD

(Subject to a Deed of Company Arrangement)

First Respondent

AND: DEAN ROYSTON McVEIGH

(As Administrator of the Deed of Company Arrangement of ACN 053 006 312 Pty Ltd)

Second Respondent

COURT: Sundberg J

DATE: 25 October 1995

PLACE: Melbourne

MINUTES OF ORDER

1. The Court declares that the meeting of creditors of the first respondent held 6 February 1995 and the resolution passed at that meeting are not invalid by reason of the contraventions of section 439A(4) of the Corporations Law.

2. The Court declares that the Deed of Company Arrangement made 20 February 1995 between the first respondent and the second respondent is valid despite the contraventions of section 439A(4).

3. The Court orders that the Application be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

VICTORIA DISTRICT REGISTRY ) No VG 3531 of 1995

GENERAL DIVISION )

BETWEEN: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

AND: ACN 057 596 479 PTY LTD

(Subject to a Deed of Company Arrangement)

First Respondent

AND: DEAN ROYSTON McVEIGH

(As Administrator of the Deed of Company Arrangement of ACN 057 596 479 Pty Ltd)

Second Respondent

COURT: Sundberg J

DATE: 25 October 1995

PLACE: Melbourne

MINUTES OF ORDER

2. The Court declares that the Deed of Company Arrangement made 20 February 1995 between the first respondent and the second respondent is valid despite the contraventions of section 439A(4).

3. The Court orders that the Application be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

VICTORIA DISTRICT REGISTRY )

GENERAL DIVISION )

No VG 3525 of 1995

BETWEEN: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

AND: COMCORP AUSTRALIA LIMITED ACN 053 361 621 PTY LTD

(Subject to Deed of Company Arrangement)

First Respondent

AND: DEAN ROYSTON McVEIGH

(As Administrator of the Deed of Company Arrangement of COMCORP AUSTRALIA LIMITED)

Second Respondent

No VG 3526 of 1995

BETWEEN: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

AND: ACN 053 013 255 PTY LIMITED

(ACN 053 013 255)

(Subject to a Deed of Company Arrangement)

First Respondent

AND: DEAN ROYSTON McVEIGH

(As Administrator of the Deed of Company Arrangement of ACN 053 013 255)

Second Respondent

No 3527 of 1995

BETWEEN: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

AND: ACN 053 318 308 PTY LIMITED

(ACN 053 318 308)

(Subject to a Deed of Company Arrangement)

First Respondent

AND: DEAN ROYSTON McVEIGH

(As Administrator of the Deed of Company Arrangement of ACN 053 318 308)

Second Respondent

No 3528 of 1995

BETWEEN: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

AND: ACN 053 006 170 PTY LTD

(Subject to a Deed of Company Arrangement)

First Respondent

AND: DEAN ROYSTON McVEIGH

(As Administrator of the Deed of Company Arrangement of ACN 053 006 170 Pty Ltd)

Second Respondent

No 3529 of 1995

BETWEEN: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

AND: ACN 053 006 269 PTY LTD

(Subject to a Deed of Company Arrangement)

First Respondent

AND: DEAN ROYSTON McVEIGH

(As Administrator of the Deed of Company Arrangement of ACN 053 006 269 Pty Ltd)

Second Respondent

No 3530 of 1995

BETWEEN: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

AND: ACN 053 006 312 PTY LTD

(Subject to a Deed of Company Arrangement)

First Respondent

AND: DEAN ROYSTON McVEIGH

(As Administrator of the Deed of Company Arrangement of ACN 053 006 312 Pty Ltd)

Second Respondent

No 3531 of 1995

BETWEEN: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

AND: ACN 057 596 479 PTY LTD

(Subject to a Deed of Company Arrangement)

First Respondent

AND: DEAN ROYSTON McVEIGH

(As Administrator of the Deed of Company Arrangement of ACN 057 596 479 Pty Ltd)

Second Respondent

COURT: Sundberg J

DATE: 25 October 1995

PLACE: Melbourne

REASONS FOR JUDGMENT

SUNDBERG J:

The Applications

There are eight members of the Comcorp Group of companies. Some of them now have different names, but it is convenient to use their old names: Comcorp Australia Limited ("Comcorp"), Apocalypse Post (Vic.) Pty. Ltd. ("Apocalypse"), Duplication Centre Pty. Ltd. ("Duplication"), CEL Home Video Pty. Ltd. ("CEL"), Apolcalypse Post Pty. Ltd. ("Apolcalypse Post"), Video Sell-Thru Australia Pty. Ltd. ("Video Sell-Thru"), Vision Home Video Pty. Ltd. ("Vision Home") and Comcorp Outside Broadcast Pty. Ltd. ("Outside
Broadcast"). Each company other than Outside Broadcast is party to a deed of company arrangement made on 20 February 1995 with Dean Royston McVeigh as Administrator. The Deputy Commissioner of Taxation has applied for orders under s.445G(2) of the Corporations Law declaring each deed void. In the alternative he seeks orders under s.445D(1) terminating each deed. In the further alternative he seeks orders under s.447A that the administrations end and that the companies be wound up in insolvency. The Commissioner is a creditor of each company the subject of an application. The applications were heard together.

Background

On 16 September 1993 Receivers were appointed to the companies in the Comcorp Group. The Receivers retired on 16 December 1994. On 4 January 1995 the Group companies and Gonam Pty. Ltd. ("Gonam") commenced proceedings in the Supreme Court of Victoria against the Commonwealth Bank, the Bank of New Zealand, Geoffrey Noel Crawford-Fish and Timothy Guthrie Hardman. Messrs. Crawford-Fish and Hardman were the Receivers appointed to the companies by the two banks. On 11 January 1995 Mr. McVeigh was appointed Administrator of the Group companies other than Outside Broadcast. The first meetings of creditors of those companies were held on 16 January. On 26 January Mr. McVeigh issued a Report for each of the companies under administration. On 3 February the creditors of Apocalypse resolved to enter into a deed of company arrangement. On the same day the meeting of Comcorp's creditors was adjourned to 10 February. On 6 February separate meetings of creditors of Video Sell-Thru, Vision Home, CEL, Duplication and Apocalypse Post were held. In each case the creditors resolved to enter into a deed of company arrangement. At their resumed meeting on 10 February Comcorp's creditors resolved to enter into a deed. On 20 February each company executed a deed of company

arrangement.

Supreme Court proceeding

The statement of claim alleges that in October 1991 the banks agreed to provide financial accommodation to Comcorp, and as security the Group companies executed charges in favour of the banks. It is then alleged that in September 1992 an agreement was made between Comcorp and Gonam of the one part and the banks of the other part by which Gonam agreed to subscribe for half the issued share capital of Comcorp. One of the terms of this agreement, which is called "the share agreement", was that the banks would continue to support the Group until the Group was trading profitably "or alternatively until 31 October 1993 or after 31 October 1993 until CBA and ANZ had found a buyer for those shares ... if no buyer had been found by 31 October 1993". Another term was that the banks would not take any steps to call up or terminate the facilities or enforce the charges consequent on any default thereunder without giving Gonam the opportunity to remedy the default. Pursuant to the share agreement Gonam subscribed $500,000 for half of Comcorp's shares, and the banks continued to support the Group notwithstanding Comcorp's failure to pay interest due under the facility.

By an agreement made in March 1993 the banks are alleged to have agreed to forego, or alternatively defer until such time as the Group was trading profitably, the payment of interest and other charges in respect of the facilities, to continue to support the Group in the manner promised in the share agreement, and not to enforce the facilities or charges until certain conditions were satisfied.

In September 1993, allegedly in breach of the agreements, the banks purported to terminate the facilities and enforce the charges by appointing the Receivers. It is then said that because of the share agreement and the March agreement there had been no default under the facilities or charges so that the banks were not entitled to enforce them. The Group and Gonam are said to have suffered loss and damage as a result of the banks' actions. The
Group companies' loss is the value of their assets ($28 million) less the amount owing to the banks, together with loss of profits. Gonam's loss included the loss of the value of its shares in Comcorp.

An alternative claim is that the banks made representations to Gonam and Comcorp to the same effect as the terms of the share agreement and the March agreement, that in reliance on the truth of the representations Gonam purchased half the shares in Comcorp and Comcorp used the subscription money to purchase a business. The representations were untrue and were made by the banks fraudulently, alternatively negligently. In the further alternative the banks' conduct is said to have contravened s.52 of the Trade Practices Act 1974. There is also a claim that the banks breached a term of the facility agreement that they would give the Group reasonable notice to repay the balance outstanding under that agreement, whereby the Group suffered loss and damage. There is a further claim that in taking possession of the Group's assets the Receivers committed the tort of conversion.

The Administrator's Reports

The Report on Comcorp stated that

The company proposes that it enter into a Deed of Company Arrangement which will provide that the creditors accept in full and final settlement of their debts the proceeds, after costs of administration, of cash at bank, plant and equipment, investment in Comcorp Outside Broadcast Pty. Ltd., inter-company accounts and the share of proceeds, if any, of the legal action against the Banks and Receivers.

The Report then set out in the form of a chart the amount estimated to be available to creditors in a liquidation on the one hand ($113,836) and under the proposal on the other ($256,076). On a liquidation the creditors would receive 18 cents in the dollar, and under
the deed 41 cents in the dollar. The difference was due in part to the sum of $56,000 (available only under the deed) representing Comcorp's share of the proceeds of the Supreme Court action. This amount was said to be "based on $1 million proceeds". If the proceeds from the action were to exceed $1 million, "the dividend in a Deed of Arrangement would increase proportionately". The claim was said to be for approximately $10 million.

The Report then described the Supreme Court proceeding:

The Comcorp Group companies and Gonam Pty. Ltd., a company associated with the directors, have initiated legal action against the Commonwealth Bank and Bank of New Zealand for, in layman's terms, wrongful appointment of Receivers and Managers with resultant damages and also against the Receivers and Managers for causing loss and damage to the Group by their actions during the receivership.

The Administrator then said that the companies' lawyers had told him that "both of the legal actions" were soundly based. On the other hand, the Receivers had told him that the claim against them was without foundation. The Report continued:

On the assumption that the action is successful to some extent, the Group proposes to apportion its share of the proceeds as follows:

(i) Firstly, reimbursement of costs to each company which advanced monies to pursue the legal action, or rateably apportioned if proceeds are insufficient to fully cover costs;

(ii) Secondly, 50 per cent of the proceeds after costs to be shared rateably amongst the companies which provided monies in direct proportion to the monies advanced; and

(iii) Thirdly, the remaining 50 per cent of the proceeds after costs to be apportioned equally over all eight companies in the Group.

The intention of this method of disbursement is to reward those creditors in companies where monies have been risked but to provide a return to creditors in those companies which could not afford to provide monies without resorting to requesting advances from creditors.

Under the heading "Recommendation" the Report concluded:

The return available to creditors from the proposal by the company clearly exceeds that available in a liquidation.

...

Legal advice indicates that the claim against the Banks and Receivers is a commercially acceptable risk.

...

Based on the contents of this report and my review of company records, I recommend the proposal for acceptance by creditors.

The Reports on Apocalypse, Duplication, Apocalypse Post and Video Sell-Thru were in much the same form as that on Comcorp, though the financial positions of the companies varied, and the analysis of the merits of liquidation as against a deed of company arrangement was different in each case. The Reports on CEL and Vision Home differed in one respect from the other Reports. CEL and Vision Home each proposed a deed under which the company would proceed with legal action against Roadshow Entertainment Pty. Ltd. ("Roadshow"), and the creditors would accept, in settlement of their debts, "the proceeds, after costs of administration, of cash at bank, cash withheld by Receivers, proceeds of the Roadshow legal action and proceeds, if any, of the legal action against the Banks and Receivers". The details of the Roadshow litigation are not material for present purposes.

The Deeds

Clause 2 of Comcorp's deed provided:

The object of this Deed of Company Arrangement is to endeavour to obtain a better return for creditors by allowing the Company to pursue the Cause of Action for the benefit of the creditors and then pay to the Administrator the company's share of the proceeds of the Cause of Action and for the Administrator to distribute the proceeds in accordance with the terms of this Deed.

All creditors were bound by the deed: clause 3. As from the date of the deed, the directors resumed control of the company: clause 4.2. By clause 6.1 Comcorp assigned to the Administrator all cash at bank, plant and equipment, shares in Outside Broadcast and the proceeds of inter-company loan accounts upon trust to be dealt with in accordance with the deed. The Excluded Assets were not assigned: clause 6.2.

By clause 7 Comcorp agreed expeditiously to prosecute the Cause of Action, not to settle it without the Administrator's consent, and to procure the Group to pay the Administrator the Group Asset upon its realisation. By clause 7.5 the Administrator was required to "apportion the Group Asset to each Company in the Comcorp Group" as follows:

7.5.1 First, to reimburse the Administrator of any Deed of Company Arrangement of any such company or (if such company is not under a Deed of Company Arrangement) the company itself ... in respect of monies advanced to the Litigation Fund either before or after the Fixed Date ....

7.5.2 Secondly, 50% of the remaining Group Asset (if any) shall be apportioned according to the same formula set out in Clause 7.5.1 above.

7.5.3 Thirdly, the other 50% of the remaining Group Asset (if any) shall be apportioned equally among the members of the Comcorp Group.

Clause 8 required the Administrator to pay the creditors dividends from the Deed Assets and from Comcorp's portion of the Group Asset. By clause 9 Comcorp could call upon the Administrator to augment the Litigation Fund from the Deed Assets, and the Administrator was required to comply with the request "unless for good reason he determines not to do so". Clause 10 dealt with the Administrator's remuneration. By clause 11 it was a condition of the deed coming into operation that each member of the Group other than Comcorp agree to be bound by the Administrator's apportionment of the Group Asset in accordance with clause 7.5.

A number of definitions must to be noted. The "Cause of Action" is the Supreme Court proceeding. The "Deed Assets" are those set out in clause 6.1. The "Excluded Assets" are the Litigation Fund and the Cause of Action. The "Group Asset" is the proceeds of the Cause of Action. "Litigation Fund" means the money paid by Comcorp to its solicitors prior to the Fixed Date and any money subsequently paid by the Administrator under clause 9.

The deeds executed by the other companies were in much the same form as the Comcorp deed, save that in the CEL and Vision Home deeds the property assigned to the Administrator included the relevant company's interest in the Roadshow proceeding.

The Clause 11 Agreement

By agreement made on 20 February 1995 the Group companies agreed to be bound by the Administrator's decision in relation to the apportionment of the proceeds of the action.

Heads of Agreement

In an affidavit sworn on 4 October 1995 and filed on behalf of the Group companies, Roland Petrie Newman deposed that agreement had "recently" been reached between Gonam and the
Administrator as to the apportionment of the proceeds of the action. An unsigned and undated Heads of Agreement between Gonam, Outside Broadcast and the Administrator was produced. The document records that on a negotiated settlement of the action the proceeds are to be applied first in payment of costs, and the balance apportioned as to 50 per cent to the Group and 50 per cent to Gonam. If Gonam alone is successful, the proceeds are to be applied first in payment of the Group's costs, with the balance going to Gonam. If the Group alone is successful, the proceeds are to be applied first in payment of Gonam's costs (being the time spent by its directors in instructing and preparing for the proceeding), with the balance going to the Group. If the Group and Gonam both receive damages and costs, each party is "responsible for that percentage of the combined costs of all parties rateably in accordance with their award of damages and costs". If judgment is entered in favour of the plaintiffs but is not apportioned by the court between Gonam and the Group, the proceeds are to be apportioned in the same manner as if there had been a negotiated settlement. If the defendants are successful, each party will bear its own costs and make no claim against the others.

The legislation

The object of Part 5.3A of the Corporations Law is stated in s.435A:

to provide for the business, property and affairs of an insolvent company to be administered in a way that:

(a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or

(b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company.

Section 436A enables a company to appoint an administrator if its board has resolved that the company is insolvent or is likely to become insolvent and that an administrator should be appointed. Section 436E requires an administrator, within five days of appointment, to convene a meeting of creditors in order to determine whether to appoint a committee of creditors. While a company is under administration, the administrator has control of its business, property and affairs, may carry on the business and manage the property and affairs, may terminate or dispose of all or part of the business, and dispose of any of the property, and may perform any function and exercise any power that the company or any of its officers could perform or exercise if the company were not under administration: s.437A.

Section 438A requires the administrator, as soon as practicable after the commencement of administration, to investigate the company's business, property, affairs and financial circumstances, and form an opinion as to whether it would be in the interests of creditors for the company to execute a deed of company arrangement, or for the administration to end, or for the company to be wound up. Section 439A requires the administrator to convene a meeting of creditors within twenty one days of the day when the administration commenced. The meeting must be held within five days after the end of that period. The administrator must give written notice of the meeting to as many of the creditors as is reasonably practicable at least five business days before the meeting. Sub-section (4) requires the notice to be accompanied by a copy of

(a) a report of the administrator about the company's business, property, affairs and financial circumstances; and

(b) a statement setting out the administrator's opinion about each of the following matters:

(i) whether it would be in the creditors' interests for the company to execute a deed of company arrangement;

(ii) whether it would be in the creditors' interests for the administration to end;

(iii) whether it would be in the creditors' interests for the company to be wound up;

and his or her reasons for those opinions; and

Section 439C provides that at their meeting the creditors may resolve

(a) that the company execute a deed of company arrangement specified in the resolution (even if it differs from the proposed deed (if any) details of which accompanied the notice of meeting); or

(b) that the administration should end; or

Where the creditors resolve that the company execute a deed, s.444A(3) requires the administrator to prepare an instrument setting out the terms of the deed. Section 444B requires the company to execute the instrument within twenty one days after the end of the meeting of creditors. The instrument becomes a deed of company arrangement when it has been executed by the company and by the administrator: s.444B(6). A deed binds all creditors so far as concerns claims arising on or before the day specified in it.

Section 445D(1) empowers the Court to terminate the deed if satisfied that

(a) information about the company's business, property, affairs or financial circumstances that:

(i) was false or misleading; and

(ii) can reasonably be expected to have been material to creditors of the company in deciding whether to vote in favour of the resolution that the company execute the deed;

was given to the administrator of the company or to such creditors; or

(b) such information was contained in a report or statement under sub-section 439A(4) that accompanied a notice of the meeting at which the resolution was passed; or

(c) there was an omission from such a report or statement and the omission can reasonably be expected to have been material to such creditors in so deciding.

The sub-section lists other grounds on which a deed can be terminated, but it is not necessary to set them out.

Section 445G is in part as follows:

(1) Where there is doubt, on a specific ground, whether a deed of company arrangement was entered into in accordance with this Part or complies with this Part, the administrator of the deed, a member or creditor of the company, or the Commission, may apply to the Court for an order under this section.

(2) On an application, the Court may make an order declaring the deed, or a provision of it, to be void or not to be void, as the case requires, on the ground specified in the application or on some other ground.

(3) On an application, the Court may declare the deed, or a provision of it, to be valid, despite a contravention of a provision of this Part, if the Court is satisfied that

(a) the provision was substantially complied with; and

(b) no injustice will result for anyone bound by the deed if the contravention is disregarded.

Section 447A empowers the Court to make such order as it thinks appropriate "about how this Part is to operate in relation to a particular company".

Approach to Part 5.3A

The Commissioner contended that the principles applicable to the court's approval of schemes of arrangement are applicable under s.445D. Even before there was any statutory requirement such as that now contained in s.411(3), the court insisted upon a full and fair explanation and disclosure to members and creditors prior to meetings called to consider a scheme. In Re Dorman Long & Co. Ltd. [1934] Ch.635, at p.657 Maugham J. said:

... the Court takes the view that it is essential to see that explanatory circulars sent out by the board of the company are perfectly fair and, as far as possible, give all the information reasonably necessary to enable the recipients to determine how to vote.

See also Re Metropolitan Fuel Pty. Ltd. [1962] V.R. 675, at p.678 and Re Pheon Pty. Ltd. (1986) 11 A.C.L.R. 142, at pp.146-147. In my view it is not necessary to resort to cases such as Dorman in order to discover what level of information is to be provided to creditors under Pt 5.3A. It is clear from s.444D(1) that they are to be provided with information that can reasonably be expected to be material to them in deciding whether to vote in favour of the resolution that the company execute a deed of company arrangement. That an administrator is not required to give creditors the same detailed information to which they would be entitled prior to voting on a scheme of arrangement is apparent from the observations of Cohen J. in Hagenvale Pty. Ltd. v. Depela Pty. Ltd. (1995) 17 A.C.S.R. 139, at pp.145-146:

The intention [behind Pt 5.3A] was ... to provide a more expeditious and less expensive way of assisting those creditors and members than under the greater formality of a winding up or of the entry into a scheme of arrangement. One result, however, is that an administrator, constrained as he or she is by the time limits imposed under the Part, cannot carry out a detailed investigation of a company in the same way as can a liquidator, and accordingly the administrator's actions must be looked at in the light of that more restricted range of activities which are available to him. A further result, when dealing with a deed of company arrangement under Pt 5.3A, is that the amount of detailed information which would be given to creditors in a scheme of arrangement under s.411 of the Corporations Law is not available, again because of time restrictions and the need to have material sent to the creditors quickly.

See also pp.149 and 150.

Commissioner's case under s.445D(1)(a) and (b)

An affidavit sworn by Mr. Papadimitriou in support of the Commissioner's application specified two grounds upon which the Commissioner contends that the Reports contained information that was false or misleading within s.445D(1)(a) and (b). The first complaint is that the Reports set out the expected return to the relevant company from the proceeds of the action on the assumption that the amount recovered would be $1 million. This is said to be misleading because the deeds say that the return is to be determined by an apportionment formula related to the amount of costs contributed by the company to the action.

This complaint is in my view based on a misreading of the Reports. Each Report sets out the apportionment formula in the form later incorporated in clause 7.5 of the deed. The estimated distributions, based on an assumed recovery of $1 million, are but an illustration of the way in which the formula would work on that assumption. The Report does not represent that the share of each company is to be determined by reference to an actual amount per $1 million. Let it be assumed that the costs of the action amount to $104,000 and that Comcorp made no contribution to costs. The costs are first deducted under par.(i) of the formula. Half the balance is distributed under par.(ii). Nothing goes to Comcorp.
The remaining $448,000 is split equally amongst the Group members, and Comcorp thus receives $56,000. But if the amount recovered is $2 million, Comcorp's share will not double. Rather, the costs of the action being the same, it will receive $118,500.

The second claim is that creditors were led to believe that Gonam and Outside Broadcast would receive virtually no benefit from the proceeding. I do not understand this claim so far as it relates to Outside Broadcast. The complaint was not mentioned in the course of argument or in the Commissioner's detailed written submissions, and it appears to have been abandoned. There is no substance in the claim relating to Gonam. The Report states that the Group companies and Gonam are plaintiffs in the action. The formula deals only with the Group's share of the proceeds. The balance goes to Gonam.

Commissioner's case under s.445D(1)(c)

Mr. Papadimitriou's affidavit specified five material omissions from the Reports which he said should lead to the deeds being terminated under s.445D(1)(c). The first is that creditors were not told which companies had contributed or would be contributing to the costs of the litigation and how much had been or was to be contributed by each. The Reports are indeed silent on these topics. But the omission of this information would not in my view reasonably be expected to have been material to creditors in deciding whether to vote in favour of the resolution. It was sufficient for the creditors to be told, as they were, that the formula involved a reward to those companies which had contributed to the fighting fund.

The second omission is that the Reports did not inform creditors that two directors of Gonam, Messrs. Lithgow and Newman, were also directors of the Group companies. Each Report states that Gonam is a company associated with the directors of the Group companies. I do not consider the failure to name the two common directors was information that would be expected to be material to the creditors in deciding how they would vote.

Then it is said that the Reports omitted to state that Gonam had not contributed any money to the fighting fund, and that there was no agreement in place as to how the Group and Gonam would share the proceeds of the action. That Gonam was to get a share of the proceeds without having contributed to the costs of the action was something which could reasonably be expected to have been material to the creditors in deciding how to vote. Similarly, the fact that no agreement had been reached as to the respective shares of Gonam and the Group was material in the sense described.

The next claim is that the Reports omitted to state that Outside Broadcast would be repaid any contribution it made to the fighting fund in priority over other creditors. I do not think there is any such omission. The Reports state that Outside Broadcast is a member of the Group. Paragraph (i) of the apportionment formula thus entitles it to be reimbursed any contribution it may have made to the fighting fund.

The final claim is that the Reports failed to state that the companies were to be returned to the directors and that the Administrator would have only limited rights in relation to the conduct of the legal action and its funding. Clause 7.2 of each deed provides that the company shall not enter into any terms of settlement of the action without first obtaining the written consent of the Administrator. Clause 9 enables the Administrator to refuse to augment the Litigation Fund from the Deed Assets if for good reason he determines not to do so. Although the evidence is not clear, it appears that the draft deeds came into existence at some time between 4 and 6 February 1995. The Reports were issued a week before. I am however prepared to infer from the Reports as a whole that when he issued them the Administrator knew the proposal was that the directors would have the running of the litigation, but that he could refuse to augment the Litigation Fund and could veto any proposed settlement. In my view the creditors should have been informed of these matters.

The seven extra grievances

In opening the Commissioner's case counsel raised additional grievances that had not been foreshadowed in the material filed in Court. The respondents' counsel initially objected to the Commissioner relying on these matters, but subsequently said they felt able to deal with them despite being taken by surprise. There were seven matters it was said the Administrator should have dealt with in his Report. He should have:

(a) assessed each company's prospects of success in the proceeding;

(b) assessed each company's prospects of recovering damages;

(d) considered, in the case of a company which was unlikely to recover any significant amount, what commercial value there was in that company applying its assets in pursuing the action on behalf of the others;

(e) stated what, if any, arrangements existed between the companies for sharing the proceeds of the action;

(f) explained why, if a company has good prospects in the action, it should share its damages with other companies;

(g) explained why any of the companies should fund the action the benefit of which would flow to Gonam.

Counsel for the Commissioner did not relate these grievances to any particular provision of Part 5.3A. It is, however, probable that it was intended to rely on them as omissions within s.445D(1)(c).

Grievances (a) to (d) and (f) assume that the action would proceed in the absence of the deeds. That is a false assumption. The Reports proceed on the basis that the action would not proceed if the Group companies were wound up. The comparison charts in the Reports
contain no amount in the liquidation column for any recovery from the action. That is not because the action would succeed if deeds were executed but fail if the companies were wound up. It was because it was assumed, in my view quite reasonably, that the litigation would not proceed if the companies were wound up. The omission of information relevant only to the winding up scenario would not have been material to creditors in deciding how to vote. What was material, and was disclosed, was that nothing would be derived from the action on a liquidation.

The complaint in (e) was not expanded or explained. The formula in part 5 of each Report deals with the sharing of the proceeds as between the Group companies, and thus grievance (e) presumably relates to the split up between the Group on the one hand and Gonam on the other. I have already dealt with this omission.

Grievance (g) is based on the premise that the action was solely for Gonam's benefit, and perhaps also on the premise that Gonam was making no contribution to its prosecution. Both premises are false. The Reports indicate, as is the case, that the Group companies and Gonam were plaintiffs in the action. While Gonam was not contributing money, it was contributing the time and services of the personnel essential to the running of the action. The Commissioner's complaint can therefore be put no higher than that the Administrator should have said that the action had the potential to benefit Gonam, and that the Group companies were happy with this because, while Gonam was not contributing money, the services of its directors were essential to the running of the action. As to the first matter, the creditors were told that Gonam might benefit from the action. They were told it was one of the plaintiffs, and that the Group proposed to apportion its share of the proceeds in a particular way. It is obvious from this that Gonam, the only other possible beneficiary of the action, might receive a share. So there was no omission such as that
alleged. I have already dealt with the failure to state that Gonam was to get a share of the proceeds without having contributed to the costs.

The Commissioner's case under s.445G

Mr. Papadimitriou's affidavit specified three grounds upon which the deeds should be declared void under s.445G(2). The first was that s.439A(4) had not been complied with in that the creditors were not given a statement setting out the Administrator's opinion on the matters listed in sub-s.(4)(b). The second was that the creditors were not given a statement setting out details of the proposed deeds as required by sub-s.(4)(c). The third was that s.439C had not been complied with in that the creditors' resolutions that the companies execute deeds did not specify the deeds.

The Comcorp Report, which I will use as the example, does in my view set out the Administrator's opinion about the three matters specified in s.439A(4)(b). It is true that the Administrator does not in terms express any opinion, let alone three opinions. But he does recommend to the creditors that they accept the company's proposal that it enter into a deed. He makes that recommendation because the return available to creditors under the proposal will exceed that available in a liquidation. Inhering in the recommendation and the reason on which it is based is the expression of an opinion that it would be in the creditors' interests for the company to execute a deed. It follows from the Administrator's recommendation and reason that he was of the opinion that it was not in the creditors' interests for the company to be wound up. Any reader of the Report would understand him to be expressing that opinion as a result of having expressed the opinion that it would be in the creditors' interests for a deed to be executed. It also follows from the recommendation and reason that the Administrator was expressing the opinion that it would not be in the creditors' interests for the administration to end. His recommendation and reason have built into them the expression of an opinion to that effect. The two courses of action were
mutually exclusive: the execution of a deed necessarily involves the continuation of the administration.

The Commissioner relied on Re Burlock (1994) 121 A.L.R. 168 and The Commonwealth v. Ermayne Pty. Ltd., an unreported decision of O'Loughlin J. given on 17 August 1995. Burlock involved s.189A(3) of the Bankruptcy Act 1966, which requires the trustee's report to state whether or not, in the trustee's opinion, it would be in the best interests of creditors to deal with the debtor's affairs under Part X. The trustee said that "in the circumstances any recommendation or lack of same would carry no weight and accordingly I invite creditors to carefully peruse the relevant material to assess the position". The Full Court affirmed the decision of the trial judge that the trustee had not expressed the opinion required by sub-s.(3). But Burlock is quite unlike the present case. The trustee declined to make a recommendation, and thus declined to express an opinion. In the present case the Administrator's recommendation was clear and distinct and, as I have said, carried with it the expression of the opinions. Ermayne concerned s.439A(4). Having said that he was required to give his opinion as to which option was in the best interests of creditors, the administrator said: "In this particular case I am not at present in a position to form an opinion because of the unknown factor of the preference recoveries and which, if any, creditors, would indemnify the liquidator in such proceedings". He went on to say that in making their decisions creditors should consider a number of factors which he then set out. O'Loughlin J. felt himself obliged by Burlock to hold that the administrator had failed to express the opinions required by the section. That case is distinguishable from the present case for the same reason that Burlock is distinguishable.

The Commissioner also contended that the Administrator had failed to comply with s.439A(4) because the sub-section contemplated that where a deed was proposed, the notice would be accompanied by three documents: a report, a statement of opinion and a statement
containing details of the proposed deed. The Commissioner's construction of s.439A(4) is in my view correct. The introductory words "accompanied by a copy of", together with the conjunction "and" at the end of pars.(a) and (b), indicate that the statements required by pars.(b) and (c) are to be separate documents.

The affidavit in support of the Commissioner's applications did not specify as a ground of attack that the Administrator had failed to give reasons for his opinions (on the assumption that he had expressed opinions). But that attack was mounted at the hearing. In my view it fails. For the reasons I have given, the Administrator expressed the opinions that it would be in the creditors' interests for a deed to be executed, that it would not be in their interests for the company to be wound up, and that it would not be in their interests for the administration to end. He expressed those opinions because the return available to creditors under the deed "clearly exceeds that available in a liquidation". That was his reason for expressing each opinion.

The Commissioner next contended that the Administrator had failed to set out details of the proposed deed, which he was required to do by s.439A(4)(c). The Commissioner's argument on this point took the form of a comparison between the deeds in fact executed and the Report, pointing out the terms of the deeds that were not mentioned in the Report. This exercise loses much of its force when it is recalled that the legislation contemplates that there may be no deed in existence at the time the administrator makes a report. Thus s.444A(3) requires the administrator, after the creditors have resolved that a deed be executed, to prepare an instrument setting out the terms of the deed. As I have said, the draft deeds did not come into existence until a week after the Reports were issued. I do not consider that par.(c) requires every provision of the deed to be set out. Had that been the intention, the section would have required a copy of the deed to be sent out with the notice of meeting. What par.(c) requires is that the essential features of the proposed deed be set out. In part 3
of each Report a broad description of the proposed deed was given. In settlement of their debts, the creditors were to accept the proceeds, after costs of administration, of specified assets, and the company's share of the proceeds of the legal action against the banks and the receivers. Part 5 contained a summary of what became the operative clauses of the deed, namely clauses 7.3, 7.4, and 7.5. In particular, this part described the formula which was to govern the distribution of the proceeds of the litigation amongst the members of the Group. The one respect in which I consider the Report was deficient is that it did not say that the directors were to have control of the litigation and that the Administrator had only the power to veto any proposed settlement and to decline for "good reason" to contribute further money to the Litigation Fund. I think this was an important feature of the deeds which should have been set out in the Reports. The other provisions of the deeds are essentially administrative, and it was not in my view the intention of par.(c) that the creditors be told of every such detail.

The final attack under s.445G was that the creditors' resolutions did not specify the deeds that were to be executed. Section 439C(a) speaks of "a deed of company arrangement specified in the resolution". In the case of the companies other than Apocalypse, the resolution was "that the company enter into a Deed of Arrangement". In the case of these companies the draft proposed deed was circulated to all creditors at or prior to the relevant meeting. Only one deed was the subject of discussion at the meeting. In these circumstances the creditors are to be understood as having resolved that the deed of company arrangement that was to be entered into was the one that was on the table and had been the subject of discussion at the meeting. Read in its context, the resolution specified (i.e. identified) the deed that was to be executed.

No draft deed was available at the Apocalypse meeting. In the case of that company the creditors resolved that "the company enter into a Deed of Company Arrangement as
proposed in the notice of meeting". The deed proposed in the notice is that described in the Report. In my view the resolution did specify the deed that was to be executed.

Validation of deeds - s.445G(3)

Two contraventions of s.439A(4) have been sustained. The first is the failure to provide separate reports and statements. Counsel for the Commissioner said that if that were the only deficiency, the Commissioner would not oppose the making of a declaration under s.445G(3). The second contravention is the failure to state that the directors would have the running of the litigation and that the Administrator's role was indirect and limited. Despite these contraventions, I am satisfied that s.439A(4) has been substantially complied with. The most important features of the proposed deed were adequately set out. I am also satisfied that no injustice will result for anyone bound by the deeds if the contraventions are disregarded. There is nothing in the evidence to suggest that it would be in the interests of creditors for the deeds to be terminated and for the companies to be wound up. The Administrator's calculations show that a winding up would not be in the creditors' interests. In the course of cross-examination Mr. Papadimitriou conceded that the Commissioner's attack on the deeds was not based on any perceived benefit to creditors resulting from the deeds coming to an end. The following extracts illustrate his attitude:

... you said you did not go to Mr. McVeigh with your troubles or your concerns, did you go to the other creditors? ... No.

Would that influence you at all? ... No. Because my task was to check on the accuracy of the report ....

... The answer is no? ... No.

... If all the creditors, other than the Commissioner said: look, understand what you say, Mr. Papadimitriou, we think you may or may not be right but we want to go ahead with the scheme. You would not care, you would set it aside? ... My concern was the reports are false and mislead.

You would proceed to set it aside, would you? ... Yes, on the basis the report is false and misleading.

Yes. Notwithstanding every other creditor says: I want to go ahead with it? ... Yes.

The respondents relied on evidence from five creditors who said that they did not consider it would be in their interests for the deeds to be overturned. I will declare each deed to be valid notwithstanding the contraventions.

Section 1322 - s.439A(4) contraventions

In addition to seeking a validating order under s.445G(3), the respondents have applied under s.1322 for declarations in effect excusing the two contraventions of s.439A(4). Section 1322(4)(a) empowers the Court to declare

that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Law or in relation to a corporation is not invalid by reason of any contravention of a provision of this Law ....

Sub-section (6)(a) provides that the Court is not to make an order under sub-s.(4)(a) unless it is satisfied

(i) that the act, matter or thing, or the proceeding ... is essentially of a procedural nature;

(ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or

(iii) that it is in the public interest that the order be made ....

The Court must also be satisfied that no substantial injustice "has been or is likely to be caused" to any person: par.(c). Relief may be granted under s.1322 in relation to contraventions of Pt 5.3A, including contraventions of s.439A(4): Re Vanfox Pty. Ltd. (1994) 13 A.C.S.R. 209, at pp.216-217; Hagenvale v. Depela, at p.152. For the reasons I have given when considering s.445G(3), I am satisfied that no substantial injustice will be caused or is likely to be caused to any person by an order declaring that the creditors' meetings and the resolutions passed at them are not invalid by reason of the contraventions of s.439A(4). Although it is unnecessary for me to be satisfied as to the other matters in sub-s.(6)(a), I am in fact satisfied that the person or persons concerned in or party to the contraventions acted honestly. There is nothing in the evidence which suggests that the Administrator or any other person involved acted other than honestly. I am also satisfied that the contraventions in question were of a procedural nature. They were defects in relation to the calling of the meetings, and such defects are of a procedural nature: Vanfox, at pp.216-217. I am also satisfied that it is in the public interest that orders under s.1322 be made. The public interest is served by effect being given to the wishes of creditors. I refer to what I have said about the attitude of the Commissioner's main witness. I will declare that the creditors meetings and the resolutions passed at them are not invalid by reason of the contraventions of s.439A(4).

Section 1322 - s.445D(1)(c) omissions

I was asked to make orders under s.1322 in relation to the two s.445D(1)(c) omissions. In order for s.1322 to operate there must be a "contravention" of a provision of the Corporations Law. See Re W. Coogan & Co. Pty. Ltd. (1993) 11 A.C.L.C. 388, at pp.390-392. Section 445D does not impose obligations on any person. Rather it provides that if false or misleading information is conveyed to creditors, or if relevant material is omitted from a report or statement, the court may terminate a deed. Accordingly I cannot under s.1322 make declarations excusing the omissions.

Discretion to refuse relief - s.445D(1)

Section 445D(1) confers a discretion on the Court. The Commissioner contended that the discretion could not possibly be exercised against the making of a termination order where there had been an omission to disclose information that was material in the relevant sense. I do not agree that such a blanket approach can be adopted. Each case will depend on its own facts. If the provision of the omitted information might be expected to have caused the creditors to vote against the execution of a deed rather than (as they did) for it, a court may well be unlikely to excuse the contravention. But if the provision of the information might be expected not to have had that effect, or to have made it more likely that the creditors would vote as they did, there is no reason why the omission should not in an appropriate case be excused. Even where the court cannot be certain what effect the provision of omitted information might have had on creditors' voting intentions, it might appear in all the circumstances that it would not be in their interests for the deed to be terminated. The primary consideration in determining how the discretion should be exercised is the interests of creditors. I have already drawn attention to the object of Part 5.3A stated in s.435A(b). See also Vanfox, at p.215.

I will deal first with the Gonam contravention. Had the Administrator's Reports told the creditors how essential Gonam's co-operation was for the successful prosecution of the action, that its directors had spent much time in preparing the litigation, and that that was why the Group companies were funding the litigation while allowing Gonam a yet to be agreed share of the proceeds, the creditors would in my view been more likely, rather than less likely, to have voted in favour of the deeds. In any event, there is nothing in the evidence to suggest that it would be in the interests of creditors for the deeds to be terminated and for the companies to be wound up. The Administrator's calculations show that that would not be in the creditors' interests. The respondents relied on evidence from five creditors who said that they did not consider it would be in their interests for the deeds
to be overturned. In all those circumstances I do not propose to make an order terminating the deeds because of the Gonam contravention.

Had the Administrator informed the creditors that the directors were to have the running of the litigation, but that they could not settle it without his consent, and that he could indirectly manage the litigation because of his control over the augmentation of the Litigation Fund, I do not think the creditors would have voted differently from the way they did vote. In any event, as I have said in connection with the Gonam contravention, it would not be in their interests for the deeds to be terminated. Accordingly I do not propose to make an order terminating the deeds because of this contravention. Although s.1322 does not confer power to excuse an omission within s.445D(1)(c), I have taken into consideration in the exercise of my discretion under s.445D that I have under ss.445G(3) and s.1322(4) excused the Administrator's failure to set out the omitted material as a "detail" of the proposed deeds. That is to say, the details of the proposed deeds that were not set out is the same information as that omitted to be given under s.445D(1)(c).

Fiduciary duties

In the course of final submissions, counsel for the Commissioner sought to make a case based on the contention that the Comcorp Group directors and the Administrator were fiduciaries and consequently were obliged to disclose relevant matters, "especially where they propose to profit from the scheme". The respondents objected to what they called a new case being mounted without notice, after the evidence had closed. I said I would hear the Commissioner's argument and rule in due course on whether he should be allowed to rely on the new ground. I also said that if I did allow him to, I would permit the respondents to reopen their cases so as to deal with it. The new ground is found in paragraphs 26 to 29, 30, 31, 35, 39, 47(a) and (e) of the Commissioner's final written submissions. I have decided not to allow the new ground to be relied on. Mr.
Papadimitriou's affidavit distinctly identified the complaints with which the respondents came prepared to deal. They were then, without notice, faced with seven new complaints. As I have said, they felt able to deal with them despite the absence of notice. That was before the evidence was read and Mr. Papadimitriou cross-examined. The fiduciary duties claim was not only without notice, but was made after the evidence had closed, and after the respondents had made their final submissions.

In each case I will declare that the meeting of creditors and the resolution passed at the meeting are not invalid by reason of the contraventions of s.439A(4) of the Corporations Law, and that the deed of company arrangement is valid despite the contraventions of that sub-section, and will order that the application be dismissed with costs.

I certify that this and the preceding 30 pages are a true copy of the reasons for judgment of the Honourable Justice Sundberg

...............................................

Associate

25 October 1995

Counsel for the Applicant in each matter: D R Meagher QC and J Davies

Solicitors for the Applicant in each matter: Australian Government Solicitor

Counsel for the First Respondent in each matter: J W K Burnside QC and P J Booth

Solicitors for the First Respondent in each matter: Deacons Graham & James

Counsel for the Second Respondent in each matter: A Chernov QC and D J Williams

Solicitors for the Second Respondent in each matter: J M Smith & Emmerton

Date of Hearing: 9 - 12 October 1995

Place of Hearing: Melbourne

Date of Judgment: 25 October 1995

These seven Applications were heard together.

In the absence of some explanation the orders I am about to make will not be very informative.

Accordingly, before I pronounce them, I will say that the applicant has satisfied me that there have been two contraventions of s.439A(4) of the Corporations Law, and that in terms of s.445D(1)(c) the Administrator's Reports omitted two pieces of material information.

So far as the s.439A(4) contraventions are concerned, I am of the view that there has been substantial compliance with the Law and that no injustice will result if the contraventions are disregarded. I will accordingly make declarations under s.445G(3) that the deeds of company arrangement are valid despite the contraventions.

I also propose to make declarations under s.1322 that the creditors' meetings and the resolutions passed at those meetings are not invalid by reason of the contraventions of s.439A(4).

So far as the omissions under s.445D(1)(c) are concerned, in the exercise of my discretion I have decided not to make orders terminating the deeds. But because the omissions do not involve contraventions of the Law, I have no power to make declarations under s.1322 in relation to them.

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