FEDERAL COURT OF AUSTRALIA

Mentha, in the matter of Ansett Australia Limited v Sydney Airports Corporation Limited [2002] FCA 530

CORPORATIONS LAW – external administration – application by administrators pursuant to s 444B(2)(b) of the Corporations Act 2001 (Cth) – order sought extending time within which companies must execute deeds of company arrangement – extension sought to enable administrators to complete competitive bidding process for sale of major assets – extension sought to avoid dispute whether execution of deeds of company arrangement would activate buy‑back provisions in domestic terminal leases – structure of Pt 5.3A of the Corporations Act 2001 (Cth) – consideration of provisions affecting parties whose rights may be affected by administration and deed of company arrangement – where extension would prolong constraint on rights of lessors and owners of property to take possession of property – where extension would prolong constraint on persons bound by deeds of company arrangement not to act inconsistently with deeds.

Corporations Act 2001 (Cth):  Pt 5.3A, s 444B

IN THE MATTER OF ANSETT AUSTRALIA LIMITED (ACN 004 209 410) & ORS (in accordance with the Schedule attached) (All Administrators Appointed)

MARK FRANCIS XAVIER MENTHA and MARK ANTHONY KORDA (as Administrators of the companies) v SYDNEY AIRPORTS CORPORATION LIMITED

(ABN 62 082 578 809)

V 3065 of 2002

GOLDBERG J

29 APRIL 2002

MELBOURNE

IN THE MATTER OF ANSETT AUSTRALIA LIMITED (ACN 004 209 410) & ORS (in accordance with the Schedule attached) (All Administrators Appointed)

THE COURT ORDERS THAT:

1.         The application filed on 17 April 2002 is dismissed.

2.         The costs of the application of the plaintiffs, the defendant, Brisbane International Airport Limited, the Australian Council of Trade Unions and relevant unions and the Commonwealth of Australia are reserved for further consideration.

3.         Any party who wishes to make a submission on costs should file and serve such submission within seven days of the date of this order and all parties have leave within a further seven days to file and serve any submission in reply to any such submission.

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

IN THE MATTER OF ANSETT AUSTRALIA LIMITED (ACN 004 209 410) & ORS (in accordance with the Schedule attached) (All Administrators Appointed)

REASONS FOR JUDGMENT

1                     The plaintiffs (“the administrators”), who are the administrators of the companies set out in the Schedule to these reasons which comprise thirty‑six of the forty‑one companies in the Ansett group (“the companies”), have applied to the Court for an order pursuant to s 444B(2)(b) of the Corporations Act 2001 (Cth) (“the Act”) that the Court extend for a period of one month, alternatively one week, after 24 April 2002 the time within which the companies must execute the deeds of company arrangement which were the subject of a resolution of a meeting of the creditors of the companies on 27 March 2002.

2                     Section 444B of the Act provides:

“(1)     This section applies where an instrument is prepared under section 444A.

(2)       The company must execute the instrument within:

(a)        21 days after the end of the meeting of creditors; or

(b)        such further period as the Court allows on an application made within those 21 days.

…”

Section 444A sets out the matters to be included in a deed of company arrangement which an administrator must prepare if the creditors resolve at a meeting convened under s 439A that the company execute a deed of company arrangement.

3                     The application was heard on 23 and 24 April 2002.  On 24 April 2002, I reserved my decision on the application and ordered that pending the determination of the application, the time by which the companies must execute the deeds of company arrangement was extended to three days after the determination of the application.

4                     This is the second application made by the administrators to extend the time within which the companies must execute the deeds of company arrangement the subject of the resolution of creditors of the companies on 27 March 2002.  The first application was filed on 15 April 2002.  In that application the administrators sought an extension of time for seven days after 17 April 2002.  That application was supported by the Australian Council of Trade Unions and twelve unions (“the ACTU”) who represent a substantial number of employees or former employees of the companies.  It was opposed by Sydney Airports Corporation Limited (“Sydney Airports Corporation”) and Canberra International Airport Pty Ltd (“Canberra International Airport”).  The application was heard on 16 April 2002.  I reserved my decision until 4.30pm on 17 April 2002. 

5                     On 17 April 2002, the hearing was reconvened at the request of the administrators.  Evidence was led to the effect that earlier that day the Commonwealth of Australia had informed the administrators’ solicitors that there were problems with the form of the draft deed of company arrangement and that the Commonwealth did not want the administrators to execute the deeds in the form which then existed.  Counsel for the Commonwealth appeared and informed the Court that there were four major matters (which he identified) in the draft deed which did not accurately reflect the agreement by the creditors to the form of the proposed deed before the meeting of creditors on 27 March 2002.  Counsel said that there were substantial reasons for concern as to whether the deed would properly reflect the wishes of the creditors expressed at that meeting. 

6                     In the light of that evidence and that statement, Sydney Airports Corporation and Canberra International Airport withdrew their opposition to the application to extend the time for executing the deeds for seven days.  In those circumstances, I ordered that the time within which each of the companies must execute the deed of company arrangement prepared by the administrators pursuant to the creditors’ resolution be extended to 28 days from 27 March 2002.  Later that day the administrators filed the application now before the Court.

7                     It was not in issue that I had the power under s 444B(2)(b) to make an order for a further extension, notwithstanding the order made on 17 April 2002.  If there be any doubt about that power, I consider that I have the power to grant a further extension by recourse to s 447A of the Act:  Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270.

8                     The application is supported by the ACTU and is opposed by Sydney Airports Corporation and Brisbane Airport Corporation Limited (“Brisbane Airport Corporation”).  Canberra International Airport did not appear on the application.  Counsel for the Commonwealth informed the Court that it had no outstanding issues in relation to the drafting of the deeds of company arrangement and that it did not seek to make any submissions on the application for extension of time.  Counsel for the Commonwealth then withdrew from the proceeding.

9                     The administrators were appointed administrators of the companies and other companies in the Ansett group on 17 September 2001 pursuant to an order of the Court made that day which took effect on the resignation of the three persons who had been appointed administrators of the various companies on 12 and 14 September 2001 pursuant to the provisions of Pt 5.3A of the Act. 

10                  By virtue of the provisions of s 439A of the Act the administrators were required to convene a second meeting of creditors for each of the companies by 12 or 14 October 2001.  That date was extended by orders of the Court to 22 January 2002.  On 16 January 2002, the administrators convened a second meeting of creditors to be held on 29 January 2002.  The first report of the administrators (required by s 439A(4)) was published to creditors on or about 16 January 2002.

11                  In and subsequent to early November 2001, the administrators were engaged in the process of seeking to finalise the sale of the Ansett Mainline Airline Business to Tesna Holdings Pty Ltd.

12                  The second meeting of creditors of the companies, convened pursuant to s 439A, was held on 29 January 2002.  The creditors resolved to adjourn the meeting for a period of not more than sixty days.  The proposed sale to Tesna Holdings Pty Ltd did not proceed.  The adjourned meeting was fixed for 27 March 2002.

13                  On 15 March 2002, the administrators published their second report to creditors.  In accordance with s 439A(4)(b) the administrators expressed their opinion that it would not be in the interests of creditors for the administration of the companies to end or for the companies to be wound up, but that it would be in the interests of the creditors of each company for each company to execute a deed of company arrangement which was outlined in the report.  The object and purpose of the proposed deeds of company arrangement was, in substance, to provide for a moratorium on all creditors taking action against the companies and for the orderly sale and realisation of the assets of the companies.  Those assets include leases of domestic terminals at airports in Sydney, Melbourne, Brisbane, Perth and Adelaide leased to the companies.

14                  In the second report the administrators referred to the buy‑back provisions in the domestic terminal leases (to which I refer later in these reasons) and said that they had received legal advice that the buy‑back mechanism was not triggered by the appointment of the administrators or by the companies entering into the proposed deeds of company arrangement.  On 21 March 2002, Sydney Airports Corporation wrote to the administrators informing them, inter alia, that their statement that entry into a deed of company arrangement would not give rise to a right in Sydney Airports Corporation to re‑enter the premises was not accurate.

15                  At the creditors’ meeting on 27 March 2002, the administrators informed the meeting of the buy‑back provisions in the domestic terminal leases and said that they had received advice from a Queen’s Counsel that the proposed deeds of company arrangement may not trigger the buy‑back provisions in the leases and that some of the terminal owners disagreed with that legal advice.  Mr Korda, one of the administrators, then told the meeting:

“Because of the detriment Ansett may suffer, we intend to clarify the position with the Court before we sign the Deed of Company Arrangement.  We may seek some more time to do so, to sign the Deed, therefore later on we propose that the creditors support an extension to sign the Deed of Company Arrangement.”

Later in the meeting the representative of Sydney Airports Corporation told the meeting:

“It is Sydney Airport’s view that the fact of entry into the Deed of Company Arrangement does give Sydney Airport should it decide to do so, a legal right to re‑enter and take possession of the terminal and buy‑back the terminal facility at Sydney Airport at fair market value.”

16                  After further discussion, the creditors passed a resolution that each of the thirty‑six companies execute a deed of company arrangement in accordance with the outline provided in the second report to creditors dated 15 March 2002 with certain amendments, not relevant for present purposes.  At the conclusion of the meeting, the administrators raised the possibility of seeking an extension of the date for the execution of the deeds of company arrangement.  Mr Korda said:

“The final issue we just wanted to deal with is that it may be, we have to sign a Deed of Company Arrangement within 21 days.  It may be that we need to go to Court to extend that date.  Now that will be an application that we will make to Court and that is purely to administratively deal with potentially some of the asset issues.  We don’t intend to put that to the Committee, that’s something that, sorry to the creditors, it is something that we may have to do, we are just putting you on notice.

I guess if any creditors have got a concern that we need to, that we may go to the Federal Court to get an extension if you could just see us after the meeting, see Leon after the meeting, okay.”

No resolution was passed to that effect.

17                  The lease of the Sydney Airport Ansett domestic terminal (“the Sydney terminal”) has not been terminated and at the present time no steps have been taken by Sydney Airports Corporation to exercise any rights under the lease to recover possession of, or otherwise to re‑enter upon, the Sydney terminal or terminate the lease.  The administrators said that all payments required to be made under the lease had been paid, although there was an issue about the adjustment of outgoings.  Sydney Airports Corporation has not asserted to the administrators that Ansett Australia Limited, the lessee of the Sydney terminal, is in default under the lease in respect of the payment of such outgoings.

18                  Sydney Airports Corporation has lodged a proof of debt with the administrators in respect of debts due to it from Ansett Australia Limited in the total sum of $3,361,436.75 plus what was said to be an additional amount which it could not calculate in respect of “moneys, damages or other sums payable and owing under, or in respect of agreements with” it.  The sum of $3,361,436.75 is due in respect of aeronautical charges and is not claimed under the lease.

19                  The lease is recorded in an agreement made 31 December 1987 between the Commonwealth of Australia (the predecessor in title to Sydney Airports Corporation) and Ansett Transport Industries (Operations) Pty Ltd, now Ansett Australia Limited (“the lease”).  Clause 8.1(c) of the lease provides, inter alia, that if the lessee:

“shall become bankrupt or make any assignment of the Lessee’s estate for the benefit of or any composition or arrangement with the creditors of the Lessee …”,

then the lessor may re‑enter upon the premises and enjoy the premises as if the lease had not been made.

20                  Clause 8.10 of the lease relevantly provides:

“(a)     On the Designated Date [the date of the expiry or sooner determination of the term of the lease] the Lessor shall either:

(i)         itself acquire; or

(ii)               procure that some other person acquires,

the Lessee’s Facilities then existing, (other than Lessee’s Facilities included in the Lessor’s Facilities) at their then fair market value as determined as at the Designated Date either:

(iii)       by agreement between the Lessor and the Lessee; or

(iv)       if the Lessor and Lessee do not reach agreement as provided for in paragraph (iii) above within six (6) weeks of the Designated Date, in accordance with paragraph (c) below.

The monies payable under this paragraph (a) to the Lessee shall be paid not later than six (6) months after the Designated Date.”

Clause 8.10(c) provides for the fair market value to be determined by two valuers or an umpire in default of a determination by the valuers. 

21                  The “Lessee’s Facilities” are defined as meaning:

“(a)     so much of the Premises, including fixtures and other improvements at the Commencement Date, as have been provided at the Lessee’s expense;

(b)       all Lessee’s Significant Improvements and other alterations, extensions, additions, fixtures, fittings and refurbishment to the Premises made on or after the Commencement Date at the Lessee’s expense; and

(c)        so much of the Premises as, under the terms of any Existing Commercial Lease, would but for this Lease vest or be vested in the Lessor.”

The Melbourne, Brisbane, Adelaide and Perth domestic terminal leases held by the companies contain similar buy‑back provisions.

22                  If Sydney Airports Corporation’s view is correct, upon the execution of the deed of company arrangement by Ansett Australia Limited, the buy‑back provisions under cl 8.10 of the lease will be triggered and Sydney Airports Corporation will be entitled to acquire, or procure another person to acquire, the Lessee’s Facilities as defined in the lease at fair market value.  The administrators contest that this will be the consequence of the execution of the deed of company arrangement. 

23                  A number of parties have expressed an interest in acquiring the lease of the Sydney terminal and the other Ansett domestic terminal leases.  On 10 April 2002, the administrators received a proposal from Virgin Blue which contained the framework of an offer to the administrators to acquire the interests of the companies in the Ansett domestic terminal leases and other assets.  As at the date of the hearing, no money sum had been placed on that proposal by Virgin Blue. 

24                  The administrators are in the process of preparing documentation for the purpose of inviting bids or offers to purchase various assets of the companies including the domestic terminal leases.  The administrators propose to undertake a competitive sale process which they expect can conclude with a sale of these assets including the lease of the Sydney terminal by 31 May 2002.  They have been discussing and negotiating the form of that documentation with Sydney Airports Corporation.

25                  The administrators are concerned that “fair market value” for the purposes of cl 8.10 of the lease may be substantially less than the price which could be achieved in a competitive market environment having regard to:

·                   what the administrators describe as the unique nature of the domestic terminal lease assets;

·                   the ability for Sydney Airports Corporation to unlock what the administrators call the “special value” in the Sydney terminal by removing Ansett Australia Limited’s interest in it;

·                   the proposed imminent sale of the shares in Sydney Airports Corporation by the Commonwealth;

·                   the interest exhibited by airline owners, domestic terminal lease owners and infrastructure investors in acquiring the domestic terminal leases.

26                  The administrators led evidence from an experienced valuer who expressed the opinion, based on reasons which he explained, that Ansett Australia Limited would obtain a greater return from the result of a competitive tender for the purchase of the lease of the Sydney terminal than from Sydney Airports Corporation exercising a right under the buy‑back provisions of cl 8.10 of the lease to acquire the Lessee’s Facilities at fair market value.  The valuer said that the mere existence of the dispute between Sydney Airports Corporation and the administrators as to whether or not the execution of the deed of company arrangement may trigger the buy‑back provisions of the lease would diminish the likely value of the lease of the Sydney terminal in a competitive sale process.  The valuer expressed the opinion that if this dispute could be circumvented, it would remove uncertainty and thereby increase the likely value of the lease of the Sydney terminal if it was offered for sale by the competitive process proposed by the administrators.  The valuer’s evidence was not challenged.

27                  The administrators are seeking to extend the time within which the companies must execute the deeds of company arrangement for one month to allow for the completion of the competitive sale process which the administrators are in the course of implementing for the sale of assets, including the lease of the Sydney terminal.  Alternatively, the administrators seek an extension of one week to enable them to resolve drafting issues in relation to the deeds which have arisen between Sydney Airports Corporation and the administrators.

28                  If the extension sought is not granted pursuant to s 444B(2)(b) of the Act then, in the absence of the execution of deeds of company arrangement on the date by which they must be executed, the companies are taken to have passed on that date a special resolution under s 491 of the Act that the companies be wound up voluntarily:  ss 446A(1)(b) and 446A(2)(a).  However, if the extension is not granted, the administrators intend that the companies will execute the deeds of company arrangement before the time for execution expires.

29                  The administrators are seeking the extension of time in order to finalise the sale of the lease of the Sydney terminal and other assets and thereby avoid any issue as to the triggering of the buy‑back provisions under cl 8.10 of the lease arising.  The administrators are also concerned to avoid any issue arising whereby Sydney Airports Corporation may seek to set‑off any debts owed to it by Ansett Australia Limited against the amount a valuer may determine it ought to pay if it buys‑back the interest of Ansett Australia Limited in the lease in accordance with cl 8.10 of the lease.

30                  There was no evidence that Ansett Australia Limited was in default in respect of any payments due and payable under the lease.  Although an issue was raised in the submissions of Sydney Airports Corporation that there was an obligation under the lease for Ansett Australia Limited to carry on the business of an airline at the Sydney terminal, there was no evidence that Sydney Airports Corporation had made any assertion that Ansett Australia Limited was in default under the lease in this respect or in any other respect.  In a letter dated 21 March 2002 to the administrators, Sydney Airports Corporation did not accept as accurate the statement by the administrators in their second report that they were not required to operate an airline from the Sydney terminal to maintain Ansett Australia Limited’s interest in it.  Sydney Airports Corporation said that it “reserves its position in this regard”.

31                  In short, at the present time, Sydney Airports Corporation has not asserted that Ansett Australia Limited is in default under the lease and has not sought to exercise a right of re‑entry.

32                  What the administrators are seeking, in substance, is a breathing space within which the administration will continue and within which they can sell the lease of the Sydney terminal and other assets without the likelihood of litigation arising as to whether the execution of the deeds of company arrangement has triggered the buy‑back provisions in the leases.  Counsel for the administrators said that if the extension was not granted, then the deeds of company arrangement would in fact be executed with the consequence that there would probably be litigation between the administrators and Sydney Airports Corporation as to the consequence and effect of the execution of the deed of company arrangement by reference to cl 8.1(c) of the lease and the buy‑back provisions in cl 8.10. 

33                  The administrators also want to be in a position to be able to sell the assets of the companies and in particular the lease of the Sydney terminal in a competitive bidding environment without the spectre of the buy‑back provisions contained in cl 8.10 of the Sydney terminal lease hanging over their heads which may depress the amount realised on sale.  The administrators believe that, in this way, they will be able to achieve a greater return for the creditors of the companies than if the buy‑back provisions in cl 8.10 of the lease are triggered and the lessee’s facilities are acquired at fair market value. 

34                  Mr Korda agreed that the objective of the administrators, through the competitive bidding process proposed and the obtaining of an extension of time for the execution of the deeds of company arrangement, was to create a position whereby the assets offered for sale were the subject of a sale agreement before there was a disputed circumstance creating an event of default.  The objective is to complete the sale without the dispute occurring and to avoid ever having the argument.

35                  The deed of company arrangement (which I was told is common to all thirty‑six companies), in its current proposed form, provides that the purposes and objects underlying the deed are for the business, property and affairs of the companies to be administered in a way that provides “the maximum possible return for Deed Creditors from the orderly sale and realisation of assets of the Company” and “may avoid crystallisation of Domestic Terminal Lessors’ rights to terminate Domestic Terminal Leases”.  The deed also provides that the Deed Administrators shall endeavour to sell the assets “for the best price that is reasonably obtainable having regard to the circumstances existing when those assets are sold”.

36                  The position, as at the date of the hearing, in relation to the drafting of the deed of company arrangement was that the administrators took the view that the form of the deed as amended up to 22 April 2002 was consistent with the resolution of the creditors.  Sydney Airports Corporation reserved its right to make any application it saw fit if the deed did not reflect the creditors’ resolution and also reserved its right to apply to the Court for termination of the deed.  The administrators’ solicitors asked Sydney Airports Corporation’s solicitors for the grounds on which it might seek to terminate the deed when executed and the solicitors said that no decision had been made on whether to take steps to terminate the deed and that the Corporation reserved its right to do so.

37                  The administrators’ solicitor said that, as at 23 April 2002, the first date of the hearing, he had been unable to resolve the drafting issues raised by Sydney Airports Corporation, but that if an extension was granted he would try and resolve these issues with Sydney Airports Corporation’s solicitors.  There are also outstanding drafting issues which have been raised by the solicitors for the trustees of a number of superannuation funds which are yet to be resolved.

38                  The administrators’ principal submission was that I should exercise the discretion provided in s 444B(2)(b) so as to promote the objects of Pt 5.3A of the Act, as set out in s 435A, which include achieving a better return for a company’s creditors and members than would result from an immediate winding up of the company.  It was said that this object would be achieved by extending the date for execution of the deeds for a sufficient time to complete a competitive bidding process for, and sale of, the lease of the Sydney terminal.  The evidence showed that a sale of the terminal lease under a competitive bidding process was more likely to achieve a better return for creditors than a realisation under the buy‑back provisions of the lease and that the existence of a controversy as to whether the buy‑back provisions had been triggered would diminish the price attained in a competitive bid process.

39                  The administrators submitted that the extension sought would not prejudice Sydney Airports Corporation as it had no existing right to re‑enter the premises so that it was not being kept out of its property by s 440C of the Act, which precludes an owner or lessor from taking possession of, or recovering, its property during an administration without the consent of the administrator or the leave of the Court.  This restraint ends on execution of a deed of company arrangement.  It was submitted that postponement of what is properly regarded as a collateral advantage which would be gained on execution of the deeds was not a relevant prejudice for the purpose of considering whether an extension should be granted.

40                  In short, it was submitted that the extension would be highly likely to advantage creditors as a whole in circumstances where there was no relevant prejudice to any party.

41                  The ACTU adopted the administrators’ submissions and submitted, in particular, that the creditors, when voting, contemplated the possibility of an application for an extension of time to execute the deeds and that they assumed there was likely to be a competitive bidding process for the assets.  It was submitted that granting an extension was consistent with what was intended and contemplated by the creditors.  It was also submitted that the deed did not bind Sydney Airports Corporation as a lessor because it voted against the resolution that the companies execute the deeds:  s 444D(3).  It was said that denial of the right and commercial opportunity which might arise in its favour on execution of the deed of company arrangement was not a relevant prejudice when considering the exercise of the discretion under s 444B(2)(b).

42                  Sydney Airports Corporation, whose submissions were adopted by Brisbane Airport Corporation, submitted that the extension sought should be refused for the following reasons:

·                    The effect of granting the extension would be to interfere with the fundamental structure of Pt 5.3A of the Act concerning owners and lessors.

·                    The effect of granting the extension would be to deny, or to deny substantially, the effect of the creditors’ resolutions on 27 March 2002 that the companies enter into deeds of company arrangement.

·                    The effect of granting the extension would be to leave the companies in administration contrary to the scheme of the Act, and contrary to the will of the creditors.

·                    The effect of granting the extension would be to bind creditors not to do anything inconsistent with the proposed deeds, yet deny the creditors any entitlement to invoke the protection of s 445D (termination of the deed by the Court) and s 445G (applying to the Court for a declaration that the deed or a provision of it is void).

·                    The objective of completing the sale of the Ansett domestic terminal leases without resolution of the dispute whether the buy‑back provisions in the leases were triggered by the execution of the deeds was inconsistent with the statements of the administrators at the creditors’ meeting.

·                    The application was a surrogate for an application under s 444F(4) so that the considerations found in s 444F(5) should be applied.  If they were applied, then the interests of Sydney Airports Corporation were not adequately protected by a restraining order under s 444F(4).

43                  The issues raised require reference to the scheme of Pt 5.3A of the Act and a consideration of the provisions affecting parties whose rights may be affected by a company being placed under administration and ultimately executing a deed of company arrangement.  Part 5.3A provides for a two‑stage process.  First, a company is placed under administration for a relatively short period of time (subject to extension by the Court) to enable an administrator to report on its affairs to its creditors and to express an opinion whether it is in the interests of creditors for the company to execute a deed of company arrangement, for the administration to end, or for the company to be wound up:  s 439A(4).  In general terms, the creditors must resolve that one of these matters occur: s 439C, at a point of time approximately one month after the administration commences:  s 439A(2) and 439A(5).  This time period may be extended by the Court:  s 439A(6).

44                  During this first stage of the administration, no proceedings can be continued or commenced against the company without the consent of the administrator or the leave of the Court:  s 440D.  Further, an owner or lessor of property used or occupied by, or in the possession of, the company cannot take possession of the property or otherwise recover it except with the consent of the administrator or the leave of the Court:  s 440C.  This is a significant impediment to owners and lessors.

45                  The second stage of administration occurs at the point of time the creditors of the company pass a resolution as to the future of the company in accordance with s 439C.  At this point of time, the administration ceases and is replaced by another regime – either return to the status quo ante, winding‑up or execution of a deed of company arrangement by the company.  The administration may also be terminated by court order for any of the reasons set out in s 435C(3).  If the creditors resolve that the company execute a deed of company arrangement (a statement setting out details of the proposed deed will have been given to the creditors before the meeting:  s 439A(4)(c)), the administrator (unless the creditors appoint someone else to be administrator of the deed) must prepare an instrument setting out the terms of the deed:  s 444A(3), and it must be executed within 21 days after the meeting or such further time as the Court allows:  s 444B(2).

46                  At this point of time, if the creditors resolve that the company should execute a deed of company arrangement, persons who will be bound by the deed when it is executed are subject to constraints in relation to the company.  They must not do anything inconsistent with the deed, except with the leave of the Court, and they cannot take or continue any winding‑up proceeding or other proceeding against the company in relation to the company’s property:  s 444C and s 444E.  It is important to note that those constraints apply as soon as the resolution that the company execute the deed is passed by the creditors.

47                  Although the restraint imposed by s 444C relates to persons who would be bound by the deed when executed, it does not affect a right that an owner or lessor of property has in relation to the property used or in the possession of the company if that owner or lessor did not vote in favour of the resolution that the company execute a deed of company arrangement:  s 444D(3).

48                  After the creditors pass a resolution that the company execute a deed of company arrangement, s 444F of the Act comes into operation.  Insofar as it applies to owners or lessors of property used or in the possession of the company, it empowers the Court to order that an owner or lessor not take possession of the property or otherwise recover it.  The Court can only make such an order if it is satisfied that for the owner or lessor to take possession of the property or otherwise recover it would have a material adverse effect on achieving the purpose of the deed and that the interests of the owner or lessor would be adequately protected:  s 444F(5).

49                  However, until the proposed deed of company arrangement, the subject of the creditors’ resolution, is executed the administration of the company continues and the restraint on owners and lessors of property taking possession or recovering property used or in the possession of the company, except with the consent of the administrators or the leave of the Court, is still operative.  The administration only ends upon the execution of the deed of company arrangement by the company and by the deed’s administrator:  s 435C(1)(b) and s 435C(2)(a).

50                  Although there is a power in the Court to make an order terminating a deed of company arrangement after it is executed:  s 445D, and also to make an order declaring the deed, or a provision of it, to be void:  s 445G, those powers cannot be exercised until such time as the deed of company arrangement is executed.  The result is that during the period between the resolution of creditors that the company execute a deed of company arrangement and its execution, although persons who would be bound by the deed, if executed, must not do anything inconsistent with the deed except with the leave of the Court and are also subject to s 444E of the Act:  s 444C, those persons cannot take any steps to have the deed terminated under s 445D or have it or any of its provisions declared void under s 445G.

51                  This analysis of Pt 5.3A shows that although the rights of an owner or lessor of property voting against a resolution that a company execute a deed of company arrangement are not affected by the deed:  s 444D(3), until the deed is executed, the owner or lessor is still precluded from taking possession of, or recovering the property without the administrator’s consent or the leave of the Court:  s 440C.  Once the administration ends, the owner or lessor is no longer so constrained, unless the deed’s administrator takes proceedings under s 444F, in which case the Court has to be satisfied of the matters specified in s 444F(5) before making an order against the owner or lessor.

52                  The effect of an order under s 444B(2)(b) extending the time for execution of the deed of company arrangement is to extend the time during which an owner’s and lessor’s rights are suspended and to extend the time during which persons bound by the deed, once executed, must not do anything inconsistent with the deed whilst still being unable to take steps to have the deed of company arrangement terminated or declared void.

53                  The structure of Pt 5.3A in the first stage of administration of a company, therefore, constrains the rights of owners and lessors to enable the moratorium to be observed and to give the administrator the opportunity to consider whether the creditors should be told that it is the administrator’s opinion that the company should execute a deed of company arrangement as an alternative to winding‑up or ending the administration.  That constraint is significant and is continued, if the creditors resolve that the company execute a deed of company arrangement, until the deed is executed.  The policy behind the constraint is that the freedom of action of owners and lessors is traded off for a relatively short period of time to enable the creditors to be in a position to make an informed decision about the future of the company unaffected by actions against the company or in relation to the property it uses or occupies.  Once a deed of company arrangement is executed, the balance changes and it is for the deed administrator to establish that the taking of possession of property would have a material adverse effect on achieving the purposes of the deed and that the interests of the owner or lessor will be adequately protected before the Court can make an order restraining an owner or lessor from taking possession of property.

54                  Once the creditors have resolved that the company should execute a deed of company arrangement, this change in the manner in which Pt 5.3A affects lessors and owners should not as a matter of principle be postponed for the purpose effectively of continuing the first stage of the administration and the constraints imposed by it so as to avoid the consequences of the second stage of the administration contemplated by the execution of the deed of company arrangement which the creditors wish to be implemented.

55                  Part 5.3A contemplates a relatively expeditious time frame within which a decision is to be made whether a company should execute a deed of company arrangement, whether the administration should be terminated or whether the company should be wound up.  That time frame can be extended by the Court and in the present case it has been extended for a substantial period of time due to the nature, size and complexity of the administration.  However once a decision has been made that the company should execute a deed of company arrangement, that decision should be implemented expeditiously.  Section 444B(2) requires that decision to be implemented within 21 days after the creditors’ meeting or within such further period as the Court allows.  The fact that s 444B(2)(b) provides that any application for an extension of time must be made within the period of 21 days after the creditors’ meeting demonstrates that the policy of Pt 5.3A underpinning the execution of a deed of company arrangement is that the initial administration of the company be closed relatively quickly once the decision has been made by the creditors that the company execute a deed. 

56                  It is against this background that I consider the basis for the application to extend time.  There is little authority relating to the terms of s 444B(2) and the discretion to be exercised under it.  I was referred to three decisions:  Stout v Permanent Trustee Ltd (unreported, SC of Vic, Crt of App, 13 August 1999), Re Redrock Media (unreported, SC of NSW, 1 March 1999) and Re Sydney Ringtread Tyres Pty Ltd (admin apptd) (2001) 38 ACSR 221.  The reasoning in those cases is of little assistance in the present application.

57                  I am satisfied that a sale of the assets comprising the Ansett domestic terminal leases by a competitive bidding process open to any interested bidders will probably yield a greater return for the companies than a buy‑back of the leases by the lessors at fair market value.  That was the thrust of the evidence of the valuer which was not challenged, nor was he cross‑examined.  I am also satisfied that the existence of the dispute between Sydney Airports Corporation and the administrators in relation to the effect of cl 8.1(c) of the lease and whether the buy‑back provisions in cl 8.10 will be triggered by the execution of the deed of company arrangement will have an effect on the likely value of the lease of the Sydney terminal in a competitive sale process.  Again that was the thrust of the evidence of the valuer which was not challenged. 

58                  Those matters must nevertheless be considered within the framework of Pt 5.3A, within which s 444B(2)(b) is found.  Although those matters underpin the reason why the extension is sought (leaving aside for the moment the drafting issues which are said to be extant), the purpose or objective of the extension is to avoid a dispute or issue ever arising between Sydney Airports Corporation and the administrators in relation to the triggering of the buy‑back provisions in cl 8.10 of the lease.

59                  I do not consider that that is an appropriate reason to exercise the discretion given under s 444B(2)(b) of the Act in favour of an extension of time.  Although the discretion is not fettered in any way, and although there are no guidelines laid down as to the manner in which it is to be exercised, the discretion must be exercised by reference to the structure of Pt 5.3A.  Recourse to the objects of Pt 5.3A, found in s 435A, is of little assistance in the present context as the decision has been made by the creditors that the companies should execute deeds of company arrangement and sell their assets in accordance with the terms of those deeds. 

60                  The structure of Pt 5.3A, to which I have already referred, contemplates the creditors of a company making a choice as to the future of the company.  In the present case they have made their choice and that choice should be implemented within such time frame, consistently with s 444B(2), as is required to enable the drafting of the deed to be completed.  The discretion to be exercised under s 444B(2)(b) is not to be exercised for the purpose of prolonging the administration in order to avoid a result which execution of the deed may bring about.  The focus of the exercise of the discretion should be to enable the administrators to finalise the drafting, preparation and execution of the deed. 

61                  Although the creditors were put on notice by the administrators at the meeting that the administrators may need to apply to the Court to extend the time for the execution of the deeds of company arrangement, the effect of the extension sought is to prolong the administration for the purpose of undertaking sales of assets which are intended by the proposed deeds to be carried out under the terms of the deeds.

62                  Whatever be the scope of, and constraints upon, the discretion found in s 444B(2)(b), I do not consider that it extends to granting an extension of time to avoid circumstances or a dispute arising, not in relation to a provision in the deed, but rather as to the consequence of the execution of the deed of company arrangement.  Putting the matter another way, I do not consider that the discretion should extend to allowing an administration to continue, when the creditors have resolved that the company execute a deed of company arrangement, for the purpose of avoiding an issue that may, or will, arise upon the execution of the deed.  More particularly is this so where the consequence of the extension is to prolong a constraint on the rights of lessors and owners of property, used or in the possession of the company, to take possession of, or recover the property.  Further, it is undesirable to have an extended period of time after creditors resolve that a company should execute a deed of company arrangement, during which the final terms of the deed are not determined, when persons who would be bound by the deed, when executed, must not act inconsistently with the deed.  Such a situation is productive of uncertainty.

63                  The administrators submitted that Sydney Airports Corporation would not suffer any prejudice if the extension was granted as at the present time, before the execution of the deed of company arrangement, it was not asserting or seeking to assert any right under the lease to terminate it or re‑enter upon the premises.  It is true that at the present time Sydney Airports Corporation has not asserted any right to re‑enter the premises, nor has it sought to terminate the lease.  I expressly leave open the issue as to the construction and effect of cl 8.1(c) of the lease and the issue whether cl 6.17 of the lease imposes an obligation on Ansett Australia Limited to operate an airline from the Sydney terminal.  It is sufficient for present purposes that there is a serious question to be tried on these issues.

64                  However, the grant of an extension of time to execute the deeds of company arrangement is not neutral upon the rights of Sydney Airports Corporation.  Sydney Airports Corporation has a bundle of rights under the lease, one of which it claims will be enlivened if the deed of company arrangement is executed by Ansett Australia Limited as the creditors’ resolution requires it to be.  To that extent, Sydney Airports Corporation will suffer prejudice if there is a delay or postponement in the execution of the deed of company arrangement.  The ACTU submitted that the extension sought might deny Sydney Airports Corporation “some lucky commercial opportunity under the lease”, but that such denial was not relevant prejudice for the purpose of Pt 5.3A.  It may be that the right which Sydney Airports Corporation claims will arise on execution of the deed of company arrangement by Ansett Australia Limited will arise fortuitously in the sense that, without such execution, the event of execution will not be available to Sydney Airports Corporation as an act or circumstance which may trigger the buy‑back provisions in cl 8.10 of the lease.  Nevertheless, that situation has arisen as a result of the creditors’ resolution which must be considered within the structure of Pt 5.3A.  The fact that the right claimed by Sydney Airports Corporation does not arise until the deed is executed may not mean that Sydney Airports Corporation is presently labouring under a prejudice.  But it will be disadvantaged if the deed is not executed by Ansett Australia Limited in accordance with the resolution of the creditors.

65                  Sydney Airports Corporation submitted that the administrators were pursuing an objective before the Court which was different from what they had told the creditors they proposed to undertake.  It was said that they had told the meeting they intended to clarify the position of the triggering of the buy‑back provisions with the Court before they signed the deeds of company arrangement, whereas before the Court they were seeking an extension of time to enable a sale of the lease of the Sydney terminal and so avoid the issue of the triggering of the buy‑back provisions ever arising.  It is true that Mr Korda said at the meeting that the administrators intended to clarify the position with the Court before they signed the deeds of company arrangement.  But at the same time he foreshadowed an application to seek more time to sign the deeds, which he repeated at the conclusion of the meeting.

66                  It is of little consequence that the administrators did not seek clarification of the position relating to the triggering of the buy‑back provisions, nor that no resolution was passed authorising the administrators to apply to the Court for an extension of time.  An application to a court to determine the proper construction of cl 8.1(c) of the lease would not have finally resolved the issue.  If the decision went against the administrators, they would still require an extension of time to execute the deeds and they might also want to raise issues such as relief against forfeiture and the withholding of consents to assignments of leases.  In any event, there would have been no point in the creditors passing a resolution, as Sydney Airports Corporation submitted they could, that an application be made to the Court by the administrators not to execute the deeds of company arrangement because an extension of time was sought.  The meeting held on 27 March 2002 could not have been adjourned further beyond 30 March 2002 because of the 60 day time limit imposed by s 439B(2) of the Act, which provides that a meeting convened under s 439A cannot be adjourned to a day more than 60 days after the first day on which the meeting was held, namely 29 January 2002. 

67                  I have therefore reached the conclusion that I should not exercise the discretion in s 444B(2)(b) and that the application for an extension for one month to enable the sale of the domestic terminal leases to be completed should be dismissed.  The purpose of the application is not an appropriate basis for the exercise of the discretion under s 444B(2)(b) and the effect of the extension sought is to prolong the administration beyond its appropriate time.  I do not consider that the potential benefit which might result to creditors from the extension sought warrants the exercise of the discretion in favour of the grant of the extension sought having regard to the purpose and object of the extension, the effect it has on the balance of protections and restraints found in Pt 5.3A during the period of initial administration and the fact that a decision has been made by creditors that deeds of company arrangement be executed.

68                  I turn to the alternative extension sought.  On 22 April 2002, Mr Korda swore an affidavit in support of the application.  He referred to the correspondence passing between the solicitors for the various parties in relation to issues which had arisen in respect of the drafting of the deeds of company arrangement.  On 22 April 2002, the solicitor for the administrators informed the solicitor for Sydney Airports Corporation that the draft deed of company arrangement, as it then existed in an amended form, was consistent with the resolution of the creditors.  The solicitor for Sydney Airports Corporation contended that the draft did not reflect the outline as amended, the subject of the creditors’ resolution, and was inconsistent with it.  Although the solicitor for the administrators said in evidence on 23 April 2002, that he wished to sit down with the solicitor for Sydney Airports Corporation and the trustees of the superannuation funds to try to resolve the outstanding issues, he will have had a further period of time since his evidence was given to do so.

69                  Mr Korda said in his affidavit that one week was necessary to finalise the outstanding drafting issues.  That week will expire on the day these reasons for judgment are delivered.  By virtue of the order made on 24 April 2002, the time within which the companies must execute the deeds of company arrangement will be extended to and including 2 May 2002.  It is not therefore appropriate to extend the time any further as the administrators will have obtained the extra week sought as a result of the judgment being reserved.

70                  The order of the Court will be that the application is dismissed.  However, the order made on 24 April 2002 remains in force with the result that the time by which each of the companies must execute the instrument constituting the deed of company arrangement, the subject of a resolution of the creditors of those companies passed on 27 March 2002, is extended to and including 2 May 2002.

Associate:

Dated:              29 April 2002

SCHEDULE

Ansett Australia Limited (ACN 004 209 410)

501 Swanston Street Pty Ltd (ACN 005 477 618)

Airport Terminals Pty Ltd (ACN 053 976 444)

Aldong Services Pty Limited (ACN 000 258 113)

Ansett Aircraft Finance Limited (ACN 008 643 276)

Ansett Australia and Air New Zealand Engineering Services Ltd (ACN 089 520 696)

Ansett Australia Holdings Limited (ACN 004 216 291)

Ansett Aviation Equipment Pty Ltd (ACN 008 559 733)

Ansett Carts Pty Limited (ACN 055 181 215)

Ansett Equipment Finance Limited (ACN 006 827 989)

Ansett Finance Limited (ACN 006 555 166)

Ansett Holdings Limited (ACN 065 117 535)

Ansett International Limited (ACN 060 622 460)

Bodas Pty Ltd (ACN 002 158 741)

Brazson Pty Limited (ACN 055 259 008)

Eastwest Airlines (Operations) Ltd (ACN 000 259 469)

Eastwest Airlines Limited (ACN 000 063 972)

Kendell Airlines (Aust) Pty Ltd (ACN 000 579 680)

Morael Pty Ltd (ACN 003 286 440)

Northern Airlines Limited (ACN 009 607 069)

Northern Territory Aerial Work Pty Limited (ACN 009 611 321)

Rock-it-Cargo (Aust) Pty Ltd (ACN 003 004 126)

Anst Show Pty Ltd (formerly Show Group Pty Ltd (ACN 002 968 989))

South Centre Maintenance Pty Ltd (ACN 007 286 660)

Spaca Pty Ltd (ACN 006 773 593)

Traveland International (Aust) Pty Limited (ACN 000 275 936)

Anst Travel International Pty Ltd (formerly Traveland International Pty Limited

(ACN 002 275 936))

Traveland New Staff Pty Ltd (ACN 080 739 037)

Anst Travel Pty Ltd (formerly Traveland Pty Limited (ACN 000 240 746))

Walgali Pty Ltd (ACN 005 258 921)

Westintech Limited (ACN 009 084 039)

Westintech Nominees Pty Ltd (ACN 009 302 158)

Whitsunday Affairs Pty Ltd (ACN 009 694 553)

Whitsunday Harbour Pty Limited (ACN 010 375 470)

Wridgway Holdings Limited (ACN 004 449 085)

Wridgways (Vic) Pty Ltd (ACN 004 153 413)

(All Administrators Appointed)