FEDERAL COURT OF AUSTRALIA

Wallace-Smith, in the matter of National Express Group Australia (Bayside Trains) Pty Ltd [2003] FCA 764

CORPORATIONS – administration – s 447A(1) of Corporations Act 2001 – power of court to appoint administrator

Corporations Act 2001 (Cth) ss 9, 447A(1), 449C(1), 449C(3), 449C(6), 449D(1), 449D(2), 449D(3)

Australasian Memory Pty Limited v Brien (2000) 200 CLR 270 applied

Brash Holdings Ltd (Administrator appointed) v Katile Pty Ltd [1996] 1 VR 24 applied

Re Brashs Pty Ltd (1994) 15 ACSR 477 applied

Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607 approved

Panasystems Pty Ltd v Voodoo Tech Pty Ltd [2003] FCA 428 cited

Shirlaw v Graham [2001] NSWSC 612 referred to

NATIONAL EXPRESS GROUP AUSTRALIA (BAYSIDE TRAINS) PTY LTD,

NATIONAL EXPRESS GROUP AUSTRALIA (SWANSTON TRAMS) PTY LTD,

NATIONAL EXPRESS GROUP AUSTRALIA (V/LINE PASSENGER) PTY LTD,

NATIONAL EXPRESS (BAYSIDE TRAIN MAINTENANCE) PTY LTD (All Receivers and Managers Appointed) (All Administrators Appointed) and

SIMON ALEXANDER WALLACE-SMITH

V3151 of 2003

FINKELSTEIN J

MELBOURNE

23 JULY 2003

GENERAL DISTRIBUTION

REASONS FOR JUDGMENT

1                     In almost every respect this is an uncontroversial application for the appointment of a substitute administrator which would hardly justify the delivery of reasons unless, as in some places, one has an interest with scoreboards.  The application does, however, have one unusual feature that requires examination.

2                     First I will relate the facts.  The National Express group of companies (four in all) operated tram and rail services following their privatisation in Victoria.  The concern soon proved to be unsuccessful and the companies failed.  The Director of Public Transport, who holds security for a debt of $1.126 billion, appointed receivers and managers to the companies.  Shortly thereafter, the directors appointed Mr Wallace-Smith and Mr Whitton, both from Deloitte Touche Tohmatsu, to be each company’s joint and several administrators.  In due course the administrators proposed that the creditors of each company agree that the companies should accept deeds of company arrangement; the required resolutions were passed at each company’s respective statutory meeting.  In substance the deeds will provide for the creation of a single fund of $30 million made up of contributions from the State Government of Victoria and the group’s holding company. Together with any other money that comes into the hands of the administrators, the fund will be divided among the creditors on a pooled basis.  The deeds are currently being prepared and will shortly be executed.

3                     On 30 June 2003, Mr Whitton gave notice that he would resign from the partnership of Deloitte Touche Tohmatsu.  On that day, he also resigned as an administrator of the companies.  Notice of Mr Whitton’s impending resignation was provided to the creditors in the report which accompanied the notices convening the statutory meetings.  The creditors were informed that Mr Yates, also from Deloittes, would be appointed in his stead.  The creditors raised no objection to this proposal. 

4                     The existing administrator supports the appointment of Mr Yates.  He says that “it would be highly desirable and in the interests of all creditors”. The Director of Public Transport, who it will be recalled appointed receivers and managers to the companies, also supports the appointment.  His solicitors wrote to the administrators saying that Mr Yates’ appointment would “[allow] greater flexibility should Mr Wallace-Smith be unavailable for some reason to fulfil the role of Deed Administrator.  Whilst the [Corporations Act 2001 (Cth)] makes provision for what is to occur where there is a vacancy in the office of a Deed Administrator that would involve additional expense to the detriment of creditors.” 

5                     We have now arrived at the problem.  There is a gap in the legislation.  Though everyone with a relevant interest wants Mr Yates to be appointed as a joint administrator, it is unclear how that appointment should be made.  Section 449C(1) provides that when the administrator of a company dies, becomes prohibited from acting as administrator or resigns, his or her appointer may appoint a replacement.  When, as here, the appointer is the company, the appointment must be made pursuant to a resolution of the board:  s 449C(3).  However, in this case, the respective boards of the companies have not met to pass the necessary resolution.  The court has power to appoint an administrator but that power is confined to situations where “for some reason no administrator is acting”:  s 449C(6).  On one view, which may be the correct view, this condition cannot be satisfied when one of two or more joint administrators have ceased to act for, in that event, it cannot be said that “no administrator is acting”.  The position is a little different when the administrator of a deed of company arrangement dies, becomes prohibited from acting or resigns.  Then “the Court may appoint someone else as administrator of the deed”:  s 449D(1).  The court can also appoint a person as administrator of a deed of company arrangement if “for some reason no administrator of the deed is acting”:  s 449D(2).  However, in each of these instances the appointment must be made on the application of the Australian Securities and Investments Commission, an officer, member or creditor of the company:  s 449D(3).  In this case, no application can be made under this provision because the deeds of company arrangement have yet to be signed.   

6                     I could perhaps require the plaintiffs (the companies and Mr Wallace-Smith) to wait until the deeds have been executed so that an application can be made under s 449D.  Mr Wallace-Smith, who is an officer of each company in virtue of his position as administrator, would then have standing to bring the application: ss 9 and 449D(3).  Yet the parties want Mr Yates appointed immediately.  They seek to overcome their present predicament by praying in aid of the magic-wand like provision, s 447A(1).  That sub-section provides that the court “may make such order as it thinks appropriate about how [Part 5.3A] is to operate in relation to a particular company.”  The plaintiffs seek to have Part 5.3A operate as if s 449C(1) was modified to provide that when an administrator resigns, the court (as opposed to his or her appointer) may appoint someone else in his or her place. 

7                     There is no doubt that such an order can be made under s 447A.  It is a most useful section without which Part 5.3A would not operate as effectively as it does.  The cases establish that s 447A confers a broad power.  Young CJ in Equity has characterised “the power … [as] plenary”: Shirlaw v Graham [2001] NSWSC 612 at [6].   See also Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607, 611 per Young J: (“[W]hilst the court is to keep on the sidelines as much as possible, … it is to be involved and to use its powers to tailor make a procedure for each company, so that the spirit and objects of the Part will be implemented.  It seems to me that this reinforces the construction that I have placed on s 447A, that the Court is to have plenary power to do whatever it thinks is just in all the circumstances…”).  The scope of orders that can be made under s 447A(1) include ones which (1) fill in gaps in the legislative scheme and (2) permit alterations to the way in which Pt 5.3A is to operate in relation to a particular company: Re Brashs Pty Ltd (1994) 15 ACSR 477, 481-482; Brash Holdings Ltd (Administrator appointed) v Katile Pty Ltd [1996] 1 VR 24, 26-27; Australasian Memory Pty Limited v Brien (2000) 200 CLR 270, 281-282; Panasystems Pty Ltd v Voodoo Tech Pty Ltd [2003] FCA 428 at [18].

8                     Speaking generally, when a statute provides for the circumstances in which, and the manner by which, a vacancy in an office is to be filled, that scheme should be observed.  In this case, however, it is plain that Mr Yates will very shortly be appointed in lieu of Mr Whitton if I do not accede to the application.  It seems to me that no purpose is served in forcing the parties to wait for the deeds to be executed before the application is made.  The order sought by the plaintiffs fills a gap in the legislative regime in the very way that s 447A was designed to operate.  The legislature could not have prescribed a method of appointment for every conceivable situation that may arise during the course of an administration.  The section is designed to allow the parties to have orders made that suit the particular circumstances at hand.  For these reasons it is convenient that the order sought by the plaintiffs be made.

Associate:

Dated:              23 July 2003