FEDERAL COURT OF AUSTRALIA

Parker, in the matter of Strongest Link Pty Ltd ACN 097 973 254 (in liq)

[2008] FCA 1007

CORPORATIONS – where plaintiff appointed administrator of the company on 29 November 2005 – where deed of company arrangement (DOCA) executed on 31 December 2005 – where plaintiff also appointed liquidator of company on 5 October 2007 when company wound up – where two deed creditors remain unpaid – where no deed creditor sought to have the DOCA terminated at creditor’s meeting – where administration fund established under the DOCA but not distributed prior to liquidation still contains monies – where DOCA does not provide it should be terminated upon the company being wound up – whether in the absence of termination of the DOCA the fund should be administered in accordance with the DOCA or whether it should be applied and distributed in the course of the winding up in accordance with statutory provisions relating to a liquidation – whether by reason of execution of the DOCA, the plaintiff holds the fund on trust either for the company or for the deed creditors – no such trust created by the DOCA – plaintiff as liquidator must distribute monies held in the fund in accordance with his obligations as liquidator – order that the DOCA be terminated.

Corporations Act 2001 (Cth) ss 445C, 445D, 447D, 471A

Re G B Nathan and Co Pty Ltd (In Liq) (1991) 24 NSWLR 674 cited

Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 cited

Mineral & Chemical Traders Pty Ltd v T Tymczyszyn Pty Ltd (in liq) (1994) 15 ACSR 398 cited

Commissioner of Taxation of the Commonwealth of Australia v Linter Textiles Australia Ltd (in liquidation) (2005) 220 CLR 592 cited

Franklin’s Selfserve Pty Ltd v Federal Commissioner of Taxation (1970) 125 CLR 52 discussed

Dean-Willcocks v ACG Engineering Pty Ltd (in liq) (2003) 45 ACSR 290 distinguished

Shepard v Sports Mondial of Australia Pty Ltd (in liq) (2005) 53 ACSR 746 distinguished

Lombe v Wagga Leagues Club Ltd (2006) 56 ACSR 387 followed

Federal Commissioner of Taxation v All Suburbs Car Repairs Pty Ltd (1994) 14 ACSR 753 followed

Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 cited

Purchas v Estore Pty Ltd (in liq) (2006) 154 FCR 246 cited

Registrar of the Accident Compensation Tribunal v Federal Commissioner of Taxation (1993) 178 CLR 145 cited

Emanuele v Australian Securities Commission (1995) 63 FCR 54 cited

ROBERT COLIN PARKER IN HIS CAPACITY AS DEED ADMINISTRATOR AND LIQUIDATOR OF STRONGEST LINK PTY LTD ACN 097 973 254 (IN LIQ) (SUBJECT TO A DEED OF COMPANY ADMINISTRATION)

SAD 33 of 2008

LANDER J

3 JULY 2008

ADELAIDE

IN THE MATTER OF STRONGEST LINK PTY LTD ACN 097 973 254 (IN LIQ) (SUBJECT TO A DEED OF COMPANY ADMINISTRATION)

THE COURT DIRECTS THAT:

1.                  The plaintiff would be justified in making an application for the termination of the deed of company arrangement executed by Strongest Link Pty Ltd (in Liq) (Subject to a Deed of Company Administration) on 31 December 2005.

2.                  The plaintiff would be justified upon the termination of the deed of company arrangement executed by Strongest Link Pty Ltd (in Liq) (Subject to a Deed of Company Administration) on 31 December 2005, in applying and distributing the fund described in clause 5 of that deed as the property of Strongest Link Pty Ltd (in Liq) (Subject to a Deed of Company Administration) in due course of winding up.

3.                  The plaintiff would be justified upon the termination of the deed of company arrangement executed by Strongest Link Pty Ltd (in Liq) (Subject to a Deed of Company Administration) on 31 December 2005, in treating his remuneration payable pursuant to clause 8 of the deed “as deferred expenses” within the meaning of s 556 of the Corporations Act 2001 (Cth) (the Act) in winding up.

THE COURT ORDERS THAT:

4.                  Pursuant to s 445D(1) of the Act the deed of company arrangement executed by Strongest Link Pty Ltd (in Liq) (Subject to a Deed of Company Administration) on 31 December 2005 be terminated.

5.                  Pursuant to s 447A of the Act, the order made in paragraph 4 hereof is not to be taken as the passing of a special resolution in accordance with s 446B(1) of the Act and reg 5.3A.07 of the Corporations Regulations 2001 (Cth).

6.                  The costs of this application be paid out of the assets of Strongest Link Pty Ltd (in Liq) (Subject to a Deed of Company Administration) as an expense of the winding up.

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

IN THE MATTER OF STRONGEST LINK PTY LTD ACN 097 973 254 (IN LIQ) (SUBJECT TO A DEED OF COMPANY ADMINISTRATION)

REASONS FOR JUDGMENT

1                     The plaintiff, Robert Colin Parker, is the deed administrator of a deed of company arrangement (DOCA) executed by Strongest Link Pty Ltd (in Liq) (Subject to a Deed of Company Administration) (the company) on 31 December 2005.  He is also the liquidator of the company which was wound up by an order of this Court made on 5 October 2007.

2                     On 25 March 2008 the plaintiff filed an application which was subsequently amended on 21 May 2008 seeking directions pursuant to s 447D of the Corporations Act 2001 (Cth) (the Act) in his capacity as deed administrator and pursuant to s 479(3) of the Act in his capacity as liquidator.  He sought advice and orders:

(a)        whether the plaintiff would be justified in performing his duties as liquidator of the company on the basis that the DOCA dated 31 December 2005 was terminated by the winding up order made on 5 October 2007;

(b)        further or in the alternative to (a), an order the DOCA be terminated pursuant to s 445D(1)(g) of the Act;

(c)        whether the plaintiff in his capacity as liquidator of the company would be justified in dealing with the assets and property referred to in clause 5 of the DOCA as “the fund” as property of the company for application and distribution in the due course of its winding up; or

(d)        whether the plaintiff would be justified in paying his remuneration costs and expenses associated with the administration of the DOCA:

            (i)         from the assets and property referred to in clause 5 of the deed as “the fund”; or

            (ii)        alternatively, from the property of the company in due course of its winding up in due course of its winding up;

(e)        an order that the costs of the application be paid out of the assets of the company as an expense in the winding up.

3                     On 16 May 2008 I made the following orders:

UPON NOTING the written request made by the plaintiff’s solicitors on 14 May 2008, THE COURT ORDERS THAT:

1.         Paragraphs 1 to 5 of the orders made in this matter on 22 April 2008 be revoked.

2.         The plaintiff file any amended application and any further affidavits upon which he intends to rely on or before 20 May 2008.

3.         The plaintiff serve a copy of:

3.1       the Amended Application;

3.2       all affidavits upon which he intends to rely; and

3.3       a copy of this order,

on any creditor whose rights may be affected by the application.

4.         Any creditor that intends to be heard on the application file and serve an appearance and any affidavits on or before 3 June 2008.

5.         The plaintiff, and any creditor that intends to be heard on the application, file and serve an outline of submissions five business days before the hearing of the application.

6.         The application be listed for hearing on 24 June 2008 at 9.30am.

4                     Insofar as the orders required the plaintiff to do an act, I am satisfied that the orders have been complied with.  No creditor has filed an appearance or sought to be heard on this application.

5                     The purpose of providing administrators and liquidators with the right to apply for directions from the Court is to protect those officers from incurring personal liability in relation to acts done on behalf of the company.  Provided that an administrator or a liquidator makes a full and fair disclosure to the Court of any material facts which are relevant to the application, those officers are entitled to obtain directions from the Court as to the manner in which they should act in carrying out their functions.  The purpose is not to enable an administrator or liquidator to apply to the Court to make binding orders in the nature of judgments which would impact upon creditors or other parties not parties to the proceeding but to give the administrator or liquidator advice: Re G B Nathan and Co Pty Ltd (In Liq) (1991) 24 NSWLR 674.  However, there may be instances where a court will go further without simply giving directions and make declarations which impact on parties’ substantive rights, but usually the parties affected will be parties to the proceeding or at least indicate consent to such a procedure.

6                     The company was registered on 28 August 2001.  On 1 November 2005 the Deputy Commissioner of Taxation filed an application in this Court seeking an order that the company be wound up in insolvency.  On 29 November 2005 at a meeting of the company the plaintiff was appointed administrator of the company by the director pursuant to s 436A of the Act.  At that meeting the director of the company, Mr Kerry Rogers, expressed the opinion that the company was insolvent.  On 6 December 2005 the plaintiff in his capacity as administrator of the company convened a meeting of the company’s creditors pursuant to s 436E of the Act.  On 20 December 2005 Emmett J dismissed the Deputy Commissioner of Taxation’s application on the ground that a DOCA was likely to be executed.  On 23 December 2005 the plaintiff convened a further meeting of creditors pursuant to s 439A at which the creditors resolved that the company execute a DOCA.  That deed was executed on 31 December 2005.

7                     The DOCA provides that a moratorium applies for all liabilities of the company to creditors until the company is released from the DOCA or the DOCA is terminated: clause 3.

8                     Clause 4.3 of the DOCA provides that the director, Mr Kerry Rogers, pay to the administrator the sum of $57,150 for the purchase of the plant, equipment and vehicles of the company.  The DOCA provided for that sum to be held by the administrator, together with other monies as provided for in clause 5 of the Deed; which together would comprise the “fund”.

9                     Clause 5 of the DOCA provides:

5          The sum payable by the director under clause 4.3 of this deed together with all progress payments made by Westfield Shopping Centre Management Company Pty Ltd for works carried out by the company pursuant to its contractual obligations under tender no. ST001/04 (“Cable Rectification Works”) together with all other company property shall be available for distribution amongst creditors in accordance with clause 6 hereof and which shall together comprise and shall be referred to herein as the fund.

10                  Clause 6 directs how the fund is to be applied:

6          The administrator shall expend all best efforts to complete by end March 2006 the collection of the majority portion of monies owed by the company’s debtors and in any event undertakes to make an initial distribution of the fund by end May 2006, in which such distribution and any subsequent distributions the administrator shall apply the fund as follows:-

6.1       Firstly, in payment of the administrator’s remuneration costs and expenses associated with the administration and the administration of this deed in accordance with clause 8 of this deed;

6.2       secondly, in payment of the priority creditors as set out in section 556 of the Corporations Act;

6.3       thirdly, in payment of the plaintiff’s taxed legal fees, costs and disbursements incurred in the Federal Court of Australia proceedings, Action No. NSD 2085 of 2005; and

6.4       fourthly, in payment of a dividend on a pro rata basis to all those other creditors who have lodged claims which are admitted under this deed being all creditors other than the director.

11                  Clause 7 of the DOCA which is referred to in clause 3 provides for the termination of the DOCA upon payment to the company’s creditors in accordance with clause 6.  It provides:

7          Upon payment to creditors of their entitlements as provided for in clauses 6.2, 6.3 and 6.4 of this deed the company shall be released in full from all its debts and all claims by creditors relating to the debts and/or liabilities as at the date of the commencement of the administration shall be extinguished and this deed shall terminate.

12                  The payment to the creditors of their entitlements under the DOCA extinguishes their debts in full: clause 14.  There are other provisions for termination if the company is in default (clause 12) or the administrator is of the opinion that it is no longer practicable or desirable to implement the DOCA (clause 12A), but they are not relevant on this application.

13                  Clause 18 of the DOCA provides for termination where the arrangement has achieved its purpose.  Clause 18 provides:

18        If the administrator has applied the fund available for distribution amongst creditors or such lesser sum determined by the creditors at a general meeting, the administrator must certify to that effect in writing and must within 28 days lodge with the Australian Securities and Investments Commission a notice of termination of this deed in the following form:

“STRONGEST LINK PTY LTD

I, ROBERT COLIN PARKER, as administrator of the

deed of company arrangement executed on the

day of December 2005 CERTIFY that the deed

has been wholly effectuated”.

            and the execution of the notice terminates this deed.

14                  On 26 March 2006 the plaintiff paid an initial dividend to all but two creditors of the company of 48 cents in the dollar.  The creditors who did not receive a dividend were CGU Workers Compensation (NSW) Limited (CGU) and Austsign Extreme Pty Ltd (in liquidation) (Austsign), neither of whom at that stage had made claims in accordance with the DOCA.  CGU and Austsign submitted their claims on 29 June 2007 and 15 August 2007 respectively.

15                  In May 2007 the company ceased trading.

16                  On 29 June 2007 the Deputy Commissioner of Taxation again applied to this Court for an order that the company be wound up in insolvency.

17                  On 31 July 2007 the plaintiff convened a meeting of the deed creditors pursuant to s 445F of the Act.  The administrator advised the deed creditors that the meeting was convened for the purpose of terminating the DOCA in accordance with clauses 12 and 12A of the DOCA and s 445F of the Act.  He advised the meeting that the Deputy Commissioner of Taxation had petitioned to wind up the company on the basis “that it has unpaid post deed debt”.  On a motion proposed by the Deputy Commissioner of Taxation, the meeting was adjourned to 20 September 2007.

18                  On 18 September 2007 the plaintiff admitted CGU’s and Austsign’s claims in the sum of $126,082.61 and $2,000 respectively.

19                  On 20 September 2007 the director, Mr Rogers, moved a resolution that the meeting be adjourned to 27 September 2007 in order that he might pay out the Deputy Commissioner of Taxation.  The meeting was adjourned.

20                  On 27 September 2007 the meeting of the deed creditors resumed at which the only creditors present were the director and representatives of the Australian Taxation Office.  The plaintiff invited the creditors to pass a resolution under s 445C(b) of the Act terminating the DOCA and winding up the company but neither creditor was prepared to propose a motion to that effect.

21                  On 5 October 2007 Registrar Hedge, in the New South Wales District Registry, made an order that the company be wound up and the plaintiff be appointed as liquidator of the company.

22                  At the time the winding up order was made, the DOCA was still extant; equalising dividends had not been paid to the two creditors CGU and Austsign; and the plaintiff’s fees had not been paid.  Deed assets consisting of $82,295.91 in cash at the bank and $130,515.15 of collectable items were still undistributed.

23                  Section 445C of the Act provides for the circumstances in which a deed of company arrangement may be terminated.  It provided at the relevant time:

445C   A deed of company arrangement terminates when:

(a)        the Court makes under section 445D an order terminating the deed; or

(b)        the company’s creditors pass a resolution terminating the deed at a meeting that was convened under section 445F by a notice setting out the proposed resolution; or

(c)        if the deed specifies circumstances in which it is to terminate — those circumstances exist; or

            whichever happens first.

24                  Subsequently, subsection (d) was added and became effective as at 31 December 2007:

(d)        the administrator of the deed executes a notice of termination of the deed in accordance with section 445FA;

25                  In Wellnora Pty Ltd v Fiorentino (2008) 66 ACSR 229, Barrett J said at [40]:

A deed of company arrangement has the statutory force created by ss 444B, 444D, 444G and 444H: see generally MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636; 162 ALR 441; 30 ACSR 705; [1999] HCA 24.  Termination of a deed of company arrangement is also a purely statutory matter, in the sense that there can be no termination except as is produced by the Corporations Act and the consequences of termination are those produced by the Act.  The only provision which deals in any way with the the (sic) effect and consequences of termination is 445H:

    The termination or avoidance, in whole or in part, of a deed of company arrangement does not affect the previous operation of the deed.

26                  A deed of company arrangement is a statutory concept for the administration of a company.  Section 445C must be taken to deal comprehensively with the circumstances in which a deed of company arrangement may be terminated.

27                  Clause 7 of the DOCA provides that the company is to be released from the deed and from its debts, and all claims by creditors relating to the company’s debts and all liabilities, upon payment to the creditors of their entitlements as provided for in clause 6 of the DOCA.  Although an initial dividend of 48 cents in the dollar was paid on 26 March 2006, two deed creditors have not yet been paid their dividend and are entitled to an equalising dividend of 48 cents in the dollar in relation to their debts.  Clause 7 therefore does not operate to release the company and bring the DOCA to an end.  Neither clause 12 nor clause 12A applies so as to terminate the DOCA, at least without a resolution of creditors.  Because there is a fund remaining the plaintiff cannot certify in accordance with clause 18 and the DOCA cannot be terminated by that event.  The DOCA does not provide that it should be terminated upon the company being wound up.  No deed creditor sought to have the DOCA terminated at the meeting of 27 September 2007 despite the plaintiff’s invitation: s 445C(b).  In those circumstances, the DOCA continues to bind the company because none of the circumstances in s 445C have been met at least until an order is made by the Court pursuant to s 445D: s 445C(a).

28                  This appears to be a novel case in that at the time the company went into liquidation the company was in administration and subject to a deed of company arrangement.  That administration did not cease by reason of anything done by the creditors at or before the winding up order, nor did administration cease by force of the winding up order.  In those circumstances, both administrations were in existence as a result of the winding up order and the plaintiff was charged with carrying out both administrations.

29                  The effect of the DOCA continuing to bind the company is that two creditors, CGU and Austsign, are apparently entitled to an equalising dividend to that paid to the remaining creditors on 26 March 2006.  There are sufficient funds to make that payment.

30                  I am told that if that equalising dividend were paid and all other costs and expenses arising out of the administration of the deed were met, there would still be sufficient funds to pay a second dividend to the creditors under the DOCA in the order of 5.55 cents in the dollar.  Of course, that would mean that, effectively, the creditors existing as at the date the company entered into the DOCA would be preferred to those creditors who have become creditors of the company subsequent to the administrator’s appointment on 29 November 2005.

31                  The issue which has arisen, therefore, is whether in the absence of the termination of the DOCA the fund should be administered in accordance with the DOCA or whether it should be applied and distributed in the course of the winding up.

32                  The effect of the plaintiff’s appointment as liquidator means that no-one can perform or exercise or purport to perform or exercise a function or power as an officer of the company: s 471A.  An administrator of a deed of company arrangement is an officer of the company: s 9.  The plaintiff cannot therefore exercise his functions or powers as an administrator unless as liquidator he gives himself written approval as administrator or has the approval of the Court: s 471A(1A).

33                  A deed of company arrangement binds all creditors of the company, so far as it concerns creditors’ claims arising in this case before the appointment of the administrator: s 444D(1).  The deed also binds the company, its officers and members and the deed’s administrators: s 444G.  The liquidator of a company is an officer: s 9.

34                  It follows that in a case such as this where a company is in administration and subject to a deed of company arrangement, and the administration continues after the company is also wound up in insolvency and a liquidator appointed, the administrator ceases to be able to perform any function or power under the deed of company arrangement; but the creditors at the time the administrator was appointed and the liquidator are bound by that deed of company arrangement.

35                  Where a company is being wound up in insolvency, the liquidator must take into the liquidator’s custody or control all the property to which the company is or appears to be entitled: s 474(1).  The company’s property must be applied in discharging the company’s liabilities: s 478(1)(a).  Whilst the liquidator takes custody and control of the company’s assets, the legal title to the property remains in the company.  The liquidator merely adopts the position of the directors: Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 371; Mineral & Chemical Traders Pty Ltd v T Tymczyszyn Pty Ltd (in liq) (1994) 15 ACSR 398.  In that later case Santow J said at 416:

The statutory scheme which exists for the realisation and distribution of assets of the company in liquidation therefore does not, upon the appointment of a liquidator, operate so as to divest the company of its property.  The effect of the appointment of a liquidator is rather that control of all of the company’s property passes to the liquidator.  There is no change in the ownership of a company property upon a winding up (leaving aside preferences).  Title to property does not pass but remains vested in the company: Re Allan Fitzgerald Pty Ltd (in liq) (1992) 9 ACSR 627.  The liquidator does not become the beneficial owner of the assets of the company.  The liquidator is simply an officer of the company charged with the duty of dealing with the company’s assets in accordance with the statutory scheme: United Tool & Lye-Makers Pty Ltd (in liq) v J V Marine Motors Pty Ltd [1992] 1 VR 266; Re Allan Fitzgerald Pty Ltd (in liq), supra.  As the joint judgment of Stephen, Mason, Aitken and Wilson JJ stated in Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 371:

In the case of the winding up of the company the legal title to all company property, including trust property, remains in the company.  The liquidator of a company takes the position of the directors and, in the absence of a court order under s 233(2) of the Companies Act acquires no title to the company property.  (my emphasis)

36                  In Commissioner of Taxation of the Commonwealth of Australia v Linter Textiles Australia Ltd (in liquidation) (2005) 220 CLR 592, the majority of the High Court followed a decision of Menzies J in Franklin’s Selfserve Pty Ltd v Federal Commissioner of Taxation (1970) 125 CLR 52 when his Honour, speaking of assets of the company, said they remain the property of the company and the beneficial interest is not, by virtue of the liquidation, vested in any other person or persons.  When a company is placed in liquidation and a liquidator appointed, the ownership of the assets of the company remains with the company.  The control of those assets, however, passes to the liquidator in accordance with the statutory scheme and the liquidator must deal with those assets for the benefit of the creditors.

37                  The question for determination is whether the liquidator must apply the fund in accordance with the DOCA, or in accordance with the statutory provisions relating to a liquidation and without reference to the DOCA.  The plaintiff cannot perform his functions as administrator because he has been appointed as a liquidator: s 471A.  If the liquidator must apply the fund in accordance with the statutory provisions relating to a liquidation, the Court may need to make an order terminating the DOCA so that the liquidator may discharge his duties: s 445C(a).

38                  There is an antecedent question, namely, whether by reason of the execution of the DOCA, the plaintiff holds the deed fund on a trust either for the company or for the deed creditors.

39                  There is a conflict in the authorities as to the effect of a deed of company arrangement on the assets of the company.  In Dean-Willcocks v ACG Engineering Pty Ltd (in liq) (2003) 45 ACSR 290, the plaintiff liquidator had previously been the voluntary administrator of the company.  After his appointment as administrator, the company entered into a deed of company arrangement which provided for the plaintiff to be the deed administrator.  The deed provided for the creation of an administration fund on account of the creditors and provided that the administrator was to hold the administration fund in accordance with the terms of the deed of company arrangement.  The deed recorded that the company and its directors had agreed that any monies paid to the administrator towards the fund were not refundable to the company or a third party.  The deed of company arrangement required a distribution among the participating creditors.

40                  The question for determination for Austin J was whether the administration fund was an asset of the company so as to be available for distribution in the liquidation of the company, or an asset held by the deed administrator for the benefit of the deed creditors and not for the benefit of the company.

41                  Justice Austin examined the provisions of the deed of company arrangement and concluded that the plain and natural meaning of the words in the deed created a trust of the amount of the administration fund for the benefit of the participating creditors.  The trust arose by reason of the provisions of the deed which created an obligation on the administrator to hold the administration fund in accordance with the terms of the deed.  He said that s 444G had the effect of binding the company and the deed’s administrators, as well as officers and members, which meant that the administrator was bound to hold the administration fund in accordance with the terms of the deed of company arrangement, which was also binding on all relevant parties.  He said the provisions of the deed gave rise to an express trust of the administration fund for the benefit of the participating creditors as beneficiaries.

42                  That decision was followed by Campbell J in Shepard v Sports Mondial of Australia Pty Ltd (in liq) (2005) 53 ACSR 746 who said at 748 that “the manner of application of the available funds depends upon the terms of the deed of company arrangement.”

43                  A contrary view was taken by Barrett J in Lombe v Wagga Leagues Club Ltd (2006) 56 ACSR 387.  In that case, a clause of the deed provided that the deed fund was to be held on trust for the benefit of the administrators, deed administrators and for those creditors who became participating creditors.  In other words, there was specific reference to the deed fund being held on trust.  His Honour held, however, that no trust of the kind suggested by Austin J was created by the deed.  Instead, the administrator was like a liquidator who was bound by statute to deal with the Club’s assets in a particular way in accordance with the deed of company arrangement.  In his reasons, Barrett J relied upon a decision of Davies J in Federal Commissioner of Taxation v All Suburbs Car Repairs Pty Ltd (1994) 14 ACSR 753.  In that case, Davies J concluded that when an administrator was acting in accordance with the powers conferred by the deed and carrying out the duties arising under the deed, the administrator was acting in his capacity as agent for the company.  After discussing that case, Barrett J said at 407:

But that, in my opinion, is not what happened here.  The segregation of part of the company’s property (whether or not including property to be contributed by someone else) so that it becomes a fund to be applied by the deed administrator as the company’s agent in accordance with the deed of company arrangement does not, of itself, give rise to a trust.  And where, as in the present case, the segregation is made in a context referring to a “trust” administered by the deed administrator, there is again no trust unless it can clearly be seen that the company has divested itself of the legal and beneficial interests in its property.  The fact that the fund is to be applied by reference to creditors’ claims is not sufficient to give them such beneficial interests in the property concerned; nor is it sufficient to justify a conclusion that the deed administrators became the legal owners of the property so as to be capable of holding it on trust.

44                  His Honour then considered the effect of the deed if he were wrong about his conclusion that no trust was created and in circumstances where the deed of company arrangement was terminated.  In those circumstances, he held that the trust property (if there be trust property) would be held upon a resulting trust for the company: Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567.

45                  That decision was followed by Gyles J in Purchas v Estore Pty Ltd (in liq) (2006) 154 FCR 246.  His Honour said at [14] and [15]:

Counsel for the plaintiffs has pointed out that there is an apparent division of opinion in the authorities upon the critical question.  The decisions of Austin J in Dean-Willcocks v ACG Engineering Pty Ltd (in liq) (2003) 45 ACSR 290 and Campbell J in Sports Mondial favour the conclusion that the fund is held on trust for the deed creditors.  After those decisions, Finkelstein J, in Commonwealth v Rocklea Spinning Mills Pty Ltd (2005) 145 FCR 220, drew attention to the possibility of an inconsistency between them and the earlier decision of Davies J in Commissioner of Taxation (Cth) v All Suburbs Car Repairs Pty Ltd (1994) 29 ATR 329.  Davies J held that payments to the administrator were payments to him in his capacity as the agent of the company and consequently the sums received were the property of that company.

Barrett J needed to consider the differences in the reasoning in those authorities in Lombe v Wagga Leagues Club Ltd (2006) 56 ACSR 387 at [53]-[77].  In circumstances which I cannot distinguish in substance from the present facts, Barrett J in a careful and reasoned decision applied the reasoning of Davies J.  It is appropriate to follow the decision of Barrett J unless I am satisfied that it is clearly wrong.  Consistency of decision in relation to the Act is desirable.  As I am not satisfied that the decision of Barrett J is clearly wrong, I propose to follow it and give directions accordingly.

46                  In my opinion, the decision of Barrett J is to be preferred to the decisions of Austin J and Campbell J for the reasons given by Barrett J.

47                  The Act provides a statutory scheme for the administration of a company under a deed of company arrangement.  There is no reason, in principle, to treat an administrator any differently from a liquidator.  The administrator, like a liquidator, is an officer of the company.  He or she is obliged to act in accordance with the functions and powers given him or her under the deed of company arrangement which he or she is appointed to administer.

48                  There is no reason to impress upon the administrator a trust so that the company is divested of its assets upon the execution of the deed of company arrangement.  It is enough that the administrator is obliged to deal with the assets of the company in accordance with the directions given by the company by its execution of the deed of company arrangement.  The Parliament could, if it wished, create the administrator as a trustee of the company’s assets on execution of the deed of company arrangement: Registrar of the Accident Compensation Tribunal v Federal Commissioner of Taxation (1993) 178 CLR 145 at 167.  Indeed, the legislation could render the administrator as trustee without the legislation using the expression “trust”: Commissioner of Taxation of the Commonwealth of Australia v Linter Textiles Australia Ltd (in liq) 220 CLR 592 at 607.  But that is not the case here.  There is nothing in the statute which suggests that an administrator is to become the trustee of any fund created by the company pursuant to a deed of company arrangement.  There is nothing to suggest that the administrator should occupy any different position to a liquidator.  The purpose of an administration is to get in the available assets and distribute them to the creditors; in the case of an administrator in accordance with the deed of company arrangement and in the case of a liquidator in accordance with the statutory scheme.

49                  The administrator must discharge the administrator’s statutory obligation and any obligations which are imposed upon the administrator which the administrator accepts by reason of accepting his or her appointment by the deed of company arrangement.  I think the reasons of Barrett J which rely in part on the reasons of Davies J are to be preferred to the other decisions of the Supreme Court of New South Wales.

50                  If I am wrong about that and a deed of company arrangement could create a trust in favour of the creditors at the date of the appointment of the administrator, this DOCA is not an arrangement of that type.

51                  Clause 5 of the DOCA simply makes the fund available for distribution amongst creditors in accordance with clause 6 of the DOCA.  In my opinion, clause 6 instructs the administrator as to the order in which the administrator shall distribute and apply the fund.  Neither clause 5 nor 6, nor clauses 5 and 6 considered together, creates a trust whereby the monies are held by the administrator for the benefit of the deed creditors.  For those reasons, this case can be distinguished from the facts in Dean-Willcocks v ACG Engineering Pty Ltd (in liq) 45 ACSR 290 and in Shepard v Sports Mondial of Australia Pty Ltd 53 ACSR 746.  It follows therefore that the fund created by the DOCA is still the property of the company.

52                  In those circumstances, the plaintiff, as liquidator, must receive as part of the liquidation the fund, and distribute those monies held in the fund in accordance with his obligations as liquidator.

53                  The plaintiff has sought an order that the deed be terminated.  It is not clear in which capacity the plaintiff makes that application but I think because of the provisions of s 471A that he has made this application as liquidator.  Section 445D of the Act empowers the Court to terminate a deed in the circumstances specified in the section.  A deed would be terminated if, in the exercise of the Court’s discretion, it is in the interests of the creditors as a whole and in the public interest: Emanuele v Australian Securities Commission (1995) 63 FCR 54.

54                  In the present circumstances, on the appointment of the plaintiff as liquidator, the DOCA has no further work to do and cannot assist the two creditors who have not received their dividend in accordance with the DOCA.  For that reason, it would be appropriate to order its termination: s 445D(1)(g).  In those circumstances, I am prepared to make an order terminating the deed.

55                  If the deed is terminated, the plaintiff’s remuneration as deed administrator would become a deferred expense for the purpose of s 556 of the Act and payable accordingly.

56                  I make the following directions and orders:

1.                  A direction that the plaintiff would be justified in making an application for the termination of the deed of company arrangement executed by Strongest Link Pty Ltd (in Liq) (Subject to a Deed of Company Administration) on 31 December 2005.

2.                  An order pursuant to s 445D(1) of the Corporations Act 2001 (Cth) (the Act) that the deed of company arrangement executed by Strongest Link Pty Ltd (in Liq) (Subject to a Deed of Company Administration) on 31 December 2005 be terminated.

3.                  An order that pursuant to s 447A of the Act that the order made in paragraph 2 hereof is not to be taken as the passing of a special resolution in accordance with s 446B(1) of the Act and reg 5.3A.07 of the Corporations Regulations 2001 (Cth).

4.                  A direction that the plaintiff would be justified upon the termination of the deed of company arrangement executed by Strongest Link Pty Ltd (in Liq) (Subject to a Deed of Company Administration) on 31 December 2005, in applying and distributing the fund described in clause 5 of that deed as the property of Strongest Link Pty Ltd (in Liq) (Subject to a Deed of Company Administration) in due course of winding up.

5.                  A direction that the plaintiff would be justified upon the termination of the deed of company arrangement executed by Strongest Link Pty Ltd (in Liq) (Subject to a Deed of Company Administration) on 31 December 2005, in treating his remuneration payable pursuant to clause 8 of the deed “as deferred expenses” within the meaning of s 556 of the Act in the winding up.

6.                  The costs of this application be paid out of the assets of Strongest Link Pty Ltd (in Liq) (Subject to a Deed of Company Administration) as an expense of the winding up.

Associate:

Dated:         3 July 2008