FEDERAL COURT OF AUSTRALIA

Capena Contracting Pty Limited, in the matter of;
McGrath v Capena Contracting Pty Limited [2009] FCA 665

ANTHONY GREGORY MCGRATH, JOSEPH DAVID HAYES and SHAUN ROBERT FRASER v CAPENA CONTRACTING PTY LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) and MAUNSELL AUSTRALIA PTY LTD

NSD 1115 of 2008

PERRAM J

18 JUNE 2009

SYDNEY

UPON THE SECOND RESPONDENT, BY ITS COUNSEL, UNDERTAKING:

(a)        to diligently prosecute the proceedings BS 6761 of 2007 in the Supreme Court of Queensland; and

(b)        not to seek to enforce any judgment which it might obtain against Capena Contracting Pty Ltd (Subject to Deed of Company Arrangement) in proceedings BS 6761 of 2007 in the Supreme Court of Queensland without the prior leave of the Court,

THE COURT ORDERS THAT:

1.         Service of the Amended Originating Process filed by the Applicants be dispensed with, other than upon the Second Respondent.

2.         Service of the Interlocutory application filed by the Second Respondent on 7 August 2008 be dispensed with, other than upon the Applicants.

3.         Pursuant to section 447A of the Corporations Act, Part 5.3A of the Corporations Act is to operate in relation to Capena Contracting Pty Limited (subject to a deed of company arrangement) so that the time for lodgement of the Maunsell Proof (as defined in Schedule 1 to these orders) be extended beyond the time allowed by clauses 4.2, 4.3 and 4.4 of the Mining Pool Deed of Company Arrangement.

4.         The Second Respondent has leave of the Court pursuant to section 444E(3) of the Corporations Act to bring proceedings against Capena Contracting Pty Ltd (subject to Deed of Company Arrangement), seeking contribution in respect of any liability the Second Respondent may be held to have to the Plaintiffs in respect of the claims made in proceedings BS 6761 of 2007 in the Supreme Court of Queensland.

5.         Pursuant to section 447A of the Corporations Act, Part 5.3A of the Corporations Act is to operate in relation to the Mining Pool Entities set out in Schedule 2 to these orders (“Schedule 2”) as if the reference to Subdivision “E” in each of:

(a)        paragraph 8 of Schedule 8A of the Corporations Act; and

(b)        paragraph 3 of Schedule 4 of the Mining Pool Deed of Company Arrangement,

was amended by adding the words:

“(subject to varying the terms of s563B(2) of the Act by adding after the words ‘other than’, the words:

‘the following claims, classes of claims or potential claims:

·          claim by the Australian Taxation Office

·          claims by Maunsell Australia Pty Limited and/or Patrick Stevedores Operations (No 2) Pty Limited

·          any other claim arising in respect of works performed at Port of Brisbane, for Port of Brisbane Corporation (Contract314) and/or Patrick Stevedores Operations (No 2) Pty Limited (Contract 2004/Fi-C/01)

·          any known claim arising in respect of Northparks Mine

·          any known workers compensation or other personal injury claims

,and’”.

6.         Pursuant to section 447A of the Corporations Act, Part 5.3A of the Corporations Act is to operate in relation to the Non Core Entities set out in Schedule 2 as if the reference to Subdivision “E” in each of:

(a)        paragraph 8 of Schedule 8A of the Corporations Act; and

(b)        paragraph 3 of Schedule 4 of the Non Core Deed of Company Arrangement,

was amended by adding the words:

“(subject to varying the terms of s563B(2) of the Act by adding after the words ‘other than’, the words:

‘the following claims, classes of claims or potential claims:

·          claim by the Australian Taxation Office

·          claims by Maunsell Australia Pty Limited and/or Patrick Stevedores Operations (No 2) Pty Limited

·          any other claim arising in respect of works performed at Port of Brisbane, for Port of Brisbane Corporation (Contract314) and/or Patrick Stevedores Operations (No 2) Pty Limited (Contract 2004/Fi-C/01)

·          any known claim arising in respect of Northparks Mine

·          any known workers compensation or other personal injury claims

,and’”.

7.         Pursuant to section 447A of the Corporations Act, Part 5.3A of the Corporations Act is to operate in relation to the Mining Pool Entities set out in Schedule 2 as if the deed of company arrangement given effect to pursuant to section 444A and executed pursuant to s444B was constituted by the Mining Pool Deed of Company Arrangement set out in Schedule 2, as varied, by adding new clauses 8.1.1 and 8.1.2, as follows:

“8.1.1              Notwithstanding clause 8.1(d) and (e), the Administrators may, subject to clause 8.1.2, attend to payment of some or all interest that may be payable, on a pro-rata basis, pursuant to clause 8.1(e)Ii) and (ii), before admission to proof and payment of the following claims, classes of claims, or potential claims:

·          claim by the Australian Taxation Office

·          claims by Maunsell Australia Pty Limited and/or Patrick Stevedores Operations (No 2) Pty Limited

·          any other claim arising in respect of works performed at Port of Brisbane, for Port of Brisbane Corporations (Contract 314) and/ or Patrick Stevedores Operations (No 2) Pty Limited (Contract 2004/Fi-C/01)

·          any known claim arising in respect of Northparks Mine

·          any known workers compensation or other personal injury claims

8.1.2              The Administrators must, without admissions as to the validity or quantum of any claims or potential claims referred to in clause 8.1.1, make a reasonable estimate of the value of such claims, and provision for them from Deed Funds held by them pursuant to each of the Deed of Company Arrangement set out in Schedule 3, or from insurance policies which cover such claims.”

8.         Pursuant to section 447A of the Corporations Act, Part 5.3A of the Corporations Act is to operate in relation to the Non Core Entities set out in Schedule 2 as if the deed of company arrangement given effect to pursuant to section 444A and executed pursuant to s444B was constituted by the Non Core Deed of company Arrangement set out in Schedule , as varied, by adding new clauses 8.1.1 and 8.1.2, as follows:

“8.1.1              Notwithstanding clause 8.1(h) and (i), the Administrators may, subject to clause 8.1.2, attend to payment of some or all interest that may be payable, on a pro-rata basis, pursuant to clause 8.1(i)(i) and (ii), before admission to proof and payment of the following claims, classes of claims, or potential claims:

·          claim by the Australian Taxation Office

·          any known workers compensation or other personal injury claims

8.1.2                The Administrators must, without admission as to the validity or quantum of any claims or potential claims referred to in clause 8.1.1, make a reasonable estimate of the value of such claims, and provision for them from Deed Funds held by them pursuant to each of the Deeds of Company Arrangement set out in Schedule 3, or from insurance policies which cover such claims.

9.         The costs of the Applicants be costs in the administration of the First Respondents.

PURSUANT TO SECTION 447D OF THE CORPORATIONS ACT 2001, THE COURT DIRECTS THAT:

10.       The Applicants, as Deed Administrators of the Mining Pool Deed of Company Arrangement and of the Non Core Deed of Company Arrangement (as defined in Schedule 2) are justified:

(a)        in deferring adjudication of the Maunsell Proof, pending the resolution of proceedings BS 6761 of 2007 in the Supreme Court of Queensland; and

(b)        in making a payment of the interest payable pursuant to:

(i)         clause 8.1 (e) of the Mining Pool Deed of Company Arrangement; and

(ii)        clause 8.1(i) of the Non Core Deed of Company Arrangement,

as the case may require, to Participating Creditors so entitled thereunder, prior to adjudication of the Maunsell Proof.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                          On 4 December 2008 I made orders in this proceeding on the application of Maunsell Australia Pty Ltd (“Maunsell”), the second respondent.  Formally those orders were opposed by the administrators of Capena Contracting Pty Limited (“Capena”).  These are my reasons for making those orders.

Background

2                          Capena is a subsidiary of a previously listed company Henry Walker Elkin Group Limited.  Each of the companies in that group went into voluntary administration on 31 January 2005.  Subsequently each member of the group entered into a number of deeds of company arrangement.

3                          The deed administrators admitted to proof under all of these deeds creditors totalling approximately $302 million.  With one exception, all of those creditors have been paid their entitlements in full or have otherwise been provided for by the deed administrators.

4                          The present application arose out of the single creditor who is not in that position, Maunsell.  On 11 December 2002, some years before the administrators’ appointment, Maunsell entered into a contract with Patrick Stevedores Operations Pty Limited for the design of the pavement for berths 8B and 9 at Fisherman’s Island.  Fisherman’s Island is part of the container terminal for the Port of Brisbane.  Capena was a construction company and in or around March 2004 it entered into a contract with Patrick Stevedores Operations (No 2) Pty Limited (“Patricks”) for the construction of berths 8B and 9 (the pavement of which was designed by Maunsell).  Capena performed some construction work under this contact but did not complete that work prior to being placed in voluntary administration on 31 January 2005.  Upon that event Patricks terminated the Capena contract.

5                          Patricks became aware of issues with pavement failures at Fisherman’s Island in or about March 2006.  They notified the designers, Maunsell, of rutting in some of the pavements on 1 April 2006.  Further pavement difficulties were notified to Maunsell intermittently throughout 2006.

6                          On 8 August 2007, Patricks commenced proceedings in the Supreme Court of Queensland against Maunsell seeking damages for alleged pavement failure at berths 8B and 9.  Maunsell did not anticipate that claim.  By contrast the administrators of Capena were aware that there were issues about the paving at the terminal and, indeed, had become so aware the previous year in December 2006.  Shortly after the commencement by Patricks of those proceedings, Maunsell lodged a proof of debt with the administrators of Capena asserting an entitlement to an indemnity from Capena, as builder.  The proof of debt was lodged on 16 November 2007, that is, within a few months of the commencement of the proceedings.

The Mining Pool Deed of Company Arrangement

7                          One of the deeds of company arrangement to which Capena is a party is the ‘Mining Pool’ deed of company arrangement.  Clause 4.4 of that deed provides:

4.4       Claims barred

All Claims and rights of action and remedies in respect thereof by a Creditor not submitted in accordance with the provisions of either Clause 4.2 or Clause 4.3 or not proved in accordance with Clause 4.6 to 4.8 shall be forever absolutely barred and extinguished against the relevant Mining Pool Entity in accordance with this Deed.

8                          It should be noted that Capena was, in the present context, a “relevant Mining Pool Entity”.  In practical terms, cl 4.4 required any proof of debt to be lodged by 16 June 2006.  Maunsell’s proof of the debt was not lodged within that time.  That brought into play cl 9.2 which provides:

9.2       Claims extinguished

If the Administrators have paid to the Participating Creditors their full entitlements under this Deed, all Claims of the Creditors are extinguished.  Creditors must accept their entitlements under this Deed in full satisfaction and complete discharge of all Claims.

9                          As has been mentioned, all creditors, apart from Maunsell, have been paid in full or their claims otherwise satisfied.  As at 29 August 2008 the money available under the Mining Pool deed of company arrangement was as follows:

10                        By the time of the hearing there had been minor alterations to those figures but not in ways which were material.

The issues which arise

11                        Essentially two interrelated questions were involved.  The first was whether the time for the lodgement of Maunsell’s proof of debt should be extended or, equivalently, cl 4.4 itself modified to bring about the same result.  The second was whether the administrators should be permitted to pay to the other creditors the interest due to them under the terms of the deeds of company arrangement.  Naturally enough, if Maunsell were permitted to prove in the administration it would be appropriate to grant it leave to proceed against Capena in the Supreme Court of Queensland proceedings.

12                        The two issues were interrelated because the effect of permitting Maunsell’s claim to go forward would be to delay the end of the administration of Capena which would delay the distribution of interest.  The administrators submit that if the Maunsell proof is to be received then the interest should be released now so as to avoid prejudice to the other creditors constituted by delay.

13                        Subject to that question of interest, the administrators did not in substance seek to resist Maunsell’s claims for relief.

14                        Section 447A of the Corporations Act 2001 (Cth) provides:

General power to make orders

(1)        The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.

(2)        For example, if the Court is satisfied that the administration of a company should end:

(a)        because the company is solvent; or

(b)        because provisions of this Part are being abused; or

(c)        for some other reason;

            the Court may order under subsection (1) that the administration is to end.

(3)        An order may be made subject to conditions.

(4)        An order may be made on the application of:

            (a)        the company; or

            (b)        a creditor of the company; or

(c)        in the case of a company under administration--the administrator of the company; or

(d)        in the case of a company that has executed a deed of company arrangement--the deed's administrator; or

(e)        ASIC; or

(f)        any other interested person.

15                        The provision is in broad terms and its breadth has been confirmed by a unanimous High Court: see Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 at 279-280 [17]-[18].  The same decision establishes that orders made under s 447A operate only prospectively but can take as a factum for that operation past events.  In practice, this means that a time limit in a deed of company arrangement can be extended, a position accepted by Warren J in Re Ansett Australia Ltd (2002) 41 ACSR 598 at 601-602 [16]-[19] as being a state of affairs that is well-established.

16                        The administrators submitted that admitting the Maunsell claim to proof without releasing the interest would delay the payment of the interest to the creditors and that was a sufficient reason to reject the claim.  Maunsell submitted, and the administrators effectively accepted, that if the operation of the deed were altered so that the interest could be paid now then there would be no prejudice to creditors in that sense.  I accept that submission.  Be that as it may, it is for Maunsell to make good its entitlement to an order.  It submitted that time should be extended because it had a good explanation for not submitting its proof by 16 June 2006.

17                        Before me Mr Charlesworth gave evidence by affidavit for Maunsell.  He was not aware at any time prior to service of Patricks’ proceedings that Patricks intended to bring such a claim.  Further, Maunsell was aware of no facts by 16 June 2006 which would have allowed it properly to suggest any wrongdoing by Capena since no proper investigation had been undertaken by that time.  I accept that Maunsell could not sensibly have lodged the proof of debt by 16 June 2006.

18                        It is also relevant to consider whether the claim is of substance.  Maunsell submitted that it was and the administrator did not seek to suggest to the contrary.  There is evidence from a civil and structural engineer expressing the view that Capena’s actions are the cause of the pavement difficulties.  In that circumstance, the claim is prima facie one of substance.  This is relevant not only to the questions posed by s 447A, but also, more directly, to whether Maunsell should be granted leave to proceed against Capena.

19                        Maunsell submitted that permitting the claim to be lodged would not prejudice the other creditors.  After all other claims the administrators still have in their hands $36.4 million; the amount claimed in the Maunsell proof is $17.6 million.

20                        The administrators canvassed the possibility that if the proof of debt were to be received it would prejudice the position of the shareholders who, after all, were the persons who ultimately had an interest in whatever was left after all the creditors were satisfied in full.  The existence of that prejudice should be accepted.  However, it does not conceptually provide a basis for refusing to admit Maunsell’s claims.  The capital of those shareholders was advanced in the commercial venture which was Capena.  It was that capital which was always at risk to tort claims and the claims of other creditors.  It is fundamental to the law of limited liability companies that the shareholders’ capital is available to have claims made upon it.  The shareholders’ liability extends no further than that capital but the exposure of that capital to risk is the price paid for limited liability.  Once that is appreciated, it is apparent that it would be quite inappropriate to subvert that basic principle by preferring the interests of shareholders to creditors such as Maunsell.

21                        Put more shortly, the interests of the shareholders are to rank after the interests of creditors.  During the hearing on 2 December 2008 I was concerned that the shareholders were parties whose interests were directly affected by the making of the proposed orders since it was their surplus which was likely to be partially consumed by Maunsell’s claims.  I raised with the parties whether they should not be heard on the application.  Both parties submitted that they did not need to be heard.  The administrators submitted that even if they did, the Court could make orders directing newspaper advertisements and permit subsequent applications by any shareholders to discharge the orders on a fairly short timetable.  Such an arrangement, so it was submitted, would discharge whatever the requirements of procedural fairness might be.

22                        Ultimately, I did not take that course.  There was no reason to hear from the shareholders for two reasons.  First, for the reason just given their interests are structurally subordinated to those of all creditors.  There are, in an ordinary case, no circumstances in which a shareholder could ever claim to stand in a superior position to a creditor in respect of a company’s assets.  Secondly, the interests of the shareholders are for corporate purposes treated generally as being adequately represented by the company which embodies their shared venture.  In this case, Capena (and through it its shareholders) were adequately heard.

23                        In those circumstances, it was appropriate that the deed be modified to permit Maunsell’s proof to be lodged and to permit that claim to be pursued against Capena in the Queensland Supreme Court.  It was also appropriate to permit the interest held to be released to the creditors.  It was for these reasons that I made the orders that I did on 4 December 2008.

Associate:

Dated:         18 June 2009