FEDERAL COURT OF AUSTRALIA

City of Swan v Lehman Bros Australia Ltd (No 2)
[2009] FCA 1160

CITY OF SWAN, PARKES SHIRE COUNCIL and WINGECARRIBEE SHIRE COUNCIL v LEHMAN BROTHERS AUSTRALIA LIMITED (IN LIQ), NEIL SINGLETON, STEPHEN PARBERY, LEHMAN BROTHERS ASIA HOLDINGS LIMITED (IN LIQUIDATION) and LEHMAN BROTHERS HOLDINGS INC.

NSD 538 of 2009

RARES J

2 OCTOBER 2009

SYDNEY

IN THE MATTER OF LEHMAN BROTHERS AUSTRALIA LIMITED

(SUBJECT TO A DEED OF COMPANY ARRANGEMENT) aCn 006 797 760)

THE COURT DECLARES THAT:

1.                  The deed of company arrangement dated 12 June 2009, executed by the first, second, third and fourth defendants, is void.

THE COURT ORDERS THAT:

1.                  The first defendant be wound up by the court.

2.                  Neil Singleton and Stephen Parbery be appointed as liquidators of the first defendant.

3.                  Compliance with r 5.6(1) of Federal Court (Corporations) Rules 2000 is dispensed with.

4.                  The interlocutory process filed by the fifth defendant on 20 July 2009 be dismissed.

5.                  The cross claim filed by the fourth defendant on 20 July 2009 be dismissed.

6.                  The defendants file and serve written submissions together with any evidence upon which they propose to rely in relation to their position on costs on or before 13 October 2009.

7.                  The plaintiffs file and serve written submissions in opposition to any questions raised by the defendants in relation to costs together with any evidence on or before 15 October 2009.

8.                  The question as to costs be adjourned to 16 October 2009 for hearing.

9.                  The Australian Securities and Investments Commission is excused from further attendance.

THE COURT NOTES:

1.                  The undertaking of the second and third defendants, by their counsel, that each of them will file a consent to act as liquidator of the first defendant today in accordance with the Federal Court (Corporations) Rules 2000.

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.

IN THE MATTER OF LEHMAN BROTHERS AUSTRALIA LIMITED

(SUBJECT TO A DEED OF COMPANY ARRANGEMENT) aCn 006 797 760)

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

1                     On 25 September 2009, the Full Court answered questions that I had referred to it in relation to the plaintiff councils’ challenge to the deed of company arrangement executed by Lehman Brothers Australia Limited on 12 June 2009:  City of Swan v Lehman Brothers Australia Limited [2008] FCAFC 130.  The Full Court answered question 7.2, namely, whether the deed of company arrangement was void and of no effect in the affirmative.  However, it did not make any formal declaration in the terms envisaged in s 445G(2) of the Corporations Act 2001 (Cth).  That provides that on an application, such as has been made by the plaintiffs, the Court can make an order declaring the deed void.  Inevitably, the consequence of the Full Court’s order answering question 7.2 that the deed was void has determined that question once for all in these proceedings.

2                     The immediate issue is to ascertain who, if anyone, is now in control of Lehman Australia, and what, if anything, is required to regularise its position in consequence of the Full Court’s finding that the deed of company arrangement is void.

3                     Lehman Asia argued that the answer to question 7.2 was not a formal order of the Court that had an immediately enforceable consequence.  It contended that it was possible to approach the position as to who was in control of Lehman Australia on the basis that the deed was still in effect and the administrators were acting under its authority.  Lehman Brothers supported that argument.  I reject it.  In Bass v Permanent Trustee Company Limited (1999) 198 CLR 334 at 358 [52], Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ identified that preliminary questions may be questions of law, questions of mixed law and fact or questions of fact.  They said:

“Some questions of law can be decided without any reference to the facts.  Others may proceed by reference to assumed facts, as on demurrer or some other challenge to the pleadings.  In those cases, the judicial process is brought to bear to give a final answer on the question of law involved.  Findings of fact are made later, if that is necessary.”

4                     In Mellifont v Attorney-General (Qld) (1991) 173 CLR 289 at 302-303, Mason CJ, Deane, Dawson, Gaudron and McHugh JJ held that the answers to questions reserved, or in a stated case, in federal jurisdiction involved the exercise of the judicial power of the Commonwealth and were part of the judicial function.  The answers, they said, were not given in circumstances divorced from an attempt to administer the law as stated by the answers.  They continued (Mellifont (173 CLR at 303-304) that the answers:

“… are given as an integral part of the process of determining the rights and obligations of the parties which are at stake in the proceedings in which the questions are reserved.  Once this is accepted, as indeed it must be, it follows inevitably that the giving of answers is an exercise of judicial power because the seeking and giving of the answers constitutes an important and influential, if not decisive step in the judicial determination of the rights and liabilities in issue in the litigation.  Viewed in this context, it matters not whether the giving of answers is, as a matter of legal theory, a binding determination, that is, binding on the court at first instance and the parties, as Mason CJ and Dawson J thought [O’Toole v Charles David Pty Ltd (1990) 171 CLR 232 at 245 at pp 302], or influential, that is, binding in a practical sense or virtually so, as Deane, Gaudron and McHugh JJ thought [O’Toole 171 CLR at pp 279-280].

The consequence is that the answers fall within the descriptions of ‘judgments, decrees, orders’ in s 73 of the Constitution.”

5                     In my opinion, the answer given to question 7.2 that the deed was void, finally determined the rights of the parties in these proceedings in respect of whether any form of administration in accordance with Pt 5.3A of the Act was thereafter on foot.  All parties accept that a declaration could be made now to give effect to the answer to that question, whether that is necessary or not.  In my opinion it is desirable to do so.

6                     The next issue that arose was the question of who was in control of Lehman Australia.  Initially, during the course of today, the position of each of the defendants was that the proceedings should simply be adjourned for two weeks while the defendants considered their position with respect to whether or not they would seek special leave to appeal to the High Court from the Full Court’s orders answering the questions that had been reserved.  I raised the position that the consequence of the answer to question 7.2, that the deed was void, meant that there appeared to be no one readily discernable who was in control of the assets of Lehman Australia.     There was some debate as to whether the second and third defendants, Mr Singleton and Mr Parbery, who were the deed administrators and the original administrators appointed by Lehman Australia, were in some position where they remained as “administrators”.

7                     Senior counsel for Mr Singleton and Mr Parbery sought and was given the opportunity to seek instructions as to whether Mr Singleton and Mr Parbery would be able to give any undertakings to the Court or to suggest any other mechanism by which they could continue to retain control of the company without being appointed as its provisional liquidator or liquidators.  After a short adjournment senior counsel for Lehman Australia said that Mr Singleton and Mr Parbery were not in a position to offer any undertakings other than that they consented to be appointed as provisional liquidators or liquidators and that they would file any necessary written consents were they so appointed.

8                     I am of opinion that it is in the public interest that the company, Lehman Australia, that had formerly been thought to be under a deed of company arrangement be regulated by an appropriate form of external administration in accordance with the provisions of the Act.

9                     Although they originally sought the appointment of Mr Singleton and Mr Parbery provisionally as liquidators, the plaintiffs did not wish to give an undertaking as to damages.  In any event, the ordinary consequence of a deed of company arrangement being terminated as opposed to being declared void, is provided in Div 12 of Pt 5.3A of the Act, namely, that there is an automatic voluntary winding-up.  Given the consequence of the Full Court’s answer to question 7.2, I am of opinion that it is appropriate to make an order that Lehman Australia be wound up.  That is in accordance with the relief sought by the plaintiffs to that effect in the second further amended originating process.

10                  I inquired of counsel for the parties and the Australian Securities and Investments Commission, who continue to appear as an amicus curiae, as to whether there would be any potential prejudice or adverse consequence to any person if I made orders appointing a provisional liquidator as opposed to a liquidator.  The parties were unable to advance any substantive difference.  Both Mr Singleton and Mr Parbery, as liquidators appointed by the Court, will be able to apply to it for directions should any difficulties in the winding up arise while any application for special leave to appeal or appeal is pursued in the High Court.  They would ordinarily have regard to the interests of all of the creditors in light of the two potential outcomes of any such appellate process, so as to conduct the liquidation in a way that did not irreparably affect the rights of persons who might be entitled either under the deed of company arrangement, if the High Court were to reverse the orders that the deed was void, or in liquidation, if the Full Court’s orders not be reversed.

11                  In those circumstances, I am of opinion that it is appropriate to appoint liquidators on a final basis.  No good purpose would be served by appointing them provisionally;  no useful result would ensue from it.  Having regard to the determination by the Full Court that the deed was void, it is inevitable that the company must be wound up.  It is plainly insolvent, as is accepted by all parties and the circumstances in which the deed was entered into in the first place.  For these reasons I am of opinion that Mr Singleton and Mr Parbery should be appointed simply as liquidators.  I will make appropriate orders.

Associate:

Dated:         12 October 2009