FEDERAL COURT OF AUSTRALIA
Treset Pty Ltd v South Pelagic Holdings Pty Ltd (receivers and managers appointed) (administrators appointed), in the matter of South Pelagic Holdings Pty Ltd (receivers and managers appointed) (administrators appointed)  FCA 187
DATE OF ORDER:
24 fEBRUARY 2020
THE COURT NOTES THAT:
For the purposes of s 440A(2) of the Corporations Act 2001 (Cth), the Court is not satisfied that it is in the interests of the creditors of South Pelagic Holdings Pty Ltd (receivers and managers appointed) (administrator appointed) (defendant) that the defendant continue under administration rather than be wound up.
THE COURT ORDERS THAT:
1. The interlocutory process filed by the defendant dated 6 February 2020 is dismissed.
2. Treset Pty Ltd’s costs of and incidental to the defendant’s interlocutory process dated 6 February 2020 be costs in the administration of the defendant.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
1 On 6 February 2020, the defendant (the Company) filed an interlocutory application under s 440(2) of the Corporations Act 2001 (Cth) seeking an order that the hearing of Treset Pty Ltd’s application to wind up the Company be adjourned to a date after 26 February 2020. The interlocutory application was supported by two affidavits sworn on 6 February 2020 by Paul Gerard Weston of Pitcher Partners, one of which is referred to below as the “open affidavit”, while the other affidavit is subject to an order under s 37AF of the Federal Court of Australia Act 1976 (Cth) and it is referred to as the “confidential affidavit”.
2 Mr Weston is the Company’s administrator. The significance of 26 February 2020 is that it is the date to which the second meeting of creditors of the Company was adjourned at the second creditors’ meeting held on 3 February 2020. Having regard to the amounts owing to unsecured creditors, it is likely that, if the adjournment were granted, a majority of the unsecured creditors would approve entry into a deed of company arrangement (DOCA) proposed by Fresh Ocean Limited on 6 February 2020 (DOCA Proposal) over the dissent of Treset.
3 These are the reasons for refusing the adjournment and dismissing the interlocutory application.
(1) The Company was incorporated on 1 September 2001. Between 2001 and about 2015 it operated a commercial fishery business. It has not traded since 2015.
(2) The directors of the Company are Peter John Simunovich, Donna Maria Simunovich and Mark Taplin.
(3) The Company has on issue 2,124,998 ordinary shares which are held as follows:
(a) Fresh Ocean holds 75.5% of the shares.
(b) Treset holds 14.7% of the shares.
(c) Fishcheck Pty Ltd holds 9.8% of the shares.
(4) The Company’s sole secured creditor is FE Investments Limited. It appears that the security interests registered on the Personal Property Securities Register were obtained on 17 October 2017. Although, at the hearing on 12 February 2020, counsel for Fresh Ocean advised the Court that Mr Simunovich owned or controlled 40% of the shares in FE Investments, on 24 February 2020, counsel advised the Court that Mr Simunovich held security over about 38% of FE Investments’ share capital.
(5) On 20 September 2019, FE Investments appointed Mark Roufeil and Bradley John Tonks of PKF as receivers and managers to the Company.
(6) The Company’s only assets consist of six statutory fishing licences (also referred to as Quotas) issued by the Australian Fisheries Management Authority. In evidence is a certificate of quota dated 24 September 2019.
(7) The value of the Quotas is uncertain because:
(a) The Company does not have current financial statements. There are draft financial statements for 2019, which record a book value for quotas owned by the Company but the book values are no longer current because the Company disposed of some quotas.
(b) The Reports on Company Activities and Property (ROCAPs) submitted by the receivers and by Mr Taplin do not disclose the value of the Quotas.
(c) Mr Weston has not undertaken an independent valuation of the quotas because the Quotas are in the receivers’ control and they are unwilling to provide Mr Weston with their view of the estimated value of the Company’s assets due to commercial sensitivity. Mr Weston understands from communications with the directors that the market for the Quotas is extremely limited and the ultimate value of the assets is difficult to determine without testing it through a sale campaign.
(8) Neither Mr nor Mrs Simunovich has submitted a ROCAP.
(a) The amounts owing to related parties of the Company are:
(i) Fresh Ocean, $12,460,512. ROCAPs submitted by the receivers and Mr Taplin agree with this amount;
(ii) Treset, $1,358,329. ROCAPs submitted by the receivers and Mr Taupin say that this amount should be $1,093,109;
(iii) Fishcheck, $879,065. ROCAPs submitted by the receivers and Mr Taplin say that this amount should be $702,252.
(iv) Battlefront Miniatures Pty Ltd, $11,835. That company is related to Mr Simunovich.
(b) The amounts owing to non-related parties who are creditors of the Company total about $119,946 or about 0.7% of the amounts owing to creditors.
(10) The day before Mr Weston was appointed as administrator, Mr Simunovich informed him of three views about the value of the Quotas. Each view has a “low” and a “high” of a range of values which might be achieved upon their sale. Those views are recorded in Mr Weston’s confidential affidavit. Mr Simunovich said that the views are those of FE Investments, Mr Simunovich’s views, and values attributed to the Quotas in valuations which have been obtained. FE Investments’ views are in a range at the lower end and the valuations are in a range at the higher end. Mr Weston says that the information has not been confirmed by FE Investments and he has not had access to any valuations. Mr Weston concedes that he has no evidence to support those valuations. However, in the confidential affidavit, he has provided an estimate of surplus after the Company’s liabilities have been satisfied if the Quotas are sold for prices in those ranges. All valuations, other than the “low” end of the range said to be given by FE Investments, would result in a return to unsecured creditors greater than 40 cents, and the upper range of Mr Simunovich’s view and the valuations which are not in evidence would result in full payment of the debts owed to unsecured creditors.
5 Treset issued a statutory demand on the Company dated 4 October 2019. The statutory demand claimed an amount of $1,358,329 being “amounts owing (including accrued interest) pursuant to a shareholder loan provided by [Treset] to the [Company])”.
6 On 6 November 2019, Treset filed an originating process seeking orders winding up the Company under ss 459A, 459B, 459P, 461(k) and 462 of the Corporations Act 2001 (Cth).
7 On 6 December 2019, the Company filed a notice of appearance containing grounds of opposition. None of those grounds claimed that the Company was solvent.
8 The proceedings were first returnable before a registrar of this Court on 11 December 2019. Mr Johnson appeared before the registrar as counsel for the Company on the instructions of the directors. On the application of the Company, the proceedings were adjourned to 19 December 2019. At the request of the parties, the matter was referred to a Judge.
9 On 16 December 2019, as Commercial and Corporations Duty Judge, I listed Treset’s application for case management on 20 December 2019.
10 On 17 December 2019, by resolution of Mr Simunovich and Mr Taplin, the Company was placed into voluntary administration and Mr Weston was appointed as the Company’s administrator pursuant to s 436A of the Corporations Act.
(1) The Company’s directors did not appoint an administrator shortly after the receivers were appointed on 20 September 2019, or shortly after Treset’s statutory demand was received around 9 October 2019, or after the Company failed to comply with the statutory demand, or after 8 November 2019 when Treset’s winding up application was served, or at any date before 11 December 2019, the first return date of the winding up application;
(2) The appointment occurred only after 16 December 2019, when it became likely that the winding up application would not be heard before the end of the Court’s term, in circumstances where the Judge to whom the matter had been referred had set it down for case management on 20 December 2019;
(3) The timing of appointment means that the second court hearing would occur before the commencement of the Court’s term in 2020; and
(4) The Company has never pleaded that it was solvent.
12 On 18 December 2018, a new notice of appearance was filed indicating that Mr Frawley of McPherson Kelly now appeared on the Company’s behalf. A notice of appearance was also filed by Fresh Ocean, indicating that it sought to appear as a creditor supporting the Company’s opposition to the orders sought by Treset. No grounds of opposition were stated in either of those notices.
13 In light of Mr Weston’s appointment and having regard to Treset’s requests for its application to be set down for hearing before Christmas, as Commercial and Corporations Duty Judge, I listed the matter for case management on 18 December 2019. At the hearing:
(1) Treset sought a hearing of its application for winding up before Christmas.
(2) Counsel for Treset advised the Court that it abandoned the grounds under ss 461(k) and 462 of the Corporations Act and that Treset relies on the presumptions of insolvency arising under s 459C(2) of the Corporations Act based on the Company’s failure to comply with the statutory demand and the appointment of the receivers.
(3) The administrator’s solicitor, Mr Frawley, advised that Mr Weston undertook to adjourn the second creditors’ meeting when it was held. The grounds of opposition previously filed would be considered to determine whether or not they should be pressed.
(4) The Court made orders that Treset’s application be listed for hearing on 12 February 2020 and that the Company file and serve any application for adjournment of the hearing under s 440A(2) of the Corporations Act by 4.30 pm on Wednesday, 5 February 2020.
(5) Counsel for Fresh Ocean sought and was granted leave to be heard.
14 On the basis that Mr Weston had been informed by Mr Simunovich of his intention to submit a proposal for a DOCA, Mr Weston requested that Mr Simunovich do so on “numerous occasions” between 18 December 2019 and 21 January 2020. On 21 January 2020, Mr Weston received a draft proposal from Mr Simunovich. Mr Weston advised Mr Simunovich’s solicitor that he was of the view that the proposed DOCA was not in the interests of creditors.
15 On 7 January 2020, Gerry Green sent an email to Vicki Kwong, an assistant manager at Pitcher Partners, in which Mr Green advised that he was the sole director of Fishcheck, a company having a 9.8% shareholding in the Company and a loan of $879,065 as at 30 April 2019. He asked for a copy of the circular sent to creditors and thanked Ms Kwong for explaining to him the roles of receivers and administrators and the process going forward. Fishcheck has taken no part in these proceedings.
16 On 9 January 2020, Treset’s solicitors wrote to Mr Frawley setting out their concerns that Mr Weston’s appointment was an abuse of process and asking Mr Weston to investigate possible breaches by the Company’s directors of their common law and statutory duties as follows:
(1) The Company does not have an Australian resident director on the basis that Mr Taplin has resided in New Zealand for over 30 years, despite the fact that an ASIC search suggests that he resides in Dee Why in Sydney.
(2) The directors may have a conflict of interest because they are each employed by Fresh Ocean, the Company’s largest shareholder, and therefore they may be prone to act in its interest, even though there are three shareholders.
(3) The Company has not held annual shareholder meetings and the directors have not made available any minutes of the Company for shareholders to inspect.
(4) The directors have failed to return proceeds to shareholders and Treset is concerned that the directors may have misappropriated funds.
(5) The Company’s “financials” for FY17 and FY18 show that the Company had a net loss in those years of $755,000 and about $801,000 respectively.
(6) In FY19, the Company made significant distributions to Fresh Ocean, despite the Company’s poor financial position.
(7) In 2018, a claim was brought against the Company and Mr Simunovich personally in relation to the sale of statutory fishing rights entered into in 2012; legal costs incurred in defending the claim were paid by the Company only, despite separate legal costs being incurred by Mr Simunovich to defend the claim against him.
(8) The directors did not act in the best interests of the Company when granting charges against the Company for monies borrowed by the directors for other, unrelated, ventures.
(9) The directors failed to inform directors of defaults under its loans and failed to inform shareholders of the appointment of the receivers.
(10) The directors acted in their own interests in the sale of certain statutory fishing rights and as a result, severely lowered the market value of the Company’s remaining Quotas.
(11) The directors failed to provide notices required under the Company’s constitution in respect of calling for capital injections to pay ongoing Company expenses such as levy payments while the Company incurred losses.
(12) The directors acted in their own interests by attempting to charge substantial management fees to the Company in April 2019, despite the directors underperforming and no prior agreement being entered into with respect to the management fees.
(13) The directors failed to consider the interests of all of the Company’s shareholders suggesting minority oppression. The directors attempted a debt for equity transfer to dilute minority shareholders’ interests in the Company.
(14) The directors have been unable to raise the required levy payments for the Company.
(15) Any deed of company arrangement put forward by Fresh Ocean is of “gross concern” to Treset as it would potentially seek to remove Treset’s financial interest in the Company.
17 A further case management hearing was held on 24 January 2020 at which Mr Frawley advised that the second creditors’ meeting would be held on 3 February 2020 and Mr Weston undertook to adjourn that meeting to 26 February 2020. Mr Frawley indicated that there had been a proposal for a DOCA and its details would be included in the report to creditors which would be issued shortly. He also indicated that the matter was “headed towards an adjournment application”. Mr Frawley undertook to advise Treset’s legal representatives of the administrator’s intentions by 5 February 2020. Mr Friedlander, who appeared for Fresh Ocean, undertook to make clear any grounds of opposition by that date. Fresh Ocean ultimately did not file any grounds of opposition.
18 In evidence is Mr Weston’s report to creditors dated 24 January 2020. It says the following:
(1) At section 5, Mr Weston said:
The Directors verbally advised that the reason for the voluntary administration of the Company is due to disputes with the Secured Creditor and Treset Pty Limited. My investigations to date have not identified any other reasons for the failure of the Company.
(2) At section 6, Mr Weston said:
To date, I have received limited books and records of the Company from the Directors and the Receivers and Managers. Mr Taplin advised the Company previously maintained its management accounts using MYOB; however, the MYOB subscription was not maintained and the Directors do not have access to the financial information.
Based on the limited books and records received to date, I am unable, at this stage, to form an opinion regarding whether the Company maintained adequate books and records in accordance with Section 286 of the Act. However, I anticipate being in a position to provide an opinion in my supplementary report to creditors.
Mr Weston’s evidence led at the hearing of the adjournment application on 12 February 2020 did not indicate that any progress had been made in obtaining access to the Company’s books and records.
(3) At section 8.2, Mr Weston said (as written):
The last set of financial accounts as at 30 June 2018 shows that the Company holds statutory fishing rights with a book value of $34 million. I have been advised by the Directors that a portion of the quotas were sold or otherwise transferred to meet the Company’s liabilities since 30 June 2018. The Directors have provided me with a calculation showing book value of the fishing rights and quotas was $24.5 million in 2019.
The statutory fishing rights are subject to a security interest registered on the PPSR by the Secured Creditor on 17 October 2017. On 20 September 2019, Mark Roufeil and Bradley Tonks of PKF were appointed as Receivers and Managers of the Company by the Secured Creditor. The Receivers and Managers advised the debt owing to Secured Creditor as at 15 October 2019 was $2,534,051, which is subject to ongoing interest, costs and expenses. I also understand that of the amount owing, $705,253 relates to loans made to Peter Simunovich that are guaranteed by the Company. I do not currently hold adequate information to determine whether the loan guaranteed by the Company are subject to the Secured Creditor’s security interest or are unsecured.
I understand the Receivers and Managers have commenced a sale campaign of the statutory fishing rights. The Receivers and Managers have not disclosed in their ROCAP an estimated value for the assets subject to the Secured Creditor’s security interest in the ROCAP as this information is commercially sensitive.
(4) At section 8.5, Mr Weston summarises amounts owing to unsecured creditors. In addition to the information set out at [4(9)] above, Mr Weston indicates that the receivers estimate that trade creditors are owed $119,466, Mr Taplin’s estimate says they are owed $17,466 and Mr Weston says they are owed $131,781. In relation to the Australian Taxation Office, Mr Weston says:
The ATO has advised that there is presently no claim in the administration. However, there may be a claim after income tax returns of the years ended 30 June 2019 and 30 June 2020, and the business activity statement for September 2019 are lodged.
(5) At section 12, Mr Weston says that he has “reviewed the Company’s banking and financial records and [has] held discussions with the directors to ascertain if there may be any voidable transactions that may be recoverable by a liquidator”. He says that, from his preliminary investigations to that date, he had not identified any unfair preferences, uncommercial transactions, unfair loans or unreasonable director related transactions, but should creditors resolve to wind up the Company, further investigations will be undertaken. At section 14, Mr Weston says:
Subject to my comments in section 6 of this report, from my preliminary investigations I have not identified any breach of the Act by directors. I will undertake further investigations prior to the issuing of my supplementary report and will provide further information as to any offences identified in the report.
(6) At section 15, Mr Weston advises that he had not identified any employees of the Company, and accordingly he did not provide any information regarding the effect on employees “in a liquidation or DOCA scenario”.
19 On 4 February 2020, after “extensive communications” with the solicitors for Mr Simunovich, Mr Weston received an “initial proposal” for a DOCA by Mr Simunovich personally. Following a review of that proposal with his solicitor and another partner in Pitcher Partners (Mr Cooksley), Mr Weston formed the view that the initial proposal was not in the interests of creditors.
20 On 4 February 2020, Mr Weston’s solicitor advised the Court by email that the second creditors’ meeting had been adjourned to 26 February 2020 and that Mr Weston did not intend to oppose the winding up application.
21 After further “extensive discussions” between Mr Cooksley and Mr Simunovich’s solicitor, the DOCA Proposal by Fresh Ocean was provided to Mr Weston at 9.48 am on 6 February 2020.
22 On 6 February 2020, Mr Weston filed an application to adjourn Treset’s winding up application to a date after 26 February 2020 and his supporting affidavits.
23 Treset and the administrator provided written submissions to my chambers on the morning of 12 February 2020, shortly before the hearing.
24 The outline of the DOCA Proposal is set out in Exhibit PGW-1.
25 The DOCA Proposal anticipates one of four scenarios eventuating:
(1) Where the receivers sell the Quotas, referred to in Mr Weston’s evidence as “Scenario Receivership A” (the first scenario).
(2) Where there is no sale by the receivers of the Quotas within 12 months after the DOCA is executed, referred to in Mr Weston’s evidence as “Scenario Receivership B” (the second scenario).
(3) Where the Secured Claim is assigned to Fresh Ocean (or its nominee) and the Quotas are sold within the “deed period”, referred to in Mr Weston’s evidence as “Scenario Assignment A” (the third scenario).
(4) Where the Secured Claim is assigned to Fresh Ocean (or its nominee) and the Quotas are not sold within the deed period, referred to in Mr Weston’s evidence as “Scenario Assignment B” (the fourth scenario).
26 The “Deed Proponent” is Fresh Ocean (referred to in the DOCA Proposal as FOC) and it is said to be a company associated with Mr Simunovich. The DOCA Proposal envisages that Mr Weston would be the “Deed Administrator”. Recital B states that the “Secured Claim” is the claim FE Investments has against the Company in the amount of $2.534 million together with costs and expenses of the receivers. Fresh Ocean is described as a “major shareholder” and creditor in the amount of $12.460 million while Treset is described as a “minor shareholder” and creditor in the amount of $1.358 million. Fishcheck is not mentioned in the recitals at all. The appointment of the receivers is noted as is the commencement of the winding up proceedings by Treset and the adjournment application.
27 The DOCA Proposal recites that Fresh Ocean and Mr Simunovich have approached the receivers with a view to negotiating the payment of the Secured Claim in consideration of the assignment to Fresh Ocean of the Secured Claim and underlying securities granted to FE Investments by the Company. There is also no generally relevant definition of “Deferred Creditors”, although it appears that the intent is that FOC and Fishcheck be “deferred creditors” (or “Deferred Creditors”) since they are mentioned in that role at the end of each of the scenarios. The “deed period” is not defined.
28 As the Court understands it, the DOCA Proposal provides as follows in the first scenario, where the receivership continues and the Quotas are sold by the receivers within the deed period:
(1) There is a statement that this aspect of the DOCA Proposal is intended to facilitate a dividend to unsecured creditors (excluding Deferred Creditors) of at least 40 cents in the dollar of their known claims in circumstances where the “realised value” of the Secured Claim is unknown and the proceeds of sale of the Quotas may or may not be sufficient to the Secured Claim.
(2) If the proceeds of sale of the Quotas is sufficient to pay the Secured Claim, any excess of that amount (Excess Realisations) will be payable to the Deed Administrator and form part of the deed fund.
(3) The Deed Administrator must call for proofs of debt and determine the claims of unsecured creditors, including the claims of Fresh Ocean and Treset. Strangely, no reference is made to the claims of Fishcheck.
(4) The Deed Administrator must inform Fresh Ocean of the total amount of admitted claims of unsecured creditors and the amount of the Excess Realisations.
(5) The deed fund will be constituted by Excess Realisations and contributions by Fresh Ocean as referred to at (7) below.
(6) The deed fund will be distributed in the following priority:
(a) First, in payment in full of the Deed Administrator’s reasonable costs and expenses;
(b) Second, by way of a partial dividend of 40 cents in the dollar on the admitted unsecured creditor claims, excluding the deferred creditors’ claims;
(c) Third, by way of an equalising dividend of 40 cents in the dollar on the admitted deferred creditors’ claims;
(d) Fourth, by way of a pro rata dividend to all of the unsecured creditors’ claims, including the deferred creditors’ claims; and
(e) Any balance to be returned to the Company.
(7) If the Excess Realisations are insufficient to pay the Deed Administrator’s fees and expenses and/or the partial dividend to unsecured creditors (excluding deferred creditors), the Deed Administrator must give notice to Fresh Ocean of the amount required to make those payments into the deed fund and Fresh Ocean must make those payments no later than 12 months after the DOCA is executed. The Deed Administrator must then pay the partial dividend of 40 cents in the dollar to admitted unsecured creditors (excluding deferred creditors) and those admitted unsecured creditors must accept the partial dividend in full and final satisfaction of their creditor claims against the Company.
(8) If the Excess Realisations are sufficient to permit the payment of the equalising dividend to admitted deferred creditors and/or the pro rata dividend to all admitted unsecured creditors (including the deferred creditors), then the admitted unsecured creditors who receive the partial dividend must accept the additional dividends in full and final satisfaction of their claims against the Company.
(9) The Deferred Creditors will be entitled to receive the equalising dividend and the pro rata dividend that may be payable to them out of the deed fund, but otherwise the creditor claims will persist against the Company.
29 As the Court understands it, the DOCA Proposal provides as follows in the second scenario, where the receivership continues but there is no sale of the Quotas:
(1) There is a statement that this aspect of the DOCA Proposal is intended to facilitate a dividend to unsecured creditors (excluding Deferred Creditors) of at least 40 cents in the dollar of their claims in circumstances where the receivers have failed to realise the Quotas within the 12 months commencing on the day the DOCA is executed. (This reflects the DOCA Proposal at .)
(2) In these circumstances, there will be no Excess Realisations and FE Investments may (but need not) elect that its claim no longer be treated as a “secured creditor claim” and instead seek to participate as an unsecured creditor of the Company for the amount of its Secured Claim (necessarily surrendering its securities).
(3) The Deed Administrator must call for proofs of debt and thereafter determine the claims of the unsecured creditors. The DOCA Proposal at  expressly includes the claims of Fresh Ocean, Treset and FE Investments (if it chooses to participate as an unsecured creditor) in this requirement. Strangely, Fishcheck is again not mentioned at this point.
(4) The Deed Administrator must then inform Fresh Ocean of the payments to be made into the deed fund in relation to:
(a) The Deed Administrator’s costs and expenses; and
(b) 40 cents in the dollar of the total amount of the admitted unsecured creditors’ claims against the Company. Fresh Ocean must pay this amount into the deed fund no later than 12 months after the DOCA is executed.
(This reflects the DOCA Proposal at .)
(5) The Deed Administrator must then pay out of the deed fund, his costs and expenses and 40 cents in the dollar of the claims of admitted creditors (as a partial dividend). Admitted unsecured creditors must accept the partial dividend in full and final satisfaction of their creditor claims against the Company. (This reflects the DOCA Proposal at .)
(6) The creditor claims of Fresh Ocean and Fishcheck will be treated as Deferred Creditors; they will not be entitled to receive any partial dividend and their claims will subsist against the Company. (This reflects the DOCA Proposal at .)
30 The Court notes the apparent inconsistency between the DOCA Proposal at , and the cumulative effect of the DOCA Proposal at -, which would suggest that Fresh Ocean should participate in the partial dividend. The Court understands  to be the overriding provision in the light of the statement of intent at . It would also appear that the receivership would necessarily end if FE Investments elected to be treated as an unsecured creditor.
31 As the Court understands it, the DOCA Proposal provides as follows in the third scenario, where the receivership does not continue in circumstances where the Secured Claim is paid by Fresh Ocean or its nominee to FE Investments and there is a sale of the Quotas within the deed period:
(1) There is a statement that this aspect of the DOCA Proposal is intended to facilitate a dividend to unsecured creditors (excluding Deferred Creditors) of at least 40 cents in the dollar of their known claims in circumstances where the “realised value” of the Secured Claim is unknown and the secured asset (that is, the Quotas) has been realised by Fresh Ocean or its nominee (in place of FE Investments) within the deed period.
(2) While the claims of Deferred Creditors would persist under this scenario, Fresh Ocean’s obligation to pay into the deed fund, the priority of payments out of Excess Realisations, and the fact that the claims of admitted unsecured creditors (other than the Deferred Creditors) are fully satisfied by the payment of the partial dividend are the same as in the first scenario.
32 As the Court understands it, the DOCA Proposal provides as follows in the fourth scenario, where the receivership does not continue in circumstances were the Secured Claim is paid by Fresh Ocean or its nominee to FE Investments and there is no sale of the Quotas within the deed period:
(1) There is a statement that this aspect of the DOCA Proposal is intended to facilitate a dividend to unsecured creditors (excluding Deferred Creditors) of at least 40 cents in the dollar of their creditor claims in circumstances where the realised value of the Secured Claim is unknown and the secured asset (that is, the Quotas) has not been realised by Fresh Ocean or its nominee.
(2) The Deed Administrator must call for proofs of debt and thereafter determine all of the claims of the unsecured creditors, excluding the claims of the Deferred Creditors.
(3) The Deed Administrator must inform Fresh Ocean of the payments to be made into the deed fund comprising the amount of the Deed Administrator’s costs and expenses and the “partial dividend” of 40 cents in the dollar of the total amount of admitted unsecured creditors’ claims “referred to in paragraph 25” (which appears to be an error, and should refer to paragraph , the effect of which is set out at (2) above). Fresh Ocean must pay those amounts within 12 months after the DOCA is executed.
(4) The Deed Administrator must pay from the deed fund his costs and expenses and the partial dividend must be paid to the admitted unsecured creditors (excluding the Deferred Creditors) and they must accept the payment in full and final satisfaction of their creditor claims against the Company.
(5) The Deferred Creditors will not receive any partial dividend and their claims against the Company will subsist.
33 The paragraphs of Mr Weston’s open affidavit which relate to the DOCA Proposal and his opinions about whether it and an adjournment are in the interests of creditors are as follows:
47. … in forming my view as to whether the DOCA Proposal is in the interest of creditors compared to liquidation, I have taken into account the following factors:
(a) The significant range of potential realisable values of the Quotas;
(b) The uncertainty as to whether any of the Quotas are saleable in the current market;
(c) The minimum dividend payable to unsecured creditors in each scenario;
(d) The timeframe in which any dividend will be payable in each scenario; and
(e) Any other elements of the DOCA Proposal that will potentially be detrimental or beneficial to creditors compared to liquidation.
48. The DOCA Proposal anticipates one of four scenarios eventuating. To assist the Court, at page 137 of the Exhibit is a summary of each scenario in the DOCA Proposal compared to a liquidation scenario.
49. I am of the opinion that it is in the interest of creditors that the winding up hearing be adjourned to provide creditors with an opportunity to consider the DOCA Proposal and to make a decision, by passing a resolution at the reconvened meeting of creditors on 26 February 2020, in respect of the options available to them pursuant to section 439C of the Act. I have formed this opinion for the following reasons:
Scenario Receivership A: sale of Quotas by Receivers within 12 months
50. The advantage of the DOCA Proposal in Scenario Receivership A compared to liquidation is that the Deed Proponent is obliged to contribute monies to the Deed Fund so that non-deferred unsecured creditors will receive a minimum dividend of 40 cents in the dollar whereas in a liquidation scenario, non-deferred unsecured creditors may not receive a dividend.
51. In a DOCA scenario, non-deferred unsecured creditors will receive a dividend of at least 40 cents in the dollar within 12 months. There is no minimum timeframe in which nondeferred unsecured creditors will receive a dividend in a liquidation.
Scenario Receivership B: no sale of Quotas by Receivers within 12 months
52. The advantage of the DOCA Proposal in Scenario Receivership B compared to liquidation is that the Deed Proponent is obliged to contribute monies to the Deed Fund so that non-deferred unsecured creditors will receive a minimum dividend of 40 cents in the dollar whereas in a liquidation scenario, non-deferred unsecured creditors may not receive a dividend.
53. In a DOCA scenario, where there is no sale of the Quota, non-deferred unsecured creditors will nevertheless receive a dividend of at least 40 cents in the dollar within 12 months. However, in a liquidation scenario, there is no certainty that non-deferred unsecured creditors will receive a dividend. Further, where there is no sale of the Quotas by the Receivers, a Liquidator will need to consider whether it is viable to undertake a further sale campaign. This is in circumstances where I understand the annual costs of maintaining the Quotas to be in the vicinity of $600,000 due to levies imposed by AFMA.
54. In a liquidation scenario, in circumstances where a sale is achieved by the Receiver in a period longer than 12 months, there may be an advantage to Company's unsecured creditors where that sale results in a surplus being available that enables a dividend of more than 40 cents in the dollar to all unsecured creditors.
Scenario Assignment A: sale of Quotas within 12 months
55. I consider the same reasoning applies to this scenario as in Scenario Receivership A as set out in paragraphs 50 and 51 above.
Scenario Assignment B: no sale of Quotas within 12 months
56. Due to the uncertainties as to value and saleable nature of the Quotas as set out in this affidavit, I am unable to evaluate whether the DOCA Proposal provides a better outcome than liquidation. Accordingly, I am unable to express an opinion as to whether Scenario Assignment B is in the interest of creditors compared to liquidation.
57. I note that the plaintiff in these proceedings is a related party creditor of $1,358,329. The proponent of the DOCA Proposal (FOC) is also a related party creditor and has a claim of $12,460,512. The non-related parties who are creditors of the Company total circa $119,946 and represent 0.7% of the total creditors.
58. Therefore, as Treset, the plaintiff in these proceedings, and FOC, the proponent of the DOCA Proposal, are both related parties, I consider neither creditor's interest are to be preferred against the other.
59. I recognise that in a liquidation scenario there may be other recoveries to creditors by reason of there being voidable transaction claims and/or other claims against the Directors. However, my investigations to date have not identified any potential causes of action that would potentially result in recoveries being made for the benefit of creditors. This, in my view, is not particularly unusual where the Company has not traded for at least five years prior to my appointment.
60. Despite the uncertainty expressed in paragraph 56, on balance I am of opinion that the DOCA Proposal in the best interests of creditors for the reasons set out in paragraphs 50 to 55 above.
LEGISLATION AND PRINCIPLES
34 Section 440A of the Corporations Act provides as follows:
440A Winding up company
(2) The Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company’s creditors to continue under administration rather than be wound up.
35 The principles are not in dispute.
36 Mr Weston concedes that he must persuade the Court that it is (not may be) in the interests of the Company’s creditors for it to continue under administration, rather than be wound-up. A substantial degree of persuasion is required to invoke s 440A: see In the matter of Offshore and Ocean Engineering Pty Ltd  NSWSC 1296 at  (Brereton J).
37 Any analysis of the interests of creditors involves the consideration (among other things) of the length of, and purpose for which the adjournment is sought and its consequences: see Waste Recycling and Processing Services of NSW v Local Government Recycling Co-Operative Ltd  NSWSC 507; 32 ACSR 194 at  (Santow J).
38 Generally, an adjournment under s 440A(2) requires that the Court is satisfied that it is in creditors’ interests to continue the administration in all the circumstances. This requires that there be sufficient possibility, as distinct from mere optimistic speculation, that creditors’ interests will be accommodated to a greater degree in an administration than in a winding up. To satisfy the Court, there should be persuasive evidence to show that there are assets which, if realised under one form of administration rather than the other, would produce a larger dividend, or at least an accelerated dividend, for the creditors: see Creevey v Deputy Commission of Taxation (1996) 19 ACSR 456 at 457 (McPherson J, Davies and Pincus JJ agreeing).
39 The greater the passage of time since the administrator’s appointment, the more persuasive the evidence must be: Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd  NSWSC 47; 44 ACSR 377 at  (Campbell J) but cf Deputy Commissioner of Taxation v Fyna Constructions (Hire & Sales) Pty Ltd (administrators appointed)  FCA 578 (Fyna Constructions) at , in which Griffiths J said that, having regard to the terms of s 440A(2), he did not view the lateness of the appointment of an administrator as providing a basis for a residual discretion to refuse adjournment. Rather, the timing and background to the appointment of the administrator may be a relevant contextual matter that affects the Court’s assessment of the evidence which is relied on by the defendant in establishing the state of satisfaction required of the Court to grant an adjournment under s 440A(2).
THE ADMINISTRATOR’S SUBMISSIONS
40 The following submissions are additional to the opinions expressed by Mr Weston in his evidence set out above. In summary, Mr Weston considers that three out of the four scenarios in the DOCA Proposal compare favourably to liquidation, where there is a real risk of a nil return if the Quotas cannot be sold. The potential outcome of the fourth scenario is too uncertain given that the value and “saleability” of the Quotas is uncertain in the current market.
41 Mr Weston’s counsel submitted that this application is illustrative of the proverb, “a bird in the hand is worth two in the bush”. He says that, in essence, the advantage of the DOCA Proposal is that it offers a “sum certain”, being a minimum dividend payment to unsecured creditors of 40 cents in the dollar by a certain timeframe, being 12 months after the DOCA is executed. By comparison, in a liquidation, unsecured creditors will receive no dividend if the Company’s assets are not sold, and there is a real risk of that occurring. The adjournment application should be allowed so that, at the second creditors’ meeting, creditors can be given an opportunity to choose between that “sum certain” and the uncertainty of liquidation.
42 Counsel for Mr Weston conceded that Fresh Ocean is a New Zealand company, there is no evidence that it carries on business in Australia or that it has assets in Australia, nor is there any evidence of its financial position. Counsel submitted that, nonetheless, as the Deed Proponent, Fresh Ocean will be contractually bound to make the payments to unsecured creditors provided for in the DOCA Proposal and the administrator could pursue a claim against it for the benefit of those creditors. That offers certainty and it is a better position than liquidation because in a liquidation there is a real prospect that unsecured creditors will receive nothing. The saleability of the Quotas in the current market is uncertain, as is evident from the fact that the receivers have been in place since September 2019 without a sale yet being effected.
43 Counsel further submitted that the DOCA Proposal does not preference some of the related creditors over others, albeit that Fresh Ocean and Fishcheck support it, while Treset opposes it. The Court should have regard to the fact that the majority of related creditors support the adjournment application in circumstances where they ought to be treated equally. True it is that Fresh Ocean and Fishcheck will be deferred creditors, but there is no hidden advantage lurking somewhere that would see Treset disadvantaged and the deferred creditors advantaged.
44 Mr Weston’s written submissions note that in Deputy Commission of Taxation v KJ Consulting Pty Ltd (administrators appointed)  FCA 1827 (KJ Consulting) at , Gyles J recognised that factors in favour of an adjournment under s 440(2) are that it enables the general body of creditors to exercise commercial judgment about where their best interests lie, that related parties contribute an amount to a deed fund which would not be available if the company enters liquidation, and, perhaps most importantly, the opinion of the administrator who is in favour of the DOCA Proposal being entered into and who is of the opinion that a better result will flow from that course than from liquidation. The submissions also note that, at , Gyles J also recognised factors that weighed against an adjournment including that the company is not trading and is not “liable to be revived or its fortunes revived by trading on as such” where the company is insolvent (as it almost always is), and where the majority of creditors oppose the adjournment. The Court notes that these were factors relevant in the facts of that case.
45 In relation to the status of the Company, counsel for Mr Weston noted that it had not been trading since 2015 and submitted that that was relevant because the administrator had conducted preliminary investigations in relation to voidable transactions that might be pursued and he has stated in the report to creditors that his preliminary investigations do not suggest that there are transactions worth pursuing and the prospect that there will be any such transactions or recoveries on that basis is remote as the Company has been dormant since 2015. The length of time that the Company had been dormant “cancelled out” the factor which Gyles J said should weigh against adjournment.
46 In relation to the relevance of the fact that, notwithstanding that Mr Weston requested them within a very short period after his appointment, Mr and Mrs Simunovich have not provided ROCAPS and there are no current financial statements, counsel for Mr Weston said that he was unable to assist the Court with an explanation. Counsel noted that Mr Simunovich had been in communication with Mr Weston and provided the information on the basis of which Mr Weston prepared his confidential affidavit. In any event, counsel submitted, the relevant issue was the certainty that a DOCA consistent with the DOCA Proposal would provide compared with a liquidation scenario.
47 Counsel for Mr Weston noted that, having regard to the receivers’ unwillingness to share information concerning what they are doing with the Company’s assets, Mr Weston is, in effect, “flying blind” so that he has not placed the usual emphasis and reliance on what the estimated dividend to creditors would be in a liquidation scenario.
48 When asked what the Court should make of the cumulative impact of the number of DOCA proposals advanced by Mr Simunovich, Mr Simunovich’s failure to provide a ROCAP and the lack of financial information about Fresh Ocean, counsel for Mr Weston responded as follows. Counsel submitted that the fact that a number of DOCA proposals were made is not unusual, and it is a normal feature of such negotiations. Mr Simunovich’s failure to provide a ROCAP has little relevance because it would only have provided a director’s view of the Company’s position at the time the administration commenced, and while there is some advantage to an administrator in having that information, it would not assist the administrator in forming a view about whether it was in the interests of creditors to enter into a DOCA consistent with the DOCA Proposal, so that the absence of the ROCAP is regrettable but not fatal. In relation to the absence of financial information about Fresh Ocean, a DOCA would provide a contractual obligation to pay, albeit that payment is 12 months after the DOCA is executed. The rationale for the 12 months period is that it provides time for the receivers to sell the Quotas.
49 In relation to the suggestion that the appointment of the administrator was late (having regard to the timeline referred to Treset’s solicitors’ letter of 18 December 2019 asserting an abuse of process (see  above)), counsel for the administrator submitted that as the Company had not been trading for around five years and the directors were not dealing with it, it was “not front of mind for the directors”. However, they acted promptly after the first return date to appoint the administrator. There have not been a number of hearings at which the determination of the winding up application has been deferred – the Court has not been “strung along”. That takes this case out of the category of cases where the directors have, by the late appointment of an administrator, been found to have acted improperly, in abuse of Part 5.3A. This is not a case where the late appointment of the administrator was designed to stave off the appointment of a liquidator to avoid investigation – where the company has not traded for five years, the prospect of there being “skeletons in the closet” has to be remote. The director, Mr Simunovich, has taken steps to propose a DOCA, albeit that the current DOCA Proposal is made by Fresh Ocean. But even if the Court rejects the submission that the appointment of the administrator was not an abuse of process, there remains the issue raised by Griffiths J in his Honour’s comments in Fyna Constructions at .
50 Counsel for the administrator submitted that, having regard to the comments made by Gyles J in KJ Consulting at , the view of the creditors at the second creditors’ meeting has particular significance. Part 5.3A provides a mechanism for the creditors to consider their options and that mechanism should be given primacy. It is for the creditors to decide what the better outcome is. Despite the difficulties identified with the DOCA Proposal, creditors are treated fairly, with Fresh Ocean (the Deed Proponent) and Fishcheck sitting back. That is a real monetary advantage to the non-deferred unsecured creditors. In the administrator’s view, the best monetary outcome will be provided by accepting the DOCA Proposal, and Gyles J recognised that that is also a matter of importance.
FRESH OCEAN’S SUBMISSIONS
51 Fresh Ocean did not provide written submissions. Counsel for Fresh Ocean submitted that:
(1) Fresh Ocean adopted the administrator’s submissions.
(2) In response to questions asked by the Court of counsel for the administrator, his search of ASIC’s records indicates that Fresh Ocean is not registered as a foreign company in Australia and there is nothing in the Fisheries Management Act 1991 (Cth) which would suggest that the Quotas will be suspended or terminated if a winding up order was made.
(3) Although Mr and Mrs Simunovich have not completed ROCAPs, the receivers and Mr Taplin, the third director, have. There is substantial similarity between the receivers’ ROCAP and that provided by Mr Taplin. The Court could place credence in the receivers’ ROCAP since they have been in place since September 2019.
(4) In relation to the suggestion of abuse of process in Treset’s solicitors’ letter dated 18 January 2020, the starting point must be the overriding purpose of Part 5.3A which is set out in s 435A – if it is not possible for the Company or its business to continue, then the Company must be administered in such a way as results in a better return for the company’s creditors [and members] than would result from an immediate winding up of the company. Taking the first scenario (the DOCA Proposal at ), the administrator will be paid and then unsecured creditors who are not deferred creditors will be paid 40 cents in the dollar before the deferred creditors get anything. That is important because Fresh Ocean, which will be a deferred creditor, is by far the largest creditor. The unsecured creditors are being offered a real advantage, the prospect of a better outcome after the secured creditor is satisfied; otherwise there is a prospect that there will be nothing for the unsecured creditors after the secured creditor is satisfied. It is clearly in Fresh Ocean’s interest for the Quotas to be sold at an appropriate price. The other scenarios are similarly to the advantage of the unsecured creditors who are not deferred creditors. It is consistent with the overarching purpose of Part 5.3A that the creditors be given the opportunity to make a decision in relation to what is, effectively, a non-trading entity. That is in a context where there are no unpaid revenue authorities, such as the ATO, which is unusual.
(5) Further, the use of Part 5.3A cannot be an abuse of process unless it is shown that there is an improper purpose; Fresh Ocean is using it for the proper purpose of putting a proposal to creditors.
(6) The DOCA Proposal is an evolving exercise. Obviously, there will be supplementary disclosure to unsecured creditors before the second court hearing.
(7) The receivers’ ROCAP does not indicate that there are unpaid levies in relation to the Quotas, it is therefore possible to assume that they are being paid by the secured creditor, contrary to the evidence of Anna Josephine Pirrello, Treset’s sole director, in her affidavit sworn on 11 February 2020 on which Treset relies.
(8) The assertions made in Treset’s solicitors’ letter dated 9 January 2020 are an unsubstantiated series of allegations that can rise no higher than mere assertions. There is no suggestion that the administrator is not taking all of these matters into account for the purposes of the report to creditors. If there have been relevant breaches, the administrator must report them to ASIC.
52 Counsel for Treset submitted that, contrary to the submissions made by counsel for the administrator that the DOCA Proposal offers certainty, plainly it does not, nor does the administrator say that in those terms. At best, if a DOCA which is consistent with the DOCA Proposal is entered into, the administrator will have a contractual claim if Fresh Ocean does not perform its obligations as the Deed Proponent. The Court would properly have concerns about such a DOCA Proposal for the following reasons.
53 First, little weight should be given to Fresh Ocean’s contractual promise as envisaged by the Deed Proposal because it is unsupported and entirely speculative. There is substantial uncertainty about whether Fresh Ocean now has, or will in the next 12 months have, assets sufficient to perform its obligations as the Deed Proponent. The promise is unsecured (unlike many DOCAs) and made by a foreign company whose assets are entirely unknown, at least to the Court. No evidence has been offered about Fresh Ocean’s financial position. In the absence of evidence of the Deed Proponent’s capacity to pay, in many respects, the outcome under the DOCA Proposal and liquidation are the same: they both rely on the sale of the Quotas.
54 Second, the Deed Proponent is connected with Mr Simunovich, who has not provided a ROCAP. The failure of a director to provide a ROCAP is a strict liability offence under s 438B(5) of the Corporations Act. It is no small thing for a director to fail to comply with that obligation. It is something that should have been referred to in the report to creditors, but was not. It is not open to the administrator to rely on discussions with Mr Simunovich in order to achieve a DOCA at a time when he has taken no steps to compel the production of a ROCAP; the administrator should have refused to take a DOCA proposal from Mr Simunovich until he had provided a ROCAP. The information in a ROCAP provided by Mr Simunovich is information which the administrator needed to assess fairly any DOCA proposals from Mr Simunovich or companies connected with him.
55 Third, the administrator’s investigations into possible voidable transactions or breaches of directors’ duties to date have been at a very high level. They appear to ignore significant matters. The administrator relies on the fact that the Company has not traded for around five years to suggest that it is unlikely that there are any such transactions or breaches. However:
(1) While transactions five years ago might be old, the limitation period is six years, and there are plainly more recent transactions which an administrator, acting properly, would and should investigate.
(2) The fact that the Company has not traded does not mean that it has been dormant; clearly things have been happening. For instance, section 8.2 of the report to creditors says:
I have been advised by the Directors that a portion of the quotas were sold or otherwise transferred to meet the Company’s liabilities since 30 June 2018.
Counsel for Treset queried: by which director was Mr Weston told? What “portion” of the quotas was sold or otherwise transferred, to whom and for what consideration? Was the transaction arm’s-length? The Company has been insolvent for five years. A sale of a Company’s assets is ordinarily something an administrator would want to enquire about because it might be an antecedent transaction that warrants investigation. It might be that the transfer was to a secured creditor, but it might also be that it was preferential. It was open to the administrator to say “I’ve looked at it and I am happy with how it occurred”, but nothing is said and that gives rise to questions about the nature of the transaction. It is a necessary integer of the administrator’s recommendation to the creditors at the second creditors’ meeting that he be in a position to make a recommendation as to whether or not there are any claims available in the liquidation and if so their value, and it is difficult to see how Mr Weston can do that in any supplementary report he might make to creditors ahead of a meeting on 26 February 2020.
(3) There is nothing in the administrator’s report to creditors dated 21 January 2020 which addresses the serious matters raised in the letter dated 9 January 2020 from Treset’s solicitor to the administrator’s solicitor (see  above), nor is there any reference to it in the administrator’s evidence.
(4) Based on the evidence of Treset’s sole director, Anne Josephine Pirello, there have been demands for unpaid levies in February, April and May 2019 for $197,200.36, $197,110.31 and $197,899.51 respectively. Further, the summary of the Company’s financial position for 2017 and 2018 indicates that income for the 2017 financial year arose from the sale of property plant and equipment and expenses of 2017 relate to licences, fees and quotas. There was no income in 2018 and expenses for 2018 were $134, which would suggest that licence fees were not paid in 2018. There are no accounts for 2019.
56 Fourth, there is no cogent evidence of the value of the Quotas. It is not clear why the fact that the Quotas are in the control of the receivers or the receivers’ understandable reticence to share their views of value would prevent the administrator obtaining a valuation. While the administrator understands from “the directors” that the market of the Quotas is “extremely limited”, it is not clear how that can take the place of opinion from a qualified valuer. Mr Simunovich’s evidence as to the value of the Quotas is second hand hearsay from a party interested in the outcome of the DOCA. The administrator’s analysis without an arm’s length valuation amounts to little more than guesswork and speculation devoid of substance. That evidence is not persuasive.
57 Fifth, in relation to each of the four scenarios in the DOCA Proposal:
(1) The first scenario is premised on the continuation of the sale of the Quotas by the receivers within the “deed period” which is not specified. The utility of this scenario is contingent on the sale process carried out by the receivers, of which the administrator has no visibility. While the deed fund is initially funded out of proceeds of sale after FE Investments and the Deed Administrator’s costs and expenses have been paid, Fresh Ocean must “top up” the deed fund so that 40 cents in each dollar can be paid to the non-deferred creditors. The Deed Proposal is silent about Fresh Ocean’s capacity to pay, and without that evidence, the Court could have no confidence that the promised returns to non-deferred creditors is anything but illusory – there is only optimistic speculation.
(2) The second scenario is also premised on the continuation of the receivership, but is predicated on there being no sale of the Quotas. The Deed Proponent has to pay 40 cents in the dollar to the non-deferred admitted unsecured creditors at 12 months, but as with the first scenario, there is no assurance that Fresh Ocean has or will have the capacity to pay. Further, while non-deferred creditors must accept 40 cents in the dollar in complete satisfaction of the debt owed to them, the Deferred Creditors then retain their claims against the Company. Counsel for Treset submitted: if the Quotas are sold a day after the payment is made to non-deferred creditors, the Deferred Creditors may get paid substantially more that 40 cents in the dollar or in full. While it must be presumed that professional receivers will do their best to sell the Quotas as quickly as they can for a commercial price, it is open to FE Investments to end the receivership at any time and the sale of the Quotas thereby delayed for any period. That problem is more acute under the fourth scenario, which provides that the Deferred Creditor’s claims persist where the Quotas are not sold within the “deed period”, a matter which Fresh Ocean would control if it took an assignment of the Secured Claim. This is all problematic in circumstances in which there is no cogent evidence of the market for the Quotas. The Court should give little weight to the evidence that is before the Court, that the market is not vibrant, since it is second hand hearsay from a director interested in the outcome. Nothing has been said by the receivers about the saleability of the Quotas.
(3) The third scenario is premised on the cessation of receivership and the assignment of FE Investments’ Secured Claim to Fresh Ocean and a sale of the Quotas during the “deed period”. This is again premised on the sale of Quotas of uncertain value, in the absence of the administrators having obtained a valuation. It is also premised on the ability of Fresh Ocean to pay non-deferred creditors 40 cents in the dollar 12 months after a DOCA is executed, but there is no evidence that that is a realistic outcome.
(4) The fourth scenario has many of the same defects as the second scenario and, as the administrator concedes, it is too uncertain for him to make any recommendation in relation to it.
58 Sixth, the Company is insolvent, it has substantial debt and assets of indeterminate value. In those circumstances, it is not clear how an adjournment could be consistent with the objects of Part 5.3A set out in s 435A. There is no certainty of any greater return to creditors if the administration continues and there is no business to continue to trade. If the DOCA Proposal is accepted it has the undesirable feature of preventing investigation into the matters raised by Treset and it seeks to continue the existence of a plainly insolvent company.
59 Seventh, related parties will control the outcome of the second creditors’ meeting and therefore of the administration process. Less weight should be given to the views of Fresh Ocean and Fishcheck than would be given to third party creditors: see Re Brandup Pty Ltd; Re Green Tomorrow Eco Solutions Pty Ltd  NSWSC 2000 at  (Black J).
60 Eighth, in light of the unreliable books and records of the Company, it is appropriate that the Company be wound up and placed in the control of a liquidator not associated with the Company or its former management so that a fresh set of eyes can investigate the affairs of the Company. That is consistent with the practice that a petitioning creditor will ordinarily be allowed to nominate the liquidator in a winding up: see Re El Zorro Transport Pty Ltd  NSWSC 1082 at  (Brereton J); Re Hayes Steel Framing Systems Pty Ltd (administrators appointed)  NSWSC 285 at  (Black J).
61 Last, courts have often expressed disinclination to defer winding up proceedings where the directors have left it to the last minute to appoint an administrator in the face of winding up proceedings: see Re Plutus Payroll Australia Pty Ltd  NSWSC 1041 at . Here, the directors of the Company have had ample opportunity to appoint administrators before the eve of the adjourned hearing of the winding up application. They did not do so. The Court should approach the adjournment application with a healthy degree of scepticism: see In the matter of Offshore and Ocean Engineering Pty Ltd at , which tells against the granting of any adjournment.
THE ADMINISTRATOR’S SUBMISSIONS IN REPLY
62 Counsel for the administrator submitted that Treset’s submissions about various outcomes are based on speculation. The position is that the DOCA Proposal offers “some certainty”, an opportunity for unsecured creditors to be paid 40 cents in the dollar, against the “known unknowns” of a liquidation which involve the risk of there being no return. The suggestion that the sale of the Quotas might be deferred past 12 months to enable Fresh Ocean and Fishcheck to obtain a windfall is pure speculation, without supporting evidence. If Fresh Ocean did default on its payment obligations under the DOCA, it would fall away and the Company would go into liquidation.
63 Creditors should have the opportunity of choosing between the DOCA Proposal and winding up. The fact that Fresh Ocean is the largest unsecured creditor means nothing. There is no preference being given to one category of creditors over another (except to the extent that Fresh Ocean and Fishcheck are deferred creditors).
64 In relation to the issue that the administrator has not responded to Treset’s solicitor’s letter of 9 January 2020: counsel for the administrator submitted that it has all the usual characteristics of a pejorative letter, but it is unsupported by evidence. How that could have been responded to in a short timeframe has not been explained: the report to creditors states that the administrator’s investigations are preliminary. It should be inferred that the administrator has not ignored the matters raised in the 9 January 2020 letter. Further, the Court has not heard hard evidence of possible malfeasance. There is no evidence that the matters raised in the 9 January 2020 letter will result in a return to creditors that is better than 40 cents in the dollar, and that is the test under s 440A.
65 While the administrator does not seek a long adjournment, after taking into account the terms of s 440A and the principles set out above, the Court has concluded that the winding up application should not be adjourned and the interlocutory application should be dismissed. The Court is not satisfied that it is in the interests of the Company’s creditors that the administration continue rather then that the Company be wound up for the following reasons.
66 There is no contention that the Company is solvent.
67 Despite the fact that it appears to have not carried on business since 2015, the Company has not been wholly inactive since then, as is evident from clause 8.2 of the report to creditors. There are several matters which bear investigation in relation to that period:
(1) The sale of quotas after 30 June 2018. There is no evidence as to whether the sale was on arm’s length terms or to what use moneys raised were put. This is in contrast to the explanation given in the draft financial statements for transactions in 2017. The administrator has not had access to books and records which might have revealed this information. There is no evidence that the administrator sought the books and records from the receivers. While the administrator or a liquidator might require funding to pursue financial records retained in MYOB, the fact is that the administrator has not had access to this material.
(2) Clause 8.2 also reveals that the security held by FE Investments was given in October 2017 and that $705,253 of the amount owing to FE Investments relates to loans made to Mr Simunovich that are guaranteed by the Company. There is nothing to explain why the Company would have guaranteed debts owing to a director and controller of the Company in circumstances where the Company was not wholly owned by Mr Simunovich or companies which are ultimately wholly owned by him. It also raises questions about the validity of the security given to FE Investments.
(3) The directors have not caused the Company to prepare financial statements for the period to 30 June 2019 and important financial records are not available because the directors have allowed the licence for the MYOB software which allows access to those records to lapse.
(4) The circumstance of the payment of management fees which may have been paid to directors in 2018 in the context that the Company was not carrying on business.
While it is true that it is not clear that any of these matters would, of themselves, result in recoveries by a liquidator which would fund payments to unsecured creditors (other than deferred creditors) greater than or equal to 40 cents in the dollar, the contention that they would need to give rise to recoveries equal to or exceeding 40 cents in the dollar does not take account of any value attributable to the Quotas.
68 The only evidence as to the value of the Company’s Quotas is that given by the administrator, based on information obtained from Mr Simunovich. While it is true that the evidentiary weight that would ordinarily be attributed to Mr Weston’s evidence of the value of the Quotas is slight having regard to the basis of that evidence, Mr Weston’s confidential affidavit indicates that it is only if the Quotas were to be sold at the bottom of the lowest range of values referred to in Mr Weston’s confidential affidavit that the unsecured creditors would get a better return if the DOCA Proposal were to be successfully implemented. In the ranges of value suggested by Mr Simunovich (who appears to be experienced in the industry) and at which the Quotas have been said by him to be valued as disclosed in Mr Weston’s confidential affidavit, the creditors would get a better return on all of the other five bases. While the DOCA Proposal might result in an earlier payment of 40 cents in the dollar, it might also result in the Deferred Creditors being fully paid while the non-deferred unsecured creditors’ claims will have been satisfied upon the payment of 40 cents in the dollar.
69 Further, the administrator relies only on the opinion of “the directors” that the market for the Quotas is “extremely limited”. There is no independent evidence for that position, not even from the receivers. There is little that can be drawn from the fact that the receivers have not effected a sale since their appointment in late September 2019 since there has been an intervening holiday period and there is no evidence from them about the sale process they have conducted or when a sale might be effected.
70 There is no evidence before the Court that Fishcheck agrees to have its unsecured debt deferred. That is a feature of each of the four scenarios contemplated by the Deed Proposal. There is no evidence as to the ownership of Fishcheck, but it appears that Mr Green, its sole director, was acting independently of Mr Simunovich when he sought information from the administrators on 7 January 2020.
71 Fresh Ocean is a substantial creditor of the Company. The Company has not traded since 2015 and has no assets other than the Quotas. There is no evidence that Fresh Ocean, which is a foreign company, has any other assets. Counsel for Fresh Ocean advised the Court that Mr Simunovich has security over about 38% of the share capital of FE Investments, but there is no evidence of the amount secured or the value of that security or of his net worth. There is no evidence that Mr Simunovich (the proposer of the first two DOCAs which were not acceptable to Mr Weston) would support Fresh Ocean in performing its obligations under a DOCA or that he has the financial capacity to do so. There is no evidence that Fresh Ocean has assets in Australia (other than shares in the Company). There is, therefore, no evidence of Fresh Ocean’s capacity to meet its commitments under a DOCA which conforms with the Deed Proposal. The DOCA Proposal does not provide for Fresh Ocean’s obligations under it to be secured.
72 All of this indicates that a DOCA which conforms with the DOCA Proposal is a bare contractual right which may be difficult to enforce. The value of this promise is open to at least the same questioning as the value of the Quotas. None of these issues appear to have been taken into account by the administrator in forming his opinions. The Court is not persuaded by the evidence that a DOCA in which Fresh Ocean is the Deed Proponent does offer certainty compared to a liquidation scenario.
73 Further, in the context of evaluating whether it is in the interests of creditors that the administration continues on the basis of such a bare contractual right, it is relevant that:
(1) Neither Mr nor Mrs Simunovich has provided a ROCAP to the administrator. As submitted by Treset, that information would be relevant to the administrator’s evaluation of any DOCA proposal and it is an offence of strict liability not to provide a ROCAP within five business days of a request for it. It may bear even more relevance in circumstances where the Company’s books and records are not available to the administrator either because they are held by the receivers or because there is no current licence from MYOB under which the records could be viewed and interrogated.
(2) No steps were taken by the Company’s directors to appoint an administrator at any time from 2015, when the Company ceased trading, until there was a real prospect that the winding up application would be heard.
(3) There are transactions to which the Company was a party after 2015 (while Mr Simunovich was a director) which bear investigation.
(4) The administrator was not able to say that the fourth scenario would be better for creditors. However, if a DOCA consistent with the DOCA Proposal is executed, that might be the scenario that applies, either because FE Investments terminates the appointment of the receivers or because Fresh Ocean has acquired the Secured Claim and terminates their appointment.
(5) In the second and fourth scenarios (and having regard to Mr Weston’s evidence as to value), the only benefit to unsecured creditors (other than deferred creditors), that is, primarily Treset, is that they get 40 cents in the dollar a year after the DOCA is executed (assuming Fresh Ocean is in a position to perform, of which there is no evidence). The evidence in the confidential affidavit is that, in a liquidation scenario, it is only at the bottom of the lowest valuation that unsecured creditors will not get more than 40 cents in the dollar upon the sale of the Quotas and, in three out of the six valuations (treating a “low” and “high” in each of the three valuation ranges as separate valuations), unsecured creditors would be paid in full. The Deferred Creditors would therefore stand a real prospect of being paid substantially more than the other unsecured creditors in the second and fourth scenarios and in the fourth scenario, Fresh Ocean controls the timing of any sale of the Quotas. Further, it is notable that the recitals to the DOCA Proposal disclose that Fresh Ocean is in negotiation with FE Investments to acquire the Secured Claim, which makes the fourth scenario a real prospect if the DOCA Proposal is approved.
(6) If a liquidator is appointed, it is clear that the Quotas will be sold by either the receiver or the liquidators, in each case professional liquidators. There is therefore every prospect that they will be sold as quickly as possible for the market value in an arm’s length transaction. Under the DOCA Proposal, there is no assurance that the Quotas will be sold by the receivers, in a timely fashion or in an arm’s length transaction. If a liquidator is appointed, transactions in the past four years will be investigated, but they will not if the DOCA Proposal is accepted.
(7) It is not clear what happens under the DOCA Proposal if some but not all Quotas are sold in the “deed period” or within 12 months of the execution of the DOCA in accordance with the DOCA Proposal.
74 The parties agreed that Treset’s costs of and incidental to this interlocutory process should be costs in the administration of the Company.