FEDERAL COURT OF AUSTRALIA
Sands Contracting Pty Ltd v Foodcorp (VIC) Pty Ltd [2020] FCA 1274
ORDERS
First Plaintiff SANDS HOLDINGS PTY LTD Second Plaintiff HECSANDS PTY LTD (and others named in the Schedule) Third Plaintiff | ||
AND: | First Defendant ANTHONY ROBERT CANT and RENEE SARAH DI CARLO Second Defendants SELWYN GREENBERG, HANNAH GREENBERG and JAY GREENBERG (and another named in the Schedule) Third Defendants | |
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. Within 14 days of the date of these orders, the parties are to file either:
(a) an agreed minute of orders reflecting the outcome of these reasons; or
(b) competing minutes of proposed orders.
2. Within 14 days of the date of these orders, the parties are to file short submissions (not to exceed three pages) on the question of the costs of the plaintiffs’ amended originating process.
3. Unless the Court orders otherwise, the settling of the orders and the question of costs be determined on the papers.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
MCKERRACHER J:
1 The plaintiffs by amended originating process filed 13 May 2020 seek orders that:
(a) the second defendants (the Liquidators) be removed as liquidators of the first defendant (the Company);
(b) Mr Shane Cremin be appointed liquidator of the Company; and
(c) the Liquidators pay the plaintiffs’ costs of the proceeding.
2 The plaintiffs’ concise statement dated 9 March 2020 reveals that the legal grounds relied upon by the plaintiffs are that the Liquidators (then as administrators):
(a) failed to make proper enquiries regarding offers made by a director of the Company to settle a claim brought by the plaintiffs against the Company in the District Court of Western Australia (the District Court action);
(b) admitted the plaintiffs’ proof of debt for voting purposes for one dollar instead of $205,000;
(c) failed to inform the creditors that the directors of the Company may have breached their duties by selling assets of the Company whilst the District Court action remained unresolved;
(d) failed to make proper enquiries regarding the bona fides of the debt allegedly due to the third defendants (the Company Accountants);
(e) failed to make proper inquiries as to the bona fides of the debts owed to the fourth defendant (Superior Foods); and
(f) failed to prepare the deed of Company arrangement (the DOCA) in accordance with the Resolution passed at the 8 January 2020 meeting of creditors.
3 The Company Accountants have been joined as interested parties, as has Superior Foods. The relief sought is opposed by all active defendants. The Liquidators say that there is no basis for the relief. The Company Accountants say they should not have been joined in the proceeding. Superior Foods says that the Company has never actually passed into liquidation because the DOCA was not prepared, so the occasion to exercise the relief sought has not arisen.
THE EVIDENCE
4 The plaintiffs rely on affidavits of:
(a) Mr Anthony Sands sworn 17 January 2020; Mr Sands is the fourth named plaintiff and a director of the first, second, and third named plaintiffs. The fifth named plaintiff is his mother, the sixth named plaintiff is his brother. The seventh named plaintiff is his sister-in-law in her capacity as the executor of the Estate of his late brother. The plaintiffs carry on business as a partnership in Western Australia under the name ‘Sands Fridge Lines’.
(b) Mr Gregory Metaxas sworn 12 February 2020; and
(c) Mr Metaxas sworn 13 May 2020.
5 The Liquidators rely on the affidavit of Mr Anthony Cant sworn 9 April 2020. Mr Cant was the person most directly involved in the role as liquidator of the Company.
THE BASIC FACTS
6 From the affidavits just identified and the key documents the following basic facts emerge.
7 There was a lengthy history of previous disputation between the first plaintiff (in which the other plaintiffs are interested in different ways) and the Company. In 2016, the plaintiffs commenced the District Court action against Superior Foods, claiming $300,775.79.
8 On 30 August 2017, the Company was added as a party to the District Court action.
9 Between March and October 2019, the plaintiffs and the defendants had protracted negotiations regarding the resolution of the District Court action.
10 On 9 March 2019, Mr Craig Phillips as director of the Company and, on behalf of the defendants in that litigation, sent an SMS to Mr Sands as follows:
Hi Tony, if you agree to split the difference I will concede to move on. $187,500 and we both take some pain. Your call. Craig
11 On 21 March 2019, Mr Sands replied to Mr Phillips as follows:
Craig
Have just come out of an early meeting this morning in regards to your last SMS offer. Sands position is $225,000.00 and Sands absorbs current legal fees and interest incurred on Sands side.
Regards,
Tony
12 Negotiations continued until late October 2019 but with no agreed outcome.
13 On 6 November 2019, Mr Troy Jeffs, the financial controller of the Company, signed a declaration that the Company did not owe money, goods or services to others in a Report on Company Activities and Property (ROCAP).
14 On 15 November 2019, the directors of the Company passed the following resolutions:
1. In the opinion of the directors voting for the resolution, the Company is insolvent, or is likely to become insolvent at some future time.
2. That [Mr Cant] and [Ms Di Carlo] of Romanis Cant, registered Liquidators, … be appointed Administrators of the Company pursuant to Section 436A of the Corporations Act.
3. That the document appointing the Administrator be executed in accordance with section 436A of the Corporations Act.
15 On 18 November 2019, the Liquidators issued their first circular to creditors which provided that the Company had ‘one (1) creditor who is owed in the vicinity of $250,000’ (emphasis added). The first circular to creditors was received by the plaintiffs on 25 November 2019. The evidence shows that the information for that part of the first circular was provided by the Company’s accountant, the first named defendant of the third defendants (Mr Greenberg). Mr Cant says that he should have stated that the sum was claimed rather than owed. Mr Greenberg was not called to give evidence and has filed no affidavit. Mr Cant says that in subsequent enquiries of Mr Phillips, director of the Company, Mr Phillips said that no sum was due to the plaintiffs. Mr Phillips was also not called to give evidence and has filed no affidavit.
16 On 19 November 2019, the ROCAP was lodged with the Australian Securities and Investments Commission (ASIC).
17 On 27 November 2019 the plaintiffs (by their lawyers) lodged an informal proof of debt in the sum of $278,356 (exclusive of GST) and provided Mr Cant with a copy of the plaintiffs’ statement of claim filed in the District Court action.
18 On 10 December 2019, the Liquidators, then acting as administrators but to whom I will refer by their current office as Liquidators, issued their second report to creditors, recording that the known unsecured creditors of the Company were:
(a) the plaintiffs in the sum of $306,192 (inclusive of GST);
(b) the Company Accountants in the sum of $3,850 (inclusive of GST) for accountancy services to the Company.
19 The second report also dealt with circumstances under which a sale of the Company’s assets to Superior Foods had occurred on 4 September 2015, recording that:
(a) the sale appeared to have been conducted at arms-length;
(b) the purchaser was not a related entity of the Company at the time of settlement;
(c) Mr Phillips was subsequently made a director of Superior Foods;
(d) it may be that the directors of the Company and/or their related entities have a shareholding and/or financial interest in Superior Foods;
(e) the assets of the Company excluded from the asset sale agreement included any cash at bank or in hand and shares owned by the Company in publicly listed entities; and
(f) there were no claims identified that the Company might have against Superior Foods in respect of the asset sale agreement.
20 The report also confirmed that Mr Greenberg had provided Mr Cant upon his appointment with copies of the Company’s unsigned reconciled financial statements for the financial years ending 30 June 2016, 2017, 2018 and 2019.
21 The report also recorded that following the completion of the asset sale agreement, the Company had paid out all surplus funds as dividends to related party shareholders. It was noted that if any portion of the plaintiffs’ claim was to be made out, the Company did not own ‘any material assets to discharge the debt.’ It went on to consider the possibility whether, in a liquidation, a liquidator would have a material and recoverable claim against the directors or shareholders of the Company in respect of the payment of dividends whilst the plaintiffs’ claim was still in dispute. The report summarised the legal advice obtained on this point to the effect that the directors/shareholders of the Company would likely have an arguable defence to any claim brought against them by a liquidator for insolvent trading on the basis that they believed, at the time the dividends were paid, that the Company was not legally liable to pay the plaintiffs’ claim in the District Court action.
22 Beyond this possible claim for insolvent trading, no unfair preference payments or uncommercial transactions were identified by the Liquidators in the report.
23 On 19 December 2019, the second creditors meeting was convened to consider a DOCA proposal made by Mr Phillips. In the course of that meeting Mr Cant informed the attendees, in effect, that:
(a) he admitted the plaintiffs’ informal proof of debt for $1;
(b) he admitted the Company Accountants’ proof of debt for $3,850; and
(c) he admitted Superior Foods’ proof of debt for $23,883
for the purposes of voting.
24 The second creditors meeting was adjourned at the request of the plaintiffs’ solicitor. The plaintiffs’ solicitors carried out the communications on its behalf as discussed below.
25 By email dated 19 December 2019, the plaintiffs requested that Mr Cant provide a copy of the asset sale agreement to the plaintiffs which request was refused on the basis that the agreement contained confidentiality provisions which precluded its release.
26 By email dated 31 December 2019, the plaintiffs requested, inter alia, that the Liquidators:
(a) clarify what investigations were undertaken in forming the opinion that there had not been any offences committed by the directors of the Company;
(b) disclose the sale price of the business;
(c) clarify why the sale was made without dealing with the plaintiffs’ disputed debt;
(d) consider whether the sale of the business in September 2015 was an uncommercial transaction and/or an unreasonable director related transaction;
(e) provide the Company’s financial statements for the financial years ending 30 June 2013, 2014, 2015 and 2016;
(f) clarify why the Company Accountants remained a creditor of the Company;
(g) disclose what work was performed by the Company Accountants; and
(h) disclose when the work was performed by the Company Accountants.
27 By email dated 6 January 2020, Mr Cant:
(a) informed the plaintiffs that no offences had been identified and it was not envisaged that a report would be lodged with ASIC identifying offences of misconduct;
(b) declined to provide a copy of the asset sale agreement;
(c) informed the plaintiffs that he did not believe the sale was an uncommercial transaction or an unreasonable director related transaction;
(d) declined to provide the plaintiffs with copies of the financial reports requested on the basis that it ‘would prejudice the interests of a third party’; and
(e) had not made any of the inquiries referred to in sub-paras (f) to (h) in the previous paragraph but confirmed that the Company Accountants had prepared the Company’s most recent financial statements.
28 By email sent 7 January 2020, the plaintiffs requested that Mr Cant provide the plaintiffs with a copy of the proof of debt lodged by Superior Foods and inform the plaintiffs of the basis upon which the debt was admitted.
29 By email sent 7 January 2020, Mr Cant provided the plaintiffs with a copy of the proof of debt lodged by Superior Foods, who claimed $47,765.91 for legal costs borne by it in the District Court action, and informed the plaintiffs that the proof of debt was admitted to vote for half the amount claimed on the basis that Superior Foods was one of the two defendants in that action.
30 The adjourned second meeting of creditors resumed on 8 January 2020 as scheduled. At that meeting the plaintiffs challenged the right of the Company Accountants and Superior Foods to vote on the basis that Mr Cant’s first report had stated there was only 1 creditor (namely, the plaintiffs) and Mr Phillips acknowledged that he had offered to pay the plaintiffs $205,000 to settle the claim. Mr Cant nonetheless refused to permit the plaintiffs to vote on the basis that they were owed more than $1. Mr Cant also asked the solicitor for Superior Foods (Mr Jonathan Eastoe who also appears for it in this matter) whether his legal costs had been paid, which the plaintiffs contend was the only enquiry made by Mr Cant regarding the proof of debt lodged by Superior Foods.
31 The Resolution for the DOCA was then passed on the votes of the Company Accountants and Superior Foods with the plaintiffs voting against the Resolution.
32 By email sent 9 January 2020, the plaintiffs requested that Mr Cant provide the plaintiffs with a copy of the minutes of the second creditors meeting. Despite that request the document was not provided.
33 By email sent 13 January 2020, the plaintiffs requested that Mr Cant provide the plaintiffs with a copy of the proof of debt lodged by the Company Accountants. Despite that request the document was not provided. The document has since been produced in evidence in Mr Cant’s affidavit as has the minutes of the 8 January 2020 meeting.
34 By email sent 17 January 2020, the plaintiffs informed Mr Cant that the plaintiffs intended to make an application to set aside the DOCA and inquired of Mr Cant if the DOCA had been signed and if not, sought his assurance that it would not be executed until the application had been resolved.
35 The plaintiffs commenced this proceeding on 20 January 2020.
36 By email sent on 21 January 2020, Mr Cant informed the plaintiffs, in effect, that he had instructed his solicitors to cease preparing the DOCA. Mr Cant’s reason for doing so, as expressed in that email, was that the directors of the Company no longer wished to execute the DOCA in light of the application filed by the plaintiffs.
THE MAIN AFFIDAVITS
37 The two key affidavits sworn by Mr Sands and Mr Cant flesh out the bare facts above in the manner discussed below. In particular, Mr Cant has explained his state of mind as to decisions and actions he took at the time.
38 Mr Sands was not cross-examined on his affidavit. He explained in his affidavit that the Company carried on business under the name ‘Superior Foods Services’ until about 4 September 2015. The Company was a customer of the plaintiffs from late-2013. The services provided by the plaintiffs to the Company from late-2013 until about March 2016 were the storage and delivery of ice cream products.
39 The Company Accountants carry on business as Greenberg & Co, as accountants in Victoria. The Company and Superior Foods have been, and remain, clients of Greenberg & Co. Since about 10 December 2019, Greenberg & Co has claimed to be a creditor of the Company in the amount of $3850. On about 18 December 2019, Superior Foods claimed that it was a creditor of the Company for $47,765.91.
40 Mr Sands deposes to the fact that Mr Phillips was a director of the Company from 25 June 1996 and was appointed as a director of Superior Foods on 4 September 2015 upon completion of the asset sale agreement. The other director of the Company from 25 June 1996, was Mr Michael Jeffs. Mr Sands is not aware of any family relationship between Michael Jeffs and Troy Jeffs (the person who signed the ROCAP as the Company’s financial controller). However Mr Sands also deposes that Troy Jeffs ‘appears to be the financial controller of SFG’, being Superior Foods. While this discrepancy is not clarified in any of the other evidence, it is not material to the issues at hand and I accept that Troy Jeffs was the financial controller of the Company when he signed the ROCAP on its behalf.
41 Mr Sands says, and I treat it essentially as a submission (albeit one I accept) that the various exchanges referred to in the core facts suggest that no substantive investigation had been undertaken by the Liquidators (then administrators) as to the bona fides of the debts of the Company Accountants and Superior Foods. He says no tax invoices were provided by Superior Foods to the Liquidators prior to the 8 January 2020 meeting, at which the DOCA was approved, to substantiate the claim for a contribution. Nor was there evidence of any agreement that the Company would pay any part of the legal costs charged to Superior Foods.
Mr Cant
42 Mr Cant was cross-examined, but I will deal first with the content of his affidavit. He makes the point that he and Ms Di Carlo were appointed as the administrators on or about 15 November 2019 and that neither of them had met with the directors of the Company prior to their appointment, nor had they had any previous dealing with either of the Company’s directors. The appointment was made by referral from Mr Greenberg of the Company Accountants. Mr Greenberg first made contact with Mr Cant by telephone in relation to the Company on 29 October 2019, explaining to him that the Company was involved in ongoing litigation with an unnamed third party ‘claiming approximately $250,000’. Mr Greenberg advised him that the Company had engaged in various attempts to settle the dispute, but to date had been unsuccessful in negotiating a settlement.
43 He received the ROCAP, signed on behalf of the Company by Mr Troy Jeffs on 6 November 2019, which stated that the Company did not owe any moneys to its employees or other creditors and did not owe any assets.
44 Between the date of his appointment on 15 November 2019 and 10 December 2019, Mr Cant requested documents and information regarding the Company’s operations from Mr Phillips and Mr Greenberg. They provided financial and transactional documents to assist him in that time. In addition to that information, he conducted searches and made inquiries with a range of statutory bodies, including ASIC, the Personal Properties Securities Register, the Australian Taxation Office and the State Revenue Office.
45 Mr Cant established that by an asset sale agreement dated 3 September 2015, the Company had agreed to sell its business as a going concern, together with certain assets used to operate the business to Superior Foods, which sale settled on or about 4 September 2015. As a result, the business and the assets used for the business were transferred to Superior Foods. During the rest of the financial year ending 30 June 2016, a large part of the remaining financial assets of the Company, which were the proceeds from the sale, were distributed to its shareholders by way of a declaration of dividend to members with remaining proceeds and funds distributed to shareholders over the following years.
46 Mr Cant distributed the first circular to creditors on or about 18 November 2019 and received a DOCA proposal from Mr Phillips in his capacity as a director of the Company on or about 9 December 2019. Terms of the DOCA proposal included:
(a) that within 30 days of the date of execution of the DOCA Mr Phillips would pay $80,000 into a deed fund created by the Liquidators for that purpose;
(b) Mr Phillips would obtain the release of any related party creditor claim against the Company;
(c) the deed fund would be applied by the Liquidators in accordance with the priority set out in subdiv D of Pt 5.6 of the Corporations Act 2001 (Cth), including s 556; and
(d) after payment of the Liquidators’ costs and expenses of the administration and the deed of administration, the balance of the deed fund would be applied first to satisfaction of debt to the Company Accountants, $3850 and, secondly, whatever balance remained, to the plaintiffs. On execution of the DOCA, the control of the Company would revert to Mr Phillips.
47 Mr Cant also received documents from Mr Phillips concerning the District Court action, including the pleadings and various supporting documents. He had a number of telephone conversations with Mr Phillips, who advised in general terms, the Company’s position in relation to the claims, in particular saying:
(a) the claim was entirely disputed by the Company, which had paid the plaintiffs all amounts which were considered to be properly owing; and
(b) the defendants to the claim, being the Company and Superior Foods, had made a number of offers of settlement to the plaintiffs in relation to the claim, but all offers had been rejected.
48 Mr Cant, in his affidavit made clear that for the purpose of evaluating the plaintiffs’ claim, he accepted those advices from Mr Phillips as true statements of the attitude of the Company to the claim.
49 Mr Cant explains that in order to prepare his second report to creditors and to make an assessment of whether he would recommend the DOCA proposal to creditors of the Company, he attempted to evaluate the possible outcomes for creditors if the Company were to enter a liquidation or if it were to execute a DOCA in the form proposed or some other form. The two principal issues which would affect the outcome for the creditors, as he saw it, were:
(a) was the plaintiffs’ claim a debt owed by the Company and what was its value?; and
(b) in the event of a liquidation of the Company, would a liquidator be able to claim compensation from the directors or shareholders in respect of their decision to pay dividends to shareholders which had the effect of disbursing the proceeds of the asset sale.
50 Mr Cant engaged a solicitor, Ms McCredden, to advise him in relation to those two points. As with the plaintiffs, the same solicitor appeared on his behalf in this application.
51 Mr Cant did not disclose the advice received from Ms McCredden, but says that he formed the following views after taking that advice into consideration (and I treat these matters at their highest as being only his state of mind at the time, not evidence of facts or expert evidence):
(a) any director claim was the only potential asset of value that he had been able to identify, which would be available for realisation for the benefit of creditors, if the Company passed into liquidation;
(b) the plaintiffs’ claim was fully disputed by the Company and concerned disputed issues of fact and law including the extent and nature of agreements entered into between the Company and the plaintiffs, including in part, agreements which were said to have been formed verbally between the parties;
(c) it would therefore be difficult for him to make a fair adjudication of the value of the claim without potentially examining all of the evidence relied upon by each of the parties;
(d) any adjudication by him of the value of the claim may be appealed by either the plaintiffs or the directors of the Company, which would result in the value of the claim being examined and considered by a Court;
(e) in the event of a liquidation, the director claim would only arise if the claim was in fact due and owing at the time the dividend was paid;
(f) therefore, if the liquidation were to proceed, he would need to prove that the claim was due and owing at the time of the payment of the dividend before he could expect to make any recovery under the director claim;
(g) this fact, in his view, would make it more likely that any adjudication of the value of the claim would be the subject of appeal by either the director or the plaintiffs. In the case of the former, they would have an interest in arguing that the claim was not due and owing to minimise the value of any potential claim against them in the form of a director claim. In the case of the latter, the plaintiffs would have an interest in arguing that the value of the claim was higher to maximise the value of the director claim, which would be the only means by which they would receive any return in the form of a distribution to creditors;
(h) if the Company were to be placed into liquidation, it may be prudent for the liquidator to refer the determination of the value of the claim to a court, as a preliminary question; and
(i) if a court determined that the plaintiffs’ claim had a significant value, the liquidator may be able to rely on that determination in support of pursuing the director claim.
52 Having reached those views, on or about 10 December 2019, Mr Cant forwarded the second report to creditors. The report included details of his investigations and evaluations, concluding that creditors would be likely to receive a greater return from the DOCA proposal than if the Company was placed into liquidation. In forming that view, Mr Cant said he relied on the following matters (which again I treat only as being part of his state of mind):
(a) the DOCA proposal would not require a formal adjudication of the value of the claim, but would result in the plaintiffs receiving the balance of the deed fund after the payment of Greenberg & Co and the costs and expenses of the administration and deed administration;
(b) the DOCA proposal provided that Mr Phillips would procure related party creditors not to participate in the DOCA;
(c) the prospect of return from the director claim, if the Company were placed in liquidation, was uncertain due to questions about whether the director claim was able to be pursued successfully, the value of the director claim and the prospects of recovery from the director claim; and
(d) the adjudication of the claim would likely incur significant costs in the liquidation scenario and, for those reasons, he recommended that creditors resolve that the Company execute a DOCA in accordance with the DOCA proposal.
53 As to the three proofs of debt Mr Cant says that whenever possible, in cases where a claimed debt is disputed by a company, he attempts to make a reasonable and fair assessment of the value of the debt and if he cannot do so, and the value is disputed by the company, he admits the disputed creditor as a creditor to the value of $1.
54 In relation to the proof of debt of the Company Accountants, he was satisfied that they had provided accounting services because he had seen the Company’s financial statements which had been prepared by the Company Accountants and he considered the amount claimed was appropriate.
55 In relation to the proof of debt lodged by Superior Foods:
(a) he was provided details of the invoices paid by Superior Foods in an extract from the financial software of Superior Foods indicating that legal fees had been paid to its solicitor, Mr Eastoe;
(b) he was aware from the court documents obtained in the course of his investigation that Mr Eastoe had acted on behalf of Superior Foods and the Company in relation to the District Court action; and
(c) the legal fees apparently related to work that Mr Eastoe had performed for both Superior Foods and the Company and for that reason he was not prepared to admit the claim for the full amount and estimated it would be fair and reasonable for the Company to contribute 50% of the costs of the legal services. He therefore admitted the proof of debt by Superior Foods in the sum of $23,882.71.
56 In cross-examination, Mr Cant admitted that that he did not have the actual invoices from Mr Eastoe at the time of the 8 January 2020 meeting and that the extract from Superior Foods’ financial software disclosed that three payments were made on dates in 2018 and 2019 but the amount of each payment was not disclosed. The total debt claimed of $47,765.91 appeared only in the body of an email sent by Mr Troy Jeffs to Mr Phillips in which the software extract was also produced. Mr Cant reaffirmed however, that he considered the payments to Mr Eastoe were clearly in relation to the District Court action because he did not believe that Mr Eastoe acted in any other capacity for the Company or Superior Foods. He conceded however that he never saw any agreement where the Company and Superior Foods agreed that the Company would contribute towards the legal costs of the District Court action.
57 Mr Cant was also pressed on the form of Mr Eastoe’s invoices that were eventually provided to him after the 8 January 2020 meeting. Mr Cant said that he did not consider it unusual that the invoices from Mr Eastoe were all rendered annually. He knows a lot of solicitors are very slow in billing for their own reasons. He did not question Mr Eastoe about that. He still does not consider it to be unusual.
58 Returning to the contents of Mr Cant’s affidavit, he then further describes his actions and state of mind in relation to the proof of debt lodged by the plaintiffs, saying:
(a) he had accepted the advice of Mr Phillips that the claim was entirely disputed and that the Company did not consider that any amount was outstanding to the plaintiffs for services provided;
(b) he obtained legal advice in relation to the claim and on the basis of that legal advice had concluded that a fair and reasonable assessment of the value of the claim would require a detailed assessment of the evidence and arguments provided by each party either by himself or by referral to a court;
(c) he had sought legal advice as to whether there were any alternative means by which an assessment of the value of the claim could be undertaken (for example by specific referral to a barrister or external accountant for assessment), but had concluded that the nature of the claim and the defence lodged to the claim would mean that a detailed assessment of the evidence and arguments advanced by each party would still need to be conducted, and it was impractical and cost prohibitive to complete such an assessment prior to the second meeting of creditors;
(d) he decided it was not appropriate to make an estimate of the value of the claim by reference to ‘without prejudice’ offers made during the litigation of the claim because he considered:
(i) there are many reasons why offers of settlement are made in the course of litigation and an offer of settlement should not be considered an admission or concession of liability;
(ii) even if he were to consider an offer of settlement as a concession or admission of liability on the part of the Company, any offers of settlement were made on behalf of both defendants (the Company and Superior Foods) with the intention of resolving the liability of both defendants and it was impossible to apportion the ‘liability’ between the defendants;
(iii) the offers had not been accepted and therefore the parties had not reached an agreement as to the value of the debt.
(e) in the circumstances, he decided to admit the plaintiffs as a creditor for voting purposes in the amount of one dollar.
59 As noted above (at [23]), the second meeting of creditors was convened on 19 December 2019 at which Mr Cant informed creditors that the three proofs of debt had been received as well as the DOCA proposal. That meeting was adjourned to 8 January 2020 at the request of the plaintiffs at which the DOCA was approved on the votes of the Company Accountants and Superior Foods.
60 Following the 8 January 2020 meeting, Mr Cant received further documents from both the Company Accountants and Superior Foods to support their claims as creditors of the Company. In particular, he received a copy of an invoice issued by the Company Accountants to the Company for accounting services and invoices issued by Mr Eastoe to Superior Foods for legal services.
61 In cross-examination, it was put to Mr Cant that in the case of a single-creditor Company going into administration it would be more efficient and sensible for a Company to simply engage in negotiations with that creditor to resolve the dispute rather than go to the expense of preparing a DOCA. I do not think that Mr Cant really responded to this proposition. This was, however, raised in the context of the first circular to creditors where the plaintiffs were listed as the only creditor to which the Company owed funds, (albeit that this did not accord with the ROCAP which did not reflect such indebtedness). There is merit in this point made for the plaintiffs.
62 Mr Cant accepted that he was told, and he repeated, in the first circular to creditors that the Company had one creditor, namely, the plaintiffs in the vicinity of $250,000. He did not refer to any other creditors such as the Company Accountants in the first circular to creditors. He says that on reflection now, he should have stated that the $250,000 was ‘claimed’, not that it was ‘owed’. He accepted the importance of the distinction between the two concepts in this context but maintained that the choice of ‘owed’ instead of ‘claimed’ had been somewhat inadvertent and that his recollection was that Mr Greenberg had in fact told him that the money was ‘claimed’.
63 He was asked why he did not press Mr Phillips on why Mr Phillips made further offers to settle the dispute with the plaintiffs if he thought everything that was due to the plaintiffs had been paid. Mr Cant accepted that he did not press Mr Phillips on that topic. It was also put to Mr Cant that Mr Phillips did not complain or raise any objection when the first circular to creditors went out saying that the $250,000 (approximately) was owing to the plaintiffs.
64 He was also challenged on why he did not raise the inconsistency between the amount claimed by the Company Accountants and a different amount originally said to be due to them. The original invoice from the Company Accountants of 3 August 2019 was for $4345, including GST, discounted to $3950 plus GST, neither of which matched the $3850 for which it was admitted as a creditor. There was no specific explanation for the difference.
65 He said he had not necessarily been under the impression that the plaintiffs would oppose the DOCA. He recognised that if the plaintiffs were voting to the full value of $250,000, whatever its vote turned out to be, would be the deciding vote as against the other two much smaller creditors.
66 He agreed that for the Resolution to pass, there had to be another creditor who would support the Resolution, apart from the Company Accountants and that there had to be a writing down of the value of the plaintiffs’ claim well below the combined value of the Company Accountants’ claim and the claim of any third creditor.
67 Mr Cant was questioned at some length about the matters discussed at the meeting on 8 January 2020, at which it was put by Mr Metaxas that there had been an offer by Mr Phillips of $205,000 to settle the plaintiffs’ claim. Mr Cant accepted the minutes recorded the assertion by Mr Metaxas on behalf of his client to that effect, but did not accept that he himself independently knew that to be the fact. He had earlier accepted however, having been informed by Mr Phillips, that offers had been made by the Company. Mr Cant had some difficulty with the construction of the terminology of the minutes, but in my view, they record the proposition set out above by Mr Metaxas and the fact that, by the time of the meeting at least, Mr Phillips was no longer prepared to put that offer.
68 Mr Cant was pressed on the fact that if there had been an offer of $205,000 made by the Company, that would be a factor which was of significance in assessing the value to be ascribed to the plaintiffs’ claim. Mr Cant was reluctant to accept this proposition because there had been a lot of discussion to settle the claim and ‘people settle claims for all sorts of reasons’.
69 In my view, while this may have been an accurate account of Mr Cant’s view at the time, I think the proposition that the Company had offered $205,000 was a proposition that did need further exploration and was relevant to the value to be ascribed to the plaintiffs’ claim.
70 There was the following exchange:
So, Mr Cant, is it the case that in deciding to allow Sands to vote for $1, you ascribed absolutely no significance to the fact that offers had been made of substantial sums of money; I mean, in excess of $180,000 by Mr Phillips; is that correct? --- I wouldn’t say that I had no regard for it but there are, you know, often settlement discussions in a legal proceeding that may just relate to getting rid of a claim and the ongoing legal costs.
71 Mr Cant said that he did not ask Mr Phillips why he made offers in excess of $180,000.
72 He was taken to a document which recorded that an insolvency practitioner engaged by the plaintiffs, had said that there had been an offer of $200,000 made and Mr Phillips said to Mr Cant that he was no longer willing to table such an offer considering the significant legal costs and the costs of the administration to date. It was not clear what emerged from this.
73 Mr Cant accepted that in the subsequent communication to creditors following the first circular, he did not correct the initial advice that there was one creditor of the Company owed in the vicinity of $250,000 and that that statement should have read that the creditor was ‘claiming’ such an amount. He accepted that the statement about the debt owing to the plaintiffs in that sum was one of only a few additions he had made to the otherwise pro forma content in the first circular to creditors.
74 Mr Cant also explained his understanding that the purpose of the first circular was to notify creditors of the administration and that this must be done within one to two days of the appointment, meaning that it is necessarily brief and not based on any material investigations. In re-examination, Mr Cant reiterated that he does not always anticipate that the first circular to creditors will align with the ultimate financial position and at the time of the first circular to creditors he had not considered the plaintiffs’ claim or anyone else’s claim. He had not received the supporting documents in relation to any creditor claims apart from the ROCAP. It is not uncommon he said, to receive creditors’ claims on the date of the second meeting.
75 Following this extensive questioning, it was put to Mr Cant that he had not acted independently in his examination of the Company’s debts but had instead acted so as to ensure the DOCA was approved by only admitting the plaintiffs’ claim for one dollar and accepting the claims of the Company Accountants and Superior Foods without adequate investigation. Mr Cant rejected this and did not accept that his job was to get the DOCA approved. He maintained instead, that his job was to objectively report to creditors on the proposal put and that that was what he had endeavoured to do.
76 The Company did not in fact execute the DOCA within the 15 day period. On or about 21 January 2020, Mr Phillips advised the Liquidators that he no longer intended to execute the DOCA in accordance with the Resolution after the plaintiffs advised that they would be commencing proceedings to restrain any execution of a DOCA. On this basis, Mr Cant said he could see no point in preparing and signing a DOCA when the money was no longer going to come from Mr Phillips. He communicated to the plaintiffs that Mr Phillips would not sign the DOCA, resulting in the Company passing into liquidation in accordance with s 446A of the Act. This occurred on 31 January 2020 and Mr Cant does not recall any creditor objecting to that characterisation of what would happen to the Company.
RELEVANT LEGISLATION
77 The issues thrown up by the asserted claims and facts give rise to consideration of various provisions of the Act which relevantly provide:
Division 10 – Execution and effect of deed of company arrangement
444A Effect of creditors’ resolution
(1) This section applies where, at a meeting convened under section 439A, a company’s creditors resolve that the company execute a deed of company arrangement.
…
(3) The administrator of the company must prepare an instrument setting out the terms of the deed.
…
444B Execution of deed
…
(2) The company must execute the instrument within:
(a) 15 business days after the end of the meeting of creditors; or
(b) such further period as the Court allows on an application made within those 15 business days.
…
(7) Division 12 provides for consequences of the company contravening subsection (2).
Division 12 – Transition to creditors’ voluntary winding up
446A Administrator becomes liquidator in certain cases
(1) This section applies if:
…
(b) a company under administration contravenes subsection 444B(2) at a particular time; or
…
(2) The company is taken:
(a) to have passed, at the time referred to in paragraph (1)(a) or (b) or subparagraph (1)(c)(ii), as the case may be, a special resolution under section 491 that the company be wound up voluntarily; and
…
(5) The liquidator must:
(a) within 5 business days after the day on which the company is taken to have passed the resolution, lodge a written notice stating that the company is taken because of this section to have passed such a resolution and specifying that day; and
(b) cause the notice to be published, within the period ascertained in accordance with the regulations, in the prescribed manner.
Schedule 2 – Insolvency Practice Schedule (Corporations)
90-15 Court may make orders in relation to external administration
Court may make orders
(1) The Court may make such orders as it thinks fit in relation to the external administration of a company.
Orders on own initiative or on application
(2) The Court may exercise the power under subsection (1):
(a) on its own initiative, during proceedings before the Court; or
(b) on application under section 90-20.
Examples of orders that may be made
(3) Without limiting subsection (1), those orders may include any one or more of the following:
(a) an order determining any question arising in the external administration of the company;
(b) an order that a person cease to be the external administrator of the company;
(c) an order that another registered liquidator be appointed as the external administrator of the company;
(d) an order in relation to the costs of an action (including court action) taken by the external administrator of the company or another person in relation to the external administration of the company;
(e) an order in relation to any loss that the company has sustained because of a breach of duty by the external administrator;
(f) an order in relation to remuneration, including an order requiring a person to repay to a company, or the creditors of a company, remuneration paid to the person as external administrator of the company. Matters that may be taken into account
Matters that may be taken into account
(4) Without limiting the matters which the Court may take into account when making orders, the Court may take into account:
(a) whether the liquidator has faithfully performed, or is faithfully performing, the liquidator’s duties; and
(b) whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and
(c) whether an action or failure to act by the liquidator is in compliance with an order of the Court; and
(d) whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and
(e) the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group.
Costs orders
(5) Without limiting subsection (1), an order mentioned in paragraph (3)(d) in relation to the costs of an action may include an order that:
(a) the external administrator or another person is personally liable for some or all of those costs; and
(b) the external administrator or another person is not entitled to be reimbursed by the company or its creditors in relation to some or all of those costs.
Orders to make good loss sustained because of a breach of duty
(6) Without limiting subsection (1), an order mentioned in paragraph (3)(e) in relation to a loss may include an order that:
(a) the external administrator is personally liable to make good some or all of the loss; and
(b) the external administrator is not entitled to be reimbursed by the company or creditors in relation to the amount made good.
Section does not limit Court’s powers
(7) This section does not limit the Court’s powers under any other provision of this Act or under any other law.
(Emphasis added.)
RELEVANT PRINCIPLES
78 A court may remove a liquidator whenever it is satisfied that it is for the better conduct of the liquidation or it is for the general advantage of those interested in the assets of the Company that a liquidator be removed: see Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544 (at 550).
79 The matters relevant to an application for removal of a liquidator include not only whether that course would be for the benefit of the liquidation, and the body of persons interested in it, but also the need for confidence in the integrity, objectivity and impartiality of a winding up. Loss of confidence based on reasonable grounds by the creditors may, although it will not necessarily, justify removal of a liquidator: Re St Gregory’s Armenian School (in liq) (2012) 92 ACSR 588 (at [30] and the authorities cited therein). Examples of circumstances in which a court may consider the removal of a liquidator include where the liquidator’s conduct would lead a reasonable observer to perceive he or she lacked impartiality or objectivity in carrying out his or her duties (see for example Apple Computer Australia Pty Ltd v Wily [2003] NSWSC 719 at [37]), which may, amongst other circumstances, be shown where:
(a) the liquidator has a personal indebtedness to or claim against the Company: Re Mutual Livestock Financial & Agency Co Ltd (1886) 12 VLR 777; or
(b) the liquidator has been associated with promoters or directors who may be subjects of investigation; or
(c) the liquidator has been previously involved with the Company: Re Giant Resources Ltd [1991] 1 Qd R 107.
80 The burden is on a plaintiff to establish that it is in the interests of the liquidation that liquidator(s) are removed: Re Keypak Homecare Ltd [1987] 3 BCC 558 (at 563). In addition, the plaintiffs must establish that there is ‘some ground for removal, and the ground must be established by evidence’; such grounds may range from ‘moral turpitude, to bias or partiality, lack of independence, incompetence, or other unfitness for office’: Domino Hire Pty Ltd v Pioneer Park Pty Ltd [2003] NSWSC 496 (at [58]).
81 However, importantly, a Court should be cautious in making a decision to remove a liquidator. In AMP Music Box Enterprises Ltd v Hoffman [2002] BCC 996, Neuberger J (as his Honour then was) commented (at 1001) in relation to the United Kingdom’s equivalent provision for removal of a liquidator:
…if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove him and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. So to hold would encourage applications under s 108(2) by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled.
(Emphasis added.)
82 It is not sufficient for a plaintiff to prefer another liquidator or to be unhappy with a liquidator’s decisions. In Multi-Core Aerators Ltd v Dye [1999] VSC 205, the Victorian Supreme Court considered a situation where there had been substantial and ongoing litigation between a creditor and a company just prior to its administration and subsequent liquidation. During the liquidation, the creditor who had pursued the claim made an application to remove the liquidators. Warren J (as her Honour then was) found that the creditor had failed to prove that there was any lack of independence or substantial breach on the part of the liquidator and observed (at [48]):
… it is not sufficient that a court remove a liquidator merely because of levels of feeling and rancour between parties especially where the hostility has at all times emanated from the party seeking the removal of the liquidator. To do so would provide a creditor with an opportunity to manipulate the liquidation of the Company.
(Emphasis added.)
This passage was cited with approval in St Gregory’s (at [29]) as standing for the principle that a mere lack of confidence in a liquidator does not justify removal.
83 There is no legislated standard for the proof of debt in a voluntary administration. The principles enunciated by Barrett J in his detailed consideration of the issue in Selim v McGrath (2003) 177 FLR 85 turns on an analysis of regs 5.6.12-5.6.36A of the Corporations Regulations 2001 (Cth) which no longer form part of the Regulations. The Regulations previously dealing with entitlement to vote have been replaced (with some amendments) by Div 75 of the Insolvency Practice Rules (Corporations) 2016 (Cth):
75-85 Entitlement to vote at meetings of creditors
(1) A person other than a creditor (or the creditor’s proxy or attorney) is not entitled to vote at a meeting of creditors.
(2) Subject to subsections (3), (4) and (5), each creditor is entitled to vote and has one vote.
(3) A person is not entitled to vote as a creditor at a meeting of creditors unless:
(a) his or her debt or claim has been admitted wholly or in part by the external administrator; or
(b) he or she has lodged, with the person presiding at the meeting, or with the person named in the notice convening the meeting as the person who may receive particulars of the debt or claim:
(i) those particulars; or
(ii) if required—a formal proof of the debt or claim.
(4) A creditor must not vote in respect of:
(a) an unliquidated debt; or
(b) a contingent debt; or
(c) an unliquidated or a contingent claim; or
(d) a debt the value of which is not established;
unless a just estimate of its value has been made.
…
75-100 Decisions in relation to entitlement to vote at creditors’ meeting
(1) The person presiding at a meeting may determine any question that arises as to the entitlement of a person to vote.
(2) In deciding whether a person is entitled to vote at a meeting of creditors, the person presiding must:
(a) have regard to the merits of the person’s claim; and
(b) act impartially and independently.
(3) If the person presiding is in doubt whether a proof of debt or claim should be admitted or rejected, he or she must mark that proof as objected to and allow the creditor to vote, subject to the vote being declared invalid if the objection is sustained.
(4) A decision by the person presiding to admit or reject a proof of debt or claim for the purposes of voting may be appealed against to the Court within 10 business days after the decision.
(Emphasis added.)
84 Rules 75-100(1) and (2), significantly, replace the previous provision in reg 5.6.26(1) which stated:
(1) The chairperson of the meeting has power to admit or reject a proof of debt or claim for the purposes of voting.
85 The nature of the voluntary administration means that consideration of proofs and estimates of value are necessarily conducted in a summary manner. In Selim, which was decided before the amendment I have highlighted, Barrett J observed (at [103]):
… Any estimate of value undertaken pursuant to regulation 5.6.23(2) – as well as any decision under regulation 5.6.26(1) to admit or reject – will, of necessity, be of a somewhat summary nature. A decision of the later kind, as I have said, can only be undertaken by the chairperson, which means that the meeting will either have started or be about to start. The same will be true of any regulation 5.6.32(2) estimate, if, as I consider likely, the correct view is that the function of making such an estimate is a function to be performed by the chairperson. Even if it is a function of the administrator as such, the fact that it is a function that the legislation envisages only in relation to a meeting means that it will be undertaken, at the earliest, a short time before the time at which the meeting is to start. The situation is accordingly not one in which extensive debate and deliberation will be possible. … So too, it seems to me, regulation 5.6.23, in requiring a just estimate of value to be made, does not contemplate that the chairperson or administrator will undertake any detailed inquiry. He or she will do the best that can be done by reference to the factual material the claimant furnishes, view [sic] in the total context, with which the decision-maker is dealing. If that material provides reasonable grounds, within context, for ascribing a particular figure to the particular claim, the chairperson or administrator is no doubt expected to accept that position. If, on the other hand, there is little or no material from which a conclusion as to value can be drawn, a just estimate may be zero or perhaps the nominal amount of $1.00, assuming that admission is warranted at all.
(Emphasis added.)
86 In Bovis Lend Lease v Wily & Anor(2003) 45 ACSR 612 (which also considered the previous regulations), Austin J summarised the principles for an administrator evaluating proofs of debt for voting purposes during an administration as follows (at [269]):
(a) a creditor is not entitled to vote at a meeting convened under s 439A unless either the debt or claim has been admitted wholly or in part by the administrator, or the creditor has lodged with the chairman of the meeting or other appropriate person “particulars of the debt or claim” or (if required) a formal proof of the debt or claim: reg 5.6.23(1);
(b) the chairman of the meeting has a discretion to admit the debt or claim wholly or in part, or to reject it for the purposes of voting (reg 5.6.26(1)) and that decision may be the subject of an appeal to the court under reg 5.6.26(3);
(c) if the chairman is in doubt whether a proof of debt or claim should be admitted or rejected, the proper procedure is to mark the proof as objected to and allow the creditor to vote: reg 5.6.26(2);
(d) if the debt or claim is for an unliquidated amount, or it is contingent, or it is a debt the value of which is not established, a just estimate of the value of the debt or claim must be made by the chairman of the meeting, acting reasonably, before the creditor is permitted to vote: reg 5.6.23(2); Oriel Homes at 565; Vincent, White at 101;
(e) if a just estimate cannot be made at all, in circumstances where reg 5.6.23(2) applies, then the creditor should not be permitted to vote at all, and reg 5.6.26(2) has no application: Vincent, White at 101;
(f) if the claim cannot be quantified by a just estimate, but it appears that the creditor is a creditor for at least some amount (for example, where a debt is subject to an uncertain contingency), it is appropriate to admit the creditor for voting purposes at a nominal value of $1: Oriel Homes at 566; Re Zambena Pty Ltd (1995) 13 ACLC 1020;
(g) if a just estimate has been made as required by reg 5.6.23(2), but the administrator remains in doubt as to whether the creditor should be allowed to vote on the basis of the just estimate, then the administrator must mark the proof as objected to and allow the creditor to vote under reg 5.6.26(2): Vincent, White at 101.
(Emphasis added.)
87 More recently and in canvassing the current regulations, albeit for a different purpose, Lyons J in El-Saafin v Franek (No 3) [2019] VSC 155, helpfully detailed the following summary (at [52]-[64]):
The legislation
…
52 … s 75-95 is headed ‘Evidence of liability for debt’. This section was not contained in the previous regulations. It provided …
(1) If necessary, an external administrator must ask a creditor to give evidence in writing in relation to a debt claimed by the creditor to establish the liability of the company for the debt.
(2) If the external administrator considers that the evidence is insufficient for the purpose of subsection (1), the administrator, before asking for further information, must have regard to the expected dividend rate and the materiality of the issue requiring clarification.
(3) An external administrator must keep a copy of any evidence or information relied upon in deciding, for the purpose of voting or distributing dividends, whether to accept or reject a creditor’s claim.
…
54 …s 75-100(2) (which is new provision [sic]) provides that, in deciding whether a person is entitled to vote at a meeting of creditors, the person presiding must have regard to ‘the merits of the person’s claim’ and act ‘impartially and independently’.
55 … s 75-100(3) (which is the equivalent of previous reg 5.6.26(2)) provides that, if the person presiding is in doubt whether a proof of debt or claim should be admitted or rejected, he or she must mark the proof as objected to and allow the creditor to vote, subject to the vote being declared invalid if the objection is sustained.
56 …s 75-100(4) (which is the equivalent of previous reg 5.6.26(3)) provides that a decision by the person presiding to admit or reject a proof of debt or claim for the purposes of voting may be appealed against to the Court within 10 business days after the decision.
…
59 … s 75-270 provides that a meeting, or anything done at a meeting, is not invalid because a requirement of div 75 has not been strictly complied with, if the requirement has been substantially complied with.
…
63 Much of the case law on s 1321 [now repealed] has continuing relevance to the determination of applications under s 75-100(4) and the orders that the Court might choose to make.
64 There are three issues of particular relevance here:
(1) is the external administrator under an obligation to seek further details of a debt or claim which is uncertain?
(2) in what circumstances should a creditor’s claim be allowed, in particular if the debt or claim is subject to legal proceedings?
(3) what relief should be ordered if the appeal is successful?
(Emphasis added, citations omitted.)
88 Later in Lyons J’s reasons in El-Saafin, his Honour examined circumstances which appear to demonstrate some comparisons with the present situation, noting (at [95] and [190]-[192]):
95 Further, I have concluded that the person on whom the obligation to request evidence in writing is imposed must consider all the circumstances of the particular case to determine if such a request is necessary to make. In my view, those circumstances would include the nature of the meeting for which the information was relevant, the previous requests made for information and/or evidence in relation to the debt claimed, and the information in fact provided.
…
190 To adopt the terminology of Black J in Re Free Wesleyan Church [of Tonga in Australia Inc 260 FLR 348], the value of the debt owing to MAG could not be ascertained merely by reference to the MAG proof in light of all the issues raised in this proceeding. Substantial further enquiries were required to be made by Mr Glavas. On the evidence before me, he did not make such enquiries. This is contrast to [sic] Free Wesleyan Church where the Administrators received and tendered into evidence legal advice on the true value of the amount claimed.
191 Further, Mr Glavas’ failure to do so is troubling in light of the significant nature of the MAG debt in any vote of the second creditors’ meeting. I note there is no evidence that Mr Glavas received legal advice in relation to the true amount owing to MAG in light of the issues raised in this proceeding. After careful consideration, I have formed the view, based on the evidence before me, that Mr Glavas did not act independently and impartially when he failed to consider the merits of the MAG claim in light of the issues raised in my Reasons. I refer also to the difference between the way in [sic] he approached the challenged proofs and the way in which he approached the Mekkya proof and the Ibrahim proof, as set out above at [168]-[175] and [176]-[181] above.
192 On the evidence before me, it is difficult to determine the amount of the MAG debt in fact owing. Indeed, this is a question in the proceeding. There were no detailed submissions from either party based on the evidence about it. In oral submissions, counsel for the plaintiffs relied upon the matters set out at [6]-[11] of their submissions dated 23 July 2018 and [20]-[29] of the proposed further amended statement of claim.
(Emphasis added, citations omitted.)
CONSIDERATION
89 The plaintiffs primarily contend that the Liquidators failed to:
(a) make a just estimate of the plaintiffs’ proof of debt in circumstances where the director of the Company (Mr Phillips) had informed Mr Cant that he had offered to the plaintiffs in the vicinity of $200,000 to settle the District Court action;
(b) make a just estimate of, or proper enquiries into, the Company Accountants’ proof of debt in circumstances where no tax invoices were provided to substantiate the amount claimed until after the meeting during which the DOCA was approved; and
(c) make a just estimate of, or proper enquiries into, Superior Foods’ proof of debt in circumstances where no tax invoices or agreement between Superior Foods and the Company were provided to substantiate the claim for legal fees incurred with respect to the District Court action until after the meeting during which the DOCA was approved.
90 The Liquidators, however, say they made appropriate inquiries in assessing the debts on the following basis:
(a) the proofs were lodged by arms-length third parties who provided professional services to the Company; and
(b) in each case the Liquidators were aware that the creditors had provided services to the Company as the Liquidators had reviewed documents (court documents and financial statements) which established that the creditors had provided professional services to the Company.
91 The Liquidators point to r 75-95 (which has no equivalent in the previous regulations) which provides that ‘if necessary, an external administrator must ask a creditor to give evidence in writing in relation to a debt claimed by the creditor to establish the liability of the Company for the debt’. However, as noted, Lyons J in El-Saafin held that such a request is only required if the administrator considers that it is necessary for determining the liability (at [91]):
… I consider that the external administrator must consider all the circumstances of the particular case to determine if such a request for evidence in writing is necessary. In my view, those circumstances would include the nature of the meeting for which the information was relevant, the previous requests made for information and/or evidence in relation to the debt claimed, and the information in fact provided.
92 Mr Cant was subsequently provided with further documents demonstrating, he says, that the debts of the Company Accountants and Superior Foods were in fact due and payable at the relevant time and therefore any alleged failure to make inquiries had no impact on the conduct of the administration.
93 As to the debt to the plaintiffs, the Liquidators rely on the evidence of Mr Cant which it is said demonstrates:
(a) that he obtained external legal advice on the claim that is said to arise from the District Court action and the requirements for assessment of that claim;
(b) that he obtained advice about alternative processes that he might use to fairly and reasonably estimate the value of the claim and concluded that such processes were impractical and cost prohibitive in the time available;
(c) the reason why he did not consider it appropriate to place weight on ‘without prejudice’ offers made by the Company and the plaintiffs in the course of the District Court action which had been rejected; and
(d) that he felt unable to reasonably and fairly estimate the value of the Claim in the course of the administration.
94 Mr Cant’s normal practice when unable to reach a fair estimate of the value of a proof of debt with an uncertain value is to admit the creditor to vote in the amount of one dollar. This is an acceptable practice where it is impossible to assess a just value of a proof of debt: Re Oriel Homes Pty Ltd (1998) 15 ACLC 564 (at 565) cited with approval in Bovis (at [269]), see also Selim (at [103]) and Re Zambena Pty Ltd (1995) 13 ACLC 1020 (at 1021).
95 It may be accepted, as the Liquidators argue, that:
(a) the courts have considered that where a debt is disputed and subject to ongoing litigation, it may be appropriate for the external administrator to reject the proof entirely: see, for example, Bacnet Pty Ltd v Lift Capital Partners Pty Ltd (in liq) (2010) 183 FCR 386 (at [85]-[88] and the authorities cited therein) and Re Free Wesleyan Church of Tonga in Australia Inc (administrators appointed) (2012) 260 FLR 348 (at [22]-[29]);
(b) it was open to the plaintiffs to appeal the decision to admit the proof to vote for the amount of one dollar. The decision was first made at the second meeting of creditors held on 19 December 2019 and an application could therefore have been commenced before the date of the adjourned meeting of creditors held on 8 January 2020; and
(c) even after the Company had passed into liquidation the Court was still entitled to consider an appeal against a decision on voting entitlement and could make consequential orders for the conduct of the liquidation if it was established that the decision to admit the proof of debt for one dollar was incorrect and would have affected the outcome of the meeting: see, for example, El-Saafin (at [66]-[71]). This will ordinarily require demonstrating the decision was affected by ‘bad faith, a mistake as to the facts, an erroneous approach to the law or an error of principle’: Free Wesleyan Church (at [33]) and Weriton Finance Pty Ltd v PNR Pty Ltd (in admin); Australian Residential and Commercial Finance Pty Ltd v PNR Pty Ltd (2012) 92 ASCR 88 (at [35]), with both cases citing Bacnet (at [72]) with approval.
96 The plaintiffs also allege that the Liquidators are in breach because they failed to prepare a DOCA in accordance with the Resolution of creditors. Similarly, Superior Foods urges the Court to make declaratory orders to the effect that the Company remains in administration pursuant to the provisions of s 447A, notwithstanding that no application under s 447A is before the Court in this proceeding. The Liquidators say that pursuant to s 450C of the Act, the Liquidators were required to lodge a notice that the Company had failed to execute the proposed deed as soon as practicable after it became clear that Mr Phillips would no longer contribute funds for the DOCA.
97 However, it must be recalled that prior to the Company passing into liquidation, the Liquidators had:
(a) received a request on behalf of the plaintiffs that the Company not execute the DOCA pending the foreshadowed issuing of this proceeding; and
(b) advised the plaintiffs that the deed had not been executed and the directors did not intend to execute the DOCA and that the Company would therefore pass into liquidation and that the Liquidators had therefore instructed their lawyers to cease preparation of the deed.
98 The Liquidators argue that the plaintiffs had ample opportunity to request that the Liquidators continue with preparation of the DOCA, but instead positively requested that the deed not be executed. The plaintiffs should not now be permitted to suggest that the failure to continue preparation of a deed is a breach of their obligations as administrators. The decision to cease preparation of the deed, they say, was a reasonable exercise of the Liquidators’ obligations to preserve assets of the Company and avoid unnecessary expense. I accept this submission. The cost of doing so would have been wasted on a pointless exercise.
99 The Liquidators contend that if any party wishes to have the Company’s liquidation cease, the appropriate course is to make an application under s 482 of the Act to terminate the liquidation. No such application has been made. This may be so but it is not clear how it illuminates the question before me as to whether or not in the somewhat unusual circumstances of this case, the Liquidators should be removed and replaced.
100 A further complaint is made by the plaintiffs in relation to the Liquidators’ failure to comply with requests for information and documents (see [25]-[29]). This ground was not included in the plaintiffs’ concise statement and it is argued by the Liquidators that the plaintiffs’ claim should be confined to matters properly raised in the concise statement.
101 In any event it is said that in relation to the asset sale agreement:
(a) the plaintiff’s first requested a copy of the document on 5 December 2019 and renewed that request on 17 December 2019;
(b) on 17 December 2019, the Liquidators responded that the asset sale agreement included a confidentiality provision which prevented it being disclosed, but reproduced in writing (apparently at the plaintiffs’ specific request) the confidentiality clause from the agreement;
(c) on 18 December 2019, the plaintiffs requested that the Liquidators in their capacity as administrators waive the confidentiality clause; and
(d) on 19 December 2019, the Liquidators responded that on legal advice the consent of the purchaser would be required to disclose the agreement and the purchaser had indicated that it would not consent to the disclosure.
102 It is also said that in relation to the copies of the Company’s financial statements for the financial years ending 30 June 2015, 2016 and 2017:
(a) the plaintiffs provided a list of 27 questions to the Liquidators by email on 31 December 2019 requesting that a response be provided before the adjourned second meeting scheduled to take place on 8 January 2020;
(b) the email included a request for the Company’s financial statements for the years ending 30 June 2013 to 2016;
(c) the Liquidators responded by email on 6 January 2020 and enclosed a copy of the Company’s financial statements for the years ending 30 June 2018 and 2019. The financial statements dated 30 June 2018 included comparison figures for the year ending 30 June 2017. The email included a statement: ‘I am of the opinion that provision of the prior year’s financial statements would prejudice the interests of a third party’; and
(d) provided in the email dated 6 January 2020 an Australian Restructuring Insolvency and Turnaround Association (ARITA) publication regarding creditor’s rights in relation to requests for information.
103 The Liquidators also say that in relation to the minutes of the second meeting of creditors and the proof of debt of the Company Accountants:
(a) by an email dated 9 January 2020, the plaintiffs requested a copy of the minutes of the meetings which took place on 19 December 2019 and 8 January 2020;
(b) by an email dated 13 January 2020, the plaintiffs requested a copy of the Company Accountants’ proof of debt;
(c) the minutes of the meeting of creditors which took place on 19 December 2019 were filed with ASIC on 20 December 2019; and
(d) the minutes of the meeting of creditors which took place on 8 January 2020 were filed with ASIC on 22 January 2020.
104 Schedule 2, r 70-45 of the Act (Insolvency Practice Schedule) provides that an administrator must comply with a request by an individual creditor to produce information, a report or a document unless the information or document is not relevant to the external administration of the Company or it is otherwise not reasonable to comply with the request. Rule 70-15 of the Insolvency Practice Rules details circumstances where it is not reasonable for an external administrator to comply with a request to provide information including where the administrator is of the opinion that:
(a) complying with the request would substantially prejudice the interests of one or more creditors or a third party and that prejudice would outweigh the benefits of complying with the request (r 70-15(2)(a));
(b) disclosure of the information, report or document would found an action by a person for breach of confidence (r 70-15(2)(c));
(c) the information, report or document has already been provided (r -70-15(2)(e)); and
(d) the information, report or document is required to be provided under the Corporations legislation within 20 business days of receiving a similar request from the creditor (r 70-15(2)(f)).
105 I accept the submission that on the face of matters the Liquidators were justified in their refusal to provide the historical financial statements on the grounds that provision would prejudice a third party and were justified in their refusal to provide a copy of the asset sale agreement on the basis that a confidentiality clause prevented its disclosure. The minutes of the meeting on 19 December 2019 was already a public record by the date that the request was made and the minutes in relation to the meeting held 8 January 2020 were filed with ASIC less than 20 business days later.
106 I consider that it has been demonstrated on the evidence that the Liquidators responded reasonably to the plaintiffs’ requests for information, particularly the lengthy request made on 31 December 2019 which was responded to within three business days. While there may have been some frustrations on the part of the plaintiffs, in my view certainly taken alone there would be no basis on this complaint for the relief the plaintiffs seek.
Additional alleged grounds for removal
107 Regarding the allegation that the Liquidators failed to inform the creditors that the directors may have breached their duties by selling assets of the Company:
(a) the sale of assets while potential claims were outstanding was not a breach of directors’ duties provided that valuable market consideration was received from that sale; and
(b) the Liquidators correctly identified that the decision to distribute the proceeds of sale may give rise to a claim against the directors and included a discussion of these potential claims in their report to creditors dated 10 December 2019.
108 Regarding the allegation that the Liquidators failed to make adequate enquiry into the asset sale agreement dated 3 September 2015 which provided for the purchase price for the Company’s business to be paid to a nominee of the Company:
(a) this ground was not included in the plaintiff’s concise statement; and
(b) in any event the nominee clause in the contract of sale was not relevant to the Liquidators’ proper investigation, given their conclusion that the proceeds of sale were received by the Company as valuable consideration.
109 A specific emphasis by the plaintiffs in their case is that certain factors about this administration were far from the norm. It is, they assert, an unusual case not readily accommodated by the usual rules and principles on which the Liquidators rely. The normal effect of those rules is not in dispute, rather it is the abnormal effect of the circumstances around this administration, which take it out of the norm.
110 The first of those factors is that as a result of orders made in the District Court in 2018 and towards the end of 2018, the claim by the first plaintiff against the Company and Superior Foods was approaching trial listing. In that context, there were negotiations between Mr Sands and Mr Phillips concerning proposals for a resolution of the proceedings.
111 Mr Sands’ evidence about what happened and the proposals that were made to him to compromise the proceeding are not in dispute. There was an offer made of $185,000 by the text message and there was an offer of $205,000 that I find was referred to in the minutes of the 19 December 2019 and 8 January 2020 meetings. But the parties could not agree.
112 It would have been easy for the Liquidators to unearth more detail from both parties about these exchanges. It appears from the minutes that offers were made only by Mr Phillips.
113 In November 2019, with the District Court action still unresolved, Mr Phillips told Mr Greenberg who communicated to Mr Cant that the decision had been made to appoint an administrator to the Company so that the Company could enter into a DOCA. This was not because the Company was trading whilst insolvent. The Company was not even trading.
114 The plaintiffs’ case theory is that the appointment of the administrators was a very convenient strategy by which the plaintiffs’ claim against the Company, if the necessary votes could be mustered, could be brought to an end by the Company adopting or resolving to execute a DOCA under which only $80,000 would be paid by Mr Phillips. It was then anticipated that only $60,000 would be available to meet the claims of the creditors and the balance would be for the fees of the administrators. It is in that particular context that the events which then followed have to be considered.
115 Part of the relevant context is also that the Company sold its operating business for a price that has never been disclosed and then distributed the proceeds from the sale of the business to the shareholders. There is nothing wrong with that, provided that the directors ensure that the Company retains the capacity to pay its creditors. Mr Sands was unaware of these developments until the administrator’s first circular to creditors reached him.
116 In my view it is also unusual for a DOCA to be sought or obtained when there is only one major creditor because if the creditor is antagonistic, the DOCA will not be accepted and funds will be wasted on an administrator’s costs. On the other hand, if a DOCA is going to be accepted, the Company might as well just deal with the creditor directly and again save the costs of the administrations. What this would suggest is that in these unusual circumstances, reasonably close consideration should be given to the value of the only large and genuinely external claim.
117 So again it is in that further rather unusual context that Mr Greenberg in discussion with Mr Cant told him, the plaintiffs say, not that there is a claim by the first plaintiff, but that it was owed in the vicinity of $250,000 which are the words that Mr Cant used in the first circular to creditors. Mr Cant’s evidence was to the effect that the first circular to creditors is superficial and it can be sorted out at some later point in time. The plaintiffs say there is a statutory obligation, to ensure that the information imparted to the creditors is reasonably factually accurate.
118 Perhaps more importantly, almost the entirety of the first circular in this instance was pro forma in nature with only minor amendments such as the date and place of meeting and the name of the Company added in. It was only five paragraphs in the document where Mr Cant, or whoever assisted in the administration, had to create the narrative to inform creditors of the state of the Company. The plaintiffs assert that the proposition advanced by Mr Cant that he simply chose the wrong words, and what he meant to say was that the Company was the subject of a claim in the vicinity of $250,000 should not be accepted.
119 At the first meeting of creditors on 27 November 2019, the only attendee, other than representatives of the administrators, was Mr Greenberg. The meeting was adjourned due to the lack of a quorum. In the interim, contact was made with the plaintiffs who attended the second creditors meeting on 19 December 2019. Others also attended the second meeting including Mr Greenberg who on this occasion, asserted the Company Accounts’ claim for $3850 which was not listed in the first circular to creditors (while the plaintiffs’ claim was). The second meeting was also the first time that Superior Foods’ claim was disclosed. The plaintiffs complain about the alacrity with which the Company Accountants and Superior Foods were accepted as creditors for the whole, or a substantial portion, of their proofs of debt for which proper invoices were not provided until after the 8 January 2020 meeting. The plaintiffs say this treatment stands in stark contrast to the way the Liquidators dealt with their claim.
120 The plaintiffs point out that a large company if it is sued by somebody, might be happy to settle generously so that the time and energy of senior staff is better devoted towards profitable pursuits rather than arguing about an amount of money. They say that this was not a company of that nature. In this much smaller claim between two smaller entities, neither party was prepared to settle the claim. The plaintiffs stress and (I think fairly) that in such a context, where neither party was prepared to just walk away from the dispute, evidence that an offer of around $180,000 or $200,000 had been made by the Company to the plaintiffs was not to be ignored. The plaintiffs’ primary complaint in these circumstances is that the second defendant appears not to have considered these factors at all, and if he had, gave them little or no weight.
121 With this context in mind, the crux of the plaintiffs’ case is that by admitting their claim for only one dollar, the Liquidators did not act independently, but instead adopted a course that effectively guaranteed approval of the DOCA. For the Company, it might be thought that the imperative was that there be two creditors who were prepared to support the Resolution, and that this could be achieved by Mr Greenberg submitting a belated proof of debt for the Company Accountants, (in an amount which did not correlate with the invoice he submitted, and not until after the meeting on 8 January 2020); and then by Superior Foods submitting a claim, which again was not substantiated before the meeting on 8 January 2020. This gave the Company two out of three creditors who had a majority by number supporting the Resolution. The Company could never have achieved a majority by value unless the plaintiffs’ debt was written down to less than the combined total of the debt to the other creditors. In that context it is contended that Mr Cant saw fit to ignore, or give no weight to the offers which Mr Phillips acknowledged had been made, and simply value the plaintiffs’ debt down to one dollar. The effect of this had to be that when the vote was taken, the plaintiffs would be outvoted. Mr Phillips would achieve a considerable benefit as a result.
122 The plaintiffs say that that the totality of this evidence entitles them to say that Mr Cant did not act ‘impartially’. The plaintiffs say that Mr Cant embarked on the exercise as if the Company was his client and he intended to deliver the result that his client wanted, so that when the Company Accountants’ claim appeared, he did not question the voting impact of accepting the claim with no documentary proof until after the meeting resolved to enter into the DOCA. The position was the same, the plaintiffs say, with Superior Foods. The relevant invoices were provided after the meeting on 8 January 2020 and in circumstances where the invoices produced from Mr Eastoe are annual invoices, which is not, the plaintiffs say, how bills are usually raised by professional service firms in 2020. It is unusual for a solicitor to save up his or her fees for 12 months and then render an account. Further, in this case there was no evidence of actual payment other than a three-line entry in an email that refers to payments to Mr Eastoe, with no evidence as to what was paid.
123 The plaintiffs argue that the fact that they could have appealed the decision to attribute their voting value at one dollar is irrelevant. I infer that they have pressed for a more serious form of relief as they have, in these circumstances, lost confidence in the impartiality of the Liquidators.
124 I do not have any reason to doubt the bona fides of Mr Cant. Further, it is clear on the authorities I have set out, that replacement of a liquidator is not to be ordered lightly. However, despite the detailed explanations given for the Liquidators, I do consider in this instance that more should have been done to examine the plaintiffs’ claim especially having regard to the fact that it was initially the only claim against what was, by the time of appointment of the administrators (now the Liquidators) but a shell of a company which had disposed of its assets. The obvious voting benefit to Mr Phillips of the plaintiffs’ claim being reduced to one dollar when two new but inadequately explained creditors emerged does not appear to have been evaluated. The acceptance by Mr Cant that the Company did not owe any money to the plaintiffs merely because Mr Phillips said so, and despite the fact that he had offered close to $200,000 to settle the claim, is not adequately explained in my view. More concern should have registered as to the convenience for the shareholders of the Company of appointing an administrator when there was only one substantial creditor. The ease with which the other two smaller but then undocumented claims were accepted in contrast to the long-standing claim of the plaintiffs is also not adequately explained and is another important part of the context just as similar such factors were relevant in El-Saafin (see for example [168]-[175]).
125 All that said, and mindful of the weight of the authorities on this topic, the deficiencies of the administration are not in my view sufficient to require replacement of the Liquidators. I do not consider that it has been established that Mr Cant failed to act impartially and independently or fell so short in the exercise of duties that the rather extreme step of replacement is warranted, especially when other forms of relief may be available. The Court is empowered in such circumstances to make such orders that it thinks are appropriate to do justice.
126 I do conclude however, that proper examination of the plaintiffs’ claim should be undertaken and if this requires reference to a court, doing so may need to be pursued. I consider that in the circumstances, the Liquidators should undertake all appropriate steps to carry out this process and to report to the Court as to the outcome of the examination and what further steps, if any, should be pursued. I will leave it to the parties to attempt to reach agreement about the process to achieve this result. If agreement cannot be reached I will make appropriate directions on the papers.
The Company Accountants
127 In relation to the position of Company Accountants, they were joined to the proceeding when it was originally filed when the application was to restrain the execution of the DOCA for which Mr Greenberg had voted. He was one of the two creditors who supported the Resolution that the Company execute the DOCA. On that basis, I am satisfied that the plaintiffs properly joined the two creditors who supported the Resolution. After the Company declined to sign the DOCA and the application was amended, there was a directions hearing at which counsel for the plaintiffs indicated in response to the same complaints now raised by the Company Accountants that all defendants were properly joined to the application and may wish to be heard, even in relation to the amended application.
128 There was no need for the Company Accountants to appear on the hearing of the amended application, but they had that right, because they had voted in support of the Company executing the DOCA and may have wished to make submissions supportive of those advanced by Mr Eastoe.
129 If they did not wish to advance any substantive case before the Court but, rather, were content to abide the orders of the Court, then they could have filed a submitting appearance.
130 The legal representative for the Company Accountants has said that the reason she appeared at the hearing was because an order was made that there was going to be a question of whether or not the third defendant would need to pay the costs of the plaintiffs of the originating process up to and including 11 February. By written submissions, the Company Accountants have said that they should not pay any part of the plaintiffs’ costs and should never have been joined.
131 While it is clear that the Company Accountants have not added to the costs of the proceedings in any way, there is no doubt that it was proper to join both them and Superior Foods.
132 It is equally clear that their position could have been protected by a submitting appearance save as to costs. That is not an unusual choice of procedure. There is no reason the plaintiffs should pay for the Company Accountants’ costs. They were properly joined and need have incurred no costs past the preliminary response.
Superior Foods
133 In relation to Superior Foods, shortly stated, its submission is that the Company never properly went into liquidation as no DOCA was ever presented to anyone for execution and nor was it prepared in any final form. These facts are not challenged.
134 The argument runs that:
(a) Pt 5.3A of the Act constitutes a comprehensive and unambiguous regime regulating the administration of a company’s affairs with a view to executing a DOCA and includes s 446A which the plaintiffs rely on to support their assertion that the Company is currently in liquidation. Section 435C(2) provides that the normal outcome of the administration of a company is that ‘a deed of Company arrangement is executed both by the Company and the deed’s administrator’ (Emphasis added.);
(b) Section 437A defines the role of an administrator and provides, inter alia, that an administrator has control of the company’s business, property and affairs;
(c) Section 437B provides that an administrator acts as the company’s agent and s 437D provides that ‘only the administrator can deal with the company’s property’
(d) Section 439C provides for what creditors may decide, namely:
(i) that the company execute the DOCA;
(ii) that the administration should end; or
(iii) that the company be wound up.
(e) Section 444A provides that where a meeting of creditors has resolved that the company execute a DOCA:
(i) the administrator of the company is to be the administrator of the deed; and
(ii) that the administrator of the company ‘must prepare an instrument setting out the terms of the deed’(Emphasis added.);
(f) Section 444B applies where ‘an instrument is prepared under section 444A’. It also provides that the Company must execute the instrument within 15 business days of the meeting or such further period as the Court allows (Emphasis added.). The section also provides that:
(i) the company’s board may authorise the DOCA to be executed by or on behalf of the company: s 444B(3);
(ii) the proposed administrator of the deed must execute the instrument before or as soon as practicable after the Company executes it: s 444B(5) (Emphasis added.); and
(iii) when executed by both the Company and the deed’s administrator the instrument becomes a DOCA: s 444B(7).
(g) Superior Foods says that s 446A, headed ‘Administrator becomes liquidator in certain cases’ is the single most important provision to be considered in this action.
(h) Section 446A(1)(b) applies if, inter alia, a company under administration contravenes s 444B(2), namely, by failing to execute the DOCA within 15 days of the meeting or such later date approved by the Court. Clearly, s 446A must be read together with the rest of Pt 5.3A including:
(i) s 444A which imposes a positive obligation on the administrator to prepare the DOCA; and
(ii) s 444B which is operative (only) where a DOCA is prepared.
(i) It is common ground that the administrator never caused the DOCA to be prepared. It is submitted that there can be no contravention of s 444B(2) by the Company in circumstances where the DOCA (in contravention of s 444A) has never been prepared. As a matter of logic one does not get to s 446A(1)(b) (the contravention) unless one first establishes that s 444B(1) is satisfied. Section 444B is only satisfied if the ‘instrument is prepared under section 444A’. Contrary to s 444A(3) the administrator did not prepare (or cause to be prepared) ‘the instrument setting out the terms of the deed’. It is not suggested (at least not by Superior Foods) that the Liquidators’ action in instructing his lawyers to cease preparation of the DOCA was egregious. Rather, it appears to have been a ‘commercial’ decision, albeit one made without an appreciation of the proper application of the legislation.
135 The Court has a general power under s 447A to make ‘such order as it thinks appropriate about how [Pt 5.3A] is to operate in relation to a particular company’. An order may be made on the application of, inter alia, a creditor of the company.
136 Superior Foods contends that the appropriate orders are that:
1. There be a declaration that the Company is in administration.
2. The Liquidators take such steps as are available to revoke the form 509F notice dated 31 January 2020 lodged with ASIC.
3. The plaintiffs’ claim be dismissed.
4. The plaintiffs pay Superior Foods’ costs of the application.
137 This relief is said to be an appropriate exercise of the court’s general power as:
(a) the effect of the order for a declaration that the Company is in administration will allow its administrator (the Liquidators) to convene a meeting to vote as to whether the administration should continue or come to an end or to resolve that it proceed into liquidation. Effectively that enables the creditors to make a decision in accordance with s 439C;
(b) There is a significant conflict between the Liquidators’ submissions and their own evidence. In the submissions, there is the statement that ‘the directors did not intend to execute the deed’ (which must be understood as the directors of the Company);
(c) However, the evidence is that ‘Mr Phillips advised that he did not intend to execute the DOCA’. Mr Phillips was the proponent of the DOCA and the person who was to put up the $80,000 as the deed fund
(d) In this circumstance it is said that there can be no error or default on the part of the Company in ‘refusing’ to sign the DOCA. It was never presented with a DOCA to execute: MYT Engineering Pty Limited v Mulcon Pty Limited (1999) 195 CLR 636 (see for example the discussion at [9]-[19]).
138 There is some merit in the argument advanced which does support the complaints raised by the plaintiffs.
139 However, I am not persuaded that it is now appropriate to simply declare that the Company is no longer in liquidation. Anyone searching the ASIC Register since this proceeding commenced will have been informed that the Company is in liquidation. Under the evidentiary provisions of the Act, that document can be tendered in a court on the basis that it is an accurate statement in relation to the matters that are recorded in the document. There is no evidence at all as to whether or not unknown third parties may be affected by the Company’s current status.
140 I consider that more importantly, if Superior Foods wanted to advance the proposition made, it would first need to serve ASIC and, secondly, would need to file at least an application to amend the Register, but also an application to seek the relief to which it contends it is entitled. This is not just a matter of form. Rather, all the potential consequences to those who could be affected by the relief would be brought before the Court in this proceeding and be taken into account.
141 I am unable to accept the propositions advanced for Superior Foods in the absence of compliance with the necessary formalities. This point was raised by the Liquidators at the first return date of the originating process on 13 February 2020. The matter of a formal application was the subject of discussion again at a directions hearing on 4 March 2020 at which a timetable for the hearing of the proceedings was set down, however no such application was filed by Superior Foods.
142 For those reasons Superior Foods is not entitled to the relief it seeks.
Costs
143 Given the somewhat mixed result, I will allow the parties to file short submissions on how costs should be apportioned and will determine the matter on the papers. Noting however, that I am not inclined to make any costs orders in favour of the Company Accountants for the reasons set out above (at [127]-[132]).
I certify that the preceding one hundred and forty-three (143) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher. |
WAD 9 of 2020 | |
ANTHONY JEROME SANDS | |
Fifth Plaintiff: | CARMEL JEAN SANDS |
Sixth Plaintiff: | KEVIN JOHN SANDS |
Seventh Plaintiff: | LYNNE MARGARET SANDS |
SUPERIOR FOOD GROUP PTY LTD |
