Federal Court of Australia

Tayeh v Commonwealth of Australia, in the matter of 1st Fleet Pty Limited (In Liq) [2020] FCA 1323

ORDERS

THE COURT ORDERS THAT:

1.    Paragraphs 1 to 9 of the amended originating application be dismissed.

2.    Within 14 days, the parties confer and file agreed or competing proposed orders for the resolution of all outstanding issues in this proceeding (including orders as to costs).

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

JAGOT J:

THE PROCEEDING

1    The plaintiffs are the liquidators of a group of companies known as the 1st Fleet Group (the Group). The liquidators seek declarations to the effect that the appointment of persons to and the purported representation of those persons during meetings of the committee of inspection (COI) of the second to ninth plaintiffs are not invalid by reason of any procedural irregularities and that the resolutions passed by the committee of inspection are not invalid by reason of any such procedural irregularities (the process issue). In the alternative the liquidators seek a determination of the remuneration of the first plaintiff in the winding-up of the second to ninth plaintiffs (the quantum issue).

2    These reasons for judgment concern the process issue. The parties consented to the process issue being decided on the papers and without an oral hearing. On reviewing the material I considered that, in respect of some of the issues, I would be assisted by an oral hearing. It proved impossible to identify convenient dates for the oral hearing. In the circumstances I informed the parties that I proposed to decide the issues which I could decide without an oral hearing and to defer the balance for subsequent consideration if necessary. As discussed below it has not proved necessary to defer the consideration of any question relating to the process issue.

3    The amended originating process identifies the foundation of the application for relief as s 1322(4)(a) of the Corporations Act 2001 (Cth) (the Act). That provision is to the effect that the Court may, on application by any interested person, make:

an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation.

4    By s 1322(6)(a)(i)-(iii) the Court must not make such an order unless it is satisfied that the act, matter or thing, or the proceeding, is essentially of a procedural nature, or that the person or persons concerned in or party to the contravention or failure acted honestly, or that it is just and equitable that the order be made, and in every case, that no substantial injustice has been or is likely to be caused to any person.

5    However, the liquidators’ primary position is that the declarations may be made on the basis of s 1322(2) of the Act. Section 1322(2) provides that a:

proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid.

6    The declarations which are sought are as follows:

1    the resolution passed by the creditors of the second to ninth plaintiffs on 2 July 2012 appointing a COI and specifying the members of the COI for the purposes of section 548A of the Act (Resolution) is not invalid by reason of the resolution not being expressed to be made under section 548A of the Act.

2    the appointment of Michael Thomas Scott as a member of the COI is not invalid by reason of the Resolution referring to the appointment of Helen Sourlas representing the Transport Workers Union of Australia (TWU) and thus failing accurately to specify the persons who were to be members of the COI for the purposes of s 548A of the Act.

3    the representation of Michael Thomas Scott at meetings of the COI by Helen Sourlas, Alison Rudman and Herbert Williams (TWU employees) being employees of the TWU, is not invalid by reason of the TWU employees not having been appointed to represent Michael Thomas Scott under a proxy by instrument in accordance with Form 532 pursuant to regulation 5.6.29 of the Corporations Regulations 2001 (Cth) (Regulations).

4    neither the Resolution nor the constitution and appointment of the COI are invalid by reason of the Resolution failing to specify, for the purposes of s 548A(1)(d)(i) of the Act, the number of members of the COI to represent the creditors of the second to ninth plaintiffs.

5    the acts, decisions and resolutions, in favour of which the TWU employees are recorded as having voted in the minutes of COI meetings dated 19 December 2012, 21 August 2014, 17 August 2015, 22 July 2016, 31 August 2016, 11 August 2017, 9 May 2018, 6 August 2018 and 25 February 2019 are not invalid by reason of:

a    the TWU employees not having been appointed to represent Michael Thomas Scott under a proxy by instrument in accordance with Form 532 pursuant to regulation 5.6.29 of the Regulations; or

b    the failure of the minutes to record that the TWU employees voted in favour of those acts, decisions and resolutions as the representatives of Michael Thomas Scott.

6    the appointment of AustralianSuper as a member of the COI is not invalid by reason of the Resolution referring to the appointment of Clara Lai as a representative of the Industry Fund Credit Control (IFCC) and thus failing accurately to specify the persons who were to be members of the COI for the purposes of s 548A of the Act.

7    the representation of AustralianSuper at meetings of the COI by Tani Heeps, Francesca Lamicela, Samantha Sinclair, Jayson Bruce and Helen Thalassionos (IFCC employees) being employees of the IFCC, is not invalid by reason of each individual IFCC employee not having been authorised in writing by AustralianSuper to represent AustralianSuper at meetings of the COI pursuant to s 549(4)(b) of the Act.

the acts, decisions and resolutions, in favour of which the IFCC employees are recorded as having voted in the minutes of COI meetings dated 19 December 2012, 2 September 2013, 21 August 2014, 14 November 2014, 17 August 2015, 22 July 2016, 31 August 2016, 11 August 2017, 9 May 2018, 6 August 2018 and 25 February 2019, are not invalid by reason of:

a    each individual IFCC employee not having been authorised in writing by AustralianSuper to represent AustralianSuper at meetings of the COI pursuant to s 549(4)(b) of the Act; or

b    the failure of the minutes to record that the IFCC employees voted in favour of those acts, decisions and resolutions as the representatives of AustralianSuper.

8    any act, matter or thing purportedly done by the first plaintiff, or by persons acting on the first plaintiff’s behalf, in reliance on resolutions passed by the COI are not invalid, by reason of the contraventions of the Act referred to in orders 1 to 8 above.

BACKGROUND

7    The following summary is taken from the submissions for the liquidators and the Commonwealth.

8    The 1st Fleet Group provided national transportation and related services.

9    The liquidators were first appointed as the voluntary administrators of each of the companies in the Group on 25 April 2012. They were subsequently appointed as the liquidators of each company in the Group and the company Transport Payroll Services Pty Ltd on 22 May 2012.

10    On 21 June 2012 the liquidators made a pooling determination in respect of the companies in the Group and Transport Payroll under s 571(1) of the Act. By s 574(1) of the Act the liquidators were required to convene a meeting of the creditors of each of the companies within five days for the purpose of allowing them to consider and approve the pooling determination. To that end the liquidators circulated a notice of meeting of creditors under s 574(2) of the Act for each company within the Group and Transport Payroll.

11    One of the agenda items on the notice was the appointment of a committee of inspection. Section 548A of the Act applied to a committee of inspection in respect of a pooled group. The section provided that:

(l)    If:

(a)    either:

(i)    a pooling determination is in force in relation to a group of 2 or more companies; or

(ii)    a pooling order is in force in relation to a group of 2 or more companies; and

(b)    each company in the group is being wound up;

the liquidator or liquidators must, if requested by a creditor of a company in the group, convene a meeting, on a consolidated basis, of the creditors of the companies in the group for the purposes of determining:

(c)    whether a committee of inspection should be appointed for the group; and

(d)    if a committee of inspection is to be appointed:

(i)    the number of members to represent the creditors of the companies in the group; and

(ii)    the persons who are to be members of the committee representing the creditors of the companies in the group.

…

(3)    A person is not eligible to be appointed as a member of a committee of inspection as a result of a determination under subsection (1) unless the person is an eligible unsecured creditor (within the meaning of Division 8) of a company in the group.

(4)    A committee of inspection for a group of 2 or more companies is taken to be a committee of inspection for each company in the group.

12    Section 548 dealt with the establishment of a committee of inspection where no pooling determination was in place in equivalent terms to s 548A (but for the fact that under s 548A creditors of a number of companies are involved).

13    An eligible unsecured creditor is defined in s 579Q of the Act as a creditor whose debt or claim is unsecured and who is not a company in the group or is specified in the Regulations.

14    The minutes of a meeting on 2 July 2012 establish that the creditors of the second plaintiff approved the liquidators’ pooling determination. Thereafter a combined meeting of all the companies the subject of the pooling determination was convened at which time a resolution was passed as follows:

That the meeting appoint a committee of inspection and that the members of the committee of inspection formed in accordance with section 548 of the Corporations Act 2001 be:

1. Clara Lai representing IFCC

2. Kevin Smith representing ATO

3. Helen Sourlas representing TWU

and their appointment shall take place subject to them each satisfying the requirements of section 548 of the Corporations Act 2001.

15    The COI held 11 meetings between 19 December 2012 and 25 February 2019 at which it passed resolutions including resolutions authorising the liquidators to draw down remuneration of $5,654,228. As at 1 July 2019 the liquidators had drawn down $3,861,476 pursuant to the resolutions made by the COI.

16    Ms Lai did not attend any of the 11 meetings. Instead, the meetings were attended by various other employees of IFCC. Ms Sourlas attended two of the meetings and a further six were attended by other employees of the TWU. Mr Smith did not attend any of the meetings. Instead the meetings were attended by various other employees of the ATO.

17    The Commonwealth is an admitted creditor of two companies in the Group for advances of $9,444,014 made by it to those companies between 28 May 2012 and 24 October 2013 under the General Employee Entitlements and Redundancy Scheme (GEERS). GEERS was a scheme administered by the Department of Education, Employment and Workplace Relations under which the Commonwealth advanced money to an insolvent company for the purpose of it paying certain outstanding employee entitlements to former staff. As a result of the advances the Commonwealth became entitled to prove in the winding up for the amount advanced, with the same priority as the employees would have had under s 560 of the Act.

18    The Deputy Commissioner of Taxation is a creditor of two companies in the Group for $9,545,784 for various unpaid tax liabilities including superannuation guarantee charges arising from the non-payment of superannuation contributions by those companies of which at least the superannuation guarantee charge component has been admitted.

19    The debts owing to the Commonwealth and the Deputy Commissioner include debts that must be paid in priority to other unsecured debts under s 556(1)(e) of the Act. The liquidators estimated that as at 31 July 2018 the debts within s 556(1)(e) of the Act amounted to $3,003,626 of which the claims of the Commonwealth and the Deputy Commissioner represent 98.2%. The liquidators paid a dividend of $2 million to s 556(1)(e) priority creditors on 6 September 2018. The liquidators’ most recent estimate is that the surplus available in the winding up will be sufficient to pay, on an optimistic basis, 82.04% of the remaining s 556(1)(e) priority debts (of $972,435), with nothing remaining for other unsecured creditors. As the Commonwealth put it, “the Commonwealth and the Deputy Commissioner have the overwhelming financial interest in the outcome of the winding up of the companies.”

20    On 24 August 2018 the Commonwealth notified the liquidators that it was concerned that the resolutions approving the liquidators’ remuneration may be invalid because the resolution appointing the COI may have been ineffective for three reasons:

(1)    the resolution was made under s 548 of the Act (applying to a single company in liquidation) rather than under s 548A (applying to a pooled group);

(2)    the resolution failed to satisfy s 548A(1)(d) by failing to determine the number of members of the COI; and

(3)    the resolution purported to appoint persons who were ineligible for appointment.

21    In its written submissions opposing the grant of the declarations the Commonwealth identified five issues for determination as follows:

First, did the creditors appoint AusSuper and Mr Scott as members of the COI at the pooling meeting?

Second, if so, were AusSuper and Mr Scott eligible to be appointed to the COI?

Third, if so, did AusSuper and Mr Scott validly authorise the persons who attended the COI meetings to do so in their stead?

Fourth, if the answer to any of those questions is no, is the attendance at and participation in the COI meetings and, in particular, the making of the COI resolutions by those persons a procedural irregularity within the meaning of s 1322(2) of the Corporations Act, so that the COI resolutions are not invalidated because of the irregularity?

Fifth, if the answer to the fourth question is no, should the Court make an order under s 1322(4) of the Corporations Act declaring the COI resolutions to be not invalid by reason of them being made by persons who were not authorised to do so?

PROCEDURAL IRREGULARITY

22    Section 1322(1)(a) of the Act provides that “a reference to a proceeding under this Act is a reference to any proceeding whether a legal proceeding or not.”

23    In City Pacific Ltd v Bacon (No 2) [2009] FCA 772; (2009) 178 FCR 81 at [51] Dowsett J held that “the adoption of a resolution at a meeting is a proceeding for the purposes of s 1322(1) and (2).”

24    In Sipad Holdings DDPO v Popovic [1995] FCA 890; (1995) 61 FCR 205 at 219 Lehane J said that a procedural irregularity encompassed circumstances in which a person has attempted to do something which the Act permits, but has failed to do that thing effectively because of a procedural failure or omission, but does not encompass a circumstance where a person has tried to do something which the Act does not authorise.

25    Shearwood (Trustee), in the matter of Allied Resource Partners Pty Ltd v Allied Resource Partners Pty Ltd [2017] FCA 1451 at [160] applied the views of Palmer J in Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd [2005] NSWSC 1005; (2005) 55 ACSR 185 at [103] that:

– what is a ‘procedural irregularity’ will be ascertained by first determining what is ‘the thing to be done’ which the procedure is to regulate;

– if there is an irregularity which changes the substance of ‘the thing to be done’, the irregularity will be substantive;

– if the irregularity merely departs from the prescribed manner in which the thing is to be done without changing the substance of the thing, the irregularity is procedural.

26    In Onefone Australia Pty Ltd v One.Tel Ltd [2010] NSWSC 1120; (2010) 80 ACSR 11 at [8] Barrett J referred to Cordiant with approval and said that the relevant distinction is:

between doing the ‘thing to be done’ in a way that departs from the prescribed way and doing something other than the ‘thing to be done’. The former involves procedural irregularity. The latter does not.

INCORRECT REFERENCE TO S 548

27    It will be apparent from the text of the resolution appointing the COI that the resolution refers to the COI being formed under s 548 of the Act. The reference to this section is in error. The relevant provision under which a COI may be formed for two or more companies subject to a pooling determination is s 548A.

28    The liquidators submitted that the reference to s 548 constitutes an “obvious error” and that the Court could construe the minutes of the resolution as referring to the correct provision, being s 548A: New South Wales Land and Housing Corporation v Australia and New Zealand Banking Group Limited [2015] NSWSC 176 at [46]-[64].

29    Alternatively, the liquidators said that it is the case that “the validity of an administrative act is not necessarily impugned by there having been a mistake as to the source of power stated by the decision-maker as that upon which reliance was placed” (emphasis in original): Harris v Great Barrier Reef Marine Park Authority [1999] FCA 437; (1999) 162 ALR 651 at [14], relying on Brown v West [1990] HCA 7; (1990) 169 CLR 195, 203-4; Newcrest Mining (WA) Ltd v Commonwealth [1997] HCA 38; (1997) 190 CLR 513, 618. As was said by Fullagar J in Lockwood v the Commonwealth [1954] HCA 31; (1954) 90 CLR 177 at 184 “an act purporting to be done under one statutory power may be supported under another statutory power”. In the present case, the meeting was of a pooled group. The relevant power was s 548A and not s 548. In these circumstances the meeting should be taken to have intended to rely on s 548A, the available source of power to appoint a committee of inspection, and to have in fact invoked that available power.

30    If these submissions are not accepted, the liquidators submitted further that the defect in the resolution is a mere procedural irregularity. The thing to be done was the appointment of a committee of inspection and that was to be done under s 548A but the meeting departed from the way the thing was to be done by relying instead on s 548. The defect involved no alteration to the substance of the thing to be done. There is no evidence of any injustice let alone substantial injustice caused by the erroneous reference to s 548. Accordingly, the error is a procedural irregularity as provided for in s 1322(2) which does not invalidate the resolution of 2 July 2012.

31    No submissions to the contrary were put.

32    I accept the liquidators’ submissions about this issue. The resolution of 2 July 2012 is not invalid by reason of the erroneous reference to s 548 rather than s 548A of the Act as the relevant source of power.

NUMBER OF MEMBERS OF COI

33    It will be apparent from the text of the resolution appointing the COI that the resolution does not refer to the number of members to represent the creditors of the companies in the group.

34    The liquidators submitted that s 548A does not require the resolution to specify the number of members to represent the creditors of the companies in the group separately from specifying the members to represent the creditors of the companies in the group.

35    Alternatively, the liquidators submitted that if s 548A does require the number of members to represent the creditors of the companies in the group to be specified separately from specifying the members to represent the creditors of the companies in the group then the resolution satisfied that requirement because, in terms, it fixed the number of members as the three members specified.

36    In any event, the liquidators submitted that the failure to specify the number of members of the COI separately from the members of the COI is a procedural irregularity as provided for in s 1322(2) of the Act.

37    No submissions to the contrary were put.

38    I agree with the liquidators’ submission that s 548A(1)(d)(i) does not require the resolution appointing a COI to specify the number of members separately from specifying the members of the COI. In other words, specifying the members of the COI will also specify the number of those members as provided for in s 548A(1)(d)(i) of the Act. If this is incorrect, I would also accept the liquidators’ submission that this is a procedural irregularity which has not caused any injustice to any person. Either way, the fact that the resolution of 2 July 2012 does not specify that the COI shall consist of three members but instead specifies the members of the COI (who are three in number) does not have the effect of invalidating the resolution.

WHO WAS APPOINTED TO THE COI?

39    The terms of the resolution of 2 July 2012 are set out above. The liquidators contended that AustralianSuper and Michael Thomas Scott were intended to be appointed to the COI and the terms of the resolution as recorded in the minutes inaccurately reflect that intention by referring instead to Ms Lai representing IFCC and Ms Sourlas representing the TWU. The Commonwealth contended that the terms of the resolution as recorded in the minutes should be found to be accurate so that the persons appointed to the COI were Ms Lai and Ms Sourlas or IFCC and the TWU.

40    There is no dispute that neither Ms Lai nor IFCC were at any time an eligible unsecured creditor of any company within the Group as required by s 548A(3) of the Act for eligibility to be appointed as a member of the COI.

41    Further, there is no dispute that neither Ms Sourlas nor the TWU were at any time an eligible unsecured creditor of any company within the Group as required by s 548A(3) of the Act for eligibility to be appointed as a member of the COI.

Liquidators’ submissions

42    The liquidators noted that on or about 4 May 2012 two proofs of debt were lodged on behalf of AustralianSuper in respect of outstanding superannuation contributions for $2,271.90 and $39,570.93. These proofs of debt were accompanied by a letter dated 4 May 2012 from Industry Fund Credit Control stating that IFCC was the appointed credit manager for AustralianSuper.

43    The liquidators identified the evidence further explaining the relationship between AustralianSuper and IFCC in the following terms:

The relationship between AustralianSuper and IFCC is further explained in the evidence of Ms Mather. In 2006, AustralianSuper and Industry Funds Credit Control Pty Ltd (IFCC Pty Ltd) entered into an Arrears Collection Agreement (the 2006 Agreement), pursuant to which the latter was appointed as a “contributions arrears collection agent” for “the Fund known as the AustralianSuperfund”. Among the services IFCC Pty Ltd was obliged to provide under the 2006 Agreement were the following:

(a)    Upon receipt of advice from the Trustee [AustralianSuper], such advice to be communicated by the Trustee or through the administrator of the Fund, that a participating Employer has failed to satisfactorily respond to a request for payment of outstanding contributions, IFCC shall use its best endeavours to obtain such participating Employers prompt and total payment of all outstanding contributions due to the Fund on behalf of the Employees.

…

(e)    Subject to the prior approval of the Trustee, IFCC shall represent the Trustee or appoint a firm of solicitors to represent the Trustee at any legal or non-legal proceedings (eg prior to creditors’ meetings) in relation to an insolvent participating Employer and shall provide a quarterly report to the Trustee of the status of actions taken in respect of insolvent participating Employers. The Trustee appoints IFCC as attorney for the purpose of such representation and IFCC may subject to any direction of the Trustee act in the name of the Trustee for such purpose (cl 2).

On 1 July 2011, the business of IFCC Pty Ltd was transferred to Industry Fund Services Ltd (IFS), which appears to have continued trading under the IFCC name. The tenor of Ms Mather’s evidence is that while a copy of the agreement between IFCC Pty Ltd and IFS by which the 2006 Agreement was novated in favour of the latter cannot be located, AustralianSuper dealt with IFS as it did with IFCC Pty Ltd. This continued after 2016, when AustralianSuper and IFS entered into a new Arrears Collection Agreement (the 2016 Agreement) on terms not dissimilar from the 2006 Agreement. In particular, cl 2(e) contained an authorisation by AustralianSuper for IFS ‘to represent the Trustee or appoint a firm of solicitors to represent the Trustee at any legal or non-legal proceedings (eg prior to creditors’ meetings) in relation to an insolvent Employer’.

44    The liquidators noted also that a form dated 10 July 2012 states that “IFCC on behalf of AustralianSuper” appoints Ms Lai to be “the pool group’s representative as a member of the [COI]”.

45    According to the liquidators, there can be no real issue about the fact that IFCC (then IFS) were, throughout the winding up of the Group, authorised to act on behalf of AustralianSuper. In these circumstances the liquidators submitted that the resolution of 2 July 2012 contains a procedural irregularity as it refers to Ms Lai representing IFCC when, in fact, Ms Lai was an employee of IFCC who was representing AustralianSuper. In other words, it should be taken that the resolution of 2 July 2012 in fact appointed AustralianSuper to the COI but, by reason of a procedural irregularity, referred in error to Ms Lai representing IFCC.

46    As the liquidators put it:

What was important in terms of the validity of the Resolution was that AustralianSuper be identified appointed as the member. To that extent, the Resolution fell short of what was required. However, the evidence establishes that:

(a)    AustralianSuper was entitled to be appointed to the COI;

(b)    its intention was that Ms Lai would be its representative on the COI; and

(c)    Ms Lai was named as the person who was in fact representing AustralianSuper at the meeting and had been specifically authorised to take a role in the proceedings of any COI and

(d)    the will of the meeting was that Ms Lai as the representative of IFCC (the Recovery Agent of AustralianSuper) should be appointed.

The error in describing Ms Lai as the representative of the agent of the creditor (IFCC) as a member is a procedural irregularity. Given the nature of the enquiry posited by sn 1322(2), the conclusion to be drawn from the evidence is that, being in a position to seek appointment as a member of the COI and to nominate, in some appropriate manner, who would actually participate in the meetings of the COI, AustralianSuper and the meeting of creditors failed to make clear that was what was intended to be achieved. No injustice, let alone any substantial injustice can be seen to have flowed from any infelicity in the steps taken to achieve that result when it is clear that ‘if the I’s had been dotted and the T’s crossed’ the same result would have enured.

47    As to the appointment of Ms Sourlas representing the TWU, the liquidators said that Ms Sourlas had attended the meetings on 2 July 2012 as the proxy of one Michael Thomas Scott, a former employee and a creditor of 1st Fleet in respect of his entitlements. Mr Scott had signed a form purporting to appoint the TWU as his representative on the COI. In the liquidators’ submission:

In other words, it was Mr Scott, rather than Ms Sourlas or the TWU, who should have been identified as the creditor who was appointed to the committee although it would have been open to Mr Scott to appoint Ms Sourlas as his representative on the committee as it was his apparent intention that someone from the TWU would fill that role.

48    The liquidators contended that both AustralianSuper and Mr Scott were eligible unsecured creditors of one of the companies in the Group as at 2 July 2012. That issue will be separately considered. Assuming that to be so for present purposes, the liquidators submitted that the Court should be satisfied that it was the intention of AustralianSuper and Mr Scott to each appoint a proxy to be their representative on the COI and the form of the resolution of 2 July 2012 involves a procedural irregularity by not referring to Australian Super represented by Ms Lai and Mr Scott represented by a representative of the TWU. The liquidators submitted that:

The Resolution achieved the apparent and legitimate objectives of the creditors who had nominated as members of the committee and of the apparent intention of the meeting to endorse those persons in accordance with those objectives. That, in doing so, these errors occurred does not alter the substance and should not alter the effect of that which was done. Again, no evidence has been led and it is difficult to envisage any which would be available which would establish that any substantial injustice has been caused by any misdescription.

The Commonwealth’s submissions

49    The Commonwealth noted that the minutes of the first meeting of creditors of the companies in the Group on 7 May 2012 record that AustralianSuper was a creditor for $2,271.90 represented by Jo Prossimo and Mr Scott as a creditor for $1.00 represented by Ms Sourlas. The minutes of the second meeting of creditors held on 22 May 2019 record the resolution to wind up the companies and identify AustralianSuper as a creditor for $2,271.90 and $1.00, each of which was admitted to vote, and, as for the second amount, represented by Ms Lai and Mr Scott as a creditor for $1.00 for which he was not admitted to vote represented by Ms Sourlas. Transport Payroll was placed into liquidation on 22 May 2012 and the liquidators were appointed as its liquidators. As noted, the liquidators’ pooling determination for the 1st Fleet companies and Transport Payroll was made on 21 June 2012.

50    The minutes of the meeting of 2 July 2012 record six creditors as present. The names of the relevant creditors are said to be IFCC represented by Ms Lai and Employee Proxy represented by Ms Sourlas. The minutes record the resolution of the meeting to appoint a COI and its members as identified above.

51    According to the Commonwealth:

(1)    the pooling meeting was properly convened and conducted;

(2)    the minutes produced by the liquidators must be taken to have formed part of the books kept by them to record the proceedings at the pooling meeting as required by s 531 of the Act and reg 5.6.01 of the Regulations; and

(3)    the minutes are prima facie evidence of the meeting and resolutions made at the meeting, being matters stated or recorded in the minutes: s 1305 of the Act; Australian Securities and Investments Commission v Rich [2005] NSWSC 417; (2005) 216 ALR at [269]-[271]; Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1 at [396]-[400].

52    The Commonwealth submitted that the liquidators have not explained why the minutes should not be accepted as an accurate record of the resolution of the meeting and that the liquidators suggest that it was the “intention” of the creditors attending the meeting to appoint AustralianSuper and Mr Scott as members of the COI, but that the form of the resolution did not reflect this intention. According to the Commonwealth this submission fails as:

(1)    the intentions of creditors are ascertained objectively from the terms of the minutes and not subjectively or as a result of subsequent conduct;

(2)    if subjective intentions are relevant at all it must be the subjective intentions of the persons who were present at the meeting; and

(3)    the liquidators have not adduced any evidence from the six creditor representatives at the meeting on 2 July 2012.

53    In answer to the liquidators’ submissions about circumstances said to support the proposition that the six creditor representatives intended to appoint AustralianSuper to the COI the Commonwealth made the following submissions:

(1)    as to the 4 May 2012 AustralianSuper proofs of debt identifying IFCC as its credit manager: these do not assist in determining what occurred at the pooling meeting two months later;

(2)    as to the entitlement of AustralianSuper to be appointed: this does not assist in determining that AustralianSuper was in fact appointed or intended to be appointed to the COI. There were a large number of creditors eligible to be appointed to the COI;

(3)    as to the asserted intention of AustralianSuper that Ms Lai be its representative on the COI: there is no evidence identified to support this submission. The authority form signed by Ms Lai on 7 June 2012 can only be evidence that if AustralianSuper was appointed to a committee of inspection then it appointed Ms Lai as its representative. But insofar as subjective intention might be relevant, it must be the intention of those creditors at the meeting of 2 July 2012 which is material, not the intention of creditors before and outside of that meeting;

(4)    as to the fact that Ms Lai represented AustralianSuper at the pooling meeting under an authority dated 21 June 2012:

(a)    it is doubtful the other creditors at the meeting on 2 July 2012 knew who Ms Lai was representing given that when she attended the second meeting of creditors she represented AustralianSuper, Care Superannuation, CBUS Superannuation, Host Plus, MTAA Superannuation Fund, REST Superannuation, Statewide Superannuation, TWU Super, and TWU Superannuation;

(b)    the liquidators’ evidence does not disclose whether Ms Lai represented those other creditors at the meeting on 2 July 2012 or if she disclosed who she was representing other than IFCC; and

(c)    it is an available inference that she continued to represent all nine superannuation funds so that there is even less reason to find that when the creditors appointed Ms Lai representing IFCC they intended to appoint AustralianSuper;

(5)    as to the assertion that it was the will of the meeting that Ms Lai be appointed as representative of IFCC as recovery agent for AustralianSuper: the will of the meeting is evidenced by the minutes of the meeting and what they record and those minutes make no reference to IFCC as agent for AustralianSuper;

(6)    as to the form dated 10 July 2012 which states that IFCC on behalf of Australian Super appoints Ms Lai to be the pool group’s representative as a member of the COI: the form is a bootstraps exercise completed by Ms Lai after the meeting on 2 July 2012 and does not evidence the intention of the creditors at that meeting.

54    In answer to the liquidators’ submissions about circumstances said to support the proposition that the six creditor representatives intended to appoint Mr Scott to the COI the Commonwealth submitted as follows:

(1)    as to the fact that Mr Scott appointed Ms Sourlas of the TWU to be his proxy for the first and second meeting of creditors: Ms Sourlas attended the first and second meeting of creditors as the proxy for many employees of the companies and not just Mr Scott and Ms Sourlas was not permitted to vote as Mr Scott’s proxy at the second meeting of creditors;

(2)    as to the assertion Mr Scott was an eligible unsecured creditor: if correct, that does not assist the Court in determining that the six creditor representatives at the meeting on 2 July 2012 intended to appoint Mr Scott to the COI. More importantly, the evidence indicates that neither the liquidators nor Ms Sourlas treated Mr Scott as a creditor as at 2 July 2012. As to the latter contention, the Commonwealth submitted that:

(a)    Mr Tayeh deposes that he adopted his usual practice of reviewing proofs of debt prior to a meeting of creditors and not allowing a person to be admitted as a creditor without a proof of debt for the first and second meetings of creditors. He deposes that no proof of debt for Mr Scott can be located but surmises that it was lodged and has been displaced due to the duration of the liquidation. Mr Solomons gives evidence to similar effect;

(b)    the Court may accept the evidence of Mr Tayeh and Mr Solomons concerning their practice of assessing creditors’ claims prior to creditors’ meetings, at least in respect of the first and second creditor meetings. However, it should reject their evidence that that assessment was dependent on the creditor having lodged a proof of debt. It should also reject their submission, based on those speculations, that Mr Scott did lodge a proof of debt and that it has been lost;

(c)    at the first meeting, employees with no proofs of debt or where the employment company was disputed were admitted for $1, so that at that meeting the lodgment of a proof of debt was not a precondition to being admitted as a creditor. At the second meeting, all proofs received were admitted for the purpose of voting so that creditors who had not lodged a proof of debt were not treated as creditors and not admitted to vote;

(d)    the attendance list for the first meeting includes many creditors represented by Ms Sourlas claiming to be a creditor for $1 and admitted to vote for $1, while all other creditors are shown for varying specific amounts. The Court should find that persons shown as claiming to be a creditor for $1 are persons who have been identified by the liquidators as a potential creditor but who had not lodged a proof of debt;

(e)    the attendance list for the second meeting shows many creditors not claiming an amount (reflecting a failure to lodge a proof of debt) and being admitted to vote for $0 …. Mr Scott was admitted to vote for $0. The Court should find that Mr Tayeh had determined that Mr Scott was not a creditor and not admitted to vote;

(f)    the attendance register of creditors at the pooling meeting on 2 July 2012 does not include a list of creditors or any assessment of their claims. It shows Ms Sourlas as representing “Employee Proxy’s” with no identification of the employees, the value of their debts or the amount admitted for voting; and

(g)    the Court should infer that as at 2 July 2012 Mr Scott’s status as a creditor for the purpose of participation in the pooling meeting was that most recently determined by the liquidators, that he was not a creditor, as determined at the second meeting of creditors;

(3)    as to the assertion that Ms Sourlas attended the meeting of 2 July 2012 as the proxy of Mr Scott: there is no evidence cited in support of that assertion. The liquidators have not produced a proxy form from Mr Scott to Ms Sourlas for the 2 July 2012 meeting. The Court “should find that Ms Sourlas did not act as Mr Scott’s proxy at the pooling meeting. At its highest, she acted as a representative of unidentified members of the TWU who had been accepted by the Liquidators as creditors of the pooled group. Mr Scott was not one of them”;

(4)    as to the fact that Mr Scott signed a form purporting to appoint the TWU as his representative on the COI: the form is dated 30 July 2012, after the meeting on 2 July 2012. It does not assist in determining what occurred at the meeting; and

(5)    as to the submission that “it was Mr Scott, rather than Mr Sourlas or the TWU, who should have been identified as the creditor who was appointed to the committee”: the submission exposes the problem as the issue is not who should have been appointed to the COI but who in fact was appointed. It appears that subsequent to 2 July 2012 someone discovered that neither Ms Sourlas nor the TWU were eligible to be members of the COI and tried to find a member of the TWU willing to fulfil that role and that on 30 July 2012 Mr Scott agreed to do so. As there is no evidence from the liquidators, Ms Sourlas or Mr Scott as to the circumstances of him signing the form on 30 July 2012 the precise facts concerning it remain a mystery.

Discussion

55    There are two critical facts which, in my view, undermine the liquidators’ contentions about the appointment of AustralianSuper and Mr Scott to the COI at the meeting on 2 July 2012.

56    First, as to AustralianSuper, I would infer from the evidence about the second meeting of creditors that at the meeting on 2 July 2012 Ms Lai was representing a multiplicity of superannuation entities of which AustralianSuper was but one. In these circumstances, it cannot be inferred that the intention of the creditor representatives was to appoint AustralianSuper, as opposed to one of the other superannuation entities, to the COI. The documents on which the liquidators relied as to Ms Lai’s authority from AustralianSuper do not assist in determining the intention of the creditor representatives at the meeting for the reasons given by the Commonwealth. It is the intention of those creditors which is relevant, but the evidence of their intention (such as it is) does not enable it to be inferred that they appointed AustralianSuper, specifically, to be a member of the COI (in distinction from any of the other superannuation entities represented by Ms Lai).

57    Second, as to Ms Sourlas, again, I would infer from the evidence that Ms Sourlas of the TWU was representing a multiplicity of employee creditors at the meeting on 2 July 2012. The evidence does not permit an inference to be drawn that she was appointed to the COI in her capacity as a representative of Mr Scott in particular, in distinction from any of the other employees that Mr Sourlas was representing.

58    For these reasons I consider that the resolution recorded in the minutes, construed in accordance with the objective circumstances as they existed up to the time of the meeting, means that Ms Lai representing IFCC as agent for any one or more of nine superannuation entities was appointed to the COI. Further, Ms Sourlas representing the TWU as agent for any one or more of multiple employees was appointed to the COI. The problem with the resolution is thus one of indeterminacy. It cannot be known who in fact IFCC or the TWU were representing for the purpose of their appointment. It may or may not be AustralianSuper for IFCC and may and may or may not be Mr Scott for the TWU.

59    The indeterminacy of the resolution does not constitute a mere procedural irregularity for the purposes of s 1322(2) of the Act. The thing to be done, the constitution of the COI, has not been done at all because there has been no determination of the number of members to represent the creditors (as the number is indeterminate) and no determination of the persons who are to be the members of the COI (as, apart from Mr Smith representing the ATO which would be construed to mean the Deputy Commissioner as the relevant creditor, the membership is indeterminate). Nor can it be said that the indeterminacy of the resolution is essentially of a procedural nature for the purposes of s 1322(6)(a)(i) of the Act for the same reasons. I will deal subsequently with the other criteria raised by s 1322(6)(a) (honesty or just and equitable for the order to be made).

60    I do not accept the submissions for the liquidators to the contrary.

61    The status of Mr Smith representing the ATO (the Deputy Commissioner) on the COI is not in issue. The liquidators’ submissions to the effect that the Commonwealth’s contentions would mean that Deputy Commissioner (the relevant creditor) had not been appointed to the COI do not assist the liquidators. It may be accepted that Mr Smith was not a creditor and that the “ATO” is not a legal entity capable of appointment to the COI. There was only one creditor, the Deputy Commissioner, who Mr Smith or the ATO could have been representing. As such, it is a straightforward exercise to construe the resolution as appointing the Deputy Commissioner to be a member of the COI on the basis that the reference to the ATO is a mere misnomer. The problem I have identified with the resolution otherwise is that the nominated agents were representing many more creditors than AustralianSuper and Mr Scott and, accordingly, it is not possible to know who was appointed to the COI, being a defect in substance as to the constitution of the COI and not some mere procedural irregularity.

62    It may be accepted that every attendee at the meeting (leaving aside the liquidators) was present in the capacity of proxy, as had been the case at the earlier meetings of the creditors. As I have said, however, the problem is that they were proxies for multiple putative creditors and it cannot be known from the terms of the resolution who the creditor was in fact being appointed to the COI. This problem is not answered by the submission that the persons voting at the 2 July 2012 meeting must have realised that they were not voting to appoint Ms Sourlas or the TWU or Ms Lai or IFCC to be on the COI. So much may be accepted. The problem comes with the liquidators’ next submission that, as to Ms Sourlas and the TWU, any reasonable person must have understood that what was being proposed was representation on the COI “of an employee of the 1st Fleet pooled Group”. It is not possible to appoint to a COI an unidentified employee from a number of creditor employees without specifying the identity of the employee.

63    The liquidators sought to address this indeterminacy of identity of the person appointed to the COI by submitting that they accepted that Mr Scott was not sufficiently identified in the resolution. The submission continued to the effect that as those in attendance at the meeting must have understood that Ms Sourlas was a representative of at least one employee of the Group, the insufficient identification of Mr Scott was a mere procedural irregularity within the meaning of s 1322(2) of the Act. The problem is that it is not possible to infer that the attendees at the meeting intended to appoint Mr Scott (or any other particular employee) to the COI. This is not a procedural irregularity as it concerns the substance of the constitution of the COI as required by s 548A(1)(d) of the Act.

64    The same reasoning, in my view, must apply to the appointment of Ms Lai as representative of IFCC given that Ms Lai and IFCC were the representatives of a number of superannuation entities. Subsequent authorisation documents cannot change the fact that no inference can be drawn on the evidence that at the 2 July 2012 meeting the attendees intended to appoint AustralianSuper (and not one of the other superannuation entities IFCC represented) to the COI. The liquidators’ submissions provide no cogent answer to this problem with the constitution of the COI. The liquidators’ submissions in fact expose the problem. As the liquidators put it:

a.    at the first meeting of creditors on 7 May 2012, a resolution was passed appointing a committee of creditors … Among the persons appointed were “Jo Prossimo representing IFCC’ and ‘Kevin Smith representing ATO’;

b.    on the list of persons present at that first meeting … Ms Prossimo was identified as the proxy of AustralianSuper, Care Super, Host Plus Superannuation, Retail Employees Superannuation Trust and TWU Super;

c.    among the documents circulated prior to the second meeting of the creditors of 1st Fleet on 22 May 2012 was a report to creditors by the Liquidators … This document included, in Annexure H, a list of unsecured creditors, which tellingly did not include IFCC …;

d.    at the second meeting, a resolution was passed appointing a committee of inspection for 1st Fleet, the members of which included ‘Jo Prossimo of IFCC’…;

e.    on the list of persons present on 22 May 2012, both Ms Prossimo and Ms Lai were identified as the proxies, in respect of different debts, of Statewide Superannuation …;

f.    aside from Ms Lai and Mr Tayeh, the proxies in attendance on 2 July 2012 were Ms Sourlas, Ms Smith representing the ATO and a Mr Beau Weigand representing an entity referred to as ‘ERA’ …; and

g.    Ms Sourlas was present at both the first and second meetings of creditors, as was Mr Smith …. Moreover, ‘ERA’ was present at the first meeting, represented by one Darren Anderson.

65    The liquidators submitted, on this basis, that:

It follows then that the creditors present on 2 July 2012, or at least the majority of them, knew or can reasonably be taken to have known that IFCC was not a creditor of the 1st Fleet Pooled Group, but instead acted as a representative of the trustees of a number of superannuation funds, including AustraliaSuper, that in turn claimed to be creditors of one or more companies within the group. That being so, it may be inferred that in passing the Appointment Resolution, those present understood that the trustee of a superannuation fund was to be represented on the COI by Ms Lai or IFCC. Similarly there is no evidence that Ms Lai was being nominated to represent anyone on the Committee other than AustralianSuper. Again, the plaintiffs accept that the trustee in question was not sufficiently identified in the text of the Appointment Resolution. However, as was the case with Mr Scott, the failure to identify AustralianSuper did not result in the Appointment Resolution producing an outcome substantively different from what was contemplated at the meeting – put simply, the representation on the COI by IFCC of the trustee of a superannuation fund claiming to be a creditor of the 1st Fleet Pooled Group.

66    The submission breaks down, in my view, at the point that as at 2 July 2012 IFCC was representing multiple superannuation entities. It cannot be known which entity the creditors intended to appoint to the COI. The subsequent authority form of 10 July 2012 cannot assist in the drawing of an inference as to the actual appointment to the COI of any particular superannuation entity as at 2 July 2012.

ELIGIBILITY FOR APPOINTMENT

67    Given my conclusion above about the indeterminacy of the resolution of 2 July 2012 so that no COI was effectively constituted the eligibility for appointment of AustralianSuper and Mr Scott is a hypothetical issue only. I will deal with it in as abbreviated terms as possible.

AustralianSuper

Liquidators’ submissions

68    As to AustralianSuper:

(1)    the superannuation funds collectively so known are governed by a Trust Deed initially dated 13 December 1985, and more recently consolidated, after a series of amendments, on 1 August 2000 (the Trust Deed);

(2)    cll 1 and 2 contain a declaration of trust and cl 4 provides that the annexed schedules comprise part of the Trust Deed;

(3)    under rule 4.1 of Sch 1 to the Trust Deed so long as the Trustee remains an approved trustee in accordance with, relevantly, the standards and requirements of the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act), what is referred to as “the Fund” is “a public offer fund and the Fund comprises all moneys, policies and other assets and investments held by the Trustee in accordance with this Deed”;

(4)    rule 4.7 provides for the Accumulation Part of the Fund and the Defined Benefit Part of the Fund;

(5)    rule 1.2 of Sch 1 to the Trust Deed defines “Standard Employer Sponsor” as having the same meaning as in s 16(2) of the SIS Act, which is an employer who makes contributions to a superannuation fund on behalf of an employee who is a member of the fund;

(6)    rule 16.1 in Sch 1 provides for applications to become a Standard Employer Sponsor;

(7)    rule 17.3 of Sch 1 provides that in the winding up of a Standard Employer Sponsor, no further contributions shall be made by the Standard Employer Sponsor except contributions that accrued before the date on which the resolution was passed or order made for its winding up; and

(8)    the Accumulation Part of the Fund is dealt with in Sch 3 which provides for contributions by the Standard Employer Sponsor on behalf of members.

69    Further, according to the liquidators’ submissions, the evidence shows that the second plaintiff had applied to be a Standard Employer Sponsor in 2001 and 2008 and its status as such was terminated on 30 November 2016. Accordingly, as at 2 July 2012 AustralianSuper was a Standard Employer Sponsor and subject to the payment obligations in Sch 3 to the Trust Deed.

70    Further, to this, as at 2 July 2012 s 553AB of the Act provided that:

(1)    In a winding up, the liquidator must determine that the whole of a debt by way of a superannuation contribution is not admissible to proof against the company if:

(a)    a debt by way of superannuation guarantee charge …

  (i)     has been paid; or

   (ii)    is, or is to be, admissible to proof against the company; and

(b)    the liquidator is satisfied that the superannuation guarantee charge or estimate liability is attributable to the whole of the first-mentioned debt.

(2)    If the liquidator determines, under subsection (1), that the whole of a debt is not admissible to proof against the company, the whole of the debt is extinguished.

71    The Deputy Commissioner did not submit any proofs relating to the amounts owed by 1st Fleet by way of superannuation guarantee charge until 5 May 2016. The liquidators were thus not in a position to make a determination under s 553AB(1) until that date. The liquidators submitted that it follows that it cannot be said that as at 2 July 2012 any debt owed by 1st Fleet to Australian Super by way of superannuation contribution had been wholly extinguished. For this reason AustralianSuper was an eligible unsecured creditor of the 1st Fleet Pooled Group, and therefore was eligible to be appointed to the COI.

Commonwealth’s submissions

72    The Commonwealth submitted that no evidence had been adduced of 1st Fleet’s applications to become a Standard Employer Sponsor or to identify the members of the Fund who were 1st Fleet employees so it is not possible to determine whether the amounts claimed by AustralianSuper in its proofs of debt were required to be paid under Sch 3 to the Trust Deed.

73    The Commonwealth also submitted that unpaid superannuation contributions by an employer also give rise a superannuation guarantee charge payable by the employer to the Deputy Commissioner under the Superannuation Guarantee Charge Act 1992 (Cth) (SGC Act). As the Commonwealth put it:

A liquidator must determine that a debt by way of a superannuation contribution is not admissible to proof to the extent a debt by way of a superannuation guarantee charge that has been paid or is admissible is attributable to the superannuation contribution: s 553AB(1) and (3) [of the Corporations Act]. The determination extinguishes the superannuation contribution debt to that extent: s 553AB(2) and (4) [of the Corporations Act].

The Liquidators have not given evidence as to whether they have made a determination under s 553AB in respect of AusSuper’s proofs of debt, the effect of which would be to extinguish those debts (Mr Solomons’ evidence is confined to the position as at the date of the pooling meeting …). The Liquidators submit that they could not have done so prior to 5 May 2016, since that is the first date on which the Deputy Commissioner submitted proofs for debts owing by way of superannuation guarantee charge ….

That is incorrect. The Deputy Commissioner’s proof of debt lodged on 4 May 2012 included a claim for superannuation guarantee charge. To the extent that proof did not include a superannuation guarantee charge for all unpaid ‘compulsory’ superannuation contributions by 1st Fleet (whether to AusSuper or otherwise) then it was likely that the Deputy Commissioner would in due course make that assessment and submit an amended proof. The Liquidators would then be required to determine that AusSuper’s proofs were not admissible to the extent the Deputy Commissioner’s proof ‘overlapped’ with AusSuper’s, whereupon AusSuper would cease to be a creditor.

In fact, the Liquidators did make that determination at some time prior to 6 September 2019.

At that time they paid a priority dividend of $2 million under s 556(1)(e) to creditors owed wages, superannuation contributions and superannuation guarantee charge. The Liquidator’s statutory annual return for 2018-19 … shows that payment comprised:

(a)    $603,760 paid to priority creditors for wages (of which $555,576 was paid to the Commonwealth in respect of its GEERS claim …)

(b)    $1,396,240 paid to the ATO for superannuation.

They could only have done so had they determined to reject that the whole of the superannuation contribution debt the subject of AusSuper’s proof of debt under s 553AB, on the basis the superannuation guarantee charge the subject of the Deputy Commissioner’s proof of debt was, in part, attributable to that debt.

Thus, while AusSuper had been admitted as a creditor of the pooled group as at 2 July 2012 for the purposes of voting, it never had any prospect of having its proofs admitted by the Liquidators for the purpose of being paid a dividend, and thus had no real financial interest in the winding up of the pooled group.

Deputy Commissioner’s submissions

74    The Deputy Commissioner of Taxation was given leave to file submissions.

75    The Deputy Commissioner explained:

No statutory obligation to pay superannuation contributions in favour of an employee or a superannuation fund can arise. This is because pursuant to the …SGC Act… and the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGA Act), the employer is under no statutory obligation to pay ‘compulsory’ superannuation contributions. An employer may elect not to pay such contributions, and instead become indebted to the Commonwealth for the amount of the SGC.

…

An employee may have separate contractual entitlements over and above their entitlement to the ‘compulsory’ minimum contribution, and in principle there is no reason why—given effective contractual arrangements—a superannuation fund could not stand in for an employee as beneficiary of those contractual obligations.

(Emphasis in original).

76    The Deputy Commissioner said that while the liquidators submitted that AustralianSuper sought to prove on the basis of contractual obligations, the available evidence does not support an inference of any contractual obligation. The Deputy Commissioner noted:

Clause 3 of Schedule 3 to the Trust Deed provided that each ‘Standard Employer Sponsor shall, on behalf of Members, contribute to the Fund the amounts determined in accordance with Clause 4 of this Schedule 3’ … Clause 4 states that the required contributions shall be ‘the relevant amount that is stipulated in the application made by that Standard Employer Sponsor’

The available evidence may ground an inference that 1st Fleet Pty Ltd … did at some point in time make such an application … But the application of 1st Fleet contemplated by cl 4 of the Trust Deed itself is not in evidence, and there is no other available means by which the Court could be satisfied of the basis upon which 1st Fleet was required to pay contributions to AustralianSuper: including whether those contributions were limited to the ‘compulsory’ minimum contributions or included employer’s or employees’ additional contributions.

There does not therefore appear to be any basis upon which the Court could be satisfied that the companies in liquidation owed contractual obligations with respect to unpaid contributions to AustralianSuper … The Court would therefore assume that amounts owing by 1st Fleet to AustralianSuper represented the employer’s ‘compulsory’ minimum contributions.

(Emphasis in original).

77    This, said the Deputy Commissioner, means that s 553AB of the Act is relevant. In response to the liquidators’ submission that no determination could have been made under s 553AB until 6 May 2016 the Deputy Commissioner said:

That submission should not be accepted. Its factual basis is incorrect… the Deputy Commissioner of Taxation submitted a proof of debt on 4 May 2012 itemising an SGC payable by 1st Fleet. That proof of debt provided a basis for the liquidator to make the s 533AB determination prior to 2 July 2012. Accordingly, s 553AB applied, and the liquidator should have determined that AustralianSuper’s debt was not admissible to proof pursuant to s 553AB(1), with the consequence that AustralianSuper’s debt should have been extinguished pursuant to s 553AB(2).

78    The Deputy Commissioner made further detailed submissions about the operation of s 553AB. I explain below why I do not summarise those submissions.

Discussion

79    I do not consider it necessary or appropriate to record the detailed submissions about s 553AB as the issue is hypothetical. For one thing, I have decided above that AustralianSuper was not appointed to be a member of the COI. The resolution constituting the COI is indeterminate in the way I have explained above. For another, there is no evidence indicating that the liquidators did in fact make a determination for the purposes of s 553AB before 2 July 2012. It is the fact of a determination by a liquidator which has the effect of extinguishing the debt. Accordingly, the fact that the liquidators could have made a determination under s 553AB(1) before 2 July 2012 is immaterial. Further, the question of eligibility for appointment is to be determined as at the date of appointment. As at that date, if it were necessary to so decide, I would accept the liquidators’ submissions that AustralianSuper was at that time an eligible unsecured creditor of 1st Fleet for the reasons the liquidators have given. As the liquidators put it in their submissions in reply:

(1)    the evidence unambiguously supports the conclusion that 1st Fleet was a Standard Employer Sponsor within the Accumulation Part of the Fund;

(2)    AustralianSuper’s proofs of debt were accompanied by records identifying the amounts of superannuation contribution outstanding in respect of certain named individuals;

(3)    the debts were admitted for voting purposes, and there was no appeal against that decision; and

(4)    accordingly, in the absence of evidence showing that the individuals identified in the records provided by AustralianSuper were not in fact employees of 1st Fleet or that the amount of superannuation contribution were not in fact outstanding, the Court has no basis for finding otherwise than that AustralianSuper was a creditor of 1st Fleet as at 2 July 2012.

Mr Scott

Liquidators’ submissions

80    According to the liquidators their records indicate that at the time of his termination of employment by 1st Fleet Mr Scott was a creditor of the company for $33,955.04, a sum that included wages and annual leave, redundancy and long service leave entitlements. The liquidators submitted that while there was not a proof of debt of Mr Scott in the evidence, their evidence about how they conducted meetings of creditors should be accepted, making it more likely than not that a proof of debt had been lodged. The evidence also includes the fact that through his appointed proxy, Ms Sourlas, Mr Scott participated in the first and second meetings of the creditors on 7 and 22 May 2012 respectively. According to the liquidators there should be no doubt that as at 2 July 2012 Mr Scott was an eligible unsecured creditor within the meaning of s 579Q of the Act.

81    In response to the Commonwealth’s argument that Mr Scott ceased to be a creditor of the 1st Fleet Group on 3 August 2012 when a payment was made to him under GEERS, the liquidators noted the argument as follows:

Pursuant to s 4(2)(a)(iii) of the Long Service Leave Act 1955 (NSW) (LSL Act), a worker who has completed with an employer at least five years’ service, and whose services are terminated by the employer for any reason other than the worker’s serious and wilful misconduct, was entitled to long service leave in an amount corresponding to ‘a proportionate amount on the basis of 2 months for 10 years’ service.’ The first plaintiffs were appointed as voluntary administrators of 1st Fleet on 25 April 2012, whereupon, pursuant to s 443A of the Act, they became liable for debts they incurred, in the performance or exercise, or purported performance or exercise, of any of their functions as administrators for, amongst other things, services rendered or goods bought. The Commonwealth’s position appears to be that having regard to s 443A, in calculating the amount owed by 1st Fleet by way of Mr Scott’s long service leave entitlement, one should adopt 24 April 2012 as an end date for that calculation. The result is that Mr Scott is said to be owed $33.51 less by way of long service leave entitlements than asserted by the plaintiffs.

82    According to the liquidators, however:

(1)    there is no evidence that Mr Scott ever rendered services to the first plaintiffs as administrators of 1st Fleet in the course of the exercise of their functions as administrators;

(2)    Mr Scott’s employment with 1st Fleet was, on the Commonwealth’s own records, formally terminated on 2 May 2012 so that his claim against 1st Fleet for long service leave is to be calculated by reference to that date even if, which is not established, he may have some claim against the Administrators for that sum as well (though it is difficult to see how that could arise under the LSL Act); and

(3)    in circumstances where a worker’s employment is terminated otherwise than by the worker’s death, and any long service leave to which worker is entitled has not been taken, then s 4(5)(a) of the LSL Act provided that “the worker shall ... be deemed to have entered upon the leave from the date of such termination and the employer shall forthwith pay to the worker in full the worker’s ordinary pay for the leave less any amount already paid to the worker in respect of that leave.”

83    As the liquidators put it:

In other words, the obligation to pay long service leave, which accrued up to the point of termination of Mr Scott’s employment, was imposed by statute on 1st Fleet, in circumstances where that same statute did not qualify this obligation by reference to the possibility that 1st Fleet might go into administration and that its administrators might thereafter be personally liable for debts they incurred in respect of services rendered.

84    The liquidators noted further that, in administering GEERS, the Commonwealth, on or about 19 July 2012, paid $166,324.32 to the liquidators for distribution to eight employees of 1st Fleet, including $33,921.53 for Mr Scott, which sum was paid to him on 3 August 2012. The liquidators referred to s 563B of the Act in these terms:

(l)    If, in the winding up of a company, the liquidator pays an amount in respect of an admitted debt or claim, there is also payable to the debtor or claimant, as a debt payable in the winding up, interest, at the prescribed rate, on the amount of the payment in respect of the period starting on the relevant date and ending on the day on which the payment is made.

(2)    Subject to subsection (3), payment of the interest is to be postponed until all other debts and claims in the winding up have been satisfied, other than subordinate claims (within the meaning of section 563A).

(3)    If the admitted debt or claim is a debt to which section 554B applied, subsection (2) does not apply to postpone payment of so much of the interest as is attributable to the period starting at the relevant date and ending on the earlier of:

(a)    the day on which the payment is made; and

(b)    the future date, within the meaning of section 554B.

85    The liquidators also referred to reg 5.6.70A of the Regulations which provides that:

For section 563B of the Act, the prescribed rate of interest on the amount paid in respect of an admitted debt or claim for the period starting on the relevant date and ending on the day on which the payment is made is 8% a year.

86    Accordingly, the liquidators submitted that if Mr Scott’s entitlements were paid in full he was nevertheless owed interest for the period between the date on which the winding up of 1st Fleet is taken to have begun and the date on which he was paid by the liquidators.

87    The liquidators thus submitted that the better view is that Mr Scott was at July 2012 a creditor and remained as such for the amount of $33.51 in respect of interest on the debt owed to him as at July 2012.

88    In response to the Commonwealth’s submissions that a person is an eligible unsecured creditor only if a liquidator has admitted the debt of the creditor for voting purposes the liquidators submitted:

(1)    the Commonwealth’s argument implies into the definition in s 579Q of the Act an additional criterion which is not prescribed;

(2)    s 548A establishes the requirement for eligibility, which is status as a creditor. The Regulations do not establish the requirement for eligibility. It is fallacious to suggest that subordinate legislation may constrict the meaning of principal legislation as the Commonwealth proposes;

(3)    the invitation to qualify the plain words of s 548A(3) by the introduction of a further condition for eligibility should not be accepted, particularly when the provision expressly adopts the definition of “eligible unsecured creditor” which appears in s 579Q, and there is no indication in the text of s 548A(3) that it did so with the addition of some further criteria as suggested by the Commonwealth;

(4)    the Commonwealth offers no reason for its contention beyond a consequentialist argument that it would be inconvenient if a nominated person’s eligibility to act as a member of the COI could await definitive assessment until some later time;

(5)    in any event, it is clear that Mr Scott had been admitted as a creditor at the first meeting … and was listed as one of the employee creditors in the s 439A report …; and

(6)    the evidence of both of the liquidators is that they were of the view Mr Scott was a creditor and their evidence should be accepted.

Commonwealth’s submissions

89    The Commonwealth said that it accepted that Mr Scott was a creditor of 1st Fleet as at 2 July 2012. According to the Commonwealth, however, the issue is not whether Mr Scott was in fact a creditor at that time but rather is whether he had been admitted by the liquidators to be a creditor at that time. Relevantly, the Commonwealth submitted:

(1)    a person is only eligible to be appointed to a committee of inspection under s 548A(3) of the Act if the person “is” an eligible unsecured creditor at the time of appointment;

(2)    a determination to appoint a committee of inspection and its members is made at and by a meeting of creditors of the pooled group: s 548A(1);

(3)    the meeting must be conducted in accordance with the Regulations: s 548A(2);

(4)    a committee of inspection once appointed has power to meet at such times and places as its members determine: s 549(1);

(5)    a committee of inspection is entitled to act by a majority of its members present at a meeting: s 549(3);

(6)    regs 5.6.12 to 5.6.36A set out a comprehensive scheme for the conduct of a meeting of the creditors of a pooled group convened for the purpose of appointing a committee of inspection under s 548A(1);

(7)    specifically, reg 5.6.23(1) provides a regime for identifying who is a creditor entitled to vote at the meeting, namely a creditor:

(a)    whose debt or claim has been admitted wholly or in part by the liquidator; or

(b)    who has lodged particulars of the debt or claim with the Chairperson or, if required, formal proof of the debt or claim; and

(8)    the Chairman may admit or reject a proof of debt for the purposes of voting: reg 5.6.26(1).

90    On the basis of the above factors the Commonwealth contended that:

the Court should find that the persons who are eligible unsecured creditors within the meaning of s 548A(3) are limited to those unsecured creditors of a company in the pooled group, which are not themselves a company in the group (s 579Q), that the liquidators have admitted for the purposes of voting at the appointment meeting, in accordance with the regulations made under s 548A(2).

Were that not the case, so that a nominated person’s eligibility to act as a member of the committee of inspection could await definitive assessment until some later time, the scheme for appointing committees of inspection set out in Division 5 of Part 5.6 of the Act would be unworkable. Until what time? Determined by who?

91    The Commonwealth also submitted that:

a fundamental vice of the appointment resolution was its qualified form, namely that the appointments of the three nominated persons ‘shall take place subject to each of them satisfying the requirements of section 548 (sic, 548A)’. How were they to satisfy those requirements? Who was to determine whether they had done so? When was that to occur?

(Emphasis in original)

92    For the reasons set out above the Commonwealth contended that the Court should find that as at 2 July 2012 the liquidators had determined that Mr Scott was not a creditor and was not entitled to vote at creditors’ meetings, with the consequence that he was not an eligible unsecured creditor within the meaning of s 548A(3) of the Act.

Discussion

93    I do not accept the Commonwealth’s approach to the meaning of eligible unsecured creditor. The liquidators’ submissions to the contrary are persuasive. There is nothing in the text or context of s 579Q or s 548A which supports the implication of an additional requirement that a liquidator must first have admitted the debt of the creditor for voting purposes before the creditor may be taken to be an eligible unsecured creditor. In circumstances where the Commonwealth accepts that Mr Scott was a creditor of the 1st Fleet pooled Group as at 2 July 2012, I consider that Mr Scott was eligible to be appointed to the COI.

MR SCOTT’S CONTINUING STATUS

94    For its part, the Commonwealth accepted that if Mr Scott had been validly appointed to the COI (noting that I have already explained why I do not consider this to be the case) then his ongoing status as a creditor or not was immaterial as s 548A(3) is concerned only with appointment to a COI and that ceasing to be an eligible unsecured creditor is not one of the circumstances in which the office of a member of a committee of inspection becomes vacant. I am prepared to proceed on the assumption that the Commonwealth’s concession is correct.

95    The Commonwealth submitted, however, that Mr Scott’s ongoing status as a creditor is relevant to the question of relief under s 1322(4) of the Act.

96    The Commonwealth noted first the liquidators’ submission to the following effect:

1st Fleet was required to pay Mr Scott long service leave for the period up to the termination of his employment (2 May 2012) rather than up to their appointment as voluntary administrators of 1st Fleet (25 April 2012), so that he is owed $33.51 in unpaid long service leave entitlements, after allowing for his GEERS payment.

97    The Commonwealth responded that:

Mr Scott may be ‘entitled’ to be paid long service leave for the period up until his employment contract was terminated. That does not make him a ‘creditor’ in respect of those entitlements. The debts in respect of which Mr Scott was a creditor are those admissible to proof under s 553, namely those the circumstances giving rise to which occurred before the relevant date. For 1st Fleet, the relevant date was the date on which it entered voluntary administration, namely 25 April 2012: ss 513B(b) and 513C(b).

…

Entitlements accruing to employees after the appointment of voluntary administrators but before the voluntary administrators terminate their employment, fall to be paid in a subsequent winding up as a priority expense under s 556(1)(a), if they were an expense properly incurred by the Liquidators in the administration.

(Emphasis in original).

98    The Commonwealth noted secondly the liquidators’ submission to the following effect:

the Liquidators suggest Mr Scott remains, at the very least, a contingent creditor because he is owed interest that accrued under s 563B between the date the winding up of 1st Fleet is taken to have begun and the date he was paid his outstanding entitlements (PS 56-58). The Liquidators have not calculated that sum, but it would appear to be $743 (100 days for 25/4/12 to 3/8/12 x 8% x $33,921.53).

99    The Commonwealth responded that this may be correct but it does not mean Mr Scott was an eligible unsecured creditor of the pooled group. Section 579Q requires that the person be owed a debt or claim within the meaning of s 553, the circumstances giving rise to which occurred before the relevant date. Interest that accrues from the relevant date under s 563B does not give rise to a s 533 debt.

100    I accept the Commonwealth’s submissions. The terms of s 553(1) of the Act are clear. Debts and claims admissible to proof against a company are those where the circumstances giving rise to the debt or claim occurred before the relevant date, being the date on which the winding up is taken to have begun as provided for in ss 513B and 513C of the Act. The debts asserted by the liquidators as relevant to Mr Scott’s continuing status as a creditor do not arise from circumstances occurring before the relevant date. Accordingly, Mr Scott is not a creditor with respect to those debts or claims.

101    I otherwise accept the Commonwealth’s submissions to the following effect:

(1)    even if Mr Scott remains a creditor, or at least a contingent creditor, then the amounts owed to him ($33.51 and $743) are de minimis, without any real prospect of ever being paid; and

(2)    the last thing Mr Scott did in the winding up was sign an authority for the TWU on 30 July 2012 and he took no steps to recover the suggested debts and took no part in the activities of the COI.

APPOINTMENT OF PROXIES

Legislative provisions

102    As the Commonwealth’s submissions recorded:

The COI was appointed on 2 July 2012 under s 548A.

Prior to 1 March 2017, the legislative provisions that governed committees of inspection were contained in Division 5 of Part 5.6 of the Act and, perhaps, under regs 5.6.12 to 5.6.36A of the Regulations (old regime).

Division 5 and regs 5.6.12 to 5.6.36A were repealed with the enactment of the Insolvency Practice Schedule (Corporations) (IPSC) and Insolvency Practice Rules (Corporations) (IPRC), which relevantly commenced on 1 March 2017. The provisions relating to meetings of committees of inspection are contained in IPSC Division 80 and IPRC Division 80 (new regime).

From 1 March 2017, when the new regime commenced, the COI became a continued committee, taken to have been appointed under IPSC s 80-26 (the equivalent of s 548A), and to which IPSC Div 80 then applied (ss 1607(1)(b) and 1608(2)).

Under both regimes, a committee of inspection operates by meetings of its members (s 549(1); ISPC s 80-30 and IPRC r 80-5). A meeting functions through the participation of natural persons.

103    At all relevant times s 549(4) of the Act provided that if a member of a committee of inspection is a body corporate the member may be represented at meetings of the committee by an officer or employee of the member or by an individual authorised in writing by the member for the purposes of s 549(4).

104    As the liquidators pointed out, in addition:

Regulation 5.6.11 of the Regulations provides that reg 5.6.12 to 5.6.36A apply to the convening and conduct of, and voting at, amongst other things, a meeting of a committee of inspection. Subregulation 5.6.28(1) provides that a ‘person entitled to attend and vote at a meeting may appoint a natural person over the age of 18 years as his or her proxy to attend and vote at the meeting’. The form of proxies is then governed by reg 5.6.29, which requires the completion and provision of an instrument in accordance with Form 532.

105    The Commonwealth submitted as follows with respect to the old regime:

(1)    the legislative underpinning for reg 5.6.12 to 5.6.36A is not apparent. Section 549 provides for representation of a body corporate at a meeting of a committee of inspection but does not provide for the making of regulations in relation to meetings of a committee of inspection;

(2)    in any event, regs 5.6.12 to 5.6.36A do not apply if they are inconsistent with a particular requirement of the Act: reg 5.6.11(3)(c);

(3)    s 594(4) makes provision for appointment of a natural person to represent a body corporate on a committee but no provision for a natural person to represent a natural person on a committee;

(4)    the Court should find that s 594(4) is the exclusive means by which a member of a committee may appoint someone to represent them at meetings;

(5)    accordingly, there is an inconsistency between s 549(4), which limits the persons who may represent the member to officers, employees and individuals authorised in writing for the purposes of s 549(4), and reg 5.6.28, which allows the appointment, by proxy, of any natural person over the age of 18 years; and

(6)    accordingly, insofar as the member is an individual, the Court should find that the legislature’s omission from s 549(4) of the grant of power to that member to appoint someone else to represent him or her at committee meetings was deliberate. The statutory intention was to require an individual member to attend meetings personally or not at all. If that is right then to the extent reg 5.6.28 would permit an individual to appoint a proxy to represent him or her at a committee meeting, it is inconsistent with s 549(4) and does not apply.

106    The Commonwealth submitted as follows with respect to the new regime:

(1)    IPRC r 80-5(7) provides that a body corporate member of a committee of inspection may appoint an individual authorised in writing to represent it at meetings of the committee. It makes no provision for natural persons to appoint an individual to represent them at meetings;

(2)    provision for appointments of proxies is made in IPRC r 75-150, in roughly equivalent terms to reg 5.6.28 and 5.6.29. The rules in IPRC Division 75, in which r 75-150 is located, are made for the purposes of IPSC s 75-50 (IPRC r 75-1). IPSC 75-50, contained in IPSC Division 75, provides that the IPRC may provide for and in relation to meetings concerning companies under external administration. Division 75 does not encompass meetings of a committee of inspection. Rather, it is confined to meetings of creditors and general meetings of a company – see particularly ss 75-1 and 75-10. For that reason, there is no entitlement for members of committees of inspection to appoint proxies since 1 March 2017, even if that right existed prior to that date; and

(3)    the Court should find that IPRC r 80-5(7) provides an exhaustive statement of the circumstances in which an individual may be appointed to represent a member of a committee of inspection at its meetings since 1 March 2017. In particular, a natural person member is not entitled to appoint another person to represent him or her at those meetings.

107    The Commonwealth submitted that there are powerful contextual reasons to support its contention that neither regime entitled a natural person to authorise another person to represent them at a meeting of a committee of inspection. The Commonwealth identified these contextual factors in these terms:

(1)    the decision to form a committee of inspection of a pooled group, the number of its members and their identity, were decisions to be made by the creditors of companies in the pooled group: ss 548A(1); IPSC s 80-26(2);

(2)    the members of the committee of inspection were appointed “to represent the creditors of companies in the group”: s548A(1)(d); no equivalent provision in IPSC;

(3)    a person was not eligible to be appointed as a member of the committee of inspection unless the person was a creditor of a company in the group: ss 548A(3) and 579Q; IPSC s80-30(2), (3)(a) and IPRC r 80-5(2);

(4)    creditors could, at a meeting of creditors, remove and replace members of a committee of inspection and appoint a person to fill a vacancy: s 550(3)-(5); IPSC s80-30(2), (3)(c)-(d) and IPRC r 80-10;

(5)    a committee of inspection makes decisions at meetings of its members: s 549; IPSC

(6)    s80-30 and IPRC r 80-5(3)-(7); and

(7)    the rules governing meetings of the committee included that:

(a)    meetings could be convened by a member or a liquidator of a company in the pooled group: s 549(2A); IPRC r 80-5(5); and

(b)    a committee may act by majority of its members present at a meeting, but must not act unless a majority of its members are present: s 549(3); IPRC r 80-5(6).

108    Further, the Commonwealth observed that committees of inspection may (amongst other things):

(1)    fix the remuneration to be paid to the liquidator in a voluntary winding up: s 499(3);

(2)    approve the liquidator compromising debts greater than $20,000: s 477(2A) (applied to voluntary winding up by s 506(1A));

(3)    approve the liquidator entering into agreements under which obligations may be discharged by performance more than 3 months after the agreement is entered into: s 477(2B) (applied to voluntary winding up by s 506(1A)); and

(4)    under the old regime, be consulted, advise and warn the liquidator (cf s 479 relating to winding up in insolvency and by the court) Onefone Australia Pty Ltd v One.Tel Ltd [2008] NSWSC 1335; (2009) 69 ACSR 290 at [38]-[45], and under the new regime, advise and assist and give directions to the liquidator, and monitor the conduct of the winding up: IPSC s 80-35(1).

109    The Commonwealth contended that these provisions indicated a number of matters as follows.

First, that the committee has an important role in controlling the liquidator incurring remuneration, compromising claims and entering into agreements, each of which, if uncontrolled, has the potential to detrimentally affect the financial interests of creditors.

Secondly, that the legislature intended that the committee act in the interests of creditors, whom the members are appointed to represent.

Thirdly, to enhance the likelihood of committee of inspection acting in the interests of creditors and controlling the conduct of liquidators, by requiring that its members are themselves creditors who necessarily have a direct financial interest in the outcome of the winding up. In the vernacular, that they have ‘skin in the game’. That evident statutory purpose is not promoted by allowing persons who do not have that direct financial interest in the winding up to attend meetings of committee of inspection to make decisions about the matters mentioned above, which the liquidators are not themselves authorised to make.

110    The liquidators submitted that nothing in the statutory regimes prevented Mr Scott from appointing a proxy to represent him. According to the liquidators:

(1)    nothing in the language of s 549(4) of the Act suggests that it should be read as an exhaustive statement of the circumstances, and the manner, in which members of a COI might appoint other persons to represent them;

(2)    s 549(4) is a facultative provision designed to accommodate the appointment of corporations who can only participate in meetings by their human representatives;

(3)    regard must be had to the regulation making powers in s 1364 of the Act which separates the appointment and powers of proxies from the conduct of meetings of creditors, meetings of eligible employee creditors, meetings of contributories and meetings of holders of debentures. The clear implication is that the drafters of the Act intended to preserve the possibility that proxies might be appointed in relation to other sorts of meetings conducted under the Act, which militates against the conclusion that s 549(4) was enacted with a view to excluding the possibility that proxies might be appointed for the purposes of a meeting of a committee of inspection;

(4)    reg 5.6.11 of the Regulations explicitly states that regs 5.6.12 to 5.6.36A apply to the convening and conduct of, and voting at, amongst other things, a meeting of a committee of inspection and there is no basis for construing reg 5.6.11 with a view to creating exclusions or qualifications that do not appear in the text of that provision; and

(5)    the assertion of inconsistency assumes that s 594(4) is an exhaustive code.

111    According to the liquidators:

The matters outlined above all favour the conclusion that reg 5.6.28 was intended to afford an alternative means by which a member could be represented and in attendance at a meeting of a COI. And if that is correct, then there is no reason why an individual appointed to a COI could not avail himself or herself of the proxy method to participate in the business of the committee.

112    To the contrary of the Commonwealth’s submissions about context, the liquidators said:

(1)    underpinning the Commonwealth’s position is the notion that the business of a COI is so important in ensuring the accountability of a liquidator and protecting the interests of creditors that only those with a significant financial interest in the winding up should be permitted to participate in the transacting of that business. However, the same might be said of any meeting of creditors and the logical consequence of the Commonwealth’s position is that proxies should not be permitted at any meeting of creditors; and

(2)    as matters resolved at a committee of inspection meeting may involve complexities creditor members might legitimately wish to appoint a proxy to represent their interests at meetings.

113    As to the Commonwealth’s submissions about the new regime, Div 75 of the IPRC applies to meetings of a committee of inspection as it was promulgated pursuant to s 75-50 of the IPSC, subsection (1) of which provides that “[t]he Insolvency Practice Rules may provide for and in relation to meetings concerning companies under external administration.” A meeting of a committee of inspection is undoubtedly a meeting concerning a company under external administration. Further, r 75-10(c) and 75-20(2)(d) of the IRPC expressly refer to a meeting of a committee of inspection, making it apparent that the rules in Div 75 were intended to apply to such meetings unless a contrary intention is manifest. As such, the liquidators submitted that:

there is no basis, in either text or context, for thinking that the rules governing the appointment and role of proxies in r 75-150 and following, which substantially replicate what was provided for in reg 5.6.28, should not also apply to meetings of COIs. It follows then that the Court should not accede to the Commonwealth’s view of the scope of either the old or the new regime.

114    I agree with the liquidators’ submissions. The Commonwealth’s approach involves treating s 594(4) as an exhaustive code in circumstances where neither the text nor context of the provision would justify that conclusion. Once this is apparent there is no reason to discern any inconsistency between the regulations and s 594(4). I also prefer the liquidators’ submissions about the new regime as they accord with the text and context of those provisions. I also see no reason in principle why a natural person should not be able to appoint a proxy to represent them at a meeting of a committee of inspection.

Facts

115    There were 11 meetings of the COI. Seven meetings were held under the old regime. Four meetings were held under the new regime. The Commonwealth tabulated the relevant representatives at the meetings as follows:

116    It will be apparent that Ms Lai as the representative of AustralianSuper did not attend any of the meetings. Nor did Mr Scott. Ms Sourlas attended two of the meetings. Further, the people who attended for IFCC were employees of IFCC and were not officers or employees of AustralianSuper. Leaving aside the authority which Ms Lai executed on her own behalf there are no documents which authorise any person to represent AustralianSuper at meetings of the COI.

Liquidators’ submissions

117    The liquidators submitted that given that AustralianSuper had manifested its intention to be represented by IFCC there is no reason to infer that had the execution of a formal proxy document been sought that AustralianSuper would have done other than execute the proxy. The failure is one of documentation only. Nothing in the evidence suggests that persons other than those whom AustralianSuper wished to attend did so. There is no reason to conclude that the oversight as to documentation has occasioned any substantial injustice.

118    The liquidators submitted that Mr Scott could have appointed each of the TWU personnel as his proxy. It was plainly his intention that the TWU be able to act on his behalf. He has omitted to sign a Form 532 to give effect to this intention but the failure is a mere procedural irregularity and no substantial injustice has resulted.

Commonwealth’s submissions

119    As to AustralianSuper, the Commonwealth observed that not a single IFCC employee who attended COI meetings as a purported representative of AustralianSuper was authorised by it to do so, as required by s 549(4) or IPRC r 80-5(7). Further, there is no evidence from which it would be inferred that AustralianSuper would have immediately and willingly addressed the lack of authorisation. Ms Mather from AustralianSuper does not give evidence to that effect. There is no evidence explaining why the liquidators did not draw the matter to the attention of AustralianSuper or IFCC.

120    As to Mr Scott, the Commonwealth said that assuming that a natural person can appoint a person to be their representative (contrary to the Commonwealth’s contention which I have rejected above), all he did was to purport to appoint the TWU (not a natural person) to represent him on the COI. The liquidators’ submission that Mr Scott was content to have his interests as a creditor represented by members or officers of the TWU is not supported by evidence from Mr Scott. In any event, members of a committee of inspection are appointed to represent the interests of all the creditors of the companies in the pooled group: s 548A(1)(d)(ii). Again, the liquidators do not explain why they did not draw the lack of a proxy form to the attention of Mr Scott or the TWU.

Discussion

121    My initial conclusions that, in fact, the constitution of the COI was beset by a problem of indeterminate membership necessarily affects the treatment of the liquidators’ submissions about the inferences that should be drawn about the intentions of AustralianSuper and Mr Scott. In circumstances where I do not accept that either AustralianSuper or Mr Scott were in fact appointed to be members of the COI, it is perhaps unsurprising that neither completed the relevant proxy forms to enable the persons attending the meeting to do so as their representatives. Further, the fact that it might be inferred from the evidence that if either AustralianSuper or Mr Scott had in fact been appointed as members of the COI they might well have been willing to appoint as proxy any employee of IFCC (for AustralianSuper) or any officer of the TWU (for Mr Scott) does not assist in drawing any inference as to their actual intentions. In my view, the indeterminacy of membership of the COI is fundamental. Excluding the representatives of the Deputy Commissioner, it is simply not apparent who the representatives were representing. Accordingly, it is not possible to draw any meaningful inference about the intentions of AustralianSuper or Mr Scott as the liquidators would wish. The problem is more fundamental than a member of the COI merely omitting to authorise its representative in writing. It is that it is not possible to identify who the members of the COI were other than the Deputy Commissioner.

122    Given these conclusions I am unable to accept that the lack of authorisation of the persons who attended the meetings of the COI (other than the representative of the Deputy Commissioner) constitutes a mere procedural irregularity. There is no mere departure from the prescribed manner of doing a thing. There has been no proper constitution of the COI as required by the Act. The members of the COI (bar one) remained unidentified. It is not apparent who IFCC and the TWU were in fact representing on the COI other than at the most general level that they perhaps represented all of the various superannuation funds and the employees. Given this circumstance, opining about the intentions of AustralianSuper or Mr Scott is of no assistance. Nor can it be said that there has been a mere failure of documentation. There has been a failure of constitution of the COI, which is not able to be characterised as any form of procedural irregularity.

123    As a result, I would not characterise the issue as merely one of the COI having been constituted and having met with unauthorised persons. The COI, as purported to have been constituted, was a body with indeterminate membership because it is not apparent who IFCC or the TWU were representing on the COI – for IFCC it may have been all or one of the various superannuation funds and for the TWU it may have been all or one of the employees. In my view, the consequence must be that the purported resolutions of the COI are invalid.

124    The Commonwealth considered all potential permutations of the membership and authorisation of the COI but I do not consider it necessary to do so. In my view (and as a result of the conclusions I have reached), if the characterisation of the facts above is incorrect, then the position is that the COI was constituted with either only one member, the Deputy Commissioner, or three members, in circumstances where the attendees at the meeting purportedly on behalf of two of the members were unauthorised to attend the meetings and represent those members. It follows that the resolutions were carried because of the presence of two persons who were not authorised to attend meetings (other than the meetings of 14 November 2014 and 25 February 2019 where there were two attendees only including a representative of the Deputy Commissioner). The Commonwealth provided a table summarising the relevant attendances and resolutions which is reproduced below.

125    Assuming that the problem is one only of authorisation of the representatives of IFCC and the TWU who attended the meetings, it must also follow that there was never a quorum and that the resolutions of the COI were not passed by a majority of its members as required by s 549(3) of the Act and, from 1 March 2017 r 80-5(6) of the IPRC.

126    The Commonwealth submitted that the presence of one or more persons at the meetings of the COI who were not authorised to attend the meetings (either because the COI in fact consisted only of the Deputy Commissioner or because the representatives who attended for IFCC and the TWU were not authorised by AustralianSuper and Mr Scott respectively) has the effect of invalidating the resolutions of the COI.

127    The Commonwealth summarised the applicable principles as follows:

(a)    there is no general rule that the mere presence of an ineligible person invalidates either the whole meeting or a particular resolution at the meeting: Lynch v Hodges (1963) 4 FLR 348 [(Lynch)]; Williams v The Queen [1977] Tas SR (NC) 135; McGovern v Ku-Ring-Gai Council [[2008] NSWCA 209]; (2008) [72] NSWLR 504 at [242] (Campbell JA); or even that the participation of an ineligible person by voting on a motion invalidates the resolution – each case must be considered on its facts: Steuart v Oliver (No 2) (1971) 18 FLR 83[, 84 (Steuart)];

(b)    the presence of so many unqualified persons in a meeting may be such that a court would not regard it as a meeting of the particular body: Steuart [at 84]; Barter v Maher (1972) 21 FLR 10 at [25];

(c)    if a non-qualified person is relied on to constitute a quorum then there is no quorum and the proceedings of the meeting are ineffectual: Steuart [at 84];

(d)    participation of non-members in a general meeting of a body ought to be limited, so that they are unable to exercise influence in its conduct which, if excessive, may invalidate the meeting: Clark v Framingham Aboriginal Trust [2014] VSC 367 at [140]; so that, a resolution has been held invalid where:

(i)    an ineligible person, who had a personal interest in a motion, actively participated in its adoption by moving and voting in favour of it, albeit that his vote was not vital to its passage: Lynch;

(ii)    the ineligible person moved the motion, played a dominating part in the deliberations and made a materially false statement to the meeting concerning the motion: Allen v Townsend [[1977] FCA 10; (1977) 31 FLR 431 at 482].

128    The Commonwealth submitted that the issue of validity of the resolutions should be resolved according to the principles in Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 at [93], by asking whether it is a purpose of the provision that an act done in breach of the relevant provision should be invalid having regard to the language of the provision and the scope and objects of the statute as a whole.

129    The Commonwealth made the following points:

(1)    there is no express prohibition in s 549(3) or IPRC r 80-5(6) to a non-member being present at a meeting of a committee of inspection and, indeed, under the old regime (which I consider applied to committees of inspection), if the meeting was convened by a liquidator, the liquidator (a non-member) was required to chair the meeting;

(2)    meetings make resolutions. Resolutions are the culmination of a process involving proposal, debate, and vote;

(3)    a committee of inspection ensures that creditors play a determinative role in respect of certain discretionary decisions in the winding up which have potentially important ramifications for creditors;

(4)    consistent with general law principles, the validity of any resolution should depend on whether the ineligible person exercised excessive influence in the conduct of the meeting and the adoption of the resolution and the person asserting validity should bear the onus of proving the absence of such influence;

(5)    this approach would give effect to the statutory purpose of the Act by ensuring that persons who are not creditors do not exercise excessive influence in decisions intended to be made by the particular creditors, or individuals authorised by them, selected by the general body of creditors at a meeting of creditors, to represent their interests on the committee of inspection;

(6)    the liquidators have adduced no evidence about the conduct of the COI meetings; and

(7)    therefore it should be concluded that the unauthorised IFCC and TWU representatives at each COI meeting exercised sufficient influence in the adoption of resolutions at those meetings to invalidate those resolutions.

130    The liquidators agreed with the Commonwealth that the issue of validity of the resolutions should be determined according to the approach in Project Blue Sky. The liquidators submitted that this directs attention to s 1322(2) of the Act. The liquidators made the following points:

(1)    meetings of the COI are proceedings under the Act for the purposes of s 1322(2);

(2)    the active participation at those meetings of a person who was, in truth, eligible neither to speak to nor to vote on any resolution was a procedural irregularity;

(3)    the presence and participation of a non-member did not turn the purported passing of the resolutions at the relevant meetings into a substantively different exercise;

(4)    it was implicit in the reasoning of Ryan J in Re Chevron Furnishers Pty Ltd (in liq) [1994] 2 Qd R 475 (Re Chevron) that the removal from a meeting of creditors of a person eligible to speak and to vote was a procedural irregularity;

(5)    if the removal from a meeting of a person who was entitled to be present is a procedural irregularity, then the same should be said in respect of the presence and participation of a person who was not;

(6)    the Commonwealth has not established that this irregularity “has caused or may cause substantial injustice that cannot be remedied by any order of the Court” for the purposes of s 1322(2);

(7)    if s 1322(2) does not apply then in any event the authorities on which the Commonwealth relies demonstrate that mere participation or influence on the part of an ineligible person does not suffice to invalidate a meeting; and

(8)    the Commonwealth cannot prove that there would have been any different outcome at any meeting so that its submissions of invalidity of the resolutions should be rejected.

131    I am unable to agree with the effect of the liquidators’ submissions. I do not accept the characterisation of the facts (that is, one or two persons were present at the meetings of the COI and exercised voting powers they did not have, either because there was only one member of the COI, or because the persons were not authorised to attend the meetings as the representatives of members of the COI) as a mere procedural irregularity. The exercise of the power to vote is the essence of the function of a member of a COI (or of the member’s duly authorised representative). Whatever the source of the unauthorised presence the person or persons at the meeting were exercising a substantive power (to vote) with serious potential consequences which they did not have. I do not consider Re Chevron to involve contrary reasoning, given that the outcome in that case turned on the issue of substantial injustice. Further, there is a difference between the exclusion of a person entitled to vote and voting by a person not entitled to vote. In the former case, those who vote are nevertheless authorised to do so. In the latter case, the same cannot be said. Further, in Re Ryde Ex-Services Memorial & Community Club Limited [2015] NSWSC 226 Lindsay J at [116] said:

Experience teaches that a right to vote is such a precious thing (so easily denied, and rendered nugatory, by manipulative departures from a course chartered for orderly, informed decision making) that the law must lean towards characterisation of it as a thing of substance, not merely adjectival, not merely a matter of procedure.

132    I also do not consider that the application of the principles in Project Blue Sky involves only s 1322(2) of the Act. Section 1322(4) is also part of the Act and it pre-supposes that acts in contravention of the Act other than procedural irregularities will be invalid subject to the making of an order to the contrary if the conditions in s 1322(6) are satisfied. The presence of s 1322(4) and (6) in the Act support the conclusion of invalidity of the resolutions of the COI for which the Commonwealth contends. In circumstances where the unauthorised attendees at the COI meetings were either the majority or, if only one of them was present with the representative of the Deputy Commissioner, had equal voting rights to the sole authorised representative, it must be taken that the unauthorised representatives had an improper influence on the adoption of the resolutions of the COI by their presence and exercise of voting rights.

133    For these reasons, whatever view is taken of the proper characterisation of the facts, I consider the better view is that all of the resolutions of the COI are invalid.

SECTION 1322(4) OF THE ACT

Liquidators’ submissions

134    The liquidators referred to Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 at [39] as follows:

Section 1322(4) and related provisions reflect a long-standing legislative recognition that mistakes will happen in corporate governance and that it is not in the public interest that the validity of decisions made in relation to corporations be unduly vulnerable to innocent errors which may be corrected without substantial injustice to third parties. In accordance with its evident purpose, s 1322(4)(a) is to be construed broadly and applied pragmatically, principally by reference to considerations of substance rather than those of form.

135    The liquidators referred also to Re Compaction Systems Pty Ltd (1976) 2 NSWLR 477 at 493 that:

In my view, the word ‘injustice’ in this provision requires the Court to consider any real, and not merely insubstantial or theoretical, prejudice which will be suffered by, for example, a member by the making of an order, and to weigh this in the scales against the prejudice to the company, other members and creditors, if an order be not made. In other words, it is insufficient to show that there may be some prejudice to a member if, on a consideration of the whole matter, the overwhelming weight of justice, as it were, is in favour of making the order.

136    Further, the liquidators referred to Re Great Southern Ltd (in liq), Ex parte Jones [2016] WASC 234; (2016) ACLC 16-032 which concerned an application for an order that the acts of committees of inspection were not invalid by reason of a failure to comply with the requirements of s 548 of the Act. The liquidators had not understood that it was necessary to convene a meeting of contributories of the companies in order to validly appoint a committee of inspection (at [13]). The liquidators emphasised three aspects of Pritchard J’s conclusions, being that:

(1)    it was “clearly desirable that a committee of inspection be appointed in the winding up of each of the Companies”, having regard to the complexity of the winding up, so as to avoid the need to convene a creditors’ meeting or to approach the Court whenever the liquidators required a direction in the winding up: [36];

(2)    the liquidators had acted honestly in relation to the appointment of the committees of inspection: [38]; and

(3)    “the fact that significant costs would need to be incurred to seek retrospective validation of the decisions made by the Committees of Inspection, were the orders sought not made by the Court, also strongly supports the conclusion that it is just and equitable to make those orders”: [42].

137    The liquidators submitted that the same three factors applied in the present case, compounded by the fact that the liquidation has been in progress for six years before the Commonwealth raised any issue about the validity of the appointments to the COI. The liquidators also referred to the evidence of Mr Solomons to the following effect:

(1)    if the Court does not make orders validating the resolutions the liquidators will be required to seek a determination of the remuneration by resolution of the creditors: s 60-10(1)(a) of the ISPC;

(2)    this will be a time consuming and costly exercise as it will include preparing notices of the meeting and information to be provided to creditors;

(3)    if a determination is not made by the creditors the liquidators will have to bring an application to the Court for a determination of the remuneration which will involve further time and cost;

(4)    the estimate of costs for resubmitting remuneration reports is $36,030.50 which does not take into account the time required to compile the relevant invoices and to resubmit reports for work before April 2016 when the software system was changed;

(5)    there are 1270 creditors each of whom will have to be notified and given the remuneration reports which will be at least 130 pages; and

(6)    at least 1,106 creditors will need to be posted the relevant material.

138    The liquidators submitted that the effect of not making validation orders would be to substantially delay the completion of the winding up. They submitted that the Commonwealth had not identified any, let alone substantial, prejudice to it or any creditor if validation orders were made. There is evidence that the Commonwealth intended to challenge the reasonableness of the liquidators’ remuneration and expenses before it decided to contest the relief sought by the liquidators in this proceeding. According to the liquidators:

The Commonwealth’s current and late-breaking opposition to the relief sought by the plaintiff bespeaks an attempt to seize some perceived strategic or tactical advantage in the context of a broader dispute with the Liquidators over the Quantum Complaint. There may be nothing sinister in such conduct, but being deprived of that advantage does not, on any view, answer the description of a substantial injustice.

139    The liquidators also submitted that it should be noted that at all times the Deputy Commissioner has been a member of the COI. The Deputy Commissioner was claiming for tax-related liabilities and under s 255-5 of Sch 1 to the Taxation Administration Act 1953 (Cth) such liabilities are due and payable to the Commonwealth. As the liquidators would have it the Deputy Commissioner was the Commonwealth’s agent for the purpose of recovering the tax debts. They submitted further:

(1)    beginning in December 2012, the Commonwealth, through its agent the Deputy Commissioner, participated in the conduct of the COI’s business, and for much of that time, did not indicate concern with, or take steps to clarify, the validity of the appointment of the COI;

(2)    the Deputy Commissioner did not merely participate, through his representatives, in meetings of the COI;

(3)    those representatives voted in favour of almost all of the resolutions passed by the COI;

(4)    it is entirely artificial for the Commonwealth now to insist that because its current standing as a creditor is attributable to its administration of the Fair Entitlements Guarantee Act 2012 (Cth) through the Attorney-General’s Department, it should be regarded as separate from, and unaffected by the conduct of, its agent the Deputy Commissioner. The Commonwealth is a single polity and single juridical person, and it does not detract from this that the existence of Departments of State is recognised in ss 64 and 69 of the Constitution;

(5)    given the above, it is difficult to see how the Commonwealth might be said to be likely to suffer any substantial injustice if the Court were to make orders as sought; and

(6)    the Commonwealth cannot be heard to say that it was disenfranchised as a result of some contravention of the Act as its agent voted in favour of the resolutions.

140    The liquidators referred to the statement in James v Deputy Commissioner of Taxation [1957] HCA 36; (1957) 97 CLR 23 at 35 that:

We think that the commissioner or deputy commissioner is empowered to take proceedings in bankruptcy for the recovery of the tax as a Crown debt. The officer may proceed in his own name but he sues for the Crown and as plaintiff or actor it is not in his own right but that of the Crown that he proceeds … His is but an official name, but it is the correct name in which the Crown sues.

141    The liquidators submitted that Kalis Nominees Pty Ltd v Deputy Commissioner of Taxation (1995) 95 ATC 4519 (in which it was held that the Deputy Commissioner had standing to serve a statutory demand in respect of a liability for unpaid income tax) did not mean that the Deputy Commissioner was not the Commonwealth’s agent.

142    The liquidators submitted further that although they did not assert that the Commonwealth was estopped from resisting the relief sought, there was:

a real question as to whether the Deputy Commissioner, as the agent of the Commonwealth, impliedly represented to other members of the COI and to the Liquidators, or at least acquiesced in the notion, that he, and therefore the Commonwealth, accepted that the COI was validly constituted and its business validly conducted.

143    In response to the Commonwealth’s submissions the liquidators noted that its allegations of dishonesty were made without prior notice and thus the evidence of the liquidators did not specifically address the issue. The Commonwealth consented to the application being decided on the papers and thus gave the liquidators no opportunity to meet the allegations of dishonesty. Given the unfairness the Court should not entertain the Commonwealth’s allegations of dishonesty. The Commonwealth’s allegations and supporting submissions are without merit. The Commonwealth relied on the observations of Palmer J in Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243 (Hall v Poolman) at [325] that:

the Court should be concerned only with the question whether the person has acted honestly in the ordinary meaning of that term, i.e., whether the person has acted without deceit or conscious impropriety, without intent to gain improper benefit or advantage for himself, herself or for another, and without carelessness or imprudence to such a degree as to demonstrate that no genuine attempt at all has been to carry out the duties and obligations of his or her office imposed by the Corporations Act or the general law.

144    The liquidators submitted that, however, there is a question whether these observations apply to s 1322(6). If they apply then the level of carelessness required to constitute dishonesty is a complete and total delinquency in the discharge of one’s duties. The evidence of Mr Solomons explains how he and to his understanding Mr Tayeh genuinely understood that:

a.    Mr Scott had been appointed to the COI and was represented by the individuals who purported to be his representatives; and

b.    AustralianSuper had been appointed to the COI and was represented by the IFCC employees who purported to be its representatives.

145    According to the liquidators, the Commonwealth’s assertion that there was no genuine attempt by the liquidators to ensure that persons attending the COI had the requisite authority to do so can mean only either that Mr Solomons was not being truthful in his affidavit or that his genuine understanding was not based on a sufficient interrogation of the facts. The first proposition cannot be made without having been put to Mr Solomons. The second proposition is not consistent with the delinquency required to amount to dishonesty. At best, it establishes an insufficiently exacting attempt at investigating the authority of those in attendance at meetings of the COI.

146    The Commonwealth’s assertions of dishonesty against the representatives of IFCC and the TWU also cannot be put in circumstances where no notice was given of those assertions and thus no evidence from them was filed. The liquidators said:

In any event, the Court cannot safely accept the Commonwealth’s submissions. Given the nature of the issues to be determined during this phase of the proceeding, and given the absence of prior notice of any allegation of dishonesty, the Court does not have before it the entirety of the evidence that could be led on whether those who attended meetings of the COI honestly and reasonably considered the remuneration sought by the Liquidators. To this may be added that representatives of the Deputy Commissioner voted in favour of all but one of the resolutions approving the Liquidators’ remuneration and either proposed or seconded many of the others. Is the Commonwealth now accusing its own officers or employees of acting dishonestly? That this question has to be asked at all serves to expose the extent to which the Commonwealth’s argument approaches the outer limits of what can reasonably be put. What is said [in the Commonwealth’s submissions] at … [236]-[238] should consequently be rejected.

…

The same fate should await the suggestion [in the Commonwealth’s submissions] at … [239] that if the relevant IFCC and TWU personnel had acted honestly, they would have resigned from, or refrained from participating in the business of, the COI.

147    The liquidators submitted that given the following factors (relied on in Great Southern) the Court should conclude that it is just and equitable that validation orders should be made:

(1)    the cost of the winding up of the 1st Fleet Pooled Group has been significant;

(2)    the winding up has been complex and protracted; and

(3)    it is important the winding up be brought to an expeditious conclusion and that future expenses be minimised.

148    In response to the Commonwealth’s submissions as to substantial injustice the liquidators submitted:

(1)    the issue under s 1322(6)(c) is whether the Court is satisfied that no substantial injustice has been or is likely to be caused to any person;

(2)    the issue is not whether refusing relief would or would not cause substantial injustice to the liquidators; and

(3)    the Commonwealth’s assertion of substantial injustice to the creditors (to the effect that COI resolutions were made by unauthorised persons) is a mere restatement of the contraventions.

149    The liquidators submitted that:

Tellingly, the Commonwealth does not suggest that there is even the possibility that had there been no contraventions of the Act, a different result might have transpired, in the sense that the Liquidators’ remuneration might not have been approved or, if approved, might have been approved in different amounts. That possibility is thus not an issue in the proceeding, and the Commonwealth cannot now say that plaintiffs’ omission to lead any evidence for the purpose of disproving that such an outcome might have been possible should suffice to found a conclusion of substantial injustice.

150    The liquidators acknowledged that they bore the onus of proving that no substantial injustice would be caused to any person by the making of the orders sought but submitted that the Commonwealth bore an evidential onus of identifying the potential injustice and substantiating it to the point where the plaintiffs must then prove, on the balance of probabilities, that the injustice does not arise. The Commonwealth had not identified any injustice other than to restate the existence of the contraventions. According to the liquidators:

The Commonwealth’s attempted rejoinder to this is to say that the relevant question is not the substantial injustice suffered by the Commonwealth, but the substantial injustice suffered by all creditors …. However, if, as the Commonwealth asserts throughout its submissions, the only parties with a real financial interest in the outcome of the winding up are the Commonwealth and the Deputy Commissioner, then there is no respect in which any other creditor can be said to have suffered a substantial injustice. There is, to that extent, a lack of coherence in the Commonwealth’s case.

151    The liquidators said that even if the Deputy Commissioner’s acts on the COI cannot be attributed to the Commonwealth it remains the fact that there is no suggestion that there might have been a different outcome. Mr Busby, who has given an affidavit for the Deputy Commissioner, does not suggest his will was overborne by the other representatives at the COI meetings.

152    The liquidators said further:

The important point is that the Commonwealth has not led evidence to prove that it had no concerns in relation to the constitution and proceedings of the COI until shortly before those concerns were first expressed by its solicitors in August 2018 …. And if it did hold those concerns at an earlier stage in the winding up, but did nothing to express them or ensure that they were addressed or otherwise acted on by the Liquidators, then to the extent that the Commonwealth has suffered any prejudice following the contraventions in respect of which relief is sought (which, for the reasons already given, is denied), it is, in truth, the author of its own misfortune.

153    Further, the liquidators said that in circumstances where, in any event, the Commonwealth was considering applying for a review of the liquidators’ remuneration and expenses, it necessarily follows that the Commonwealth (at that time) was prepared to act on the basis that the resolutions of the COI were valid. Having been so willing, the Commonwealth cannot now say that it and other creditors will suffer substantial injustice merely by the making of a validation order.

Commonwealth’s submissions

154    The liquidators had not identified which subsection they relied upon in s 1322(6)(a)(i)-(iii).

155    The act, matter or thing was not of a procedural nature so s 1322(6)(a)(i) does not apply.

156    As to s 1322(6)(a)(ii) (the person or persons concerned in or party to the contravention or failure acted honestly) the Commonwealth said first that it might be doubted that the liquidators were persons concerned as the relevant persons were those who had purported to act as representatives of IFCC and the TWU. In any event, the Commonwealth said that it should be found that the liquidators had not acted honestly as they had acted with such a degree of carelessness or imprudence as to demonstrate they made no genuine attempt to carry out the duties of their office. Their duties required them to satisfy themselves that those attending the COI meetings had authority to do so.

157    According to the Commonwealth:

(1)    the liquidators had not given evidence that they in fact believed AustralianSuper and Mr Scott had been appointed as members of the COI (a submission that, in fairness, I do not think can be accepted given the terms of Mr Solomons’ affidavit);

(2)    the liquidators failed to ensure that the attendees at the meeting had authority to do so as required by the legislation and had not explained this failure;

(3)    the liquidators do not explain what steps they took to satisfy themselves that the attendees did have the required authority;

(4)    despite this, the liquidators had ruled at each meeting that the attendees had a right to attend;

(5)    if AustralianSuper and Mr Scott were members of the COI they had no ongoing financial interest in the winding up and liquidators and, acting honestly, would have suggested that AustralianSuper and Mr Scott resign from the COI to be replaced by creditors who had a financial interest in the winding up; and

(6)    instead of doing so the liquidators permitted a pliant COI to approve millions of dollars in remuneration over six years, which is not the honesty required by s 1322(6)(a)(ii) of the Act.

158    As to the evidence of the beliefs of the liquidators that AustralianSuper and Mr Scott had been appointed to the COI and were represented by the various attendees, the Commonwealth said that the evidence simply begs the question as to why Mr Solomons and Mr Tayeh permitted the IFCC staff and TWU officials to attend the COI meetings without the requisite authorities and, indeed, recorded that “those present … had a right to attend” in the minutes of the COI meetings. The Commonwealth said its submissions did not suggest that Mr Solomons was not being truthful in his affidavit and thus the submissions could be made without cross-examination. The Commonwealth said that:

The Liquidators have failed to show how Mr Solomons’ beliefs (there is no evidence of Mr Tayeh’s beliefs on these issues) affected any acts in which they engaged in relation to the making of the COI resolutions and in respect of which they say a finding of honesty should be made. That is fatal to their reliance on s 1322(6)(a)(ii).

159    Further, none of the IFCC employees or TWU personnel had given evidence. While the Commonwealth does not suggest they acted deceitfully or for personal gain they failed to a high degree to consider the interests or creditors. They passed resolutions approving remuneration to the liquidators of $5,104,219. Most of the remuneration resolutions were prospective. The Commonwealth said:

While the remuneration reports each include a single figure for remuneration paid during the prior period (as part of a receipts and payments statement) they contain no breakdown showing how that payment was calculated. Nor do they reconcile the amount paid to the projected costs from previous remuneration reports amounts. It is not possible, from reviewing the remuneration reports, to determine the basis on which the Liquidators have drawn down remuneration in the past, nor to assess the accuracy of past estimates in order to determine the reliability of new estimates.

…

The minutes of the COI meetings suggest little, if any, discussion took place concerning the remuneration resolutions. There is certainly no record that the difficulties set out in the preceding paragraphs concerning the lack of information about past remuneration or the reliability of the estimates in the remuneration reports was debated at the COI meetings. It was not until the 10th meeting that the minutes record that there was a debate on the remuneration resolutions … For the 10th meeting the existence, but not the substance, of a debate is recorded, following which Mr Busby for the Deputy Commissioner opposed the resolution. No-one who attended the COI meetings has given evidence about those matters.

160    The Commonwealth said that members of a committee of inspection who no longer had any financial interest in the winding up, acting honestly, might be expected to resign from the committee. As the attendees had not given evidence, a Jones v Dunkel [1958] HCA 8; (1959) 101 CLR 298 inference should be drawn against them.

161    Given that the liquidators bear the onus of proof of honesty, the Court should find that the IFCC and TWU representatives failed to consider the interests of creditors to such an extent that they failed to act honestly in the sense required.

162    As to s 1322(6)(a)(iii) (it is just and equitable that the order be made), the Commonwealth said that this is a winding up in which the liquidators recovered $22,375,245.65 in receipts and have drawn down remuneration of $4,521,475.60 (GST inc) as at 1 July 2019, comprising $3,861,475.62 as liquidators and $660,000 as voluntary administrators. The significant expenses referred to by Mr Solomons are insignificant in comparison.

163    As to s 1322(6)(c) (substantial injustice), the Commonwealth observed that:

In considering whether substantial injustice has been or is likely to be caused to any person, within the meaning of s 1322(6)(c), the Court is concerned with the effect of the impugned act, and not with the commercial merit of the business transacted as a result of it: Whitehouse v Capital Radio Network Pty Ltd [2002] TASSC 78; [(2002)] 21 ACLC 17 (appeal dismissed: Whitehouse v Capital Radio Network Pty Ltd [2004] TASSC 12 [(2004) 13 Tas R 27 (Whitehouse (appeal))]; Cordiant at [86] (re substantial injustice under s 1322(2)). The Court must also be satisfied ‘there was a nexus between the procedural irregularity which occurred and the matters of prejudice relied upon as constituting injustice rather than between the resolutions passed at the meeting and such prejudice’: Whitehouse (appeal) at [16].

…

A substantial injustice would not ordinarily flow from procedural irregularities such as a lack of quorum or a failure to give notice of a meeting which did not change the outcome of a meeting: Poliwka v Heven Holdings Pty Ltd (1992) 7 ACSR 85; Sydney Appliances Pty Ltd (in liq) v Robert Bosch (Australia) Pty Ltd [[2000] NSWSC 32;] (2000) 33 ACSR 680.

…

Conversely, the wrongful exclusion of a member or director to attend a meeting would generally give rise to substantial injustice: Chalet Nominees (1999) Pty Ltd v Murray [2012] WASC 147; [(2012)] 30 ACLC 12-017 [(Chalet Nominees)]; Onefone … at [20].

That the legislature has seen fit to require committees of inspection to act through the aegis of meetings and to mandate eligibility requirements for members of committees of inspection, suggests that the lack of those characteristics by persons purporting to act as members should not lightly be excused: Re Wave Capital Ltd [2003] FCA 969; [(2007) [47 ACSR 418 at [29].

164    According to the Commonwealth, by analogy to Onefone and Chalet Nominees, it should be found that:

The effect of the presence of unauthorised people at the meetings is to disenfranchise the substantial body of creditors who were not represented by the persons they had appointed, or persons validly authorised by those persons. The contraventions strike at the heart of the representative regime established by the committee of inspection provisions of the Act.

165    The Commonwealth said that the relevant injustice is to it as one of the 1,270 creditors “by having COI resolutions made by persons who they did not appoint to the COI or, if appointed, were not eligible to be appointed or, if appointed and eligible, did not authorise the individual who actually participated in the relevant COI meetings”. Further, the Commonwealth said that:

The justice of the case does not require the Court to validate approvals for the payment of millions of dollars to the Liquidators for remuneration by persons who were not authorised to do so and had no financial interest in the winding up. Rather, the justice of the case requires those approvals, if invalid, to be let remain so, so that the task of approving the Liquidators’ remuneration be entrusted to those creditors with a real and substantial financial interest in the winding up, or to the Court.

166    As to the liquidators’ submissions about the Deputy Commissioner being the agent of the Commonwealth, the Commonwealth said that the substantial injustice through disenfranchisement to which it points is that of all creditors. Further:

(1)    the creditor in respect of any particular debt payable by a company in liquidation is the person who, by s 553, is entitled to lodge a proof of debt for the purpose of being having the debt admitted to proof against the company; and

(2)    the fact that tax-related liabilities does not mean that the Commonwealth is the relevant creditor. The Deputy Commissioner is the relevant creditor: Kalis.

167    The Commonwealth noted that the liquidators did not assert an estoppel but nevertheless referred to acquiescence but that submission went nowhere. When the Deputy Commissioner became aware of the problem with the COI the Deputy Commissioner’s representative raised the issue at the meeting on 25 February 2019.

Deputy Commissioner’s submissions

168    The Deputy Commissioner submitted that because the Deputy Commissioner’s conduct had not been put squarely in issue in this proceeding there was an insufficient evidentiary basis to make any findings about the Deputy Commissioner’s conduct at and in respect of the COI meetings. The Deputy Commissioner also submitted that no estoppel could arise (while noting, correctly, that the liquidators did not assert an estoppel against the Commonwealth in any event).

Discussion

S 1322(6)(a)(i) – procedural nature

169    I have explained above why I do not consider that the relevant acts were of a procedural nature as provided for in s 1322(6)(a)(i) of the Act. Whatever characterisation of the facts is adopted people who had no right to do so participated in and voted at the meetings of the COI. Further, as I have explained in my view the constitution of the COI contravened s 548A(1)(d)(i) and (ii) of the Act as the resolution of the creditors appointing the members of the COI did not identify the members of the COI or their number. By the terms of the resolution both the number of members and their identity were left indeterminate except for the appointment of the Deputy Commissioner. A failure in relation to the constitution of the COI in this way (leaving its membership effectively unknowable), to my mind, is not an act, matter or thing of a procedural nature. It is a matter of substance in respect of the constitution of the COI.

170    The same result follows, in my view, if the relevant act, matter or thing is not that the COI was not properly constituted (that is, it should be taken that AustralianSuper and Mr Scott were appointed to be members of the COI, contrary to my conclusions above) but rather that the persons who attended the meetings were not authorised by the members, AustralianSuper or Mr Scott ,to do so. The result is that persons participated in the meetings of the COI, and voted on resolutions, when they were not authorised to do so. Contrary to the liquidators’ submissions I do not see these contraventions (of s 594(4) and regs 5.6.28 and 5.6.29 for the old regime and r 75-150 of the IPRC for the new regime, relating to the appointment of representatives in writing to attend meetings) to be merely of a procedural nature. If AustralianSuper and Mr Scott were appointed to be members of the COI there is not a sufficient evidentiary foundation to infer that they would have authorised the persons who attended the meetings to do so as their proxy. In these circumstances we are left with a COI which had one authorised representative at (most) meetings and one or two (depending on the meeting) unauthorised persons who were purporting to participate and exercise the right to vote at the meetings. Given that the purpose of a COI is for creditor representatives to make important decisions along the way in respect of the winding up (including in respect of the liquidators’ remuneration) the participation and exercise of voting rights at COI meetings, in my view, should not be characterised as a matter of a procedural nature. It is not a mere failure of documentation on the facts of the present case. It is a failure of authority which relates to the fundamental requirements for a COI as set out in s 548A(1)(d)(i) and (ii) of the Act.

S 1322(6)(a)(ii) – honesty

171    I agree with the liquidators’ submissions that the Commonwealth’s allegation of a lack of honesty on the part of the liquidators and the persons who attended the meetings on behalf of IFCC and the TWU should not be entertained in the procedural circumstances of this case. Although they bear the onus of satisfying the Court as to the matters in s 1322(6) the plaintiffs had no notice that the Commonwealth would be alleging that the liquidators and the representatives of IFCC and the TWU who attended the COI meetings acted other than honestly. As such, the evidence the plaintiffs filed did not expressly engage with that issue. The first time the issue was raised was in the Commonwealth’s submissions where the parties agreed that the matter could be determined without an oral hearing. Even though the Commonwealth’s contentions depend (in the main) on the alleged carelessness or imprudence of the liquidators and the representatives of IFCC and the TWU who attended the COI meetings, and no suggestion is made of deceit or conscious impropriety, I consider that the plaintiffs have not had a fair opportunity to adduce evidence to defend themselves against the Commonwealth’s contentions. Further, as the plaintiffs had no notice of the contentions against the representatives of IFCC and the TWU who attended the COI meetings they have not had a fair opportunity to adduce evidence from those persons explaining their actions. I consider that to make findings of a lack of honesty on the part of the liquidators or the representatives of IFCC and the TWU who attended the COI meetings would involve a denial of procedural fairness.

172    In any event, I do not find the Commonwealth’s submissions persuasive.

173    First, it is by no means certain that the approach in Hall v Poolman is apt to describe the content of the honesty requirement in s 1322(6)(a)(ii) of the Act which, arguably, may require conscious deceit or impropriety rather than “mere carelessness or imprudence”.

174    Second, Hall v Poolman itself makes clear that the degree of “carelessness or imprudence” required to amount to a lack of honesty is of the highest order – it is to the extent that “no genuine attempt” has been made at all to carry out the requisite duties and obligations imposed by the Act: at [325]. On the evidence, no such inference can be drawn. From the evidence of Mr Solomons, the terms of the appointment resolution, and the record from every meeting that those attending had a right to attend ,it must be inferred that the liquidators attempted to comply with the requirements of the Act in relation to the constitution of the COI and the attendance at meetings of the COI. Despite the Commonwealth’s submissions to the contrary, the evidence is sufficient to negative any suggestion that the liquidators made no genuine attempt to comply with the requirements of the Act in these respects. The steps they took to satisfy themselves have been disclosed in the evidence of Mr Solomons. While the explanation may be unsatisfactory from the Commonwealth’s perspective and lack detail as to precisely why the liquidators held the beliefs that they did, it would not be inferred lightly (and in the absence of any cross-examination) that the liquidators’ beliefs lacked any rational foundation or resulted from a degree of carelessness or imprudence of the kind required to amount to a failure to make any genuine attempt to comply with the requirements of the Act.

175    Third, insofar as the representatives of IFCC and the TWU who attended the COI meetings are concerned, there is no evidence from which it would be inferred that they acted with such a degree of carelessness or imprudence to amount to a failure to make any genuine attempt to comply with their obligations to ensure that they were properly authorised to represent a member of the COI. The evidence provides a sufficient foundation to infer that there was some rational basis for these people to hold the view that they were authorised to represent a member of the COI. In circumstances where the first time any issue was raised by the Commonwealth about these people was in its written submissions, after the evidence had been filed, no adverse inference would be drawn against them (or the liquidators) from the mere absence of evidence from them. There has not been a fair opportunity for such evidence to be filed.

176    Fourth, to the extent that the Commonwealth impugns the conduct of the liquidators and the representatives of IFCC and the TWU who attended the COI for failing to take steps to remove AustralianSuper and Mr Scott so that they were no longer members of the COI, given their lack of an ongoing financial interest in the winding up, I finds its approach unpersuasive. The Commonwealth accepted that nothing in the legislative scheme required a person appointed to a committee of inspection when they were an eligible unsecured creditor to cease to resign from the COI if they ceased to be an eligible unsecured creditor. While the Commonwealth is right that it might be expected that, in the ordinary course, such a member would resign from the committee, it cannot be said that a failure to do what the Act does not require amounts to carelessness or imprudence so as to amount to the absence of a genuine attempt to comply with the duties imposed by the Act. No relevant duty was imposed. Nor is there any suggestion by the Commonwealth (and nor could there be in the circumstances) that there was any conscious deceit or impropriety by any person arising from the fact that representatives of IFCC and the TWU continued to attend meetings after AustralianSuper and Mr Scott ceased to have any or anything other than a trivial financial interest in the winding up.

177    Given the procedural history of the matter I do not consider that fairness requires the Commonwealth to be given any further opportunity to make good its case of a lack of honesty by an oral hearing. The Commonwealth consented to the matter being decided without an oral hearing in full knowledge of the submissions the liquidators had made to the effect that this aspect of the Commonwealth’s submissions should not be entertained. Further, if there were to be an oral hearing then fairness would require that the plaintiffs be given an opportunity to adduce additional evidence. In circumstances where the originating application was filed on 22 October 2019 and directions for evidence and submissions were made thereafter it would be inconsistent with the principles embodied by ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth) to undo the process to which the parties agreed to have this matter determined.

178    For these reasons, on the basis of the material and the procedural history of the matter, I am satisfied that the persons concerned in or party to the contraventions acted honestly as provided for in s 1322(6)(a)(ii) of the Act.

S 1322(6)(a)(iii) – just and equitable and s 1322(6)(c) – no substantial injustice

179    I will deal with these two considerations together on the basis that if I am not satisfied that no substantial injustice has been or is likely to be caused to any person then it would also follow that it would not be just and equitable to make an order.

180    It may be accepted that s 1322(4)(a) is to be applied liberally and with an eye to matters of substance rather than form. It may also be accepted that mere insubstantial or theoretical prejudice is not such as to amount to substantial injustice. What is required is evidence of real prejudice to amount to substantial injustice.

181    The essential concern I have about the circumstances of the present case is that the constitution and functioning of the COI as a representative body for and on behalf of the creditors fundamentally miscarried. As the Commonwealth put it, the effect of what occurred was to disenfranchise the creditors from having effective representation on the COI because at every meeting there was only one authorised representative of a member (the Deputy Commissioner) and one or two persons who were not authorised representatives of any member. In these circumstances I am unable to accept the liquidators’ submissions that the Commonwealth’s submissions fail to identify any relevant injustice. The nature of the contraventions, in the circumstances in which they occurred, necessarily means that the outcome of the meetings of the COI depended on the votes of unauthorised persons. The fact that it cannot be proved that a differently constituted committee might have reached a different result may be accepted but it also makes the Commonwealth’s point. It equally cannot be known that a differently constituted committee might not have reached a different result – in circumstances where, first, the COI made important decisions (including about the liquidators’ remuneration) and, secondly, it is for the liquidators to prove that no substantial injustice has been or is likely to be caused to any person.

182    To my mind, the fact are not analogous to Great Southern. This is not a case in which a condition precedent to the constitution of a COI was omitted to be done. It is a case in which the COI itself has not been properly constituted. Further, no one in Great Southern was suggesting that the making of validation orders would result in substantial injustice. In these circumstances the matters to which Pritchard J referred in [19] of the reasons (“it is highly desirable that the appointment of the Committees of Inspection of the Companies be validated, having regard to the complexity of the winding up, the significant costs which have been incurred to date, and which will continue to be incurred, and the number and value of claims by creditors against each of the Companies”) understandably carried significant weight. But here the Commonwealth does assert substantial injustice from the disenfranchisement of it and the other creditors from having a properly constituted COI where only authorised representatives of creditors (being the persons with the financial interest in the winding up), and such authorised representatives alone, are entitled to participate in meetings and to vote. As Lindsay J said in Re Ryde the right to vote is a “precious thing”. Creditors were entitled under the scheme of the legislation to be effectively represented on the COI. They were not effectively represented because one or two attendees at every meeting of the COI (consisting of only three members on the liquidators’ case) was not an authorised representative of a member (on any view of the facts as described above). Given the legislative scheme, what occurred in this case strikes at the heart of the legislative intention to ensure effective creditor representation in the winding up process. I consider the effective disenfranchisement of the body of creditors, who intended to have three creditor representatives as members of the COI but ended up with only one (the Deputy Commissioner), amounts to substantial injustice within the meaning of s 1322(6)(c) of the Act.

183    I otherwise deal with the liquidators’ submissions below.

184    As has been noted, the issue is one of substantial injustice to any person, which includes the creditors. The fact that a refusal to make the orders the liquidators seek will mean that they have to seek creditor approval of their remuneration or, failing that, Court approval may be accepted. But as the Commonwealth submitted the evidence of cost that it will involve to do so is relatively trivial compared to the overall size of the sums involved in the winding up and the size of the liquidators’ remuneration. In respect of the issue of delay, it may be accepted that there will be some delay in the finalisation of the winding up but a countervailing consideration is the magnitude of the liquidators’ costs and expenses which are in issue and the fact that those costs and expenses were approved by an improperly constituted COI in which authorised persons exercised a right to vote and, in the case of many meetings, constituted the majority of persons at the meeting exercising voting rights.

185    The fact that the Commonwealth was preparing to challenge the reasonableness of the liquidators’ remuneration and expenses (on the basis that the resolutions of the COI were valid) does not mean that it effectively waived any capacity to contest the liquidators’ current application for relief. Nor does it prove the lack of substantial injustice to the creditors from the improper constitution and functioning of the COI. The proceeding having been instituted by the liquidators the Commonwealth was entitled to contest the application for relief. Nothing in the conduct of the Commonwealth suggests that its real interest in this matter is confined to the seeking of some tactical advantage over the liquidators in respect of the liquidators’ remuneration. The fact that the Commonwealth may gain some advantage if relief is refused, given that the Commonwealth wishes to contest the reasonableness of the remuneration, does not mean that there is any impropriety or sharp practice in the Commonwealth having taken the position it has to contest the liquidators’ application for relief. Further, the Commonwealth does not suggest that the fact of not gaining this advantage is any form of injustice to it. The Commonwealth has identified the injustice in the fact of disenfranchisement of the body of creditors from having proper representation on a COI where one or two attendees at every meeting was not authorised to participate or vote but nevertheless did so.

186    The liquidators’ submissions about the Deputy Commissioner seem to me to go nowhere. No estoppel is or could be asserted. Characterising the Deputy Commissioner as the Commonwealth’s agent does not assist in clarifying the case which the liquidators are attempting to put. Can it really be said that in respect of the exercise of functions on the COI the Deputy Commissioner, who was a creditor for one debt, was authorised to represent the specific interests of the Commonwealth, which was a creditor for another debt? The answer must be that the Deputy Commissioner was no more an agent for the Commonwealth for this purpose than the Deputy Commissioner was an agent for any other creditor. And as the Deputy Commissioner submitted, the issue of the function and role of the Deputy Commissioner on the COI was not squarely put in issue until the liquidators’ written submissions were filed. In common with the issue of honesty discussed above, it must be accepted that I am in no position to know what view the Deputy Commissioner took of the Deputy Commissioner’s function on the COI. The liquidators’ submissions about the Deputy Commissioner, in my view, are no answer to the Commonwealth’s case that the improper constitution and functioning of the COI was inconsistent with the objects of the legislative scheme and fundamentally undercut the role of a COI to represent the interests of all creditors when deciding on matters in respect of the winding up. As much as any other creditor, the Deputy Commissioner was entitled to have a properly constituted and functioning COI. The fact that the Deputy Commissioner voted consistently with the unauthorised representatives does not alter the prejudice to all of the creditors, including the Deputy Commissioner, from the improperly constituted COI and the exercise of voting rights by unauthorised persons.

187    I do not think there is any role for the concepts of implied representations by the Deputy Commissioner as to validity of the COI or the doctrine of acquiescence in deciding the question whether no substantial injustice has been or is likely to be caused to any person by reason of the contraventions. There is no evidentiary foundation to infer that the Commonwealth was aware of the problem with the constitution of the COI and sat on its hands for six years. Nor is there any evidence of the Deputy Commissioner having done so. While it may be accepted that the winding up process has taken a lengthy period and that, had they known of the issue, it would have been desirable for the issue to have been raised and resolved far earlier in the process, the fact is also that the liquidators had six years to identify the problem with the COI but failed to do so. While I have not accepted that the liquidators or the representatives of IFCC or the TWU were other than honest in the performance of their duties, there is a question which arises, at least for the liquidators, why it did not occur to them that the representatives of IFCC or the TWU did not have a real financial interest in the winding up after 2 July 2012 so that it would be prudent to seek their resignation and to go back to creditors to reconstitute the COI with members who had a real financial interest in the process. In other words, the passage of six years before the raising of the issue is regrettable but it is not clear why the blame for that position is to be attributed to the Commonwealth merely because it is the party who raised the issue. The liquidators themselves were in possession of all the relevant facts and, with a greater degree of prudence, could have identified the problem with the constitution of the COI from the outset.

188    The factors on which the liquidators relied to support that it was just and equitable to grant the relief sought (significant cost of the winding up, winding up has been complex and protracted, need to bring winding up to an end and minimise future costs) do not engage with the injustice which the Commonwealth has identified. The three points on which the liquidators relied may be accepted. But equally it must be accepted, in my view, that the COI was never properly constituted and that persons who were not authorised to do so participated in and voted on matters of importance, including substantial remuneration to the liquidators, at every meeting of the COI. The involvement of those unauthorised persons in the functions of the COI, particularly their exercise of voting rights in circumstances where the COI (on the liquidators’ case) consisted of only three members, had the substantive effect of undermining the important role the COI was intended to play and should have played in this winding up.

189    I do not consider the fact that the liquidators invited the Department of Education, Employment and Workplace Relations to be appointed to the COI on 2 July 2012 undermines the Commonwealth’s position. The fact that the Commonwealth did not seek to be a member of the COI does not mean that it waived any and all contraventions of the Act with respect to the constitution and functioning of the COI.

190    I have already addressed above the liquidators’ submission that the Commonwealth has not proved that there might have been different results if the COI had been properly constituted and meetings had only been attended by authorised representatives of the members of the COI. The answer to the submission is that the liquidators bear the onus of proof and it may equally be said that it is not possible to infer that the outcomes would not have been different had the contraventions not occurred. The Commonwealth’s submissions do not involve a mere restatement of the contraventions. The presence of unauthorised persons on the COI and their purported exercise of voting rights involves matters of substance in conflict with the core functions of a committee of inspection under the legislation. As a person with a substantial interest in the winding up the Commonwealth was entitled to have a COI which was properly constituted and exercised its voting rights in accordance with the Act. That did not occur in circumstances where it cannot be inferred that infer that the outcomes would not have been different had the contraventions not occurred. In my view, this involves real and not merely theoretical prejudice to the interests of the Commonwealth and the other creditors.

191    I do not accept that the Commonwealth’s case lacks coherence. The Commonwealth and the Deputy Commissioner are the major creditors but there are numerous creditors. Each had a real interest in the COI being properly appointed and ensuring that those exercising voting rights on the COI were authorised to do so. The Commonwealth’s reliance on the interest of all creditors which has been undermined by the contraventions is not mere window dressing. The Commonwealth’s submission that what occurred in this case strikes at the heart of the representative regime for which the legislation provides is persuasive and sufficient to support the conclusion that I cannot be satisfied that no substantial injustice has been or is likely to be caused to any person by reason of the contraventions.

192    For the same reasons I consider that it is not just and equitable that the orders for validation which the liquidators seek be made as referred to in s 1322(6)(a)(iii) of the Act.

CONCLUSIONS

193    For these reasons the orders sought by the liquidators in paragraphs 1 to 9 of the amended originating application should not be made.

Associate:

Dated:    18 September 2020

SCHEDULE OF PARTIES