Federal Court of Australia

Mansfield (liquidator), in the matter of NR Complex Pty Ltd (in liquidation) (receivers and managers appointed) [2023] FCA 614

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 482 of the Corporations Act 2001 (Cth) (Act), with effect from the appointment of the plaintiff (Liquidator) as voluntary administrator of NR Complex Pty Ltd (in liquidation) ACN 149 657 910 (Company), the winding up of the Company be stayed until the end of the voluntary administration of the Company pursuant to s 435C of the Act.

2.    Pursuant to s 436B(2)(a) of the Act, the plaintiff be granted leave to be appointed as voluntary administrator of the Company and deed administrator of any deed of company arrangement entered into by the Company in the course of the voluntary administration.

3.    Pursuant to s 447A of the Act, Pt 5.3A of the Act is to operate in relation to the voluntary administration of the Company on the following terms (with these orders to prevail to the extent of any inconsistency with the provisions of Pt 5.3A of the Act):

(a)    there is to be no requirement that a first meeting of creditors in the administration of the Company to be convened or held;

(b)    s 438B(2) of the Act does not apply to the administration of the Company;

(c)    The Liquidator (as administrator of the Company) may convene and hold the meeting(s) required under s 439A of the Act at any time during the convening period (as defined in the Act), provided that notice of such meetings is provided in accordance with r 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPS Rules);

(d)    in and for the purposes of the administration of the Company, the Liquidator (as administrator of the Company) may accept as proofs of debt in the administration of the Company any proofs of debt submitted by creditors in the course of the liquidation of the Company, without adjustment for interest in respect of the claims the subject of such proofs of debt; and

(e)    s 439C(c) of the Act does not apply with respect to the administration of the Company.

4.    The Court determines, pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS) being Sch 2 to the Act, that the Liquidator is justified and acting reasonably in not requiring or receiving a “Report on Company Activities and Property” from the director of the Company.

5.    The Liquidator’s costs of and incidental to this application be costs in the liquidation of the Company and are to be paid out of the assets of the Company.

6.    Liberty to apply on 3 days’ notice, specifying the relief sought.

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

REASONS FOR JUDGMENT

HALLEY J:

A.    Introduction

1    NR Complex Pty Ltd (in liquidation) (receivers and managers appointed) (NR Complex) is presently being wound up in insolvency.

2    Mr David Ian Mansfield is the liquidator of NR Complex.

3    By an interlocutory process filed on 30 May 2023 (Interlocutory Process), Mr Mansfield seeks orders that:

(a)    leave be granted under s 436B(2)(g) of the Corporations Act 2001 (Cth) to enable his appointment as a voluntary administrator of NR Complex;

(b)    the voluntary administration procedure be truncated under s 447A of the Act;

(c)    he is justified in not requiring or receiving a “Report on Company Affairs and Property” from NR Complex under s 90-15(1) of the Insolvency Practice Schedule (Corporations) (IPS) being Sch 2 to the Act; and

(d)    the winding up of NR Complex be stayed with effect from his appointment as voluntary administrator of NR Complex under s 482(1) of the Act.

4    The Interlocutory Process is supported by an affidavit of Mr Mansfield sworn on 29 May 2023 and an affidavit of Thomas Karle, a solicitor employed by Bridges Lawyers, the solicitors for Mr Mansfield, affirmed on 7 June 2023.

5    Mr Anderson of counsel appeared for Mr Mansfield and prepared detailed written submissions which I have found to be of considerable assistance.

6    The application the subject of the Interlocutory Process was made on notice to the creditors of NR Complex.

7    Mr Olthof, a solicitor employed by Craddock Murray Neumann Lawyers, appeared for the Deputy Commissioner of Taxation (DCT). The DCT is the principal creditor of NR Complex. Mr Olthof confirmed that given an agreed amendment to the s 482(1) order sought by Mr Mansfield, staying the winding up of the company to only the end of the voluntary administration, the DCT did not oppose any of the orders sought in the Interlocutory Process.

8    No other creditor of NR Complex appeared or otherwise indicated any opposition to the orders sought in the Interlocutory Process.

B.    Background

9    NR Complex was incorporated on 3 March 2011. Its sole director, secretary and shareholder is Mr Sam Fayad. It has been in receivership since 3 December 2020.

10    Mr Mansfield’s investigations have shown that NR Complex was a developer of residential and commercial property that did not employ any staff.

11    On 7 December 2022, NR Complex was wound up by orders made by Registrar Segal in this proceeding.

12    Mr Mansfield has received a “Report on Company Activities and Property” (ROCAP) from Mr Fayad. He has also prepared a “Report to Creditors” which addresses the financial position of NR Complex and the results of his investigations. Unsecured claims in the liquidation exceed $22.8 million.

13    Mr Mansfield gives evidence that there are insufficient funds in the liquidation to permit the declaration of a dividend to any class of creditor and a future dividend would depend on recoveries (which he considers are uncommercial to pursue). He states that, in any event, he has received no offer of funding.

14    On 29 May 2023, Mr Mansfield received a proposal for a Deed of Company Arrangement (DOCA). His solicitors have received the sum of $450,000 from the deed proponents, which is to be used to meet the costs of the present application and to be applied as the “Deed Fund”, if a DOCA is ultimately entered into.

15    Mr Mansfield’s present view is that if a DOCA in the terms proposed is effectuated, participating unsecured creditors will receive a better return (2.51 to 2.63%) than on a winding up of NR Complex.

16    Mr Mansfield seeks the relief claimed in the Interlocutory Process so that he may appoint himself as voluntary administrator of NR Complex and the deed proposal can be considered by its creditors.

C.    Leave under s 436B(2)(g) of the Act

C.1     Relevant provisions and principles

17    A liquidator of a company may appoint a voluntary administrator if they think that the company is insolvent or is likely to become insolvent at some future time: s 436B(1) of the Act. A liquidator cannot, however, seek or consent to their appointment as a voluntary administrator except with the leave of the Court: s 448C(1)(b)(v) of the Act.

18    The test for leave is not an onerous one: Re Cobar Mines Pty Ltd (In Liq) (1998) 30 ACSR 125 at 126 (Bryson J); see also In the matter of Equiticorp Australia Ltd (in liq) and Ors [2020] NSWSC 143 at [21] (Gleeson J). Nevertheless, the grant of leave should not be treated as a “mere formality, or mere procedural obstacle”: Re Keldane Pty Ltd (in liq) [2011] VSC 385 at [13] (Pagone J); see also Australian Securities and Investments Commission v Diploma Group Limited (No 5) [2017] FCA 1147 at [40] (McKerracher J); Deputy Commissioner of Taxation (Cth) v Foodcorp Pty Ltd (1994) 13 ACSR 796 at 799 (Hodgson J).

19    A liquidator will generally be granted leave to appoint themselves as the administrator, unless there are distinct reasons why they are not a suitable person. This reflects the “desirability of continuity” of persons in charge of the management of the company: Parkes Leagues Club Co-op Limited (In Liq) [2004] NSWSC 16 at [5] (Hamilton J) citing Re Cobar at 126 (Bryson J).

20    The primary question on an application for leave for self-appointment as a voluntary administrator is whether the liquidator is “an appropriate person to be an administrator”: Foodcorp at 799. A Court should generally grant leave if the person is an official liquidator with no prior association with the company and its officers and there is no distinct reason why their appointment would be inappropriate: Foodcorp at 799.

21    The appropriateness of an appointment requires consideration of whether there are any matters such as a “conflict of interest, threat to independence or anything else offensive to commercial morality”: Diploma Group at [40].

22    Relevant considerations on an application of this kind include the proposed appointee’s familiarity with the business and affairs of the subject company, the likely reduction in duplication and associated costs where a liquidator is appointed as administrator including where considerable work has already been undertaken and where continuity of appointees is desirable having regard to ongoing negotiations and/or complex arrangements: see Equiticorp at [23] (Gleeson J).

C.2    Whether leave under s 436B(2)(g) of the Act should be granted

23    I am satisfied that leave should be granted for Mr Mansfield to appoint himself as a voluntary administrator of NR Complex for the following reasons.

24    First, as a registered liquidator, Mr Mansfield is appropriately qualified for the purposes of s 448B of the Act.

25    Second, Mr Mansfield has developed familiarity with the affairs of NR Complex, including by reason of the investigations he has carried out in the course of his appointment as liquidator. His appointment as voluntary administrator would avoid the inevitable duplication involved in appointing an alternative administrator.

26    Third, Mr Mansfield has engaged with representatives of the deed proponents who have gone so far as to deposit the funds to constitute the “Deed Fund” in the trust account of Mr Mansfield’s solicitors. In those circumstances, there is a likely advantage to the efficient administration of the company in maintaining continuity between the liquidation and voluntary administration.

27    Fourth, expenses have been incurred and work-in-progress has accrued in the liquidation. These expenses would likely be duplicated and wasted, at least in part if an alternative administrator were appointed.

28    Fifth, the evidence relied upon by Mr Mansfield discloses no real or potential conflict of duty or interest and no other matter which could be considered offensive to commercial morality, if Mr Mansfield is appointed as a voluntary administrator of NR Complex.

D.    Truncation of the voluntary administration

D.1    Relevant provisions and principles

29    Section 447A(1) of the Corporations Act empowers the Court to make any order it thinks appropriate about how Pt 5.3A of the Corporations Act is to operate in relation to a particular company. The Court’s main concern in the making of such an order, is to consider the best interests of a company’s creditors as a whole: Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717 at [104] (Middleton J).

30    The powers of the Court under s 447A of the Act are wide but not entirely without limit: Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; [2000] HCA 30 at [20] (Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ); see also In the matters of MROC Car Wholesalers Pty Ltd and ors [2017] NSWSC 287 at [30] (Gleeson JA). In Australian Memory at [20], their Honours’ identified the following limitations on the Court’s discretion under s 447A:

first, that s 447A does not permit a court to make an order altering the times fixed by those provisions of Pt 5.3A which contain express provision for variation of the time so fixed; second, that it permits only orders having prospective effect; third, that it does not permit the making of orders affecting vested rights; and, fourth, that it does not apply unless there is a continuing administration (or, presumably, an extant deed of company arrangement).

D.2    Whether the orders sought under s 447A of the Act should be made

31    Mr Mansfield seeks the following orders pursuant to s 447A of the Act.

32    First, an order that the requirement to hold a first meeting of creditors of NR Complex under s 436E of the Act be dispensed with. He seeks what is commonly referred to as “truncated administration orders”. Such orders are often sought where a liquidator seeks leave to be appointed as administrator: see Diploma Group at [65]. There are numerous examples of administrations, following liquidations, where the meeting requirement under s 436E of the Act has been dispensed with: see Smith in the matter of Actively Zoned Pty Ltd (in liq) [2012] FCA 605; Schwarz, in the matter of Gordon Smith Marketing Pty Ltd (Administrator Appointed) [2016] FCA 1378; Diploma Group at [64]-[65]; Equiticorp at [32]-[40]; Hughes, in the matter of Vah Newco No. 2 Pty Ltd (in liq) [2020] FCA 1121 at [30] (Middleton J). Such orders have been made where creditors have already had an opportunity to familiarise themselves with the affairs of the relevant companies, and where a first meeting would be a costly administrative burden: Gordon Smith at [17] (Jagot J, as her Honour then was). I am satisfied that is also the case here.

33    Second, an order that the requirement for a director of NR Complex to deliver a further report to Mr Mansfield concerning the business, property, affairs and financial circumstances of NR Complex under 438B(2) of the Act, be dispensed with. Section 447A enables the Court to excuse compliance with s 438B(2): Peter Ngan re JKB Constructions Pty Ltd [2006] NSWSC 1040 at [7] (Barrett J).

34    Third, an order that the meetings required to be held under s 439A of the Act be held at any time during the convening period for such meetings. Such a modification to the operation of Pt 5.3A of the Act is also in the nature of a “truncated administration order”. I accept that it would not be appropriate that Mr Mansfield, as administrator, be required to “sit on [his] hands” if he is otherwise ready to convene the meetings under s 439A more quickly than Pt 5.3A contemplates: Sims, in the matter of Destra Corporation Limited [2009] FCA 1199 at [25] (Lindgren J).

35    Fourth, an order that Mr Mansfield may accept proofs of debt lodged in the liquidation of NR Complex as proofs in the administration of NR Complex. Such a course was adopted in both Destra Corporation and in Equiticorp. In Destra Corporation, Lindgren J regarded it to be a “superfluous and wasteful” course for the plaintiffs to deal with new proof of debt forms when proofs had previously been submitted: at [5].

36    Fifth, an order that s 439C(c) of the Act should not apply with respect to the administration of NR Complex. Such an order has been made to preserve the possibility of an earlier relation-back day, where a company the subject of a pending winding up petition, was placed into voluntary administration: Deputy Commissioner of Taxation v Advant Pty Ltd (Administrators Appointed) [2017] FCA 1123 at [32] (Markovic J).

37    I am satisfied that there are sound reasons for the Court to make the orders sought by Mr Mansfield for the following principal reasons.

38    First, the orders sought will avoid the unnecessary duplication of work and therefore, achieve efficiencies, which will ultimately be advantageous to and benefit the creditors of NR Complex.

39    Second, the affairs of NR Complex have already been the subject of investigation and reporting.

40    Third, excluding a potential resolution under s 439C(c) of the Act to wind up NR Complex at the second meetings of creditors avoids the undesirable scenario where NR Complex could be in two parallel liquidations.

41    Fourth, the orders sought will facilitate the object of Pt 5.3A because the business, property and affairs of NR Complex will be administered in a way that may well result in a better return for its creditors than would result from an immediate winding up.

42    Fifth, none of the relief sought falls within any of the particular limitations referred to in Australasian Memory, and I am not aware of any discretionary reason why the relief would not be granted.

E.    Direction under s 90-15(1) of the IPS

E.1    Relevant provisions and principles

43    Section 90-15(1) of the Insolvency Practice Schedule (Corporations) (being Schedule 2 to the Act) (IPS) provides that the Court may make any orders it thinks fit in relation to the external administration of a Company. Section 90-15(1) confers a “very broad” power on the Court by virtue of the words “such orders as it (the Court) thinks fit”: Kelly, in the matter of Halifax Investment Services Pty Ltd (in liquidation) (No 8) [2020] FCA 533 at [51] (Gleeson J, as her Honour then was). It includes a power to make orders determining any question arising in the external administration of the company: s 90-15(3)(a).

44    The principles governing the Court’s power to give directions under s 90-15(1) of the IPS, and its predecessor provisions, s 479(3) and s 511 of the Act, are well-established: Re Broens Pty Limited (in liq) [2018] NSWSC 1747 at [40] (Gleeson JA).

45    The “prevailing principle” to be applied in circumstances where liquidators and administrators request a judicial direction in respect of a business or commercial decision, is that the decision must give rise to an issue requiring the exercise of legal judgment. An issue of this kind includes one of substance or procedure or of power, propriety or reasonableness of the decision: Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409; [2002] FCA 90 at [65] (Goldberg J); see also Re MF Global Australia Ltd (in liq) (2012) 267 FLR 27; [2012] NSWSC 994 at [7]-[9] (Black J).

46    The purpose of a liquidator’s application for judicial advice is to obtain guidance as to “the proper course of action” to be taken in the liquidation and, therefore, facilitate the performance of the liquidator’s functions: MF Global at [7]-[9] (Black J) and the cases cited therein; see also Re Broens at [44]. To give effect to the purpose, a Court will have regard to whether a judicial direction would be to “of advantage in the liquidation”: MF Global at [7] and the cases cited therein; see also In the matter of Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 at [9] (Black J) and the cases cited therein.

E.2    Whether the direction sought under s 90-15(1) of the IPS should be made

47    Mr Mansfield seeks a direction that he would be justified in not requiring or receiving any “Report on Company Activities and Property” from NR Complex’s director. I am satisfied that this direction does not concern a mere business or commercial decision.

48    I am satisfied that the direction would be advantageous to the external administration of NR Complex, and would aid in maximising the efficiencies in transitioning from one mode of external administration to another. It would also complement the relief sought under s 447A of the Act in relation to dispensation with the requirements of s 438B(2), addressed above at [33] and [38]-[39].

F.    Stay of the winding up

49    Section 482(1) of the Act provides that on an application, a Court may, at any time during the winding up of a company, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a specified day

50    It has been recognised that a stay of a winding up upon the appointment of an administrator “may be appropriate where it is designed to facilitate the proposed restructuring transactions and finalise the external administrations (rather than restore the company to ordinary trading operations)”: Vah Newco at [32] citing Equiticorp at [53].

51    The purpose of the stay sought in the present case, while not identical to the stays sought in either Vah Newco or Equiticorp, has similar considerations underpinning it. A continuation of the liquidation in parallel with the voluntary administration would be “duplicative and wasteful”. The winding up would also not be terminated at this stage. The Court, therefore, retains the discretion to consider whether it would be in the creditors’ interests for that to occur at a later point: Vah Newco at [44]. For those reasons, I am satisfied that the Court should order a stay of the winding up of NR Complex.

52    The order sought by Mr Mansfield is framed as a conditional order. The purpose of a conditional order can be to specify what the successful party must do to receive the benefit of the order and that party can then decide whether to take the specified steps and gain the benefit: Asia Pacific Glass Pty Ltd v Sindea Trading Co (No 2) [2003] NSWSC 845 at [13] (Barrett J); In the matter of Wabbits Pty Ltd [2018] NSWSC 532 at [32]-[33] (Gleeson JA). Here, it is submitted that a conditional order would be appropriate if it is framed such that it only comes into effect upon the commencement of the voluntary administration.

53    For the reasons submitted by Mr Mansfield, I am satisfied that the Court should order a stay of the winding up of NR Complex under s 482(1) of the Act.

G.    Disposition

54    For the foregoing reasons I am satisfied that orders are to be made substantially reflecting the relief claimed in the Interlocutory Process.

Associate:

Dated:    8 June 2023