Federal Court of Australia

Ball, in the matter of J.W. Mailing Services Pty Ltd (in liq) (Subject to Deed of Company Arrangement) [2023] FCA 1479

ORDERS

THE COURT ORDERS THAT:

1.    The Further Amended Originating Process dated 14 November 2023 be dismissed.

2.    There be no order as to costs.

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

REASONS FOR JUDGMENT

CHEESEMAN J

1    These reasons concern an application under s 447A of the Corporations Act 2001 (Cth) and s 90-20 of Schedule 2 to the Act (Insolvency Practice Schedule (Corporations) 2016) (IPS) in relation to a Deed of Company Arrangement in relation to the first defendant, JW Mailing Services Pty Ltd (in liquidation) (subject to deed of company arrangement) entered on 14 January 2022 (the DOCA) and subsequently amended on 8 November 2023 (the Amended DOCA).

2    The second defendant, John Anthony White, has been the sole director and shareholder of JW Mailing since it was established. He was the proponent of the DOCA proposal and is solely responsible for making the contributions by which the Deed Fund is established under the DOCA, now the Amended DOCA.

3    By Originating Process dated 26 July 2023 the plaintiffs, Mitchell Warren Ball and Domenico Alessandro Calabretta, the Deed Administrators of JW Mailing originally sought orders terminating the voluntary winding up of JW Mailing and termination of the DOCA. During the hearing on 7 September 2023, the plaintiffs read the affidavits of Mr White sworn on 28 June 2023 and Mr Ball sworn on 25 July 2023 and tendered a letter from Mr Ball to creditors of JW Mailing dated 10 August 2023 informing them of the hearing date.

4    That hearing was adjourned part heard. The reasons for the adjournment included that I was not satisfied that interested parties had been given appropriate notice of the likely impact on creditors of the relief then being sought by the plaintiffs, amongst other matters. At that time, the relief sought was predicated on the Court sanctioning a construction of the DOCA that would have the effect that the second of two contributions to the Deed Fund by Mr White (the Contribution) would not be made. Prior to the recent execution of the Amended DOCA, the Contribution was to be “in a sum, such sum discharging all of the approved and verified unsecured creditors of the Company as at 21 August 2017 and including all approved unpaid remuneration and disbursements of the Liquidator, Voluntary Administrators and Deed Administrators”. The plaintiffs sought to stand over the proceeding for one month to, in effect, recast the application, and to comply with the orders I made in relation to giving adequate notice to creditors.

5    The resumption of the hearing was further delayed to accommodate the plaintiffs putting a proposal to vary the DOCA to a meeting of creditors.

6    The hearing resumed on 9 November 2023, by which time an Amended Originating Process had been filed and served. It is not necessary to address the Amended Originating Process because at the resumed hearing on 9 November 2023, the plaintiffs sought leave to file and serve a Further Amended Originating Process (FAOP) and tendered the Amended DOCA (which had been executed the day before the resumed hearing). At the hearing on 9 November 2023, I made an order, inter alia, granting leave to file the FAOP and otherwise dispensing with service. The FAOP dated 14 November 2023 was subsequently filed on 15 November 2023.

7    At the resumed hearing, the plaintiffs read the following affidavits:

(1)    Mr Ball, liquidator and deed administrator, sworn 22 September 2023, with Exhibit MWB-1 to that affidavit being tendered;

(2)    Andrew Stephen Manning, plaintiffs’ solicitor, sworn 20 October 2023;

(3)    Daniel Suckling, paralegal, sworn 12 October 2023 (in relation to service);

(4)    Joseph Khoury, process server, sworn 11 October 2023; and

(5)    Clark Shaw, process server, sworn 11 October 2023.

8    The plaintiffs also tendered the minutes of the further meeting of creditors of JW Mailing held under s 445A of the Act on 26 October 2023 and the Amended DOCA.

9    In these circumstances, the parties were content for the balance of the relief sought in the FAOP to be determined on the papers.

10    I am satisfied that the plaintiffs have complied with the orders that I made on 7 September 2023 which required the plaintiffs to provide the Australian Securities and Investments Commission (ASIC) and creditors with adequate notice of the relief sought in the proceeding. ASIC has confirmed that it does not intend to intervene. Creditors were notified that the plaintiffs intended to recast the relief they were seeking with the effect that they would seek to enforce payment of the Further DOCA Contribution from Mr White. On this basis, creditors were informed that the plaintiffs expected that the Deed Fund would be sufficient to provide creditors with a full return on their proofs of debt, whereas under the previous proposal, which was predicated on terminating the DOCA on the basis of the initial Deed Fund contribution only, the return would have been approximately 25.78 cents in the dollar. Having regard to the manner in which the (second) Contribution was to be calculated, the plaintiffs’ expectation that unsecured creditors would be paid in full, was reasonably based. A similar expectation would apply to the costs of all the external administrators involved with JW Mailing. Given the change in the plaintiffs’ approach, and the communication of the expectation that creditors would be paid in full no creditors sought to be heard in response to that notification.

11    However, subsequent to that communication, the plaintiffs’ position further evolved as a result of the Amended DOCA being executed. The obligation of Mr White to pay the Contribution in the DOCA was replaced in the Amended DOCA by an obligation on Mr White to pay an additional contribution capped in the sum of $92,391.15 (the Further DOCA Contribution). The Further DOCA Contribution in the fixed sum of $92,391.15 was to be applied as follows:

(1)    $65,000 to the plaintiffs on account of additional legal costs; and

(2)    $27,391.15 to unsecured creditors resulting in a return of 50 cents in the dollar on their proofs of debt.

12    The Amended DOCA resulted from a proposal made by Mr White in which he sought to vary the DOCA. Mr White’s proposal was recommended to creditors by the plaintiffs. The plaintiffs’ recommendation was predicated on a guaranteed return of 50 cents in the dollar to ordinary unsecured creditors. The plaintiffs’ view was that to seek to enforce the Contribution from Mr White in accordance with the DOCA as originally executed would likely result in additional legal costs being incurred in litigating against Mr White. Further, that the plaintiffs would not fund the legal expenses of such litigation, their solicitors would not undertake the work on a speculative basis and no litigation funder approached was willing to provide such funding.

13    At a further meeting of creditors, a resolution was passed to enter into the Amended DOCA based on the proposal made by Mr White. As noted, the Amended DOCA was then executed.

14    Although the plaintiffs press to have the Court make orders, now framed by reference to the Amended DOCA, they have not relied on any evidence which would justify the Court in making the orders sought. The orders in large part seek to bootstrap the obligations in the Amended DOCA by embodying those obligations in Court orders or otherwise to make specific orders in respect of matters that would result from the operation of the relevant provisions of the Act. I am not satisfied that it is appropriate to make the orders sought by the plaintiffs. On my review of the plaintiffs’ proposed short minutes of order, there is only one aspect of the orders sought that may partially fall outside the observations I have just made. That aspect is in relation to what appears to be an obvious typographical error in the Amended DOCA, whereby the reference in clause 10.3 to clause 21 should be read as a reference to clause 22. Given that the error is obvious on the face of the Amended DOCA I do not think it is necessary to make the order sought in relation to this error, and in any event the order sought is not confined to the typographical error. I note that the error, again, an obvious error, is repeated in Item 12 of the Reference Schedule, where a further obvious error is made in referencing to clause 10.2 instead of clause 10.3.

15    Accordingly, the only orders I will make are that the Further Amended Originating Process be dismissed and there be no order as to costs.

16    To be clear, the plaintiffs are not precluded by reason only of the outcome of this proceeding from commencing other proceedings in relation to the Amended DOCA should it be necessary or desirable to do so. Any such proceeding should be accompanied by cogent evidence in support of the relief claimed

Associate:

Dated:    29 November 2023