Federal Court of Australia

Lucas, as liquidator of Blackwater Mine Workers’ Club Limited (in liq) v Blackwater Mine Workers’ Club Limited (in liq) [2023] FCA 1636

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 436B(2)(g) of the Corporations Act 2001 (Cth) (Act), the plaintiff has leave to appoint himself as administrator of the first defendant (Company).

2.    Pursuant to s 447A of the Act, Part 5.3A of the Act is to operate in relation to the administration of the Company as if:

(a)    s 436E does not apply to the administration of the Company, such that there is no requirement that a first meeting of creditors in the administration of the Company be convened or held;

(b)    s 439C(c) does not apply to the meeting of creditors to be convened and held by the plaintiff (as administrator) pursuant to s 439A of the Act;

(c)    s 438A does not apply to the administration of the Company, such that the plaintiff is not required to conduct investigations into, and report to creditors about, possible recovery actions that may be available in the event that the Company was to proceed into liquidation pursuant to Part 5.3A of the Act; and

(d)    s 438D does not apply to the administration of the company, such that the plaintiff is not required to investigate any offences by a past or present officer of the Company and the plaintiff is not required to lodge any report with the Australian Securities and Investments Commission (ASIC) about any such matters.

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

4.    Any notice required to be given pursuant to any provision in any of Part 5.3A of the Act, Part 5.3A of the Corporations Regulations 2001 (Cth) or the Insolvency Practice Schedule (Corporations), being Schedule 2 to the Act (IPS), is validly given to creditors of the Company by the taking of the following steps:

(a)    where the plaintiff has an email address for a creditor, by sending the notice by email to each such creditor, irrespective of whether the creditor has nominated to receive electronic notifications of documents in accordance with s 600G of the Act;

(b)    where the plaintiff does not have an email address for a creditor, but has a postal address for the creditor (or has received notification of non-delivery of a notice sent by email in accordance with order 4(a) above), by sending the notice by posting a copy of it to the postal address for each such creditor; or

(c)    by publishing the notice on ASIC’s published notices website appearing at https://publishednotices.asic.gov.au.

5.    Pursuant to s 90-15 of the IPS, the plaintiff is justified in:

(a)    not requiring or receiving a “Report as to Affairs” or “Report on Company Activities and Property” from any of the directors (or former directors) of the Company; and

(b)    accepting as proofs of debt in the administration of the Company any proofs of debt submitted by creditors in the course of the liquidation or prior administration of the Company conducted by the plaintiff, without adjustment for interest in respect of the claims the subject of such proofs of debt.

6.    Pursuant to s 482 of the Act, the winding up of the Company be stayed from the time that the plaintiff is appointed administrator of the Company until the date upon which the order sought in order 7 below takes effect.

7.    Pursuant to s 90-15 of the IPS or s 447A(1) of the Act, the appointment of any director by the plaintiff (as administrator) pursuant to s 442A of the Act is only to take effect in accordance with, and subject to, clause 6 of the Company’s proposed deed of company arrangement, a copy of which is contained at Exhibit “PAL-20” to the plaintiff’s affidavit sworn on 22 September 2023.

8.    Pursuant to s 482 of the Act, upon the expiry of two business days after the plaintiff (in his capacity as deed administrator of any deed of company arrangement executed by the Company) gives written notice to ASIC of the full effectuation of that deed of company arrangement, the winding up of the Company be terminated.

9.    The plaintiff’s costs of and incidental to this application be costs in the liquidation of the Company and be paid out of the assets of the Company.

10.    There be liberty to apply to any person who can demonstrate sufficient interest to modify these orders on not less than 48 hours’ notice to the plaintiff.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    Mr Peter Lucas, in his capacity as the liquidator of Blackwater Mine Workers’ Club Limited (the Company), is the plaintiff in this matter. He seeks orders that will bring an end to the Company’s winding up by his appointment as an administrator. It is anticipated that he will be able to secure the passing of a Deed of Company Arrangement (DOCA), which will allow the Company to operate into the future.

2    The Company holds a community club licence and operates a country club comprising a licenced bar with a dining room and approximately 43 gaming machines (hereinafter described as the “Country Club”), from land at 1 Mulga Street in Blackwater, Queensland (the Country Club land). The Country Club has approximately 2,247 members associated with it.

3    Presently, the Company is trading on the Country Club land, albeit it is not the owner of that land.

4    In what might be regarded as extraordinarily unusual circumstances, which will be explained in the course of these reasons, Mr Lucas seeks to convert the present winding up of the Company into an administration. The purpose of that shift is to enable a DOCA to be put to creditors for their consideration. If it passes, the Company can be returned to its former status as a trading entity.

5    In furtherance of that objective, Mr Lucas seeks a range of orders, including orders varying the operation of Pt 5.3A of the Corporations Act 2001 (Cth) (the Act) so as to facilitate the desired outcome.

The circumstances leading to the present application

6    A key entity in the present application is a company called Gersbach Professional Services Pty Ltd (GPS), which is controlled by Mr Kelvin Gersbach. That company provides management services for licensed clubs in the hospitality industry and has agreed to propose a DOCA (on terms) for consideration by the Company’s creditors, should it be placed into administration. It is a party to these proceedings and, through its Counsel, it consents to the orders sought by Mr Lucas.

7    The Australia and New Zealand Banking Group Limited (ANZ) is also an important entity in this application. It is the major secured creditor of the Company and is presently owed a debt of approximately $1.4 million. It has agreed in principle to accept an amount substantially less than that in return for a release of its security. It, too, has no objection to the orders presently being sought.

8    Also having some connection with this matter is the Central Highlands Regional Council (CHRC), being the local authority in the area where the Country Club operates. It is the owner of the Country Club land. It does not oppose the orders being sought and it, too, has reached an in-principle agreement with the Company, pursuant to which it will sell to the Company the Country Club land.

9    Finally, of some significance are several members of the Country Club who are prepared to become new directors of the Company for the purposes of its restructuring, should it be placed into administration and a DOCA thereafter take effect. Those persons are also represented in these proceedings, and they seek orders that will ensure that they are protected from liability should the proposed arrangement not proceed as anticipated.

10    As mentioned, the Company is presently in liquidation. On a broad view, the known creditors are:

(a)    ANZ, in the amount of $1,369,217;

(b)    priority unsecured creditors, in the amount of $ 63,343;

(c)    non-priority unsecured creditors, in the amount of $444,373.

11    There are also expenses in the liquidation that have accrued and are owing to Mr Lucas. The Court was informed that they total approximately $150,000.

12    The external control of the company has a long history. It was originally placed into administration on 30 May 2016. Since that time, it has continued to trade as the Country Club, although it is not entirely clear how that has occurred. Nevertheless, Mr Lucas was the administrator over that time and has become the deed administrator under several successive DOCAs, all of which appear to have failed.

13    On 30 March 2019, he became the liquidator of the Company by operation of an express provision in an amended DOCA, which brought about the automatic liquidation of the Company. It seems that the onset of the liquidation was not noticed for over a year.

14    Over time, Mr Lucas has concluded that, in order to secure an investor in the Country Club business operated by the Company, it will be necessary for the Company to become the registered proprietor of the premises from which the Country Club is operated and for ANZ, as a secured creditor, to be paid out.

15    To this end, he has engaged in negotiations with the CHRC and ANZ, proposing for their consideration an arrangement whereby the CHRC will make an application to convert the Country Club land to freehold, such that the Company may purchase it.

16    In connection with this proposed arrangement, he has sought interest from investors who might provide the funds necessary to allow the Company to acquire the Country Club land. After some substantial negotiations, GPS has indicated its preparedness to be involved. It has offered to loan funds to the Company to allow it to pay its creditors and to acquire the Country Club land. Once that occurs, the Company will enter into a Management Agreement with GPS, whereby the latter will become the operator of the Country Club.

17    In February 2022, Mr Lucas reached an in-principle agreement with GPS as to the broad terms of a DOCA and certain other documents necessary to give effect to the proposed arrangement described above.

18    The terms of the proposed DOCA include, in broad terms, the following components:

(a)    GPS will become the new operator of the Country Club under the terms of a ‘Management Agreement’ which will provide for GPS’ permitted use of the Country Club’s liquor and gaming licence;

(b)    the Company and GPS will share the ongoing profits generated by the Country Club under GPS’s management in agreed proportions;

(c)    GPS will advance to the Company a loan of funds to enable it to complete the purchase of the Country Club from CHRC in the amount of approximately $68,524.69 (plus survey lodgement fees) (Premises Loan);

(d)    GPS will advance a further loan to the Company in the amount of $755,000.00 (Operating Loan) pursuant to which:

(A)    the Plaintiff’s remuneration, costs and expenses of the Company’s liquidation and the new administration of any DOCA will be paid;

(B)    ANZ will be paid an agreed lump sum amount in full and final settlement of its secured debt;

(C)    priority creditors will be paid the full amount of their claims;

(D)    unsecured creditors (other than ANZ) will receive a dividend from a pool of funds totalling $25,000.00 in respect of their debts; and

(E)    any balance of funds will be paid to ANZ;

(e)    ANZ will release its security over the Club Premises and the assets of the Company in exchange for a sum to be agreed;

(f)    GPS will receive security over the Club Premises to secure the repayment of the Premises Loan and the Operating Loan;

(g)    Mr Lucas, as liquidator will make:

(A)    an application to the Office of Liquor and Gaming Regulation (OLGR) to approve entry into the Management Agreement; and

(B)    an application to the Court for leave to appoint himself as administrator of the Company.

19    It was submitted on behalf of Mr Lucas that putting this restructure together has been a complex and onerous task, involving multiple transactions with a heightened degree of complication and uniqueness. So much should be accepted, as the evidence discloses that a not-insignificant amount of time must have been expended on his part in bringing the proposed arrangement together.

20    It is to Mr Lucas’ credit that he has been able to identify an avenue by which the liquidation may be brought to an end in a way that will, as best as is possible, advance the interests of all relevant parties. Importantly, his proposal will allow the Company and the associated Country Club business to continue in existence. The importance of that outcome should not be underestimated.

21    Mr Lucas has reached the point where he is satisfied that there is sufficient certainty in relation to the several in-principle agreements currently in place for him to make the present application that he be appointed as the Company’s administrator, allowing him to bring the overall arrangement to fruition. Though the matter is somewhat complex, and there were originally several conditions to be satisfied before the arrangement could proceed, most have now been met. The final matters requiring resolution are relatively minor and their completion, barring unforeseen circumstances, is likely to occur.

22    Further, Mr Lucas has also ascertained that, if the proposed DOCA is accepted, the Company’s creditors will be in a better position than they would be in if the current winding up of the Company was to proceed.

The nature of the application

23    The application for Mr Lucas to appoint himself as administrator is made under s 436B of the Act, which relevantly provides:

Liquidator may appoint administrator

(1)    A liquidator or provisional liquidator of a company may by writing appoint an administrator of the company if he or she thinks that the company is insolvent, or is likely to become insolvent at some future time

(2)    A liquidator or provisional liquidator of a company must not appoint any of the following persons under subsection (1):

(a)    himself or herself;

…

unless:

(f)    at a meeting of the company’s creditors, the company’s creditors pass a resolution approving the appointment; or

(g)     the appointment is made with the leave of the court.

24    The principles relevant to the exercise of the Court’s discretion under s 436B(2) of the Act were recently summarised by O’Bryan J, in his Honour’s usual erudite and concise manner, in Brooks, in the matter of 351 Property Management & Maintenance Pty Ltd (in liq) [2023] FCA 1426 (Brooks) at [18] – [19] as follows:

18    The principles that govern an application by a liquidator for leave to be appointed as voluntary administrator pursuant to s 436B(2)(g) are well-established. Those principles were summarised by Halley J in Mansfield (liquidator), in the matter of NR Complex Pty Ltd (in liq) (recs and mgrs apptd) [2023] FCA 614 (NR Complex) at [18]-[22]:

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

(b)     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.

(c)     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.

(d)    The appropriateness of an appointment requires consideration of whether there are is “any matter such as a conflict of interest, a threat to independence, or anything else offensive to commercial reality in such an appointment”: Diploma Group at [40]; Schwarz, in the matter of Gordon Smith Marketing Pty Ltd (administrator appointed) [2016] FCA 1378 (Gordon Smith) at [11] (Jagot J, as her Honour then was).

(e)    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: Equiticorp at [23]; Diploma Group at [58]; Gordon Smith at [32(b)].

19    There is also authority which suggests that, although the main consideration upon an application such as the present one is the suitability of the appointee as administrator, the Court is nevertheless interested in a general sense to see that there is some point in the move from winding up to voluntary administration: Kukulovski, in the matter of Corrimal Leagues Club Ltd (in liq) [2013] FCA 697 at [17] (Farrell J); Rupert Co Ltd v Chameleon Mining NL [2005] NSWSC 719 at [5] (Barrett J); see also Smith, in the matter of Actively Zones Pty Ltd (in liq) [2012] FCA 605 at [4]-[5] (Jacobson J); Diploma Group at [28]. In the present context, this requires consideration of whether there is a prospect that entry into the DOCA, for which the appointment of an administrator is proposed, will lead to a better outcome for creditors than liquidation.

25    It was submitted on behalf of Mr Lucas that the Court should be satisfied that the discretion to grant leave to allow him to appoint himself as administrator ought to be exercised in his favour. He relies upon the propositions addressed below.

26    First, it was submitted that there is no distinct reason why he is not a suitable person to be appointed as administrator. It was said that the continuity in the management of the Company that this would ensure is important — in particular, because he has collaborated closely with stakeholders to negotiate and put together the aforementioned arrangement, which provides for an outcome that is superior to a liquidation. That should be accepted, and it is a significant factor favouring the grant of leave. Mr Lucas, who is a well-regarded practitioner, has been heavily involved in securing the in-principle agreement of a number of parties in relation to the overall scheme of which the proposed DOCA is an essential part. That must have taken a substantial amount of time, and in undertaking that work he would no doubt have become intimately familiar with the nature of the agreements, the positions adopted in the negotiations and the persons involved. The appointment of an alternative administrator would require additional time and cost to be expended in order to allow that person to familiarise themselves with the relevant issues and documentation. It is necessary to mention that any administration will be relatively small, and the amounts of money involved are not especially substantial. It is therefore necessary to ensure that any administration is as cost effective as possible.

27    Secondly, it was submitted that Mr Lucas is an appropriate person to be the administrator because he has had no prior association with the Company or its officers. That was a most unusual proposition to advance in the present case. The reality is that Mr Lucas has had external control of the Company for many years. He was appointed as its administrator in 2016, and became its liquidator in 2019. In these circumstances, he seems to have had substantial association with the Company in the past. Whilst in some cases that may be a disqualifying factor (and often it should be), in the unusual circumstances of this case it works to Mr Lucas’ advantage because he is the only person who presently holds the intimate knowledge of the proposed arrangement that is required to return the Company to ordinary trading.

28    Thirdly, it was submitted that Mr Lucas has no relevant conflicts. In a broad sense, that could be right. However, it is to be noted that he will be rewarded, if the Company goes into administration and the proposed DOCA is passed, by the payment of his accrued fees and expenses. It seems that the fees that he has incurred to date in putting the proposed arrangement together will be paid from the money received through the DOCA process. It follows that he has a distinct interest in seeing that the DOCA is passed at a creditors’ meeting. It may be that his fees would also be paid if the Company was to be wound up; however, that is not entirely clear. Regardless, it is important to recognise that Mr Lucas, as a creditor of the Company, is in a position of possible conflict if he is appointed as the administrator.

29    That potential conflict is not necessarily fatal to the application. It has been recognised in a somewhat analogous context that a person cannot be appointed as a liquidator of a company without the leave of the Court if he or she, or a person of whom he or she is a partner, is a creditor of the company or of a related company in an amount exceeding $5,000, and there are sound reasons for why that is so: see s 532(2) of the Act and the discussion in Michael, In the matter of Scenic Hinterland Day Tours Pty Ltd (in liq) [2023] FCA 1277 [20] – [64] (Scenic Hinterland Day Tours). The concern there is that a person who is owed a substantial sum by the company may be influenced to act in their own interests rather than pursuing the liquidation in the interests of all creditors. Nevertheless, that concern can be overcome, and it often is, as the discussion in Scenic Hinterland Day Tours reveals.

30    A similar concern arises in relation to the appointment of an administrator, but here too it can be overcome in certain circumstances. The present case involves such circumstances. On the peculiar facts of this case, there is no one better placed to be appointed as administrator than Mr Lucas, and that does not change merely because he, or his firm, is owed a substantial amount of fees from the conduct of the external administration. It might also be pointed out that external administrators will usually be in a position where they are owed substantial amounts, but they are nevertheless required to carry out the obligations of their office, thus giving rise to a potential conflict between their interest in being paid and the interests of others. These are, however, the unavoidable consequences of the work that is undertaken. Where an application is made by a liquidator for leave to appoint himself or herself as an administrator, it must simply be incumbent upon him or her to ensure that any potential conflict is disclosed to the Court.

31    Here, Mr Lucas’ entitlement to fees from the Company existed whilst he was the liquidator and arose by reason of his conduct in the external administration. For those reasons, the entitlement is unlikely to lead to any issues in future. Moreover, any concern that remains at present is outweighed by the work that Mr Lucas has done to put the proposed arrangement together. To appoint an alternative person as administrator at this point would lead, necessarily, to wasted costs.

32    It is also relevant to note that, if Mr Lucas is appointed as the administrator, he will be able to expedite the DOCA process and other agreements with which he is by now thoroughly familiar. Conversely, an alternative administrator would, as previously indicated, be required to take a substantial period of time to familiarise himself or herself with the Company and the proposed DOCA. In this case, the timing of the DOCA is important for all concerned. That includes GPS, which has proceeded on the basis that its Management Agreement will be in place during the upcoming end-of-year period — being one of the most lucrative times of year for the Country Club. There is a risk that, if the process were to be delayed by the appointment of an alternative administrator, the intended agreements might be abandoned or require renegotiation.

33    In other words, the appointment of Mr Lucas will hasten matters along, which is to the benefit of all parties.

34    It was also submitted that the proposed DOCA has good prospects of being passed by the Company’s creditors. The evidence shows that to be true. This state of affairs has come about by reason of Mr Lucas’ work in seeking and obtaining the in-principle agreement of all parties involved. In determining whether to grant leave to permit a liquidator to appoint himself or herself as an administrator, the prospect of the Company’s creditors resolving at a meeting that the Company execute a proposed DOCA is an important consideration. It might usually be expected that an application for such leave will not be made unless there is a realistic possibility of a DOCA being proposed and of it being satisfactory to the requisite majority of creditors.

35    For the foregoing reasons, it is appropriate to grant Mr Lucas leave under s 436B(2)(g) of the Act to appoint himself as the administrator of the Company.

The modification of Pt 5.3A of the Act, judicial advice and other orders

36    Mr Lucas sought further orders to the effect that certain provisions of Pt 5.3A of the Act should not apply to the future administration. In Brooks, O’Bryan J identified that, when the Court exercises its discretion under s 436B(2) to appoint an administrator to a company in liquidation, many of the provisions that would ordinarily apply are not needed, and orders can be made under s 447A(1) to relieve the administrator from the need for compliance with them. His Honour noted (at [28] – [30]) that the concern of that section is the best interests of a company’s creditors as a whole. He went on (at [31] – [36]) to consider the process of modification of the provisions of Pt 5.3A in that case in the following manner:

31    It is relevant to observe, firstly, that orders pursuant to s 447A of the kind sought in the present application (known as “truncated administration orders”) are typically made in relation to the administration process where an administrator is appointed to a company that is already in liquidation: Hughes, in the matter of Vah Newco No. 2 Pty Ltd (in liq) [2020] FCA 1121 (Vah Newco) at [30] (Middleton J); Equiticorp at [32]-[40]; Diploma Group at [65].

32    The first order sought by Ms Brooks is to dispense with the first meeting of creditors in the administration of the Company, as required under s 436E of the Act, on the basis that the first meeting was held during the earlier administration of the Company. Such an order is generally appropriate where creditors have already had an opportunity to familiarise themselves with the affairs of the relevant company, and where a first meeting would be an administrative and costly burden in those circumstances: Gordon Smith at [17]; Equiticorp at [34]; NR Complex at [32]. I accept that those circumstances arise in the present case. The avoidance of unnecessary cost in the administration of the Company will be to the ultimate benefit of its creditors.

33    The second order sought is to dispense with the requirement for the director of the Company to produce to Ms Brooks as administrator a report about the Company’s business, property, affairs and financial circumstances. Ms Brooks submits that dispensation from this requirement will avoid unnecessary work and cost, in circumstances where such a report was produced in the first administration. It is also plain that s 447A enables the Court to excuse compliance with s 438B(2) of the Act: NR Complex at [33] citing Ngan, in the matter of JKB Constructions Pty Ltd [2006] NSWSC 1040 at [7] (Barrett J). In making the order sought, I was satisfied that it is appropriate to dispense with the requirement contained in s 438B(2), in circumstances where it would be duplicative of work already done and costs incurred – a report having already been produced to Ms Brooks in the prior administration – and where, having regard to Ms Brooks’ evidence in this application, the affairs of the Company have already been the subject of extensive investigation and reporting in the first administration and the subsequent liquidation.

34    The third order sought is to allow for meetings required to be held under s 439A of Act to be held at any time during the convening period (as defined). Ms Brooks submitted that the purpose of the order is to enable her, as administrator, to convene meetings more quickly than Pt 5.3A contemplates, relying on NR Complex at [34] citing Sims, in the matter of Destra Corporation Limited [2009] FCA 1199 (Destra Corporation) at [25] (Lindgren J). The purpose of Ms Brooks’ appointment as administrator is to put a further proposed DOCA before creditors for their consideration. An order of this kind is appropriate to enable Ms Brooks to convene a meeting for that purpose as quickly as possible, thus facilitating an efficient administration whilst ensuring that creditors are properly notified in accordance with r 75-225 of the Insolvency Rules. Accordingly, such an order is appropriate.

35    The fourth order sought is to permit Ms Brooks, as administrator of the Company, to accept as proofs of debt in the administration those proofs of debt lodged in the liquidation, without adjustment for interest. Ms Brooks submits that this order avoids the additional work and cost involved in requiring her to consider and address new proof of debt forms that have effectively already been submitted. This is an accepted course: in Destra Corporation at [5], Lindgren J regarded it as “desirable, efficient and economical”, and considered that to require fresh proofs of debt to be lodged would be “superfluous and wasteful”. Such considerations apply equally to the present case, and I was satisfied that it was appropriate to make the order.

36    The fifth order sought is the disapplication of s 439C(c) of the Act to the administration of the Company. Section 439C provides that, at a meeting convened under s 439A, the creditors may resolve that: (a) the company execute a deed of company arrangement; (b) that the administration should end; or (c) that the company be wound up. The proposed order prevents the creditors from resolving to wind up the Company in circumstances where it is presently in liquidation, and that liquidation will remain on foot (although stayed, as I discuss below) for the duration of the administration. Ms Brooks submits that this avoids the possibility of two parallel winding up processes. It also preserves an earlier relation-back day, which is relevant to, for example, certain recovery proceedings which may be brought under Pt 5.7B of the Act for the benefit of an insolvent company. Such an order has been made previously for this purpose in other proceedings: see Deputy Commissioner of Taxation v Advant Pty Ltd (admins apptd) [2017] FCA 1123 at [32] (Markovic J). I was satisfied that such an order was ultimately for the benefit of the Company’s creditors, in the event that the liquidation continues, and that it was therefore appropriate to make this order.

37    In this case, Mr Lucas seeks orders having a similar effect to those discussed, and made, by O’Bryan J.

38    He also seeks the provision of judicial advice under s 90-15 of the Insolvency Practice Schedule (Corporations), being Sch 2 to the Act (IPS), in relation to certain matters concerning the conduct of the administration. The principles relating to the giving of such advice are not in doubt, and were referred to by O’Bryan J in Brooks at [40] – [41]. The principles may be summarised as follows:

(a)    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 thus to facilitate the performance of the liquidator’s functions;

(b)    the effect of the direction is to sanction a course of conduct by the liquidator so they may adopt that course of conduct free from the risk of personal liability or breach of duty; and

(c)    the Court may give direction as to matters of law or the exercise of legal judgment, including as to substance or procedure, or concerning power or the propriety or reasonableness of a decision, but will usually not do so where the subject of the direction relations to the making or implementation of a business or commercial decision, where there is no particular legal issue raised, and where there is no attack on the propriety or reasonableness of the decision.

Modification of Pt 5.3A of the Act

39    In the first instance, Mr Lucas seeks an order under s 447A that s 436E of the Act does not apply to the administration, such that there is no requirement that a first meeting of creditors in the administration be convened. That is obviously an appropriate order in circumstances where it is apparent that any creditor must already understand the Company’s position, given the history of its external administration.

40    Secondly, Mr Lucas seeks an order that s 439C(c) not apply to the meeting of creditors to be held for the consideration of the proposed DOCA. Unusually, this order, which was included in the draft orders proposed to the Court, was not addressed in the parties’ written submissions or orally. That omission was unfortunate, but it is not inappropriate in the present circumstances where a rather complicated DOCA and associated arrangement is being proposed. Importantly, as O’Bryan J observed in Brooks (at [36]), the order prevents the creditors from winding up the company where it is presently in liquidation and that liquidation remains on foot (albeit stayed, as addressed below) for the duration of the administration. This avoids the existence of two parallel winding up processes, and it preserves the earlier relation-back day, which may be relevant to certain recovery proceedings. His Honour also noted that similar orders have been made previously for this purpose in other proceedings: see Deputy Commissioner of Taxation v Advant Pty Ltd (Administrators Appointed) [2017] FCA 1123 [32].

41    Thirdly, Mr Lucas sought an order that s 438A of the Act not apply to any administration, such that he is not required to investigate the affairs of the Company, to consider possible causes of action, or to report to creditors about possible recovery actions that may be available in the event that the Company is wound up. In the ordinary course, those investigations and considerations are required, such that an administrator understands the company’s affairs and property and can form an opinion about the possible recovery proceedings that might be pursued if the company is placed into liquidation. That information would be necessary for creditors to assess in the course of their determination as to whether it would be preferable to vote for execution of a DOCA or for the company to be wound up. However, in the present case, those investigations and considerations are not required. The Company has been in liquidation for some time and its affairs and property are well known to Mr Lucas and to the creditors. To investigate such matters further would be entirely inutile. Similarly, there appears to be little point in investigating the existence of any causes of action that might be pursued in a liquidation. The Company has not been under the control of directors for some years and there is little to no likelihood of any cause of action subsisting against any former directors. In addition, Mr Lucas would by now be acutely aware of any claims that the Company may have against third parties. It is unlikely that the Company’s creditors would be unaware of the existence of any claims or property of the Company.

42    One difficulty is that, if the relief now sought was not granted, Mr Lucas would be required to ascertain whether there are causes of action that might be asserted against him in respect of his management of the Company. He would effectively be required to investigate his own stewardship of the Company since 2016. That is something that he cannot properly do. In some cases, such a scenario might prevent a court from permitting the liquidator to appoint himself or herself as administrator. However, there is nothing in this case to suggest that any default has occurred in the administration or winding up of the Company. There is no evidence that any damage has been sustained by the Company in the past seven years. Indeed, it appears to be in a better financial position now than it was when the administration commenced in 2016.

43    Further, any perceived difficulties are overcome by the fact that it is likely that the proposed DOCA will be passed by the creditors, in which case new directors will be in control of the Company. If they wish to examine its past affairs, then that will be a matter for them. If the DOCA does not pass and the administration is ended, the winding up process will continue and Mr Lucas will be required to comply with his obligations in that process, which should suffice to bring to light any such matters.

44    Mr Lucas also seeks an order that s 438D not apply to the administration, so that he is not required to investigate any offences by any past or present officer of the Company and is not required to lodge any report with the Australian Securities and Investments Commission (ASIC) about such matters. Again, compliance with this section would be nugatory. The Company’s directors have not had control for many years and any offence would already have been referred to ASIC. Whilst dispensation with the need for compliance with s 438D relieves Mr Lucas from an obligation to report any offence that he may have committed as an officer of the Company, had he any suspicion that he had committed such an offence, that would have been mentioned in his affidavit in support of this application. Nothing was identified. Further, as he has been the administrator and liquidator of the Company for some time, his conduct will already have been the subject of scrutiny by the creditors in any event.

45    An order is also sought for the modification of Pt 5.3A in order to permit Mr Lucas to convene the meeting required by s 439A at any time in the convening period. Orders of this nature are regularly made and are appropriate in the present circumstances, where the proposed DOCA has already been prepared and is the subject of in-principle agreements with several parties. This allows Mr Lucas to put the DOCA to the creditors sooner than he might otherwise have.

46    An order was also sought in the form of order 4 of the orders accompanying these reasons. It will modify the manner in which notice of the meeting under s 439A is to be given. That form of truncated notice is appropriate in this case, where Mr Lucas has had substantial contact with the Company’s creditors over an extended period.

47    For the reasons given above, the orders sought by Mr Lucas pursuant to s 447A(1) should be made.

Directions under s 90-15 of the IPS

48    The first direction that Mr Lucas seeks under s 90-15 of the IPS is that, in the administration of the Company, he be justified in not requiring or receiving certain reports from directors of the Company and justified in accepting, as proofs of debt in the administration, proofs of debt submitted in the prior administration and liquidation, without adjustment for interest.

49    In relation to the first of these matters, Mr Lucas specifically seeks a direction that he would be justified in not requiring or receiving any further “Report as to Affairs” or “Report on Company Activities and Property” from the directors, as he would otherwise have been required to under s 438B(2) of the Act. Once again, a similar order was made by O’Bryan J in Brooks (at [33], [42]) on the basis that it would facilitate the more efficient conduct of the administration and avoid any unnecessary work and cost. I adopt his Honour’s reasoning. Indeed, it is even more apt in the present matter because it is Mr Lucas, himself, who is most uniquely placed to understand the present position of the Company. He has been in control of it for some seven years, and is at this point likely to be the person with the most knowledge of its affairs and the value of its property.

50    Relief should also be given in relation to Mr Lucas accepting past proofs of debt in the administration. As was the case in Brooks (at [35]), this relief will avoid the additional work and expense involved in calling for and considering proofs where the existence and size of any debts are already known by Mr Lucas. As he has already called four meetings at which DOCAs have been considered, he would well know the identity of the Company’s creditors and the amounts that they might legitimately claim. The relief in this respect was identified by Lindgren J in Sims, in the matter of Destra Corporation Limited [2009] FCA 1199 at [26] as being “desirable, efficient and economical”. His Honour considered (at [5]) that to require fresh proofs would be “superfluous and wasteful”. The same applies here, and the relief should therefore be granted.

51    In the circumstances of this case, it is self-evident that the relief sought by Mr Lucas pursuant to s 90-15 of the IPS should be granted.

Staying the winding up and the appointment of directors

52    Mr Lucas also seeks an order that the winding up of the Company be stayed, pending the completion of the DOCA and the appointment of new directors. The Court has the power to stay a winding up pursuant to s 482(1) of the Act, which provides:

482     Power to stay or terminate winding up

(1)     At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order.

53    There is no doubt that a liquidator has standing to make an application under this section: s 482(1A)(a).

54    In Brooks, O’Bryan J held (at [45] – [47]) that it was appropriate for the Court to grant a stay of the winding up where it was for the limited purpose of facilitating the company’s entry into a DOCA. Those observations apply in the present matter, where the stay will allow the proposed DOCA to be presented to the creditors for their approval and execution.

55    Relatedly, an order is also sought that the winding up be terminated upon the expiry of two business days after notice is given to ASIC that a DOCA (which has been executed) has been fully effected. The Court has an undoubted discretion to determine when a winding up should terminate. In exercising that discretion, it will take into account the interests of the creditors, the liquidator and his or her claim for costs, the contributories, and the public interest — including issues of commercial morality: Vero Worker Compensation (NSW) Ltd v Ferretti Pty Ltd (in liq) (2006) 57 ACSR 103, 108 [17] (Ferretti), citing Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 157 FLR 107, Re Nardell Coal Corporation Pty Ltd (2004) 182 FLR 290 and Sutherland v Rahme Enterprises Pty Ltd (2003) 46 ACSR 458.

56    In this matter, there are sufficient factors supporting the exercise of the Court’s discretion to cause the winding up to terminate at the time requested by Mr Lucas. In the first instance, the orders are supported by Mr Lucas in his capacity as the liquidator, as well as by GPS, which is prepared to propound the DOCA and supply the supporting funds. Further, on the evidence, the passing of the DOCA is likely to maximise the Company’s chances of continuing in existence: see Ferretti at 107 [18]. The order sought will allow it to have full effect as soon as is possible. It is also the case that the Company is currently trading in a cash positive manner, that the DOCA is likely to provide a dividend to all existing creditors of the Company (even if it is not especially sizeable), and that if the DOCA is accepted there is a reasonable prospect of the Company continuing to trade in the long term. Again, these factors make it appropriate to allow the DOCA to take full effect as soon as possible after it has been passed.

57    It follows that there should be an order for the termination of the winding up on the date requested.

58    A further order sought relates to the time at which the appointment of any directors takes effect. In this respect, Mr Lucas, once appointed as the administrator, intends to exercise the power vested in him by s 442A to appoint new directors to the Company. A number of people have already indicated their preparedness to be so appointed. However, understandably, they are concerned to ensure that the Company is solvent when their appointments take effect, such that they do not assume any obligation to meet the Company’s existing debts or liabilities. For that reason, Mr Lucas seek an order that their appointments be conditional, and take effect immediately following the fulfilment of two conditions: first, the extinguishment of the creditors’ claims against the Company pursuant to cl 23 of the proposed DOCA; and, secondly, that the newly appointed directors be satisfied on the handover date that the Company has sufficient working capital to remain solvent. This is the effect of cl 6 of the proposed DOCA. These are rational, intelligent conditions, designed to avoid any potential liability being imposed immediately upon the incoming directors assuming their respective offices.

59    It was submitted that the order is capable of being made pursuant to the general power conferred in s 447A(1). However, such an order is somewhat unusual, and no authority was cited to the Court that specifically supports its making. Nevertheless, the administrator’s power to appoint under s 442A is within Pt 5.3A of the Act, and orders may be made as to how that part is to operate in the context of the administration that will occur. The power in s 447A is plenary, wide and is to be exercised having regard to all the circumstance of the case: Dickerson, in the matter of McWilliam’s Wines Group Ltd (subject to Deed of Company Arrangement) (No 5) [2021] FCA 431 [40], quoting Calabretta v Redpen Developments Pty Ltd (in liq) (2010) 183 FCR 47, 53 – 54 [37]. It is contained in Pt 5.3A of the Act, which will necessarily be applicable to a near-infinite variety of cases — many of which will require the making of orders specific to certain, and possibly unique, circumstances. It would be inappropriate to limit the utility of the section other than by the general requirement that it be used to achieve the purposes of Pt 5.3A.

60    Here, the order sought relates to the timing with which the administrator’s appointment of directors will take effect. Specifically, the request is that the appointments only take effect after the DOCA has been completed and after the persons so appointed have had sufficient time to consider the books and records of the Company. In broad terms, the administrator will seek to appoint persons whilst he has the power to do so in the course of the administration, but also, having regard to the exigencies of the matter, to have those appointments become effective only at a later date in accordance with the terms of the DOCA. In the interim, Mr Lucas will retain control of the Company through his position as the deed administrator.

61    Whilst the order sought is unusual, it is not inappropriate. It facilitates the return of the Company to operation, which is intended to ensure the continued conduct of its existing business. That is clearly within the scope of s 447A(1). In the present circumstances, the order should accordingly be made. Mr Lucas drew attention, in connection with the order, to the case of Re AMJ Transport NSW Pty Ltd (in liquidation) [2019] NSWSC 818. There, a Mr Devine and a Mr Moore were purportedly appointed as joint and several administrators, and subsequently as joint and several liquidators, of a company by resolution of its putative sole director. In fact, the putative sole director was an undischarged bankrupt and, therefore, could not validly have been appointed as a director. The purported appointments of Mr Devine and Mr Moore as administrators and liquidators were for that reason invalid. Nevertheless, Emmett AJA made an order pursuant to s 447A(1) of the Act that Pt 5.3A operate in relation to the company as if its putative sole director was validly appointed at the time of his passing the resolution purporting to appoint Mr Devine and Mr Moore as administrators. His Honour then declared that the appointment of Mr Devine and Mr Moore as administrators and, subsequently, as liquidators was not invalid by reason only of the fact that, at all material times, the sole director of the company was an undischarged bankrupt and therefore not a duly appointed director. The case provides some general support for the proposition that s 447A(1) will enable an order to be made that the valid appointment of directors by an administrator is to take effect only at a deferred time.

Notice to parties

62    Mr Lucas provided notice of this application to all the parties with an interest in it, and they have had an opportunity to attend the hearing of the application before this Court. Relevantly, ASIC was informed, but did not appear. Similarly, ANZ did not appear, and did not oppose the relief sought. The incoming directors, as previously mentioned, do not oppose the orders. The CHRC also does not oppose the orders. It simply seeks to ensure that the mortgage held by the bank over a certain additional parcel of land is released, which is something that ANZ has separately confirmed. The application was also notified to creditors and members of the Country Club, and has been displayed prominently elsewhere. There seems to have been no objection from those stakeholders.

Conclusion

63    This is a most unusual case. The background circumstances, involving a prolonged administration and subsequent liquidation, set it apart from any comparable matter. Nevertheless, by the present application, the current liquidator seeks to achieve an outcome that will permit the Company to continue to operate as a club for the benefit of its members. This appears to be the last chance to save it from liquidation. I accept that the club is a social institution, which confers benefits on the local community — though that factor has no influence on the outcome of this case at law. Regardless, it is apparent that all interested parties are in favour of, or at least do not oppose, the making of the orders sought. There is no indication that any party will be impacted to its detriment if the orders are made and the proposed DOCA succeeds. Therefore, for the reasons that have been given above, the orders accompanying these reasons should be made.

Associate:    

Dated:    19 December 2023