Federal Court of Australia

Blundell, in the matter of Reacon Australia Pty Ltd (in liquidation) v Ctrl Print Pty Limited as trustee for Ctrl Print Management Unit Trust [2025] FCA 578

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to ss 436B(2) and 448C of the Corporations Act 2001 (Cth) (the Act), the plaintiffs are granted leave to appoint themselves as:

(a)    joint and several administrators of Reacon Australia Pty Limited (in liquidation) (ACN 158 922 242) (the Company); and

(b)    deed administrators of any deed of company arrangement entered into by the Company in the course of the voluntary administration.

2.    Pursuant to s 447A of the Act and s 90-15 of the Insolvency Practice Schedule (Corporations) being Schedule 2 to the Act (the IPS), Part 5.3A of the Act is to operate in relation to the administration of the Company (and administration of a deed of company arrangement made in relation to the Company) on the following terms to prevail to the extent of any inconsistency with Part 5.3A of the Act:

(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 plaintiffs (as administrator) pursuant to s 439A of the Act;

(c)    s 438A does not apply to the administration of the Company, such that the plaintiffs are 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;

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

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

(f)    the plaintiffs may convene and hold the second meeting of creditors required under s 439A of the Act at any time during the convening period provided that notice of such meetings is provided in accordance with r 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth);

(g)    in and for the purposes of the Company’s administration, the plaintiffs may accept as proofs of debt in the administration of the Company any proofs of debt submitted by creditors in the course of the former administration or liquidation of the Company (without adjustment for interest in respect of the claims the subject of such proofs of debt); and

(h)    the plaintiffs are justified in not requiring or receiving a ‘Report as to Affairs’ or ‘Report on Company Activities and Property’ from any of the directors of the Company.

3.    Pursuant to s 447A of the Act and s 90-15 of the IPS, any provision in any of Part 5.3A of the Act, Part 5.3A of the Corporations Regulations 2001 (Cth) or IPS, is validly given to creditors of the Company by the taking of the following steps:

(a)    where the plaintiffs have 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 plaintiffs do 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 3(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.

4.    Pursuant to s 482 of the Act, that the winding up of the Company be stayed from the time that the plaintiffs appoint themselves as administrators of the Company until the end of the voluntary administration of the Company pursuant to s 435C of the Act.

5.    The plaintiffs’ costs of and incidental to this application are to be paid out of the assets of the Company.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    The plaintiffs, Messrs Andrew Blundell and Simon Cathro (the Liquidators), are the joint and several liquidators of Reacon Australia Pty Ltd (in liq) (Reacon). They seek, by an originating process lodged 20 May 2025, orders that they be appointed as joint and several administrators of Reacon, and deed administrators of any deed of company arrangement (DOCA) entered into by that company. Ancillary orders are sought under the Corporations Act 2001 (Cth) (the Act) and Insolvency Practice Schedule (Corporations) (being Schedule 2 to the Act) that modulate the operation of certain statutory conditions (such as those in Part 5.3A of the Act) and stay the winding up of Reacon until the end of the voluntary administration (together, the Application).

2    Applications of this kind are rather uncommon, though, it does not follow that the orders sought are not appropriate in certain circumstances. This case provides one such example.

Background

The relevant entities

3    Reacon was incorporated on 12 June 2012. Since that time, it has operated, alongside several other juristic entities, an advertising and print marketing services business. On 23 August 2018, Mr Jahangir Khan was appointed as a director of the company and became its sole officeholder some four months later. From 3 May 2018, Mr Khan also acted as the sole director of Reacon Group Pty Ltd (Reacon Group), the sole shareholder of Reacon, until he was replaced in that capacity by a Mr Vikrant Gulati on 7 April 2025. Mr Gulati is the sole shareholder of InnoVis Media Group Pty Ltd (InnoVis) which, in turn, is the sole shareholder of Reacon Group.

4    In broad terms, it appears Mr Gulati harbours some concern as to the manner in which Mr Khan has operated Reacon and, more particularly, with his (a) observance of the duties imposed upon corporate directors by the Act; and (b) representation of the financial status of the company.

The administration and winding up of Reacon

5    On 8 April 2025, the plaintiffs were appointed as the joint and several administrators of Reacon pursuant to s 436A of the Act. On 9 May 2025, and on the application of a petitioning creditor of Reacon (CTRL Print Pty Limited as trustee for Ctrl Print Management Unit Trust (CTRL)), Judicial Registrar Schmidt made orders in related proceedings (NSD137/2025) that Reacon be wound up in insolvency, with Mr Blundell and Mr Cathro to act as joint and several liquidators.

6    The transcript reveals that Registrar Schmidt was unconvinced that CTRL’s application ought to be adjourned to allow the plaintiffs to convene the second meeting of creditors (which was then scheduled for 16 May 2025). Whilst a proposed DOCA was before the Registrar, he was unable to conclude that it was appropriate to go to creditors. Not only did the figures underlying the proposal not “stack up”, but the Registrar was, very appropriately, concerned it would offer Mr Khan an avenue by which he could avoid proper scrutiny for his stewardship of Reacon.

The Application

7    The Liquidators now seek to effectively reverse the order of 9 May 2025 and return Reacon to administration. The reason for doing so, at least according to Mr Condon SC for the plaintiffs, is that a “fresh” DOCA has been proffered which, if accepted by the second meeting, would put Reacon in the hands of Mr Gulati and provide a mechanism by which the company could realistically be returned to solvency in the coming months. It will be recalled that Mr Gulati is both the sole (a) director of Reacon Group; and (b) shareholder of InnoVis which, in turn, is the sole shareholder of Reacon Group which, in turn, is the sole shareholder of Reacon.

8    CTRL was served with the Application on or about 20 May 2025. Whilst it did not appear at today’s hearing nor take any position in relation to the orders now sought, consent orders were agreed (and made) that, in effect, removed CTRL as the named defendant in this proceeding.

9    In the absence of any such opposition, Mr Condon SC, very properly, took care to note certain advantages that would befall Reacon were it to remain in liquidation – including, for instance, the continued availability to the liquidators of remedies as against Mr Khan. In that respect, it is relevant that Messrs Khan and Gulati are the protagonists to this tale. As has been noted, Mr Gulati has expressed concern as to Mr Khan’s management and directorship of Reacon. If it is the case that Mr Gulati assumes control of that company, it is not unlikely that he will seek to pursue, where available, relief against Mr Khan. In that respect, it is a feature of the recently proposed DOCA that claims that might be available against Mr Khan arising from his activities as a director of Reacon will not be released but instead preserved for the benefit of the company.

10    It should be noted that Mr Blundell, in an affidavit filed 21 May 2025 (May Affidavit), deposes to having undertaken detailed consideration of Mr Khan as a prospective target of litigation. He has identified the prospects of recovery, should any litigation prove successful, to be poor, such that it is unlikely to be prudent to expend money seeking redress against him. Of course, the potential causes of action against Mr Khan will nevertheless remain afoot despite the latest DOCA being entered into. In those circumstances, one can put to one side any question that the proposed DOA will secure Mr Khan’s release from appropriate scrutiny of his conduct.

Is it appropriate for the Liquidators to be made the administrators of Reacon?

The principles to be applied

11    The Application is pressed under s 436B of the Act. That section relevantly provides:

(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.

12    The principles upon which this Court acts in relation to the exercise of the discretion conveyed by s 436B(2) of the Act were identified by Justice Halley in Mansfield and in the matter of NR Complex Pty Ltd (in liquidation) [2023] FCA 614 [18] – [22] (NR Complex). They were later adopted by O’Bryan J in Brooks, in the matter of 351 Property Management & Maintenance Pty Ltd (in liq) [2023] FCA 1426 [18] – [19] (Brooks) and then by myself in Lucas, as liquidator of Blackwater Mine Workers’ Club Limited (in liq) v Blackwater Mine Workers’ Club Limited (in liq) [2023] FCA 1636 (Blackwater Mine Worker’s Club) (see also, and more recently, In the matter of Ally Fashion Pty Ltd (in liquidation) [2025] NSWSC 479 [24]; Re Dundas Mining Pty Ltd (in liq); Ex Parte John Allan Bumbak as joint and several liquidator of Dundas Mining Pty Ltd (in liq) (ACN 608 839 050) [2025] WASC 157 [20] – [24]). O’Bryan J distilled the earlier observations of Halley J in NR Complex as follows (Brooks [18]):

(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)].

(Emphasis in original).

13    His Honour proceeded to add (at [19]):

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.

The view and conduct of the Liquidators

14    In May 2025, Registrar Schmidt dismissed the DOCA then-before him as an inapposite vehicle by which to advance the “best interests” of Reacon’s creditors. It must be kept steadily in mind that the revised DOCA before the Court is substantively different from previous iterations and, on the evidence of Mr Blundell, seeks to address the concerns that were voiced by the Registrar.

15    In the May Affidavit, Mr Blundell outlines his view that the return of Reacon to administration (from its current state in liquidation) is in the best interests of the company and “the appropriate course”. That opinion carries a not insignificant degree of weight; indeed, it is undoubted that both the Liquidators are experienced insolvency practitioners, and have a breadth of experience which would enable them to form a sensible business judgment in relation to the matter.

16    Perhaps more importantly, the Liquidators have caused Reacon to continue to trade for some seven weeks. In undertaking the tasks required of them, they have gained valuable information as to the company’s operations and the steps that are required to return it to profitable operation. Indeed, in the May Affidavit, Mr Blundell articulates the various steps taken by the Liquidators and their identification of, following consultation with Mr Gulati, the appropriateness of an immediate reduction in the operating costs of Reacon. Amongst other things, that process has involved exiting current leases, terminating certain employees, negotiating with major clients of Reacon for increases in the price of services rendered, disclaiming onerous contracts, and implementing new systems in relation to both purchase orders and record keeping practices.

17    That conduct does not disclose any principled basis on which it may be said that the Liquidators should not be appointed as administrators of Reacon. There has been no default on their part in respect of which complaint has been made. Nor is there any suggestion of a disqualifying anterior relationship with either Mr Khan or Mr Gulati. Although evidence that the conduct of an existing liquidator warranted investigation or was otherwise open to genuine criticism would weigh heavily against orders of the nature now sought, no such evidence is before the Court.

18    Indeed, the conduct of the Liquidators vis-à-vis Reacon (and, more particularly, the evidence of the knowledge that they have acquired as to the company) underscores the appropriateness of their appointment as administrators. As a matter of common sense, they have acquired an intimate understanding of the company’s business and processes which would prove invaluable in any stewardship of the administration: see, eg, Blackwater Mine Worker’s Club [30], [32].

19    Of course, there will always be a balancing process involved in whether the most “appropriate” course is to appoint an existing liquidator of a company as administrator or incur the (perhaps considerable) financial and temporal costs associated with appointing an independent person to that position. However, in that exercise, it is appropriate to consider, as is the case here, that there is no reason to fault the conduct of the administrators in performing their tasks in the administration. Where that is so, it might usually be thought that the benefits of the acquired knowledge of the liquidator outweigh the perceived benefits of appointing a new and wholly independent administrator: Brooks [18(b)]. That being so, one must nevertheless remain alive to the chance such an appointment could effect a “conflict of interest, a threat to independence, or anything else offensive to commercial reality”: Australian Securities and Investments Commission v Diploma Group Limited (No 5) [2017] FCA 1147 [40] (Diploma Group).

A position of conflict?

20    It is not controversial that Mr Blundell and Mr Cathro are creditors of Reacon in the sense that they have incurred expenses in the course of its administration and subsequent liquidation. On a rough calculation, they are owed some $450,000. That entitlement does not, ipso facto, render the Application nugatory (see s 448C(1)(b)(v) of the Act), but instead brings into sharp focus the question of whether the Liquidators will hold a conflict of interest if they are appointed as administrators of the company.

21    In relation to the suitability of persons for appointment as administrators consequent upon the existence of a debt, there is, it should be noted, a rather fundamental distinction between the position of a trade or business creditor and that of an external controller. The indebtedness of the latter arises only because of the obligations imposed by the laws of insolvency and is, in that sense, an element of the internal workings of the company. It occurs axiomatically as a consequence of the external controller duly performing their statutory duties which, it can reasonably be expected, will continue in any new capacity. Conversely, third party creditors are not required, and indeed have no objective interest in, advancing the interests of the insolvent company. Instead, they are entitled to act selfishly and pursue their own self-interest.

22    In this context, the observations in Blackwater Mine Worker’s Club (at [30] – [33]) bear some relevance. There, in relation to the circumstances before the Court, I observed:

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.

23    It is apparent that both Mr Blundell and Mr Cathro are acutely aware of their position as creditor vis-à-vis Reacon as a consequence of the amount which is owing to them from their work as administrators and, more recently, as liquidators. To that end, they have agreed to limit their remuneration to an amount of $255,000 (for the “voluntary administration period”, “liquidation period” and “deed administration period”). As Mr Condon SC notes, that proposal would, in effect, write off some $194,000 of work. To some extent, this ameliorates, but does not resolve, the question of the existence of a conflict of interest; it may very well be that the Liquidators are prepared to support the second administration only because they stand to be paid more than if Reacon were to remain in liquidation. Even if that were so, their preparedness to forego a substantial amount of their remuneration has the correlative benefit of providing additional monies to meet the claims of trade creditors. Ultimately, a proposal that would return more to creditors is preferable, even if it offers collateral benefits to the administrators.

24    It might also be observed that there would, of course, be no one better than the Liquidators in the present circumstances to act as administrators, and that certainly does not change simply because they have incurred fees which are yet to be met: Blackwater Mine Worker’s Club [30].

Is there some point in the move from winding up to voluntary administration?

25    In Brooks, O’Bryan J observed (at [19]) that it is not a requirement for the making of an order in these circumstances that the relevant proposal will lead to a better outcome for creditors than liquidation, or that it is likely to be approved by creditors. As his Honour said, the test should be whether there is “some point in the move from winding up to voluntary administration”. That is a low hurdle which, it may be added, has been overcome in this case. The opportunity for Reacon to continue its business in some form with the chance of a better return to creditors justifies the making of the order

26    It should also not be overlooked that returning Reacon to administration necessarily returns the decision-making powers concerning the future of the company to its creditors and, thereby, offers them the opportunity to determine the course which is best for them.

27    It is also relevant in that context that the Court has a further opportunity to evaluate the outcome of the making of the order; there will, necessarily, be some future application to terminate the liquidation. As McKerracher J observed in Diploma Group (at [54] – [57]):

54     It is important to recognise that neither the appointment of the Liquidators as administrators by leave pursuant to s 436B(2)(g), nor the resolution of the creditors to approve a DOCA, would automatically terminate the winding up of Diploma: see Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 35 ACSR 70; Re Nardell Coal Corporation Pty Ltd [2004] NSWSC 281 per Austin J (at [74]) and s 482 of the Act. The Proponent acknowledges this in the concluding words to para 1(c)(iv) of the 31 August DOCA proposal. Indeed, one of the matters the Court must expressly take into account on an application to terminate the winding up is the content of the DOCA. …

55    As the Liquidators do not now seek an order staying or terminating the winding up as part of the application, considerations such as “the public interest, including matters of commercial morality” if the DOCA were to be approved are not presently relevant for the purposes of the leave application: Re Nardell Coal (at [60]-[75]).

56    The only issue on an application under s 436B(2)(g) of the Act is whether the Liquidators are appropriate persons to be administrators: Foodcorp; Re Cobar.

57    The most important consideration is independence, and specifically to ensure that there is no conflict of duty or interest if the liquidator is appointed as administrator: Taylor, in the matter of Origin Internet Solutions (at [5]); Peter Ngan, re JKB Constructions Pty Ltd [2006] NSWSC 1040 (at [5]).

28    In all events, Mr Blundell has, in the May Affidavit, deposed to the real potentiality that the newly proposed DOCA might yield an outcome that is more advantageous than that which might come about through liquidation, and that brings with it the potentiality for the company to continue to trade with the benefits that some employees might retain their positions. It also has the real possibility of returning the company to profitability within a reasonable timeframe.

Conclusion

29    In the above circumstances, it is appropriate to exercise the discretion to appoint the Liquidators as administrators of Reacon in order to allow them to convene a second meeting of creditors at which the revised DOCA can be agitated. Though all of the considerations canvassed above bear relevance, it is important that the real concern previously raised, and that which appeared to concern the Registrar, was as to the position of Mr Khan and potential claims against him. The evidence shows that they have been investigated by Messrs Blundell and Cathro. They have concluded that the advantages of doing so are slight. That is significant and it is relevant that, if the proposed DOCA is successful, Reacon will retain the right to pursue him before a Court of law. That being so, the plaintiffs have established the principal orders sought on the Application should be made. I am also of the view that the ancillary orders sought should be made in order to best give effect to the Liquidators re-installation as administrators of Reacon.

Note

30    These are the amended and revised reasons for judgment given on 23 May 2025. Whilst the reasons given above refine and develop those that were delivered ex tempore, the substance of what was said on 23 May has not been changed nor has any other material change been made.

Associate:    

Dated:    3 June 2025