A form of deed of company arrangement accompanied the report. It does not seem to differ, in any material way, from the document eventually executed. The report was also accompanied by what purported to be a form of agreement for the sale of business but was in reality only a statement of proposed terms. One element of the consideration was expressed as:
"Guarantee payment in full of all unsecured creditors (as declared at this date, for the approximate sum of $444,243.00) so long as the purchaser remains in business."
29 There was also an item 4.5 "Exclusions" as follows:
"The Purchaser specifically excludes from the Purchase of the Business any potential claims or liability arising from Claims made by Roger Minshull of 71 Glencoe Street, Sutherland NSW 2232 in relation to alleged fraud or unfair dismissal or any other matter."
30 In a circular to creditors dated 29 October 2003 (the date of the meeting), the administrator referred to changes proposed by the proponents of the deed and the purchase agreement. Item 4.5 "Exclusions" of the agreement was stated as having been altered to be as follows:
"The purchaser agreed to make payment to Mr Roger Minshull under the terms of the Deed the agreed debt due to him as an unsecured creditor plus any unpaid termination leave rightfully due to him. The purchaser specifically excludes from the purchase of the business any potential claims or liability arising from claims made by Roger Minshull in relation to the alleged fraud, or claims for redundancy, or Section 106 claim."
31 Neither the deed of company arrangement nor the agreement for sale of business, as eventually executed, referred to any explicit exclusion concerning Mr Minshull in terms of either version of item 4.5 "Exclusions".
32 Insights into the administrator's views about how the proposed deed would work, if approved by creditors, may be obtained from parts of the debate at the meeting on 29 October 2003. I quote first an interchange between the administrator and Mr Golledge, solicitor, the proxy for Mr Minshull, following questioning as to why the administrator had not attempted to interest third party buyers:
"The Chairman:
That's exactly right, they don't have it at the moment. I am also of the view that on the basis that there is a proposal on foot for creditors to be paid 100 cents in the dollar.
Steven Golledge:
Not all creditors, John. The only creditor that is not being offered 100 cents in the dollar is my client. Is that correct?
The Chairman:
That is correct with regards to redundancy claims.
Steven Golledge:
Well, whatever they turn out to be.
The Chairman:
I have already ruled that there is no redundancy claim."
33 A later part of the dialogue deals with the possibility of claims over and above those taken into account by New Sepa and the question how they would be dealt with:
"Steven Golledge:
What happens under the deed if creditors exceed the amount of $444,000? Do the payments go up? Or does everyone's dividend come down?
The Chairman:
Dividend will go down.
Steven Golledge:
That is not a point you made in your report.
The Chairman:
That is making an assumption that the claims of creditors will go up.
Steven Golledge:
What if China lodges a claim?
The Chairman:
If China makes a substantial, for example warranty claim, the likelihood of stage 2 of the project proceeding disappears and we go back to deed failing and company being wound up. Where is the detriment to creditors?
Steven Golledge:
There are the possibility of others making a substantial claim, for example, Roger makes a fight it out for his redundancy claim and it is upheld, that would be a proof of debt under the deed. Why was the possibility of the dividend being less not in the report? The report and the deed simply says that everyone gets 100 cents in the dollar. It's only 100 cents in the dollar provided that the claims do not exceed $442,000.
The Chairman:
The deed states that there is an upper limit of $442,000 and payment is based on known creditors. On the basis that the company in liquidation is zero to creditors, where is the detriment to creditors if under the deed they get a total of $442,000. The recommendation to creditors remains the same as under the deed, based on the numbers available at the moment, it appears that creditors will receive 100 cents in the dollar. There are no other known creditors. The only disputed claim is the redundancy which is about $120,000.
Steven Golledge:
I just want to know what it wasn't mentioned that creditors aren't guaranteed 100 cents in the dollar even if the deed works.
The Chairman:
Well if there is an upper limit …"
34 The competing contentions with respect to the deed - that is, the contentions of Mr Minshull in support of the proposition that the deed has not been terminated (or, perhaps, should not have been terminated) and the contentions of Mr Lord in support of the proposition that the deed has run its course and should be varied to put this beyond doubt - must now be addressed. Mr Lord's thesis is, in essence, that the deed involved an unusual, but intelligible and sensible, system under which New Sepa, in conjunction with its purchase of the business, identified the creditors of Old Sepa, specified the amounts of their debts (or, in the case of Mr Minshull, a sum it was prepared to recognise as sufficient to satisfy his various claims), undertook an obligation to meet the specified amounts in full and put in place a mechanism by which actual payment could be made by New Sepa direct to a particular creditor instead of being met out of a fund in the hands of the administrator constituted by an aggregate payment by New Sepa to the administrator in the first instance. Mr Lord also says that, to the extent that the deed, on its face, provides for a regime of proof of debts and recognition of creditors and amounts accordingly, it does not reflect the underlying intention. Furthermore, it appears to be said that the only claim requiring adjudication of that kind is that of Mr Minshull and that the necessary assessment in that regard was made by Mr Lord in advance of the meeting of creditors and notified by Mr Lord's letter of 28 November 2003.
35 Mr Minshull approaches the matter differently. He says that the deed incorporated, in the usual way, mechanisms for determining creditors' claims and that only claims so ascertained ought to have been paid out of the funds that New Sepa agreed to make available for the purpose of meeting unsecured creditors' debts. The determination notified by the letter of 28 October 2003 in respect of Mr Minshull's claim cannot possibly represent a determination for the purposes of the deed: it was made before the deed's mechanisms existed and for the particular and confined purpose of voting at the then imminent meeting of creditors. Discussion at the meeting of creditors made it clear that creditors over and above those expressly identified by New Sepa might emerge and that, in that event, the projected 100 cents in the dollar predicated on the assumption that the $444,243.00 would satisfy all claims would not be achieved.
36 If the matter is looked at in terms of the expressions of intention that may be gathered from the background materials to which I have referred, each point of view can be seen to have a measure of support. On balance, however, I am of the view that the approach for which Mr Lord contends would remove an important aspect to which express reference was made at the meeting, namely, the procedure under which creditors' claims were to be assessed and might be reviewed.
37 There is nothing in the evidence to suggest that any creditor other than Mr Minshull disputed (or disputes) the amount for which that creditor was recognised in the procedures in fact followed. Indeed, the evidence suggests that New Sepa was keen to keep faith with virtually all creditors, apart from Mr Minshull, because New Sepa would wish to enjoy an ongoing relationship with them. But there cannot be, in any objective sense, any fair measure of certainty that all creditors were identified by the deed administrator who, it appears, did not look beyond what he was told by the proponents of the deed, being the principals of New Sepa.
38 The Corporations Act shows an intention that a process of calling for proofs of debt, assessing resultant claims and, if necessary, appeal to the court should form part of a deed of company arrangement except to the extent that the deed itself "provides otherwise": see s.444A(5) and the reference to subdivisions A and B of Division 6 of Part 5.6 of the Act in clause 8 of Schedule 8A to the Corporations Regulations. In this case, the deed did not "provide otherwise" - on the contrary, it made exactly the same specification in express terms, at the same time importing regulations 5.6.11 to 5.6.57 which include a mechanism to ensure that persons claiming to be creditors are aware of the deadline for advancing their claims. That, coupled with the fact there was explicit reference at the meeting of creditors to the deed's accommodating the claims of "others" (that is, persons other than those identified by the proponents), leads to the conclusion that it would be inappropriate for the court to endorse, by s.447A order, the correctness of Mr Lord's approach.
39 At the same time, it does seem that, in the events that have happened, there is no point in requiring that creditors recognised (and paid) should be required to lodge proofs of debt. What seems to me to be needed is an adjunct to the existing provisions which, first, involves an advertisement of a specially tailored kind to cover the possibility that there are genuine claimants over and above those identified by the deed proponents, second, permits proof by anyone who maintains that that claim has not been satisfied by the steps already taken (this would include Mr Minshull) and, third, provides for assessment and review of such proofs in accordance with the Act. Because this approach would incorporate one aspect of the arrangements as outlined to creditors before voting which was not clearly secured by the deed (I refer to mechanisms for the recognition of claimants beyond those identified by the proponents), it should likewise incorporate the other central matter that was placed before creditors but failed to find its way into the deed, namely, Item 4.5 "Exclusions" as set out in the administrator's circular of 29 October 2003. A regime of the kind I have outlined could, I think, be implemented by order under s.447A.
40 But there is, of course, no application for such an order before the court. As for the applications that are before the court, I am of the opinion, first, that the s.447A order Mr Lord seeks for the purpose of modifying the deed should not be made because, as I have said, such an order would fail to give weight to the statements made at the meeting of creditors affording a role to the system of proofs Mr Lord seeks to see abolished; and, second, that non-implementation of those aspects of the deed means that "Participating Creditors" have not been determined, so that all events which, in accordance with clause 20.1, go to make up or lead to termination of the deed have not occurred.
41 It is desirable that the parties consider these reasons and seek to formulate appropriate orders with respect to not only the subject matter of the three notices of motion heard by me on 15 November 2004 but also the various procedural matters to which I have referred. If an agreed outcome in those respects can be achieved within 21 days, short minutes may be filed by delivery to my Associate. Otherwise the proceedings will be re-listed for supplementary submissions and directions.
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