Relevant Considerations
31 I start with a brief summary of the submissions made by the parties.
32 ABCL submitted that leave should be granted for a number of reasons. First, it submitted that there are common issues between its application for orders setting aside or terminating the DOCA on the one hand, and the claims against Concrete Supply and its directors on the other. I will return to this important point below. Secondly, it submitted that Concrete Supply will not be harassed by this proceeding, nor will its assets be wasted. ABCL points out that the same solicitors have filed a Notice of Acting for the company and for the directors. Thirdly, it submitted that the administrators have estimated the costs of adjudicating the plaintiff's claim would be substantial and in the order of $50,000-$80,000. Fourthly, it submitted that the grant of leave will neither distract the deed administrators nor result in a "avalanche of litigation" against Concrete Supply because ABCL's claims against Concrete Supply are squarely in issue in the plaintiff's application for orders setting aside or terminating the DOCA. In other words, the deed administrators are defending those proceedings and will be required to address the substance of the plaintiff's claim against Concrete Supply regardless of whether leave is granted. This submission is similar to the first submission. Fifthly, it submitted that it is preferable for the common or overlapping issues to be dealt with once, rather than having the overlapping issues dealt with by this Court in the proceedings against the directors and administrators, and separately by an administrator or liquidator of Concrete Supply and this Court on any appeal from that decision. Finally, it submitted that ABCL does not seek to obtain an advantage to which it is not properly entitled pursuant to the DOCA if it remains on foot or in a winding up of Concrete Supply. It does not seek leave to proceed against Concrete Supply with respect to its claims for monetary relief (paragraphs 15 to 17) and has undertaken that it will not at this stage be seeking any payment of any debt due from the company.
33 ABCL also submits that its claims against Concrete Supply raise a narrow dispute, being whether Concrete Supply was entitled to the alleged rebate. Other elements of its claim in debt are not in dispute. The dispute with respect to Concrete Supply's books and records is also a narrow one.
34 As I have said, an important part of ABCL's argument is that the issues in relation to the claim to set aside or terminate the DOCA overlap with the issues in relation to its debt claim. In its outline of submissions, it made the following submission:
17. … The plaintiff seeks orders setting aside the DOCA (prayers 2 to 7) on the bases that:
17.1. Concrete Supply incurred a liability for cement when it took delivery of that cement and the result of its failure to pay for cement was an increasing unpaid liability for the Shortfall (Points of Claim (POC) [13]-[17]);
17.2. the Administrators knew or ought to have known that there was no "Rebate" and that Concrete Supply was therefore indebted to the plaintiff for the Shortfall of $12.46 million (POC [42]-[43]);
17.3. the Administrator's second report to creditors that Concrete Supply [sic] was false and misleading because it stated that (i) Concrete Supply was not insolvent until 13 November 2017; (ii) that Concrete Supply maintained adequate accounts; and (iii) that the value of a potential recoveries by a liquidator were nil (POC [51]);
17.4. the Administrators acted unreasonably in (i) failing to undertake a careful analysis of the "Rebate" asserted by the Directors, and (ii) concluding that that the value of a potential recoveries by a liquidator were nil (POC [53] and [58]); and
17.5. creditors with the overwhelming financial interest in the DOCA (comprising more than 90% by value) voted against the DOCA and in favour of liquidation and that, in those circumstances, it was inappropriate for the second defendant to exercise his casting vote as chairman of the meeting of creditors in favour of the DOCA and against liquidation.
35 ABCL submits that each of the above matters is contested and will require an analysis of whether Concrete Supply was entitled to the rebate alleged by the directors and, if it was not entitled to such rebate, the consequences of its failure to pay $12.47 million for the supply of cement on Concrete's Supply solvency and record keeping and the accuracy of the administrators' reports to creditors.
36 ABCL also submits that Concrete Supply's entitlement to the alleged rebate is directly relevant to the issue of whether Part 5.3A of the Act applied to the company at all. ABCL submits that if Concrete Supply was entitled to the rebate and its directors genuinely believed it was entitled to the rebate, then the question arises as to whether, on 13 November 2017, the directors genuinely believed that Concrete Supply was insolvent or may become insolvent in the future. This is because, absent the liability to ABCL, Concrete Supply appears to be solvent.
37 ABCL pointed out that the claims for misleading or deceptive conduct and unconscionable conduct against Concrete Supply also involve a claim for knowing involvement in relation to the directors.
38 Finally, ABCL submitted that the directors were likely to give evidence on the application to set aside or terminate the DOCA and that this would overlap with the company's case as to its entitlement to a rebate.
39 The administrators submitted that if the Court finds that the DOCA should be terminated pursuant to s 445D of the Act, then the effect of s 446AA is to deem the company to have passed a resolution to wind up the company voluntarily. They submitted that it is therefore the usual course that where a Deed of Company Arrangement is terminated, the company is instead wound up in insolvency. That will follow in this case unless the Court exercises its discretion under s 447A of the Act to vary the outcome. ABCL will need the leave of the Court to begin or proceed with a proceeding against Concrete Supply in liquidation.
40 The administrators submitted that the Court must, or alternatively should, first determine the application to set aside or terminate the DOCA prior to any application for leave to issue the substantive proceeding is determined. They submit that the outcome of the DOCA application will determine the appropriate matters to be taken into account in any subsequent application for leave. The administrators submitted that there is no precedent for, what they called, the joint engagement of ss 444E and 445D of the Act. They submit that s 444E(3) has historically applied to circumstances where the Deed of Company Arrangement stands uncontested, but an exception pursuant to a grant of leave is contended to be appropriate upon the evidence in a particular case.
41 The administrators submitted that the application to determine whether the DOCA should be set aside or terminated is determined first, and if the DOCA is not set aside or terminated, then it will be a case of ABCL pursuing a claim under the DOCA which may or may not involve an appeal to this Court. There is no sufficient reason to depart from the ordinary and orderly administration of claims under the DOCA. If, on the other hand, the DOCA is set aside or terminated, then the most likely consequence is that the company will be in liquidation (s 446AA) and a further requirement for leave will arise. The defendants submitted that the administrators accepted ABCL's debt claim for voting purposes so that there is no issue in that respect. Furthermore, the claim against the administrators in relation to the setting aside or termination of the DOCA does not require proof of the debt to ABCL. The debt may be assumed for the purposes of the application to set aside or terminate the DOCA.
42 The administrators may be found to have acted in full accordance with their obligations.
43 The administrators made five submissions which I will identify and address at this stage.
44 First, the administrators submitted that a grant of leave carries a risk of "artificially elevating the importance of potential merit of claims which may be available to the plaintiff as (wrongly) determinative of the s 445D point". I reject this submission. The Court is well able to draw the necessary distinction between the evidence in support of ABCL's debt claim and other claims on the one hand, and the evidence in support of its claim to set aside or terminate the DOCA on the other.
45 Secondly, the administrators submitted that a grant of leave carries a risk of creating a trial within a trial which diverts from "the proper and confined considerations relevant to a decision under s 445D". I reject this submission. It assumes that the claims against the directors for which leave is not required, do not proceed at the same time as the claim to set aside or terminate the DOCA. That decision has not been made. Insofar as it does not proceed on that assumption, then it must be rejected because the issues will not be confined to whether the DOCA should be set aside or terminated. In a sense, the submission assumes the answer to the issue I must consider.
46 Thirdly, the administrators submitted that a grant of leave carries a risk of undermining the scheme of the Act with respect to Deeds of Company Arrangement which are presumed to be valid until impeached and intended to bind existing creditors. The purport of this submission is not clear. To the extent that it means that the Court will ordinarily only exercise the discretion for good reason, so much may be acknowledged.
47 Fourthly, the administrators submitted that a grant of leave carries a risk of adding unduly to the cost of the proceeding and of causing inefficiency. The administrators submitted that the litigation of the Substantive Proceedings will necessarily significantly add to the time, cost and complexity of the determination of the s 445D application. The administrators' submissions indicate that by "Substantive Proceedings", the administrators mean not only the claim in debt (and associated claims) against the company, but also the claims against the directors. This is an application for leave to proceed against the company, although the interlocutory application issued by the company and the directors, seeks a stay of the claims against the directors and, in the alternative to the strike out application, a stay of the claims against the company. This creates something of a dilemma for the defendants. It would not be sensible to refuse leave to proceed against the company in circumstances where the claims to set aside or terminate the DOCA and the claims against the directors proceed together. The difficulty in staying the proceeding against the directors is that the only basis one might do that is that the claims against the company might later proceed in the Court, and it would be more convenient to hear the claims against the directors with those claims. If it is said that the claims against the directors need not be stayed, but should be disengaged from the claims to terminate or set aside the DOCA, then that raises the somewhat alarming prospect of three trials.
48 Finally, the administrators submitted that a grant of leave carries a risk of bringing the administration of justice into disrepute because the proceeding against the company and the directors "seek only declarations clearly in a manner intended to be anterior to later relief which will impermissibly, if successful, be hazard-binding to the hand of a future liquidator and/or future court asked to consider the same subject matter. This gives the potential for alternative factual findings, credibility findings and inconsistent rulings on matters of law". I am not sure the plaintiff ever said that it was only seeking declarations against the directors at this stage. Even if that were to be the case, that does not affect whether leave to proceed against the company should be granted.
49 Although Concrete Supply and the directors are represented by the same firm of solicitors, only the company appeared on the application for leave. The company's general submissions were similar to those made by the administrators.
50 The company pointed to the relevant factors on an application for leave under s 444E(3). It made submissions in support of its argument on the preliminary point. It submitted that if the DOCA is set aside or terminated, then the company is likely to go into liquidation and the question of leave would be appropriately considered at that stage. It submitted that the reasonableness of the administrators' conduct can be determined without making factual findings as to whether the debt is owed. A trial as to whether the debt is owed will add to the cost and complexity of a proceeding to determine whether the DOCA should be set aside or terminated.
51 In my opinion, the decisive factor in this case is that there is a substantial overlap between ABCL's claim to set aside or terminate the DOCA and ABCL's claim in debt. I do not think that the two issues can be compartmentalised in the way suggested by the defendants. I refer to ABCL's pleadings set out above (at [15]). The matter can be put reasonably simply in the following way. ABCL alleges that the administrators failed to carry out sufficient investigations into the debt and their report was misleading in relation to it and, in those circumstances, ABCL's case will include evidence of what proper investigations would have revealed and what should have been disclosed to the second meeting of creditors. That will include evidence as to the existence of the debt. It may be possible to determine ABCL's case concerning the setting aside or termination of the DOCA without deciding whether the debt exists, but that cannot be predicted with confidence at this stage and, in any event, the evidence common to both issues is likely to be substantial. In reaching the conclusions which I have, I have not overlooked the fact that proof of the existence of the debt does not mean that the DOCA will be set aside or terminated.
52 As far as the other relevant considerations are concerned, the administrators rightly point to the objects of Part 5.3A of the Act which include maximising the chance of the company continuing in existence (s 435A) and to the fact that there must be a good reason to grant leave. Furthermore, it is not as if the legal proceedings are about to proceed to trial. In fact, they were instituted after the DOCA had been entered into. In addition, I think that despite the overlap, the claims against the company and its directors will add to the cost and expense of the trial. I think that outcome is inevitable, although it has to be said that it is very difficult to quantify. Overall, there is a good deal to be said for the submission that the hearing to determine whether the DOCA should be set aside or terminated should proceed and each party will know where it stands, so to speak. It may be that the company is in liquidation and a further application for leave can be made under that regime.
53 On the other hand, there are matters which favour a grant of leave. A large amount of money is involved and the issues, both factual and legal, could well be complex. There is a good chance that ABCL would appeal to the Court against an unfavourable decision. There is a real dispute and ABCL has a sufficiently arguable case to warrant a grant of leave. Whilst some additional costs may be incurred by creditors, there is force in the submission that is lessened somewhat by the fact that the company and the directors have common representation.
54 In the end, the matter which brings the scale down in favour of a grant of leave is the overlap between the claims. In my opinion, the existence of the debt and the circumstances in which it was incurred (if it was incurred) is a common and underlying theme in respect of all three categories of the claim and the Court should take steps to ensure, so far as it is possible to achieve at this stage, that that issue should be examined by a court only once.