Solicitors:
Emerson Lewis Lawyers (Plaintiff)
File Number(s): 2019/260110
[2]
Background and affidavit evidence
By Originating Process filed on 21 August 2019 the Plaintiff, Mr Grahame Ward, who was purportedly appointed as administrator of Postnet Australia Pty Ltd ("Postnet") sought a range of relief. First, he sought a declaration that his appointment as administrator of Postnet on 3 June 2019 was not valid, for reasons that I will address below. It is ultimately not necessary to form a view as to that question, which may turn, inter alia, upon whether Mr Ward could have relied on assumptions under ss 128 and 129 of the Corporations Act 2001 (Cth), and that declaration was not pressed. The validity of Mr Ward's appointment is at least subject to substantial doubt, and that in turn raises the prospect of the alternative relief that he seeks.
Mr Ward also seeks an order under s 447A of the Act that Pt 5.3A of the Act is to operate in relation to Postnet as if he had been validly appointed as administrator on 3 June 2019 and, if that order is made, a further order under s 447A of the Act altering the operation of Pt 5.3A of the Act to allow the adjournment of a second meeting of creditors to a date up to three weeks from today, namely to 24 September 2019. The period of extension sought was reduced to that three week period in the course of the hearing today.
The background to the application is set out in Mr Ward's affidavits dated 20 and 30 August 2019, and in his report to creditors contained in the Exhibit to his first affidavit (Ex P1).
In his first affidavit, Mr Ward refers to the circumstances in which he was appointed as voluntary administrator of Postnet by resolution of its sole director on 3 June 2019. He also sets out the nature of Postnet's operations, which are also addressed in his report to creditors, and involve the provision of, inter alia, graphic design and website services, printing and copying services, and a range of packing and shipping and business support services. Mr Ward's investigations indicated that Postnet operates under a master franchise agreement with a US entity, and several businesses then operate in Australia under franchises from Postnet. Mr Ward has continued to operate the business throughout the administration in anticipation of the possibility of a deed of company arrangement proposal, which was raised but may now not go forward, or a sale of the business which remains a possibility. Mr Ward has conducted an expression of interest campaign in order to sell Postnet's business and assets, and at least one sale prospect has emerged through that process. Mr Ward also refers to the issue of his first report to creditors and a first meeting of creditors, and also to his second report to creditors and a second meeting of creditors, which was then adjourned for the maximum period of 45 days permitted under r 75-140 of the Insolvency Practice Rules (Corporations) 2016 (Cth) and would now need to be convened by 10 September 2019. Mr Ward also refers to his view, recorded in his second report to creditors, that Postnet was insolvent at the date of his appointment and potentially for a period prior to that appointment.
It has emerged since Mr Ward's purported appointment as administrator that Postnet's sole director, Mr Robin Lau, was an undischarged bankrupt in Singapore. Mr Ward's evidence is that was not known to him prior to his appointment as administrator, and, not surprisingly, a search of the Australian Financial Security Authority National Personal Insolvency Index did not identify that director as a bankrupt, where the bankruptcy had taken place outside Australia. Mr Ward in turn refers to the inquiries which he has made of the director since becoming aware of that matter. The director's explanation of that matter is that he had been made bankrupt in Singapore after he had left Singapore, and had not become aware of that matter. It is not necessary to form a view as to the veracity of that explanation for the purposes of this application. Mr Ward rightly recognises that the validity of his appointment may be affected by s 206B(3) of the Corporations Act which provides that a person is disqualified from managing corporations if the person is an undischarged bankrupt under, relevantly, not only the law of Australia but also the law of another country.
By his further affidavit dated 30 August 2019, Mr Ward refers to subsequent developments, including the notification of this application to creditors and other interested persons, pursuant to orders made by the Court, and responses from a number of creditors, including franchisees, to the application. Mr Ward also points to the need to convene a second meeting of creditors and the fact that an extension of time of that meeting will be required in order to allow sufficient notice of the reconvened meeting. Mr Ward also notes that the director of Postnet has ceased to respond to communications with him, and a deed of company arrangement which that director at one point proposed likely could not go forward for that reason, quite apart from the difficulty that he could not continue as a director of Postnet, in any restructured form, by reason of his bankruptcy in Singapore. Mr Ward also refers to the fact of negotiations with a potential purchaser of the business which have reached the point that a price for a sale of the business has been proposed, and to the mixed responses from franchisees in respect of the possible sale of the business and their possible continuance of a relationship with the purchaser.
Mr Ward also relies on an affidavit of Ms Rachel Brown dated 23 August 2019, which refers to the manner in which notice of the application was given, by circular, to Postnet's director, its shareholders and creditors, and notice of the application was also given to franchisees and the Australian Securities and Investments Commission ("ASIC"). It appears that ASIC has not indicated any attitude to the application. A further affidavit of Mr Kindis dated 30 August 2019 proves service of the application on Postnet which is the Defendant to the application.
[3]
Validation of administrator's appointment
In order to seek to validate has appointment as administrator of Postnet, Mr Ward relies on s 447A of the Act which provides, relevantly, that the Court may make such order as it thinks appropriate about how Pt 5.3A of the Act is to operate in relation to a particular company. Mr Somerville rightly points out that that section confers a plenary power on the Court to make orders that will promote the operation of Pt 5.3A of the Act having regard to the interests of persons affected by the administration: Re Live Board Holdings Ltd (admins apptd) [2014] NSWSC 161; Re Foodora Australia Pty Ltd (admins apptd) [2018] NSWSC 1426 at [7]. Such an order may be made on the application of, relevantly, an interested person.
Mr Ward is plainly an interested person in this matter, since he has an obvious interest in the validity or otherwise of his appointment as administrator of Postnet. There is plainly a substantial risk that that appointment was not valid, having regard to the operation of s 206B(3) of the Act to which I have referred above, and s 206A(2) which provides that a person ceases to be a director of a company if the person becomes disqualified from managing corporations.
Mr Somerville also points out that, not surprisingly, this is not the first occasion on which a question of invalidity of the appointment of an administrator has arisen, including by reason of the earlier bankruptcy of a director who purported to make such an appointment. That situation arose in Albarran v Pascoe [2006] NSWSC 418, where Austin J made an order under s 447A that confirmed the administrator's appointment. That situation again arose in Calabretta v Redpen Developments Pty Ltd (in liq) (recs and mgrs apptd) [2010] FCA 81, where Yates J relevantly found, as I have also found above, that an administrator has standing to make an application for validation of his or her appointment under s 447A of the Act; noted the width of the curative power under that section; and identified the relevant question as whether injustice would be caused by effectively validating an otherwise invalid appointment or, as one might put it more widely, whether the objects of Pt 5.3A of the Act would be promoted by validating such an appointment.
Mr Somerville submits that the objects of Pt 5.3A of the Act would be promoted by such a validation, where the voluntary administration is well advanced, in respect of the investigations made by Mr Ward; in respect of the investigations of a potential sale of the business; and in respect of the second meeting of creditors, which was previously convened although adjourned to occur in the near future. Mr Somerville also points to Mr Ward's view that there is at least a possibility of a better return to creditors in an administration than in a liquidation, if a sale of the business can be implemented. There are no third party interests which are adversely affected by the validation of Mr Ward's appointment, where Postnet has no employees, and where Mr Ward has disclaimed a lease, so the lessor is not presently subject to a moratorium arising from the administration.
Mr Somerville also rightly points out that, if the administration were not validated, Postnet would be left in the position where it had no present director, because of the disqualification of its purported director from acting as its director, and would likely need to be placed in provisional liquidation. That could potentially only be done if either an applicant brought such an application or the Court found that it had power to make such an order under s 447A of the Act. It is not presently necessary to determine that latter question, as to which differing views have been expressed in the authorities.
I am satisfied that, in these circumstances, the preferable course is to make a curative order in respect of the appointment of Mr Ward as administrator, so as to allow the administration to proceed to completion, in the manner in which it would have done had the difficulty as to the director's bankruptcy not arisen, and subject to the question of an extension of time from the second meeting of creditors to which I will return below. It seems to me that the course promotes the objects of Pt 5.3A of the Act, so far as it would allow creditors at least the prospect of a better return from a sale process and, if such a sale is not achieved, the opportunity to determine Postnet's future, albeit that there may then be little realistic alternative to a liquidation.
[4]
Extension of time for second meeting of creditors
A further question arose as to whether the Court should make an order under s 447A of the Act, so that Pt 5.3A operated as if it allowed adjournment of the second meeting of creditors to a later date. As I noted above, the maximum period for which that meeting could be adjourned under the Insolvency Practice Rules was 45 days, and that will expire on 10 September 2019. The administration has plainly been delayed by the issues that arose as to validity of Mr Ward's appointment, since he was properly concerned with incurring further costs while the question of the validity of his appointment was under question.
Mr Ward originally sought an extension of time for the second meeting of creditors to 21 October 2019. However, in the course of the hearing, Mr Ward has recognised that a shorter period may be appropriate. The question whether a sale of Postnet's business can proceed is likely to be clarified, one way or the other, in that shorter period, and it is not apparent that a longer period would either assist in reaching finality with the potential purchaser or in determining whether franchisees in Australia will transition their business to that purchaser or not. Mr Ward now accepts that an extension of three weeks to 24 September 2019 should be sufficient to allow him to convene the adjourned second meeting of creditors; to allow a supplementary report to creditors for that meeting; and to determine whether that sale process can go forward, for potential consideration at that second meeting of creditors.
It seems to me that the period of extension that is now proposed is supported by the factors to which Mr Ward has referred, and has no adverse implications for third parties, where I have noted above that Postnet has no continuing employees and the lease of its premises has been terminated. I am satisfied that I should make an order in the form sought in respect of the second meeting of creditors but reducing the period of the extension, as Mr Ward has now accepted, to 24 September 2019.
[5]
Costs
I am also satisfied that the costs of this application should be paid out of the assets of Postnet, where this is a proper application in order to clarify an issue which has arisen in the administration, which is not of the administrator's making.
[6]
Orders
For those reasons I make the following orders:
Order pursuant to s 447A of the Act that Part 5.3A of the Act is to operate in relation to the Defendant as if the Plaintiff had been validly appointed as administrator of the Defendant on 3 June 2019.
Order under s 447A of the Act that Part 5.3A of the Act is to operate in relation to the Defendant as if that Part allowed adjournment of a second meeting of creditors of the Defendant convened under s 439A of the Act to a date not later than 24 September 2019.
Order that the costs of the Plaintiff be paid out of the assets of the Defendant.
These orders be entered forthwith.
The exhibit be returned.
[7]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 22 September 2019