Allen v Feather Products Pty Ltd

LEGISLATION CITED : Corporations Act 2001 (Cth), Part 5.3A, ss 9, 439C, 513B(b), 571(1), 579E, 579N, 579P, 1479, 1480(20) Corporations Amendment (Insolvency) Act 2007 (Cth)

Luke v South Kensington Hotel Co (1879) 11 Ch D 121 McAuliffe v The Queen [1995] HCA 37; (1995) 183 CLR 108 CASES CITED : National Football League v North American Soccer League 459 US 1074 (1982) News Ltd v Australian Rugby Football League Ltd [1996] FCA 1256; (1996) 64 FCR 410 Re The Black Stump Enterprises Ltd [2005] NSWCA 480; (2005) 228 ALR 591 Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council [2006] NSWCA 291

Brian Hugh Allen and Peter George Burton - Plaintiffs PARTIES : Feather Products Pty Ltd and Snuggle Pty Ltd - First and Second Defendants Australian Securities and Investments Commission - Third Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

5829/07 BRIAN HUGH ALLEN & ANOR v FEATHER PRODUCTS PTY LTD & 2 ORS JUDGMENT 1 The plaintiffs are the liquidators of three companies, Feather Products Pty Ltd ("Feather"), Snuggle Pty Ltd ("Snuggle") and Ilume Pty Ltd ("Ilume"). 2 Feather and Snuggle both became subject to creditors voluntary winding up by operation of s 439C of the Corporations Act 2001 (Cth) on 16 November 2007 as a sequel to voluntary administration under Part 5.3A of that Act. The voluntary administration began, in each case, on 22 October 2007. Ilume's winding up was ordered by the court on 17 March 2008, following earlier orders on 4 February 2008 that its registration be reinstated by Australian Securities and Investments Commission and that the present plaintiffs be appointed liquidators provisionally. 3 The claims in the originating process filed on 4 February 2008 with which I am now concerned are claims directed towards "pooling" of the liquidation of Ilume with those of Feather and Snuggle. 4 That application is advanced in circumstances where the liquidators have already embarked upon a form of "pooling" of the liquidations of Feather and Snuggle. On 4 February 2008, Hammerschlag J made an order as follows: "Order that the plaintiffs as liquidators of the first and second defendants [Feather and Snuggle] be justified in conducting the winding up of the first and second defendants in the following manner: (a) that the plaintiffs shall combine the property of each of the first and second defendants into a single fund; (b) that the fund be distributed in accordance with the provisions of Part 5.6 Division 6 of the Corporations Act 2001 but as though the first and second defendants were a single company in liquidation and the creditors of the first and second defendants were creditors of a single company in liquidation; (c) no amount shall be payable from that fund on account of any liability or claim as between the first and second defendants." 5 The liquidators wish to adopt a wider form of "pooling" so that assets distributable in the windings up of all of Feather, Snuggle and Ilume are applied towards the debts of all of them. 6 The present application is made by reference to s 579E of the Corporations Act, a provision in Subdivision B of Division 8 of Part 5.6. Division 8 came into operation on 31 December 2007 as part of reforms made by the Corporations Amendment (Insolvency) Act 2007 (Cth). I was not referred to any decided case in which these new provisions have been considered; nor have my own researches brought any such case to light. 7 Section 579E(1) empowers the court to make an order determining that a group of two or more companies is a "pooled group" for the purposes of s 579E. Such an order is designated by s 9 a "pooling order". Its effect, broadly speaking, is to cause all of several companies subject to winding up to be jointly and severally liable for the debts of, and claims against, each of them, with debts owing among the companies themselves extinguished. In this way, the assets available in each winding up become applicable towards satisfaction of the external debts of all the companies. 8 Section 579E(1) is in these terms: "If it appears to the Court that the following conditions are satisfied in relation to a group of 2 or more companies: (a) each company in the group is being wound up; (b) any of the following subparagraphs applies: (i) each company in the group is a related body corporate of each other company in the group; (ii) apart from this section, the companies in the group are jointly liable for one or more debts or claims; (iii) the companies in the group jointly own or operate particular property that is or was used, or for use, in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group; (iv) one or more companies in the group own particular property that is or was used, or for use, by any or all of the companies in the group in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group; the Court may, if the Court is satisfied that it is just and equitable to do so, by order, determine that the group is a pooled group for the purposes of this section. Note 1: Section 9 provides that pooling order means an order under subsection (1) of this section. Note 2: See also subsection (12) (just and equitable criteria)." 9 Section 597E(1) directs attention to "a group of 2 or more companies". The expression "group" is not defined. It should therefore be given its ordinary meaning of a collection or plurality. A "group" will exist for these purposes simply if two or more companies are identified. The "group" terminology does not require anything more. The need for the identified companies to have certain attributes of connectedness comes from aspects of s 579E other than the word "group".

10 Paragraph (a) requires the court to be satisfied that each company in the group is being wound up. The court is so satisfied in relation to Feather, Snuggle and Ilume for reasons I have already mentioned. Section 597E(11) says that a pooling order may only be made on the application of the liquidators of all the companies affected. That condition is satisfied here since, as I have said, the plaintiffs are the liquidators of all three companies. Other statutory directives are given with respect to the making of such orders but, for the moment, I concentrate on conditions appearing from s 579E(1). 11 Section 579E(1)(b) requires that the court be satisfied that any one of subparagraphs (i) to (iv) applies. The liquidators have produced evidence making it clear that subparagraph (i) is satisfied, in that Feather holds all the issued shares in Ilume and Ilume holds 89.94% of the issued shares in Snuggle (the balance of 10.04% being held by Feather), with the result that, in terms of Division 6 of Part 1.2, each of Ilume and Snuggle is a subsidiary of Feather; Snuggle is a subsidiary of Ilume; each of Feather and Ilume is a holding company of Snuggle; Feather is a holding company of Ilume; and each of Feather, Snuggle and Ilume is accordingly a related body corporate of each of the others of them.

12 The liquidators have produced evidence with a view to showing that subparagraph (iv) of s 579E(1)(b) also applies. According to that evidence, Feather manufactured feather and down products in premises at St Marys and Snuggle marketed the finished products, while Ilume is described as a "labour hire" company. Ilume, it appears, employed the workforce, supplied their services to the other companies and was responsible for payroll and workers compensation insurance.

13 There is here a basis for finding that each company was engaged in activities which, when performed in conjunction with the activities of the other companies, constituted a single business enterprise. Each company's activities could have been carried on independently of the activities of the other companies, although not in isolation from a counterparty or counterparties providing services or facilities in fact provided in the particular case by the related companies. By this I mean that Feather could have conducted its business with labour sourced otherwise than from Ilume and with marketing services provided otherwise than by Snuggle; that Snuggle could have operated as a selling agent for principals other than Feather and with labour provided otherwise than by Ilume; and that Ilume could have conducted a labour hire business serving customers other than Feather and Snuggle.

14 Under s 579E(1)(b)(iv), however, the focus is upon the actual state of affairs, not on independent capability. And the central question is whether there is "a business, a scheme or an undertaking, carried on jointly by the companies in the group". The Explanatory Memorandum to the Corporations Amendment (Insolvency) Bill published by the authority of the Parliamentary Secretary to the Treasurer does not explain the intended concept of the carrying on of a business, scheme or undertaking "jointly". On one interpretation, all the companies would have to act in unison in performing all relevant activities for their enterprise to be "carried on jointly". The principle that trustees must act jointly requires that all join in the particular act: see, for example, Luke v South Kensington Hotel Co (1879) 11 Ch D 121. I am of the opinion, however, that "jointly" does not, in the present statutory context, envisage or require action in unison. As its meaning in other contexts shows, "jointly" can be less demanding.

15 In News Ltd v Australian Rugby Football League Ltd [1996] FCA 1256; (1996) 64 FCR 410 (at [188]), a football competition in which individual football clubs participated was described as a "joint activity" of the sponsoring body and the clubs. There was reference (at [191]) to National Football League v North American Soccer League 459 US 1074 (1982) where Rehnquist J (at 1077) described participants in a football league as "joint venturers who produce a product, professional football". An aggregation of separate efforts in juxtaposition to one another may thus be regarded as constituting a "joint" activity.

16 The same concept is recognised in the criminal law. In McAuliffe v The Queen [1995] HCA 37; (1995) 183 CLR 108, Brennan CJ, Deane J, Dawson J, Toohey J and Gummow J said (at CLR 113): "The doctrine of common purpose applies where a venture is undertaken by more than one person acting in concert in pursuit of a common criminal design. Such a venture may be described as a 'joint criminal enterprise'." 17 In that area of the law, the separate acts of several persons sharing a purpose and acting in concert attract the description "joint" to their enterprise.

18 So too with the expression "joint venture" in commercial settings. The following passage at the start of the judgment of Giles JA in Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council [2006] NSWCA 291 (at [1]) reflects the same view of the meaning of "joint": "Koompahtoo Local Aboriginal Land Council ('Koompahtoo'), established under the Aboriginal Land Rights Act 1983 ("the Act"), came to hold approximately 885 ha of land near Morisset. On 14 July 1997 it entered into a joint venture with Sanpine Pty Ltd ('Sanpine') for development and sale of part of the land. Koompahtoo and Sanpine each held a 50 per cent interest in the joint venture, to which broadly speaking Koompahtoo contributed its land and Sanpine contributed its services. Sanpine was the development manager under the joint venture agreement ('the Agreement')." 19 In the present case, it is sufficiently clear that Feather, Snuggle and Ilume were parties to an arrangement under which each contributed part of what was required to carry on a single business. Ilume provided human resources, Feather provided manufacturing facilities and Snuggle attended to the sale of the manufactured product. The total business of manufacturing and selling feather and down products was carried on by them jointly. And those of them that owned relevant physical property caused it to be used in the joint enterprise. The circumstances can thus be seen to be as described in s 579E(1)(b)(iv). 20 Because the court is, for the reasons stated, satisfied that one of the subparagraphs of s 579E(1)(b) (being each of subparagraph (i) and (iv)) applies and because the court is also satisfied as to the matter in s 579E(1)(a), it will be open to the court to make a determination under s 579E(1) that the three companies constitute a "pooled group" if, at the next stage of the inquiry, it "is satisfied that it is just and equitable to do so" - subject, however, to the effect of a transitional provision to which I must now turn. 21 Section 1480(20) of the Corporations Act is in these terms: "Subsections 571(1) and 579E(1) of the amended Act apply in relation to a group of 2 or more companies if the winding up of each company in the group begins on or after the day on which those subsections commence." 22 The expression "the amended Act" is not defined or used elsewhere. Given the context and the definition of "amending Act" in s 1479, however, "the amended Act" must be the Corporations Act as amended by the Corporations Amendment (Insolvency) Act 2007. The day on which s 571(1) and s 579E(1) commenced was 31 December 2007. The time at which a company's winding up begins or commences is determined by the provisions in Division 1A of Part 5.6. In the case of each of Feather and Snuggle, the effect of s 513B(b) is that the winding up commenced on the "section 513 day" in relation to its antecedent voluntary administration, that is, the day on which the administration began. In the case of Ilume, the winding up commenced on the day on which the winding up order was made, that is, 17 March 2008. 23 The fact that the winding up of each of Feather and Snuggle began before 31 December 2007 seems to compel the conclusion that, because of s 1480(20), the group of companies consisting of Feather, Snuggle and Ilume (or any two of them) is not a group in relation to which s 579E(1) applies, with the result that the court has no power to determine that that group is a pooled group for the purposes of s 579E. 24 It was submitted on behalf of the liquidators, however, that any such conclusion would fail to give effect to s 579N: "To avoid doubt, for the purposes of: (a) this Division; or (b) any other provision of this Act to the extent to which it relates to this Division; a group of 2 or more companies need not be associated with each other in any way (other than a way described in paragraph 571(1)(b) or 579E(1)(b))." 25 Before considering the submissions concerning s 579N, I must address a question of construction. Section 579N is, in terms, a provision enacted to "avoid doubt". Precisely what the words "to avoid doubt" or "for the avoidance of doubt" add to the meaning of a statutory provision may itself be a matter of doubt. The operative enacted words should have the same effect whether or not the introductory or explanatory words are included. Perhaps the indication is that one has resort to the provision only if some doubt arises, or that the provision deals only with cases of doubt. 26 It was suggested by Paul Lanspeary, a senior drafter at the Office of Parliamentary Counsel, Canberra in a paper delivered in August 2005 entitled "Statutory interpretation for drafters", that the expression "to avoid doubt" is used in statutes "to anticipate and provide answers to difficult questions of interpretation". After referring to several examples of provisions in which the words appear, the author expresses this view: "It is not suggested that the phrase 'To avoid doubt' is necessary, or desirable, when including such provisions." 27 Later, after saying that there are several reasons why drafters "will (and should) lean towards provisions that clarify difficult interpretation issues", the author says that there may be some reasons why drafters "should not overuse the option of clarifying the text in an attempt to bypass questions of interpretation". One such reason is: "the additional text might itself cause difficulties of interpretation despite drafters' best efforts. (A common problem is the insertion of provisions (often at the insistence of instructors) to clarify ambiguities that do not really exist: these provisions often start with the phrase 'To avoid doubt …' or 'For the avoidance of doubt …')." 28 Whatever may have been the doubt that Parliament intended to lay to rest by enacting s 579N, it was not of sufficient concern to warrant explanation or even mention in the Explanatory Memorandum to the Corporations Amendment (Insolvency) Bill. 29 My strong inclination is to approach s 579N on the footing that the words "To avoid doubt" do not add meaning that would be absent if the words themselves were absent. Viewed in that way, s 579N it is an interpretation provision like any other beginning simply, "For the purposes of [a stated provision or collection of provisions]" - in the same way as the immediately following s 579P. So read, it serves the purpose of indicating that, in approaching the "pooling" provisions, the court is not called upon to consider, or make any findings on, matters of "association", in a general sense, beyond those explicitly referred to in s 579E(1)(b) itself.

30 I turn now to the submissions in support of the proposition that s 579N allows resort to s 579E(1) in the present case even though s 1480(20), on its face, precludes application of s 579E(1) to any group of companies that includes Feather or Snuggle. The first submission is stated thus in the written outline of submissions provided on behalf of the liquidators by Mr Reoch of counsel and Mr Dowling, solicitor: "16. It is submitted that the purpose of s.579N, particularly the insertion of the words to avoid doubt , is so wide that it anticipates, and allows, the position here in the placing a company (Ilume) into an already pooled group of companies (Feather and Snuggle) and having the combined group treated as one for the purposes of s.579E, in that there need be no association between the companies (or indeed if any association may in fact exist as here) other than s.579E (1) (b).

17. That being so, only the winding up of Ilume must commence after 1 January 2008, which is satisfied, and s.579N permits Ilume, it being just and equitable to do so, to join the pooling process between Feather and Snuggle as per Order No. 11 of the orders of this Court of 4 February 2008."

31 This analysis depends on the proposition that Feather and Snuggle are already a "pooled group" and that the application is really an application to extend that pooled group by adding Ilume to it. I do not think that that is a correct proposition. There does not exist, at this point, any "pooled group" as contemplated by the Corporations Act, that is, a group in respect of which the court has made a determination under s 579E(1). On 4 February 2008, the court merely recognised that there had been adequately informed assent by the creditors of Feather and Snuggle to a defined departure from the basis on which assets would otherwise be applied and debts and claims would otherwise participate in the respective windings up: see Re The Black Stump Enterprises Ltd [2005] NSWCA 480; (2005) 228 ALR 591. On that basis, the court gave the liquidators of those two companies guidance to the effect that they might conduct the windings up on the particular modified basis endorsed by creditors and stated in the orders of 4 February 2008.

32 If the court were now to make any useful order under s 579E(1), it would be an order in respect of the group consisting of all three companies. But s 1480(20), on its face, does not allow such an order in relation to that group because the windings up of two of them began before 31 December 2007.

33 It was next submitted by Mr Reoch and Mr Dowling that s 579N affects the meaning of s 1480(20). It may be accepted that s 1480(20) is a provision that "relates to" Division 8 of Part 5.6, so that, by virtue of s 579N(b), s 579N operates "for the purposes of" it. But what follows? According to the submission, the "apparent literal interpretation" of s 1480(20) and, in particular, the word "each" in it create some "doubt" where there is "a prior court approved pooling" and good reason to have Ilume added to it.

34 For my own part, I can see no "doubt" as to the way in which s 1480(20) is to be interpreted and applied. Its terms are perfectly clear. In addition and as I have said, I am of the opinion that it is not necessary to identify "doubt" before applying s 579N.

35 The general thrust of the submissions seems to be that s 1480(20) requires a particular form of "association" among companies in a group proposed to be made the subject of a s 579E(1) order, that is, the "association" arising from the common characteristic that winding up began on or after 31 December 2007. That being so, it is argued, s 579N removes or countermands that requirement by ensuring that the only association needed among companies for the purposes of s 579E(1) is association in a way described in s 579E(1)(b).

36 Any such construction is unsupportable. Section 1480(20) does not prescribe a need for an "association" based on the time at which winding up began. Its concern is no more or less than the ordinary concern of a transitional provision, that is, to identify, by reference to a timing characteristic, those cases to which the new provision applies and those to which it does not. The timing characteristic that must be found if companies are to come within the scope of the new provision is not something that causes all companies possessing the characteristic to be "associated with each other". In any event, the postulated construction, even if otherwise meritorious, would deprive s 1480(20) of all meaning and effect. For that reason alone it would be rejected.

37 In the present case, s 1480(20) produces the result that the court cannot make a determination under s 579E(1) that the group consisting of Feather, Snuggle and Ilume (or, for that matter, a group consisting of any two of them) is a "pooled group". This is because the winding up of each company in any such group did not begin on or after 31 December 2008.

38 This lack of power to make a pooling order must be recognised, however compelling the case may be for concluding that, in the words of the section, "it is just and equitable to do so". On the face of things, the "just and equitable" criterion might be found to be satisfied in this case. I say this because it appears that, as a result of the way in which aspects of the overall operations were split among the three companies, the employees who worked in the jointly operated enterprise (being creditors of Ilume alone) are left in a very much worse position than the creditors of Feather and Snuggle where 100 cents in the dollar may be paid and a surplus may ultimately accrue to the natural person shareholders of Feather.

39 In the result, however, the transitional provision in s 1480(20) compels the dismissal of the liquidators' claim for a pooling order under s 579E(1), however meritorious the claim might appear to be.

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