Australasian Memory Pty Limited v Brien

A. Introduction 1 The plaintiff, Ms Robyn Duggan, as the deed administrator of Conomi Group Pty Limited (subject to Deed of Company Arrangement) (Company) seeks relief under s 447A of the Corporations Act 2001 (Cth) (Corporations Act). 2 By the originating process filed on 2 August 2023, Ms Duggan seeks orders (a) confirming that a deed of company arrangement made in relation to the Company on 22 February 2022 (DOCA) had not been terminated, and (b) varying the terms of the DOCA to reflect events that have taken place since it was executed. 3 The application for relief is supported by affidavits of Ms Duggan affirmed on: (a) 1 August 2023, together with Exhibit RLD-1; (b) 9 August 2023, together with Exhibit RLD-2; and (c) 16 August 2023. 4 Mr J.R. Anderson of counsel, who appeared for Ms Duggan, made comprehensive written and oral submissions in support of the relief sought in the originating process. I found those submissions to be of considerable assistance in the preparation of these reasons. 5 The application by Ms Duggan was supported by Mr A. Gerard of counsel who appeared, by leave, for two interested persons, Alexander Company Pty Ltd (ACN 153 494 305) (Alexander Company) and Mr Pham Nguyen. Both Alexander Company and Mr Nguyen are parties to the DOCA. 6 For the reasons that follow, I am satisfied that relief substantially in the form sought by Ms Duggan, should be granted.

B. Background 7 The following background is taken substantially from the affidavits of Ms Duggan. 8 The Company carried on a business of raising funds to on-lend to Alexander Company. In turn, Alexander Company invested those funds in Lexium Group Limited (Lexium). Alexander Company's borrowings from the Company were secured by shares in Lexium and "Lex Tokens". Lexium subsequently failed and Alexander Company's investment in Lexium was lost. The security given to the Company was worthless. 9 On 20 October 2021, the Company was placed into voluntary administration and Mr Peter Andrew Amos was appointed as voluntary administrator of the Company under s 436A of the Corporations Act. 10 On 16 November 2021, Mr Amos, issued his report to creditors pursuant to s 439A of the Corporations Act and r 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth). In that report, Mr Amos recommended that creditors of the Company resolve that the Company should execute a deed of company arrangement. The terms put to creditors contemplated, inter alia, the payment of $4,500,000 by Alexander Company, and the contribution of certain cryptocurrency tokens. Mr Amos identified a number of factors which supported his recommendation, including that the proposed deed of company arrangement offered a greater return than liquidation. 11 On or about 22 February 2022, the DOCA was executed. 12 The conditions precedent to the DOCA's operation include, relevantly, an obligation on Alexander Company to make "the payment in paragraph (a) of the Released Contribution": see cl 2.1(a)(ii) of the DOCA. 13 Clause 2.2(a) of the DOCA provides that: 2.2 Payment of Contribution (a) If all of the Creditors have entered into a Deed of Release with Pham Tam Linh Pham Nguyen, the sole director of Alexander Company (Deed of Release), by the date that this Deed is exchanged, Alexander Company must pay the Released Contribution in the manner set out in the definition of the Released Contribution. (emphasis in original) 14 The "Released Contribution" is defined in cl 1.1 as, relevantly: Released Contribution (a) $1,500,000 payable on exchange of this Deed (less an amount of $10,000 already paid to the Administrator); (b) five monthly instalments of $50,000 payable on the first day of each month commencing on 1 March 2022; (c) $2,750,000 payable on or before 30 June 2022; and … 15 On 9 and 10 March 2022, the initial payment of $1,500,000 was paid in three transactions. 16 Between 25 March and 27 June 2022, the five monthly instalment payments contemplated by sub-paragraph (b) of the definition of "Released Contribution" were paid. 17 On 2 May 2022, an interim dividend of $1,200,000 was paid to the majority of the Company's creditors. 18 On 10 May 2022 and 9 June 2022, Mr Kim of Hans Kim Lawyers, the solicitors for Alexander Company and Mr Davis of Stacks Law Firm, the solicitors for Mr Amos, corresponded about a possible extension of five months. The extension was subsequently reduced to three months, as Mr Davis had proposed and Mr Kim agreed, which would have seen the balance of the Released Contribution paid by 30 September 2022. Mr Davis represented, in his email dated 8 June 2022, that Mr Amos was finalising a report to convene a meeting of creditors to consider a resolution to vary the DOCA. No such meeting was ever convened or held. 19 The amount of $2,750,000 was not paid on or before 30 June 2022. 20 The circumstances in which the DOCA would terminate are specified in cl 11.2 of the DOCA. It relevantly provides (as written): 11.2 Termination For the purposes of section 444A(4)(g) of the Act, this Deed will terminate on the earliestof: … (b) the happening of any of the following events: (i) the payment of the amount xxxxx is not made under clause 2.2(a)(iii) by the Director within 7 days of the due date (or such longer period as the Deed Administrator determine in his absolutediscretion); … 21 The evidence, so far as it goes, does not positively establish a binding agreement to extend the time for payment of the Released Contribution. It is, at best, equivocal as to whether or not Mr Amos ever exercised his discretion under cl 11.2(b)(i) of the DOCA to extend the time for payment. 22 There are also the following difficulties with cl 11.2(b)(i): (a) the reference to "xxxxx" is a placeholder for an amount which was never inserted; (b) there is no cl 2.2(a)(iii) in the DOCA; (c) under cl 2.2, the payment of the Released Contribution is an obligation of Alexander Company, not the Director; and (d) the "due date" by which the Release Contribution had to be paid is not defined. 23 For present purposes, I am prepared to proceed on the basis that there is a risk that the DOCA might be construed, by reference to the objective intentions of the parties and the terms of the DOCA read as a whole, on the following basis: (a) the reference to "xxxxx" was to the Released Contribution; (b) the cross reference was to cl 2.2(a) and cl 2.2(b), not cl 2.2(a)(iii); (c) the reference to the payment of the Released Contribution by the "Director" was to the payment to be made by Alexander Company; and (d) the reference to the "due date" was a reference to the dates by which payments were to be made in the definition of the Released Contribution in cl 1.1, given that cl 2.2(a) provides that "Alexander Company must pay the Released Contribution in the manner set out in the definition of the Released Contribution". 24 If the DOCA were to be construed on the basis outlined immediately above, it would have automatically terminated on 1 July 2022 (or alternatively, on 7 July 2022 as no longer period had been agreed by Ms Duggan, as deed administrator, within 7 days after 30 June 2022) pursuant to cl 11.2(b) as the $2,750,000 component of the Released Contribution was not paid on or before 30 June 2022. The evidence, so far as it goes, does not positively establish a binding agreement to extend time for payment of the Released Contribution. It is, at best, equivocal as to whether or not Mr Amos ever exercised his discretion under cl 11.2(b)(i) of the DOCA to extend the time for payment. 25 On 20 July 2022, Mr Kim wrote to Mr Davis and stated, among other things, that the balance of $2,750,000 "will be paid within 3 months calculated from the date of the approval of the DOCA variation". 26 On 25 October 2022, Mr Amos claimed the occurrence of a "Default" because Alexander Company had failed to make the payment of $2,750,000 by 30 June 2022 pursuant to cl 2.2 of the DOCA and sub-paragraph (c) of the definition of Released Contribution at cl 1.1. He stated that the DOCA, however, otherwise remained on foot and that he would not take steps to terminate the DOCA if $2,750,000 was paid by 6 December 2022. 27 On 14 November 2022, Mr Kim indicated that it was not possible for Alexander Company to pay $2,750,000 by 6 December 2022, but that $500,000 could be paid by 30 November 2022 and the remaining balance by 10 February 2023. 28 It appears that Mr Amos then indicated that he was "happy to receive the funds as [Mr Kim] proposed", which I infer to be a reference to Mr Kim's letter of 14 November 2022. 29 On 5 December 2022, Mr Kim sought a further 21 day extension for the payment of $500,000 by Alexander Company. Mr Amos did not respond to Mr Kim's request for a 21 day extension until 20 December 2022. 30 On 28 December 2022, following discussion and emails between Mr Kim and Mr Amos, Alexander Company paid $500,000, leaving an outstanding balance of $2,250,000, being the amount to be paid pursuant to sub-paragraph (c) of the definition of Released Contribution in the DOCA. 31 On 17 March 2023, the outstanding amount of $2,250,000 was paid following Ms Duggan's appointment as the deed administrator.

C.1. Legal principles 32 Section 447A(1) of the Corporations Act provides that the Court "may make such order as it thinks appropriate about how this Part (Pt 5.3A) is to operate in relation to a particular company". 33 Section 447A(4)(d) of the Corporations Act provides that a deed administrator can make an application under s 447A(1) for orders in the case of a company that has executed a deed of company arrangement. 34 The powers of the Court under s 447A of the Corporations Act are wide, but not entirely without limit: Australasian Memory Pty Limited v Brien (2000) 200 CLR 270; [2000] HCA 30 at [20] (Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ); see also In the matters of MROC Car Wholesalers Pty Ltd and ors [2017] NSWSC 287 at [30] (Gleeson JA). The relevant limitations were identified in Australasian Memory at [20]: …Some particular limitations, suggested in the course of argument, must be examined: first, that s 447A does not permit a court to make an order altering the times fixed by those provisions of Pt 5.3A which contain express provision for variation of the time so fixed; second, that it permits only orders having prospective effect; third, that it does not permit the making of orders affecting vested rights; and, fourth, that it does not apply unless there is a continuing administration (or, presumably, an extant deed of company arrangement). 35 Additionally, as Black J observed in In the matter of Maria's Farm Veggies Pty Ltd (admins apptd) [2016] NSWSC 1899 at [21]: …The overriding requirement for an order under that section is that any order made and any directions given must be designed to achieve the objective of Part 5.3A as expressed in s 435A of the Corporations Act, and…must have a nexus with how Part 5.3A is to operate in relation to the particular company: Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd [2004] FCA 130; (2004) 49 ACSR 1 at 15; Correa v Whittingham [2013] NSWCA 263; (2013) 278 FLR 310 at [4]. (emphasis in original) 36 Section 445C(c) of the Corporations Act provides that a deed of company arrangement terminates if the deed specifies circumstances in which it is to terminate and those circumstances exist. 37 The power under s 447A of the Corporations Act extends to the making of an order that a deed not terminate, when it otherwise would have terminated: In the matter of Frenchy's Bread Pty Ltd [2015] NSWSC 2031 at [5]-[9] (Brereton J, as his Honour then was); see also Farnsworth v ASIC [2007] NSWSC 866 (Hammerschlag J). 38 In Frenchy's Bread, a deed of company arrangement had provided that if certain agreements and contributions of $300,000 from the directors had not been received by the deed administrators by a specified date, the deed would terminate. Not all of the agreements and payments had been provided to the deed administrators by the specified date and the deed therefore terminated pursuant to s 445C(c) of the Corporations Act. Two days later, however, the agreements were executed and provided to the deed administrators and the contributions were paid. The deed administrators sought orders from the Supreme Court of New South Wales pursuant to s 447A of the Corporations Act that would have the effect of revoking the termination of the deed of company arrangement. 39 The availability of s 447A to make orders having the effect of revoking the termination of deeds of company arrangements was addressed by Brereton J in Frenchy's Bread at [5]: In Farnsworth v ASIC [2007] NSWSC 866, Hammerschlag J utilised s 447A to make orders to similar effect. As it seems to me, while the scope of s 447A may not be so broad as is sometimes suggested, and while, in my view, it must generally involve a modification of the operation of Pt 5.1 in the particular case, nonetheless, there are indications which support its use to make an order to the effect that a deed not terminate, when it otherwise would have terminated. Indeed, the specific reference in the examples contained within s 447A to using the section to make an order that the deed terminate when it otherwise would not, is suggestive of a similar power to order that it not terminate when it otherwise should. On that basis, I am satisfied the orders sought can be made under s 447A.

C.2. Consideration 40 I am satisfied that an order should be made pursuant to s 447A(1) of the Corporations Act, to the extent necessary, that the DOCA has not terminated. The present case is one, like Farnsworth, where "s 447A(1) of the Corporations Act may be used with justification and real utility": Farnsworth at [58]. There are several reasons why relief should be issued in the present circumstances. 41 First, there is at least a likelihood that the DOCA terminated automatically in accordance with its terms in mid-2022. Since that time, Mr Amos and Ms Duggan, as Mr Amos' successor, and Alexander Company, have substantially proceeded on the understanding that the DOCA remains on foot. 42 Second, and related to the previous point, Alexander Company has now contributed the full amount of the Released Contribution which it was required to contribute. That sum, being $4,500,000, is plainly substantial. 43 Third, in addition to the payment of the Released Contribution, the DOCA is otherwise partly performed, in the sense that one interim distribution has been made to creditors. 44 Fourth, it would be undesirable for the Company to pass into liquidation and face uncertainty as to whether the Released Contribution could be used in the liquidation. In any event, there would be a real question about Ms Duggan's ability to pay an equalising dividend to creditors who did not receive an interim distribution. 45 Fifth, Ms Duggan gives evidence of her view that it would be in the interests of creditors for the DOCA to be extended and preserved, and that she is not aware of the relief sought having any effect on the accrued rights of any person. 46 Sixth, notice of this application has been given to creditors of the Company. Ms Duggan has received 87 responses, all of which have been supportive. No person has indicated any opposition to the relief sought.

D.1. Legal principles 47 The Court has the power under s 447A of the Corporations Act to vary a deed of company arrangement. As Barrett J (as his Honour then was) observed in In the matter of Derwent Howard Media Pty Limited [2011] NSWSC 1164: 11 Ordinarily, any variation of a deed of company arrangement should be by resolution of creditors under s 445A. But it is, I think, sufficiently established that the court's power under s 447A enables it, in an appropriate case, to vary a deed of company arrangement or, more accurately, to cause Part 5.3A to operate in relation to the subject company as if some provision of the deed were varied: see, for example, Mulvaney v Rob Wintulich Pty Ltd (1995) 18 ACSR 384; Re Pasminco Ltd [2003] FCA 265; (2003) 45 ACSR 1; Brandrill Pty Ltd v Newmont Yandal Operations Pty Ltd [2006] NSWSC 974; (2006) 24 ACLC 1179. 12 Generally speaking, however, the court should be reluctant to exercise this power (and thereby to deprive creditors of their role under s 445A) except in circumstances that are uncontentious, in the sense that no prejudice to creditors is involved: Re Paradox Digital Pty Ltd; Ex parte Smith [2001] WASC 182. That is the position here. Deferral of the 30 September 2011 deadline will avoid the possibility of untoward termination of the arrangement and preserve the basis of participation by creditors envisaged by the deed, as well as allowing time within which any proposal for substantive variation can be placed before creditors for consideration.

D.2. Consideration 48 I am satisfied that orders to cause Pt 5.3A of the Corporations Act to operate in relation to the Company as if the provisions of the DOCA were varied in the form sought by Ms Duggan in the mark-up of the DOCA provided to the Court in the course of the hearing, should also be granted. 49 First, the variations sought do not give rise to any prejudice to creditors. 50 Second, the deficiencies in the drafting of the DOCA are manifest and the variations to correct those deficiencies are uncontentious. The variations are necessary to (a) reflect the delays in the receipt of the Released Contribution, including the payment of interest, (b) introduce the term "Lender Creditors" to make clear that the operative terms of the DOCA are directed at creditors with a claim against the Company arising out of a loan made to the Company guaranteed by Jocelyn Yap, and (c) otherwise correct numerous typographical errors. 51 Third, the proposed variations are supported by a majority of creditors and by both Alexander Company and Mr Nguyen as parties to the DOCA.

E. Disposition 52 Orders will be made substantially in the form sought by Ms Duggan in her originating process. I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley.