Australasian Memory Pty Limited v Brien

Federal Court of Australia|2024-09-18|Before: Colvin J

the matter of Oceanlinx Limited [2014] FCA 524 SZTAL v Minister for Immigration and Border Protection [2017] HCA 34; (2017) 262 CLR 362

National Practice Area: Commercial and Corporations

Sub-area: Corporations and Corporate Insolvency

order made by: COLVIN J DATE OF ORDER: 18 SEPTEMBER 2024

If a restructuring plan that: (a) complies with reg 5.3B.15 of the Corporations Regulations 2001 (Cth); and (b) is substantially in the terms provided to the Court in support of the application is proposed to creditors on or before 20 September 2024 then, pursuant to s 458A of the Corporations Act 2001 (Cth), Part 5.3B of the Act is to operate in relation to the applicant as if the restructuring that commenced on 20 May 2024 was continuing on and before 20 September 2024 and thereafter as if the restructuring plan had been proposed within the time provided for by the Corporations Regulations.
Otherwise, to the extent necessary, pursuant to reg 5.3B.17(4) of the Corporations Regulations, the proposal period for the restructuring of the applicant that commenced on 20 May 2024 is extended until and including 20 September 2024.
There be liberty to any party affected by orders 1 and 2 to apply to vary or discharge those orders.
The liberty reserved by order 3 may be exercised by sending an email to the associate to the case managing judge specifying the proposed orders sought and stating short reasons for those orders.
If any party applies pursuant to order 3 to vary or discharge these orders then the application will be listed for further hearing on a date to be fixed.
The applicant shall make arrangements forthwith for notice of these orders to be given to the known creditors of the applicant and to the restructuring practitioners. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

COLVIN J: 1 In 2020, a simplified scheme for the restructuring of eligible companies was introduced. Speaking generally, it applies to companies with liabilities to creditors that do not exceed $1,000,000. The relevant statutory provisions are to be found in Part 5.3B of the Corporations Act 2001 (Cth) and Part 5.3B of the Corporations Regulations 2001 (Cth). At the time of their introduction, the reforms were said to be intended 'to encourage more small businesses to seek debt restructuring earlier, increasing their chances of regaining viability': see Explanatory Memorandum, Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 (Cth) at [1.3]. 2 Broadly speaking, the scheme for restructuring operates in the following way. The company appoints a restructuring practitioner who advises the company during a period of 'restructuring' (s 453B of the Corporations Act). During that time, consideration is given to the preparation of a 'restructuring plan' to be proposed to creditors (s 453E). The restructuring practitioner acts as the company's agent when undertaking activities for the purpose of restructuring (s 453H). However, the company continues to have control of its business, property and affairs (s 453K). It may continue to engage in any dealings that are in the ordinary course of the company's business (s 543L). If a plan is to be proposed and presented to creditors for their consideration then the restructuring practitioner must make certain required declarations as to the plan (s 453E(1)(a) and (2)(a)). 3 A company is taken to be insolvent if it proposes a restructuring plan (s 455A(2)). If a restructuring plan is approved by creditors then a restructuring practitioner will be appointed for the plan. The way the plan is to be made, changed and brought to an end as well as the way in which it may deal with the claims of creditors is dealt with by regulation (s 455B). If no plan is approved then the company will need to be administered in insolvency. 4 Accordingly, there are two distinct phases; a period of restructuring followed by a period when any approved restructuring plan is carried into effect. There are legislative provisions which mean that, in general, enforcement action cannot be taken by creditors during the period of the restructuring. Thereafter, if a plan is approved then it will deal with creditors rights.

Period of restructuring in the present case 5 On 20 May 2024, restructuring practitioners were appointed to Sprys Coating Services Pty Ltd (SCS) by resolution of the company's sole director, Mr Matthew Spry. The majority creditor of SCS was then, and remains, the Commissioner of Taxation. Since the appointment of the restructuring practitioners, there have been communications with the Australian Taxation Office in relation to the possible approval of a restructuring plan for SCS. 6 The period of any restructuring begins with the appointment of a restructuring practitioner for the company and ends 'in the circumstances prescribed by the regulations' (s 453A). 7 Regulation 5.3B.02(1)(b) of the Corporations Regulations specifies when the period of restructuring comes to an end. Relevantly for present purposes it provides: For the purposes of paragraph 453A(b) of the Act, the restructuring of a company ends if … the company fails to propose a restructuring plan within the proposal period. 8 The 'proposal period' is 20 business days beginning on the day the restructuring begins (reg 5.3B.17(1)). In the present case, that period ended on 18 June 2024. However, the Corporations Regulations allow the restructuring practitioner to extend the proposal period by 'no more than 10 business days' (reg 5.3B.17(2)). In the present case, there was an extension under that provision to 2 July 2024. On that day, a restructuring plan for SCS that had been prepared with the assistance of the restructuring practitioners was executed by Mr Spry. 9 The execution of the restructuring plan was only one of the steps required to 'propose a restructuring plan'. In that regard, the Corporations Regulations deal with the way in which a restructuring plan is to be proposed (reg 5.3B.14), as well as the contents of the plan (reg 5.3B.15). 10 One of the steps that must be completed for a company to propose a restructuring plan is that the restructuring practitioner is to give a copy of the plan (and certain other materials) 'in accordance with subregulation 5.3B.21(1)'. It requires the restructuring practitioner for the company to give the plan (and other materials) to 'as many of the company's affected creditors as reasonably practicable' and to do so 'as soon as practicable'. 11 Of the two restructuring practitioners appointed to SCS, one took responsibility for attending to the above requirements. He formed the view that provided the restructuring plan was executed within the extended period of time and the plan (and other materials) were then given to creditors as soon as practicable after execution of the plan then the relevant requirements would have been satisfied. He now accepts that he was incorrect in forming that view because all of the steps required to propose a restructuring plan had to be completed within the statutory period. However, for a time, his error guided his actions. 12 Eventually, the restructuring practitioner informed Mr Spry that an application should be made for an extension of the restructuring period. Lawyers were engaged by SCS. It was not until 12 September 2024 that SCS applied to this Court for an order extending the proposal period for the restructuring for 2 business days after the date of any order. An application in those terms invited the Court to extend time after the proposal period had come to an end. 13 On 18 September 2024 I made orders extending the proposal period on terms provided for in those orders. At the time I indicated that I would provide my reasons for doing so. These are my reasons.

The issues raised by the application 14 Three issues arose on the hearing of the application, namely: (1) Does the Court have jurisdiction to make an order that would extend the proposal period after it has come to an end? (2) What matters bear upon the proper exercise of any such discretion? (3) If the Court has jurisdiction to make the order, should an order be made in the present case and, if so, on what terms? 15 Also, the Court was asked to make no order as to the costs of the application and it was necessary to determine whether that was appropriate irrespective of the outcome.

Issue 1: Does the Court have jurisdiction to make an order that would extend the proposal period after it has come to an end? 16 The jurisdiction of this Court derives from its character as a superior court of record that sits as a court of law and equity. However, as to its subject matter, the Court's jurisdiction extends only as far as the laws of the Commonwealth vest jurisdiction in the Court. 17 As a superior court of record, the Court has power to make orders, otherwise within jurisdiction, that speak as if they had been made at an earlier time (that is, nunc pro tunc). There are well established principles that guide the exercise of that power. The authorities include statements to the effect that orders should not be made nunc pro tunc where the order would interfere with a substantive right. Such principles apply where the Court is making procedural orders or dealing with aspects of its jurisdiction where the subject matter is broadly expressed, such as its original jurisdiction in any matter where an injunction is sought against an officer of the Commonwealth as provided for by s 39B(1) of the Judiciary Act 1903 (Cth). However, the question whether a particular power conferred upon the Court by a statutory provision to make a specific type of order authorises the making of an order that can have some form of retrospective operation or effect is to be resolved as a matter of statutory construction. As to these matters: see Emanuele v Australian Securities Commission (1997) 188 CLR 114 at 123 (Brennan CJ), 127-131 (Toohey J, Dawson J agreeing), 137-138 (Gaudron J), 140 (Kirby J); Australian Rail, Tram and Bus Industry Union v Metro Trains Melbourne Pty Ltd [2020] FCAFC 81; (2020) 276 FCR 172 at [9]-[11] (Flick, Bromberg and Anastassiou JJ); Hrycenko v Hrycenko (by his legal representative Hrycenko) [2022] FCAFC 152; (2022) 294 FCR 233 at [9]-[20] (Bromberg J), [99]-[108] (McElwaine J); and Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942 [2021] FCAFC 143; (2021) 286 FCR 494 at [2]-[3] (Allsop CJ, Markovic and Derrington JJ agreeing) and [85]-[86] (Colvin J, Anastassiou J agreeing). 18 The Corporations Act has many provisions that provide for orders that may be made by 'the Court' on application by specified categories of persons. Each of these provisions confers authority to make orders of the kind provided for upon this Court (as well as other courts as included in the relevant definition of that term): see s 58AA of the Corporations Act. It is a question of construction of each of these provisions as to whether the authority to make the orders they provide for includes the making of orders nunc pro tunc. 19 The principles to be applied in construing statutory provisions are well established. As stated by Kiefel CJ, Nettle and Gordon JJ in SZTAL v Minister for Immigration and Border Protection [2017] HCA 34; (2017) 262 CLR 362 at [14]: The starting point for the ascertainment of the meaning of a statutory provision is the text of the statute whilst, at the same time, regard is had to its context and purpose. Context should be regarded at this first stage and not at some later stage and it should be regarded in its widest sense. This is not to deny the importance of the natural and ordinary meaning of a word, namely how it is ordinarily understood in discourse, to the process of construction. Considerations of context and purpose simply recognise that, understood in its statutory, historical or other context, some other meaning of a word may be suggested, and so too, if its ordinary meaning is not consistent with the statutory purpose, that meaning must be rejected. (footnotes omitted) 20 Further, it is 'quite inappropriate' to read the provisions that confer jurisdiction upon the courts 'by making implications or imposing limitations which are not found in the express words': Owners of the Ship 'Shin Kobe Maru' v Empire Shipping Company Inc (1994) 181 CLR 404 at 421 (Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ); see also Emanuele at 136-137 (Gaudron J). Where statutory provisions confer powers on courts those provisions are not to be construed as being subject to limitations which their terms do not require: Commonwealth of Australia v SCI Operations Pty Limited [1998] HCA 20; (1998) 192 CLR 285 at [26] (Gaudron J). 21 In the result, for the following reasons, I was satisfied that the Court had power to make the orders sought by SCS under s 458A of the Corporations Act and, if that were not the case, there was power under reg 5.3B.17(4) of the Corporations Regulations to do so. In particular, those orders could be made even though the proposal period had come to an end and they could also speak with a form of retrospective effect so that, from the time that the order was made, the relevant provisions of Part 5.3B would then be treated as having applied in the intervening period. 22 Therefore, it was not necessary to reach any concluded view as to the other sources of jurisdiction relied upon by SCS as a basis for making the orders sought.

Section 458A 23 Within Part 5.3B, s 458A provides: General power to make orders (1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company. (2) An order may be made subject to conditions. (3) An order may be made on the application of: (a) the company; or (b) a creditor of the company; or (c) the restructuring practitioner for the company or for a restructuring plan for the company; or (d) ASIC; or (e) any other interested person. 24 The jurisdiction to make orders that is conferred by s 458A is broadly expressed. It allows for the making of orders that the Court 'thinks appropriate about how this Part is to operate' and to do so subject to conditions. Its language corresponds with the terms of s 447A which confers a similar jurisdiction for the purposes of Part 5.3A of the Corporations Act which deals with the administration of the affairs of a company with a view to executing a deed of company arrangement. It too confers authority to make such order as the Court thinks appropriate about how the Part is to operate and to do so on conditions. 25 At the time of enactment of s 458A there was in existence a considerable jurisprudence as to the nature and extent of the authority conferred by s 447A. In Deputy Commissioner of Taxation v Pope Joan Hospitality Pty Ltd (Restructuring Practitioner Appointed) [2023] FCA 872, Sarah C Derrington J referred to s 458A and s 447A as cognate provisions and reasoned by reference to the authorities as to the scope of the authority conferred by s 447A in reaching conclusions as to whether s 458A provided a foundation for making the orders sought in that case. Respectfully, I agree with that approach. Her Honour also explained the differences between the object of Part 5.3B (concerned with restructuring under a restructuring plan) and Part 5.3A (concerned with administration under the terms of a deed of company arrangement): at [48]-[58]. Due allowance must be made for those differences. 26 Significantly, as has been explained, under Part 5.3B the affairs of the company continue to be under the control of its directors for the period of restructuring. During that period the company is assisted in formulating a restructuring plan. It is the presentation of the plan that is the act of insolvency. However, if the plan is accepted by creditors, it will be carried into effect instead of any form of insolvent administration. 27 In contrast, under Part 5.3A, the process begins with the appointment of administrators on the basis that the company is insolvent. The affairs of the company are then under the control of the administrators. A meeting of creditors must be convened within a specified period to resolve whether to (a) execute a deed of company arrangement; (b) end the administration; or (c) wind up the company. The object of Part 5.3A is to provide for a mechanism by which the chances of the company continuing in existence (rather than being wound up) may be maximized and, if that is not possible, at least achieve 'a better return for the company's creditors and members' (s 435A). 28 Under both Parts 5.3A and 5.3B there are statutory restrictions upon the exercise by the company's creditors of their rights during the period until the creditor's meeting or the period of restructuring respectively. 29 However, extending the period for convening a meeting of creditors is not completely analogous to extending the proposal period because in the latter case, the company can carry on business in the ordinary course under the control of the directors. 30 The High Court considered the extent of the power given to a court by s 447A in Australasian Memory Pty Limited v Brien [2000] HCA 30; (2000) 200 CLR 270. In that case the issue arose because the initial meeting of creditors had been held before the commencement of the convening period. That meeting was adjourned and a further meeting convened at which there was a resolution of creditors to wind up the company. Some time into the winding up, an issue arose as to whether the insolvent administration was being validly conducted in circumstances where the meeting of creditors had not been convened within the period required by the Corporations Act. 31 An order was sought to the effect that Part 5.3A applied to the company as if the meeting of creditors had been convened within the required period. In opposition to the making of the order, it was contended, amongst other things, that s 447A only permitted orders having prospective effect. As to that contention, the High Court reasoned as follows (at [26]): The words of s 447A do not suggest that s 447A cannot be used if the subject company had been under administration but, by operation of other provisions of Pt 5.3A, that administration had come to an end. The subject matters with which the section deals are 'a particular company' and the operation of Pt 5.3A in relation to that company. The subject is not a particular administration. It may be accepted that the expression 'how this Part is to operate' is an expression that looks to the future, not the past. But this temporal requirement is satisfied if orders made under s 447A are orders that have effect only from the time of their making. It does not preclude the making of an order with future effect, but in respect of past matters or events. Such an order would be an order about how Pt 5.3A 'is to operate' (that is, is to operate thereafter) in relation to the subject company. (original emphasis, footnote omitted) 32 Both before and after that decision, a number of cases have considered whether the failure to convene a meeting within the required period may be cured by an order under s 447A in circumstances where the application is made after the convening period has come to an end. For example, orders of that kind were made in Re Ricon Constructions Pty Ltd (In Liq); Ex parte McDonald (1997) 43 NSWLR 174 at 180-181 (Santow J); and Javorsky v Rico Pty Limited [2001] NSWSC 746 at [3]-[4] (Santow J). 33 An order was made in Panasystems Pty Ltd v Voodoo Tech Pty Ltd [2003] FCA 428 to the effect that Part 5.3A was to apply notwithstanding a past failure to meet its requirements. It was expressed in terms that Part 5.3A was to apply as if that requirement had been met. An order in that form applied to past and future events. In reaching that conclusion, Merkel J considered apparent inconsistencies as between some of the authorities and concluded at [18]-[19]: … Indeed, it was not contended by counsel for [the party contending that the appointment of the administrator was invalid] that s 447A is not an available source of judicial power to overcome the deficiency … nor did he contend that the power could not operate retrospectively. While I accept that a Court should hesitate to exercise the power under s 447A to overcome a failure to comply with a statutory requirement for a valid appointment of an administrator under Pt 5.3A, I have decided that I should exercise the power conferred under the section in the present case … 34 One of the authorities considered was Shirlaw v Graham [2001] NSWSC 612. In that case, Young CJ in Equity, after referring to the High Court's decision in Australasian Memory Pty Limited v Brien and subsequent decisions by some judges (including Young CJ himself) in which views had been expressed as to the limited extent of the power in s 447A, went on to characterise s 447A as a 'plenary power' and concluded (at [14]): … In my view the court can make an order under s 447A which has some effect in the past in the same way as the court can make an order nunc pro tunc. I cannot see any reason why in the exercise of its discretion the court cannot in relation to a particular company deal with a technical defect in the resolution under s 447A. This should include cases such as the failure of a resolution to state the opinion the directors held or of the directors so to resolve. After all, the purpose of s 447 is fulfilled, namely to make Part 5.3A work in the public interest so far as that company is concerned. 35 In Strawbridge and Tracy in their capacity as joint and several administrators, in the matter of Oceanlinx Limited [2014] FCA 524, Yates J at [27] reached a similar conclusion, relying on authorities that included Shirlaw v Graham and National Australia Bank Ltd v Horne [2011] VSCA 280 at [33] (Almond AJA, Buchanan and Mandie JJA agreeing). In Horne, the view was expressed that once an order was made pursuant to s 447A to the effect that Part 5.3A was to apply as if an appointment of administrators made on a past date was valid (despite a defect) then it 'has retrospective effect'. Almond AJA referred with apparent approval to the opinion of Gyles J in McDonald, in the matter of Pasdonnay Pty Limited (ACN 009 131 622) (Administrators Appointed) [2005] FCA 335 at [18] that that view was consistent with Australasian Memory Pty Limited v Brien (see below). 36 In Pasdonnay, Gyles J referred to authorities in which reservations had been expressed about the retrospective operation of orders made pursuant to s 447A and then reasoned in the following way (at [18]): … Merkel J considered those decisions and others which took a less cautious view (eg Shirlaw v Graham [2001] NSWSC 612 and In the Matter of Supreme Imports Pty Ltd (in liquidation); Re De Vries [2001] NSWSC 1209) in Panasystems Pty Ltd v Voodoo Tech Pty Ltd [2003] FCA 428; (2003) 21 ACLC 842 at [17] and [18] in a manner I will follow. An order along the lines sought here is consistent with the orders made validating appointments in other cases. Such an order technically operates only prospectively but the effect of it is that, once made, it is henceforth to be taken that the Act has the effect declared and so operates in respect of actions taken from the nominated date or event. In that sense, it has retrospective effect. I do not read anything in [Australasian Memory Pty Limited v] Brien as being to the contrary of that understanding. 37 The same approach is to be found in Correa v Whittingham [2013] NSWCA 263 at [5] (Barrett JA). 38 The authorities bearing upon whether an order can be made pursuant to s 447A where the meeting of creditors to consider whether to enter into a deed of company arrangement, end the administration or wind up the company was convened out of time were reviewed by Campbell J in John Vouris Re; Epromotions Australia Pty Ltd and Relectronic-Remech Pty Ltd (In Liq) [2003] NSWSC 702 at [66]-[74]. His Honour referred to Shirlaw v Graham (and his Honour's own decision in In the Matter of Supreme Imports Pty Ltd (In Liquidation); Re de Vries [2001] NSWSC 1209) and concluded at [70]: … An order can be one about how Part 5.3A 'is to operate' even if its effect is that, as from the date of the order, no one can assert that some past transaction is invalid. Such an order is for practical purposes no different to an order nunc pro tunc. Recognising that section 447A permits the making of such an order will enable the intention of the Parliament in enacting section 447A to be effectuated … (original emphasis) 39 His Honour then referred to Panasystems Pty Ltd v Voodoo Tech Pty Ltd, noting at [71] that the form of order made by Merkel J in that case 'is one which adheres closely to the wording of section 447A, yet has the effect that, as from the date of the order, it cannot be contended that the resolution in question was invalid'. His Honour then concluded: 'The desirable course, when making an order under section 447A, is to make it in the form used by Merkel J, even though its effect is as I have described'. 40 In addition, his Honour supported also invoking s 1322(4) of the Corporations Act, a course which would require consideration of the matters stated in that provision. It was said to be prudent by reason of authorities that had called into question whether s 447A authorised the making of orders with retrospective effect. However, as I have explained, in respect of orders made pursuant to s 447A addressing other defects, there has since been considerable authority, including at appellate level that supports the making of orders which, from the time they are made, operate so as to apply Part 5.3A to past events. 41 Given the existence of those s 447A authorities, I was persuaded that there was jurisdiction to make orders of the kind proposed under the cognate provision in s 458A provided they were expressed in terms of the language of s 458A; that is to say, they were expressed in terms that identified how Part 5.3B was to operate in relation to SCS. Those orders could be made on the basis that they would speak prospectively but, from the time of the order, Part 5.3B would be treated as having applied in the past in the manner articulated in the order.

Regulation 5.3B.17(4) 42 Within the regulation that provides for the duration of the proposal period, reg 5.3B.17(4) provides: The Court may, on application by the company, order an extension of the proposal period. 43 There are a number of regulation-making powers within Part 5.3B of the Corporations Act. Relevantly for present purposes: (1) Section 453A(2) provides that the restructuring of a company 'ends in the circumstances prescribed by the regulations'. (2) Section 455A(2) provides that a company is taken to be insolvent if it proposes a restructuring plan and then s 455A(3) provides that the regulations 'may prescribe the time at which the company is taken to have done so'. (3) Section 455B contains detailed provisions as to that which may be provided for by the regulations concerning a restructuring plan. It includes a provision which authorises the making of regulations 'for and in relation to … proposing a restructuring plan' (s 455B(1)(a)) and 'for and in relation to … making a restructuring plan' (s 455B(2)(a)). (4) Section 458B provides that the regulations may 'confer powers on the Court in relation to the restructure of companies or restructuring plans' (s 458B(3)) and that any such powers are in addition to any other powers conferred on the Court (s 458B(1)(a)). 44 I formed the view that these provisions authorise the making of regulations that prescribe the end of the restructuring for a company by reference to events that include the failure to propose a restructuring plan 'within the proposal period' (being a period otherwise described in the regulations). They further authorise the definition of the proposal period as a number of business days from the date when restructuring commences (being the day of appointment of a restructuring practitioner for the company). They may also allow for an extension of time for a specified number of business days if the restructuring practitioner is satisfied of specified matters that bear upon whether there is a basis for that extension. The regulations may also confer a power on the Court to further extend that time on application by the company. 45 The real issue was whether the power as conferred on the Court by the regulations to 'order an extension of the proposal period' authorised the making of such an order where, as in the present case, the application was brought after the proposal period had come to an end. 46 As has been mentioned, there is a power for the restructuring practitioner to extend the proposal period. However, it is a qualified power. The relevant provisions are expressed in reg 5.3B.17(2) and (3) in the following terms: (2) … The company's restructuring practitioner may, on application by the company, extend the proposal period by no more than 10 business days if the restructuring practitioner is satisfied on reasonable grounds that requiring the company to give a restructuring plan within the proposal period would not be reasonable in the circumstances. (3) The restructuring practitioner may not extend the proposal period more than once under subregulation (2). 47 As to the power conferred upon the restructuring practitioner, the language used ('would not be reasonable in the circumstances') indicates that the required state of satisfaction must be formed before the proposal period has come to an end. Further, to state the obvious, the power entrusted to the restructuring practitioner is not a power to make a court order. As has been explained, in appropriate circumstances, court orders made within jurisdiction may be expressed to apply nunc pro tunc. In those circumstances, I considered it unlikely that the practitioner had power under the regulations to extend the proposal period after it had come to an end but that a court order may speak retrospectively. 48 Accordingly, if (contrary to the views already expressed) the particular orders sought could not be made under s 458A as orders as to how Part 5.3B was to operate, then it would still be consistent with the scheme of the legislation for a limited power to extend the period (which could have the same retrospective effect as orders made under s 458A) for a regulation to include a limited power to do so in respect of a matter that was properly dealt with by regulation. On that basis, I formed the view that there was jurisdiction to make the orders sought under reg 5.13B.17(4) if they could not be made under s 458A.

Issue 2: What matters bear upon the proper exercise of any such discretion? 49 As to the exercise of a statutory discretion conferred in general terms, the discretion is unconfined except insofar as regard to the subject matter, scope and purpose of the provision considered in context manifests some implied limitation upon the factors to which there may be regard in the exercise of the discretion: Minister for Aboriginal Affairs v Peko-Wallsend Limited (1986) 162 CLR 24 at 40 (Mason J). Although the power is broad and is not to be read down, the exercise of the power must be consistent with the express object of Part 5.3B: see the statements to that effect by Goldberg J in In the matter of Ansett Australia Limited and Mentha [2001] FCA 1806; (2001) 115 FCR 376 at [52] in respect of s 447A, as applied by Beech J in Flynn v Theobald [2008] WASC 263 at [56]-[57]; and also BE Australia WD Pty Ltd (subject to a deed of company arrangement) v Sutton [2011] NSWCA 414; (2011) 82 NSWLR 336 at [194], [207] (Campbell JA, McColl JA agreeing). 50 Further, the power to make orders is to be exercised judicially, that is to say by reasoning which is undertaken by reference to the established facts and not arbitrarily or by reference to irrelevant or extraneous matters. 51 Principles may be formulated as to the appropriate exercise of discretion, but they must not be allowed to harden into legal rules which operate to narrow the discretion: Norbis v Norbis (1986) 161 CLR 513 at 537 (Brennan J); see also at 533-534 (Wilson and Dawson JJ). 52 Accordingly, aspects of the legislative scheme that indicate matters that bear upon the exercise of the discretion include: (1) The express statutory object of Part 5.3B, being: … To provide for a restructuring process for eligible companies that allows the companies: (a) to retain control of the business, property and affairs while developing a plan to restructure with the assistance of a small business restructuring practitioner; and (b) to enter into a restructuring plan with creditors. (2) Those aspects of Part 5.3B which impose a form of moratorium upon the exercise by creditors of their rights for the period of restructuring. (3) The provision that a company that proposes a restructuring plan is taken to be insolvent. (4) The detailed provisions in the Corporations Regulations (as contemplated by the terms of Part 5.3B, see below) about the time for acceptance of a restructuring plan and about when a restructuring plan will lapse. (5) The provision in the Corporations Regulations requiring prompt notification for inclusion on a record available for public inspection of the commencement of any restructuring as well as prompt notification of any extension to the proposal period. 53 It was those matters that I brought to account in considering the exercise of the discretion whether to make the orders sought and the conditions that might be imposed if those orders were made. In effect, it was necessary to consider whether the orders would advance the legislative object in providing the opportunity for companies to undertake restructuring and thereby continue their business activities; and whether the orders would cause any prejudice to the interests of creditors by reason that the proposal period would operate for a longer period and in circumstances where creditors may have taken action on the basis that the proposal period was at an end.

Issue 3: If the Court has jurisdiction to make the order, should an order be made in the present case and, if so, on what terms? 54 The restructuring plan should have been given to creditors on 2 July 2024. If the orders were made then the plan would be given to them by 20 September 2024. This was a considerable period given the order would apply retrospectively (in the manner I have described), especially when measured against the period of 20 business days provided for by the Corporations Regulations. 55 Due attention to the terms of the Corporations Regulations should have revealed to a competent restructuring practitioner that the proposed restructuring plan had to be given to creditors within the proposal period. Further, a form of open-ended ability to defer delivery of the plan while the restructuring practitioner went on leave and then conferred with the Australian Taxation Office on his return (including taking time to arrange payment of outstanding superannuation guarantee charges) was so fundamentally inconsistent with the legislative scheme that the possibility that such a course might be available should have been questioned by the practitioner. Had that occurred, the error would have been revealed (much sooner than was actually the case). In short, the explanation for the delay was not satisfactory. 56 Further, even accepting that the restructuring practitioners had formed the view that the requirement was to provide the proposed restructuring plan to creditors 'as soon as practicable', that did not occur. 57 However, the failure to propose the restructuring plan within the proposal period was attributable to the actions of the restructuring practitioner and not any delinquency or delay by Mr Spry or SCS. It was reasonable for Mr Spry and SCS to be acting on the advice that was being received from the restructuring practitioner as to what was required. 58 The company conducted its business in the intervening period. There was no suggestion that there had been any dealings outside the ordinary course of the conduct of that business. 59 On the affidavit evidence in support of the application, neither the restructuring practitioner nor Mr Spry was aware of any prejudice to creditors. 60 There were no secured creditors of SCS (whose interests would otherwise have been required to be considered). 61 The majority creditor of SCS whose attitude would determine whether the plan would be accepted was the Commissioner of Taxation. The Australian Taxation Office had been provided with a copy of the plan on 5 August 2024, receipt of which was acknowledged on 9 August 2024. Although it initially raised an issue as to whether the restructuring was in place given the time that had elapsed, on the evidence by 28 August 2024 its position was that it accepted that the restructuring was still in place and it would vote on any restructuring plan that was presented. 62 The Australian Taxation Office accounted for the majority of the creditors of SCS. 63 All creditors, including the Australian Taxation Office, had been given notice of the application and no creditor had raised any opposition. 64 There were no actual or threatened winding up proceedings against SCS. 65 There were no known proceedings against SCS which had been stayed by operation of the provisions of Part 5.3B by reason of the restructuring. 66 The application had been made promptly once lawyers were engaged. 67 If the orders sought were granted then a revised proposed restructuring plan was to be given to creditors. It was to be updated to reflect the change in circumstances in the affairs of the company in the intervening period. Whereas the original proposal was estimated to provide a return to creditors of 37.41 cents in the dollar over 24 months, the revised proposal was estimated to provide 36.95 cents in the dollar over the same period. 68 On the evidence, in the opinion of the restructuring practitioners, the above outcome will be better than the expected outcome if there was a voluntary liquidation of SCS. 69 It would be a matter for creditors whether they accepted the proposal and in the circumstances it would prejudice both the creditors and SCS if the proposed restructuring plan was not presented to creditors for their consideration. 70 Having regard to all of the above matters I formed the view that orders which operated to extend the time to allow the proposed restructuring plan to be presented to creditors of SCS for their consideration would advance the objects of Part 5.3B. Further, on the evidence, there was no identifiable material prejudice to any interested party if the orders were made. In addition, appropriate conditions could be imposed upon the making of the orders that required notification of their terms to creditors and reserving leave to creditors to apply to vary or discharge the orders.

Costs of the application 71 As to the costs of the application, SCS asked the Court to make no order as to costs. This position was confirmed by counsel in the course of oral submissions. Had that not been the position then it would have been appropriate to consider whether orders should be made to ensure that the company did not have to bear the financial consequences of the error by the restructuring practitioner.

Conclusion and orders 72 For the reasons I have given orders were made as to the application of Part 5.3B. They were formulated on the basis that s 453A provides for when a restructuring begins and ends. In its terms, that provision provides that the restructuring ends 'in the circumstances prescribed by the regulations'. Therefore, it was within jurisdiction to make an order pursuant to s 458A that insofar as Part 5.3B applies to SCS then the restructuring of the company would come to an end in other specified circumstances. On that basis the following order was made: If a restructuring plan that: (a) complies with reg 5.3B.15 of the Corporations Regulations 2001 (Cth); and (b) is substantially in the terms provided to the Court in support of the application is proposed to creditors on or before 20 September 2024 then, pursuant to s 458A of the Corporations Act 2001 (Cth), Part 5.3B of the Act is to operate in relation to the applicant as if the restructuring that commenced on 20 May 2024 was continuing on and before 20 September 2024 and thereafter as if the restructuring plan had been proposed within the time provided for by the Corporations Regulations. 73 As has been explained, against the possibility that an order in that form could not be made, an order was also made that would operate under reg 5.3B.17(4) of the Corporations Regulations. It was as follows: Otherwise, to the extent necessary, pursuant to reg 5.3B.17(4) of the Corporations Regulations, the proposal period for the restructuring of the applicant that commenced on 20 May 2024 is extended until and including 20 September 2024. 74 Otherwise, orders were made for liberty to any affected party to apply to vary or discharge the orders and for notice of the orders to be given to all known creditors and the restructuring practitioners. I certify that the preceding seventy-four (74) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin.

Corporations Act 2001(Cth)ss 58AA, 447A, 453A, 453B, 453E, 453H, 453K, 455A, 455B, 458A, 458B, 1322, Parts

At a glance

Court

Decision date

Before

Source

Judgment (16 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (32)