Australasian Memory Pty Ltd v Brien

By reg. 6.21 of the Bankruptcy Regulations 1996, an amount of $25 is prescribed for the purposes of this section. 11 This rule of bankruptcy law will apply to each winding up with which the court is presently concerned only if its application is dictated by s.553E of the Corporations Act: "Subject to this Division and to section 279, in the winding up of an insolvent company the same rules are to prevail and be observed with regard to debts provable as are in force for the time being under the Bankruptcy Act 1966 in relation to the estates of bankrupt persons (except the rules in sections 82 to 94 (inclusive) and 96 of that Act), and all persons who in any such case would be entitled to prove for and receive dividends out of the property of the company may come in under the winding up and make such claims against the company as they respectively are entitled to because of this section." "With regard to debts provable" 12 The threshold question posed by s.553E is: what are the Bankruptcy Act "rules … with regard to debts provable"? The answer must be found in the context in which s.553E appears. 13 Section 553 identifies the debts and claims admissible to proof against a company in its winding up. Subdivison 3 of Division 6 of Pt 5.6 contains detailed provisions concerning quantification of such debts and claims. Section 553C provides for the determination of the provable amount in case of mutual credit and set-off. Sections 553A and 553B identify certain claims that may not be proved. 14 All these provisions appear in Division 6 of Pt. 5.6, as does s.553E itself. In light of that section's opening words ("Subject to this Division …"), it seems to me that its effect is to bring into operation such of the Bankruptcy Act rules "with regard to debts provable" as do not have obvious counterparts in Division 6, do not run counter to any of the Division 6 rules and are capable of operating in a way that supplements the scheme with respect to "debts provable" in the Corporations Act itself. 15 That leads to the question of what is meant by "debts provable". The Corporations Act, like its predecessors and the Bankruptcy Act, adopts a scheme of insolvency administration involving definition of debts that are "provable", a process of "proof" by the creditor or claimant and, finally, admission of a debt by the liquidator. "Debts provable" are, to my mind, debts rendered "admissible to proof against the company" by s.553 which itself states that it has effect subject to the other provisions of Division 6. A debt will therefore be regarded as a "debt provable" if it is one that the Corporations Act, by s.553 or otherwise, makes "admissible to proof". The liquidator's task is to "admit" debts that are "admissible" (or, perhaps, to admit "proofs" of debts that are admissible debts) and to "reject" those that are not. This is reflected in regs 5.6.47 and 5.6.53. Once that task has been completed, a "debt provable" ceases to be of that character and becomes instead, to the extent accepted, a debt that has been "admitted": see, for example, the reference in s.473 (a provision confined to winding up in insolvency or by the court) to "a creditor or creditors whose debts against the company have been admitted to proof" and the reference in s.563B to "an admitted debt or claim". 16 It is in relation to such "admitted" debts that regs 5.6.63 and 5.6.67(1) operate. Reg 5.6.63 is as follows: "A dividend in the winding up of the affairs of a company may be paid only to a creditor whose debt or claim has been admitted by the liquidator at the date of the distribution of dividends."

Reg 5.6.67(1) reads: "The liquidator must, as soon as practicable, declare and distribute a dividend among the creditors whose debts or claims have been admitted."

Such dividends are payable according to the principles of equality and proportionate entitlement laid down by s.559. The two provisions refer explicitly to debts and claims that have "been admitted". 17 The Act thus proceeds on the basis that dividends are to be paid upon or in respect of "admitted" debts and claims, being those which, having been "provable", were proved and "admitted". The statutory terminology as a whole therefore points to the conclusion that "debts provable" in s.553E refers to debts that are, by the Corporations Act, identified as admissible to proof but have not been admitted, with the result that the section imports only such of the Bankruptcy Act rules as are not either replaced by or inconsistent with the Corporations Act provisions themselves and as touch upon the identification and treatment of debts capable of being admitted, including the extent (in the sense of amount) to which they should be admitted so as to become the quantum determining creditors' respective participation in available assets. Construction of predecessor legislation 18 Such a construction seems to me to be consistent with the meaning that has been given to the words "with regard to debts provable" (and analogous phrases) by courts called upon to construe predecessors of the present s.553E. The present section is a direct descendant of s.10 of the Judicature Act 1875 (Eng) which, so far as relevant, was in the following terms: "… in the winding up of any company under the Companies Acts, 1862 and 1867, whose assets may prove to be insufficient for the payment of its debts and liabilities and the costs of winding up, the same rules shall prevail and be observed as to the respective rights of secured and unsecured creditors, and as to debts and liabilities provable, and as to the valuation of annuities and future and contingent liabilities respectively, as may be in force for the time being under the Law of Bankruptcy with respect to the estates of persons adjudged bankrupt; and all persons who in any such case would be entitled to prove for and receive dividends … out of the assets of any such company, may come in … under the winding up of such company, and make such claims against the same as they may respectively be entitled to by virtue of this Act."

(The parts I have omitted relate to deceased estates. The section applied the relevant bankruptcy rules not only to the administration of insolvent companies but also to the administration of the insolvent estates of deceased persons.) 19 As its inclusion in the Judicature Act would indicate, s.10 was originally a provision intended to modify the practice of the Court of Chancery. A somewhat similar provision was introduced into New South Wales as s.9 of the Joint Stock Companies Arrangement Act 1891 and soon afterwards became s.264 of the Companies Act 1899 (NSW). A provision modelled much more closely on the Judicature Act section was included in twentieth century company law enactments until 23 June 1993 when the Corporate Law Reform Act 1992, implementing recommendations of the Harmer Committee, caused to be inserted into the Corporations Law provisions dealing expressly with a number of the subjects which, to that point, had been left to be dealt with by the imported Bankruptcy Act provisions. That new approach made it necessary to remove from the section derived from s.10 of the Judicature Act the references to the respective rights of secured and unsecured creditors and valuation of annuities and future and contingent liabilities. Remaining, therefore, was only the reference to "debts provable". The present section is in the form created in 1993. 20 The tendency of courts called upon to consider s.10 of the Judicature Act and analogous provisions, in so far as they imported bankruptcy rules as to "debts and liabilities provable" (or simply "debts provable"), was to take the approach I have outlined without reference to authority. Thus, in Re West of England Bank (1879) LR 12 Ch D 823, Fry J quoted the following statement of Jessell MR in Re Albion Steel and Wire Co (1878) LR 7 Ch D 547: "It appears to me that the right construction of the section is nothing more than this, that persons may in the winding-up of a company make such claims against the assets of the company as are provable under the law of bankruptcy. I see no reason for extending the words of the section beyond that." 21 Dealing with the case before him, Fry J then said: "In the present case it is not disputed that a shareholder-creditor may prove, and the question before me is not as to his right of proof, but as to his right to receive dividends at the same time and pari passu with the other creditors. That appears to me not to be within the words of the section as to debts and liabilities provable."

Fry J thus drew a distinction between the right to prove and the right to receive dividends. In so far as the section dealt with "debts and liabilities provable", it was, he held, concerned with the former and not with the latter. 22 I refer also to the following passage in the judgment of Rigby LJ in Re Whitaker [1901] 1 Ch 9: "Sect 10 provides (among other things) that the rules for the time being in force in bankruptcy as to debts provable shall apply in the administration by the High Court of the estate of a deceased insolvent. Upon the true construction of the words, I think they do not simply deal with the proof of debts. The same rules are to prevail 'as to debts and liabilities provable'. I cannot read those words as meaning simply 'as to the proof of debts and liabilities'. I think they mean that whatever general rules are in force in the Court of Bankruptcy for the time being with regard to debts and liabilities provable shall apply in the administration of insolvent estate in Chancery. Now undoubtedly in bankruptcy (it does not matter how it came about) the rule as to debts and liabilities provable is that all those debts and liabilities whether contracted for value or not, shall rank pari passu. I think we should be cutting down unduly the plain words of s.10 if we were to allow the old rule of the Court of Chancery to override in the present case the existing rule in regard to bankruptcy." 23 In Federal Commissioner of Taxation v Official Liquidator of E O Farley Ltd (1940) 63 CLR 278, Dixon J quoted the following part of the judgment of Chitty J in Re Oriental Bank Corporation (1884) 28 Ch D 634: "It is not necessary to decide, but it may be that so much of the Bankruptcy Act of 1883 as relates to the Crown's priority is imported into winding-up proceedings by the 10th section of the Judicature Act 1875."

Dixon J continued: "This suggestion appears to me to be correct. What is incorporated in the law of winding up is a coherent and systematic body of rules - the rules with regard to the proof and allowance of debts and claims, including, by construction, priorities." 24 Also of relevance is the following observation of Vinelott J in Re Berkeley Securities (Property) Ltd [1980] 3 All ER 513 with respect to the provision of the Companies Act 1948 (Eng) derived from s.10 of the Judicature Act: "[I]t is to my mind plain that s.10 and its successor section, now s.317, restricts debts provable in the winding up of an insolvent company to those which are provable under the bankruptcy law, and that only those persons who would be entitled to prove for and be entitled to dividends out of the assets of a bankrupt are entitled to prove in the winding up." 25 The rules concerning set-off are among those recognised as imported by the reference to "debts provable" in earlier versions of s.553E: see, for example, Day and Dent Constructions Pty Ltd v North Australian Properties Pty Ltd (1981) 150 CLR 85 and Centurian Constructions Pty Ltd v Beca Developments Pty Ltd [1999] NSWCA 457. That those rules would be imported by the reference to rules as to "debts provable" is confirmed by s.533E itself, since the exclusions it expressly directs include exclusion of s.86 of the Bankruptcy Act, being the section with respect to set off. The rationale for regarding the bankruptcy rules as to set-off as caught by s.10 of the Judicature Act was stated by the Earl of Selborne LC in Mersey Steel and Iron Co Ltd v Naylor Benzon & Co (1884) 9 App Cas 434. His Lordship described the relevant provision of the Bankruptcy Act 1869 as "a positive, absolute rule for the purpose of proof in bankruptcy". Where that rule applied, nothing could be proved in accordance with it except the balance of the account: "That being so, how is it possible to say that this is not a rule, both within the general spirit and intention of the section and within the express words 'as to debts and liabilities provable'? I do not think it necessary to say more upon that subject." 26 The emphasis in the various judicial statements is upon provisions of bankruptcy law directed towards what Dixon J referred to as "the proof and allowance of debts and claims" or, in other words, the process of establishing the quantum in respect of which each creditor will be recognised by the liquidator as entitled to participate when the liquidator undertakes the phase of insolvent administration entailing application of available assets towards satisfaction of admitted debts. Bankruptcy rules as to "debts provable" must be regarded as those that play a part in ascertaining that quantum and measuring creditors' respective entitlements so as to determine the proportions in which available assets are to be distributed, as distinct from those concerned with the process of satisfying those entitlements by distribution of the funds in the liquidator's hands. 27 I have not to this point mentioned the concluding words of s.553E: "… and all persons who in any such case would be entitled to prove for and receive dividends out of the property of the company may come in under the winding up and make such claims against the company as they respectively are entitled to because of this section." 28 The words "any such case" must, I think, be regarded as referring to "the winding up of an insolvent company". The content of the right of persons to "come in under" that winding up and to make such claims as they are entitled to make "because of this section" is, however, uncertain. But, whatever may be the force of the words "because of this section", the right is no more than a right to "make … claims" and must therefore be regarded as confined to a right to assert an entitlement to participate in the eventual distribution by the liquidator. The reference to receipt of dividends merely forms part of the description of the class of persons in contemplation, being those entitled to prove and, subject to admission of their debts, to become the recipients of dividends. 29 I should, however, refer to an observation of Jessell MR in the Albion Steel and Wire case (above) about the corresponding concluding words of the 1875 provision: "I think it means simply that the rules in bankruptcy shall apply so far as relates to the proof and receipt of dividends out of the assets of the company …".

I do not regard this as an indication the bankruptcy rules as to payment of dividends are imported. In the first place, in the West of England Bank case (above), Fry J did not see Jessell MR's judgment as having that meaning. Second, "the proof and receipt of dividends" may be regarded as a compendiously expressed reference to ascertaining a creditor's entitlement as a means of establishing and quantifying rights to receive dividends. 30 There are a number of decisions of this court on s.264 of the Companies Act 1899. I have described that section as "somewhat similar" to s.10 of the Judicature Act. A difference of particular significance, for present purposes, is that the New South Wales provision imported the bankruptcy rules as to "the declaration and distribution of dividends", as well as "the respective rights of secured and unsecured creditors" and "the proof and allowance of debts and claims against the assets of the company". Those decisions are accordingly of no real assistance in dealing with the present provision which imports only the bankruptcy rules "with regard to debts provable". Decision on liquidators' first claim 31 I return to s.140(9) of the Bankruptcy Act. It is the ninth subsection of a section which begins: "(1) The trustee of the estate of a bankrupt shall, subject to this section, with all convenient speed, declare and distribute dividends amongst the creditors who have proved their debts."

Other subsections deal with actions the trustee must take before declaring a dividend, impose a requirement to distribute all moneys in hand (subject only to necessary retentions) and specify the manner and form of payment. Ignoring its ninth sub-section, s.140 as a whole works on the basis that creditors who have proved their debts are to receive dividends according to the amounts of their admitted claims. 32 The earliest provision analogous with the present s.140(9) was s.140(6) of the present Bankruptcy Act in its original 1966 form: "The trustee shall not pay to a creditor a dividend that is less than Fifty cents."

The present s.140(9) was substituted by the Bankruptcy Amendment Act 1987. The explanatory memorandum accompanying the Bill for that Act referred to the reason for the increase from fifty cents to $10 and the reason for introducing the discretionary element. The latter was dealt with as follows: "The reason for giving the trustee a discretion not to pay a dividend less than the statutory minimum is to address situations where there is a large number of creditors for small amounts of money, perhaps marginally below the prescribed minimum amount." 33 At one level, sub-s.(9) of s.140, like sub-ss.(1) to (8), is no more than a provision with respect to payment of dividends in satisfaction of entitlements established through the process of proof and admitting of debts. But it would, in my judgment, be wrong to see the matter of payment as the only or even predominant subject matter with which s.140(9) is concerned. The operative words ("the trustee need not pay that dividend to the creditor") go beyond satisfaction of a separately established entitlement. This is made clear by the opening words: "Where, but for this subsection, the amount due to a creditor in respect of a dividend would be less than …" [emphasis added]. The effect of the sub-section, in a case to which it applies, is to vest in the trustee a discretion not to pay. Furthermore, exercise of the discretion by the trustee will cause the sum that was due and in respect of which the discretion was exercised to be no longer a sum due. The creditor's right to be paid is removed and extinguished as a consequence of the trustee's decision. So much is confirmed by the words "but for this subsection". It follows that, where the trustee exercises the discretion conferred by s.140(9), the amount by reference to which the particular creditor's entitlement to participate in the particular bankrupt estate is measured is reduced to zero. But the trustee does not simply retain the unpaid amount. That amount goes to augment the assets available for distribution among creditors whose entitlements to participate remain. 34 Section 140(9) has a substantive operation going beyond payment in satisfaction of creditors' entitlements. It has the effect of enabling the trustee to take action that changes entitlements. The entitlement of a creditor in respect of whom the trustee's discretion is exercised ceases to exist and the entitlements of creditors in respect of whom the discretion is not available or, being available, is not exercised are augmented accordingly. The effect of a decision of the trustee under s.140(9) is that the claim that would otherwise have attracted the dividend not paid becomes a claim which is not allowed or recognised in the distribution of assets. Entitlements of creditors are eventually determined by ignoring the provable debt that is the source of the dividend the trustee elects not to pay. 35 Section 140(9) is thus a provision directly concerned with establishing the quantum in respect of which each creditor is recognised by the trustee as entitled to participate when the trustee comes to distribute assets by reference to proved and admitted debts. It is, in the words of Dixon J in the E O Farley Ltd case (above), a rule "with regard to the proof and allowance of debts and claims", with emphasis on the word "allowance". 36 My conclusion, therefore, is that s.140(9) of the Bankruptcy Act is one of the rules "with regard to debts provable" in force under that Act in relation to the estates of bankrupt persons, with the result that it is a rule that s.553E of the Corporations Act causes to apply in the winding up of an insolvent company. 37 The liquidators seek a direction that the provisions of s.140(9) constitute a rule that they are "obliged to observe pursuant to s.553E". A direction in those terms is not, in my view, appropriate. All that s.553E does is to make s.140(9) apply in the winding up of each One.Tel company, so that there is available to the present liquidators the discretion s.140(9) places in the hands of a trustee in bankruptcy ("… the trustee need not" but, as a corollary, may if the trustee so chooses). The words "obliged to observe" in the form of direction as sought would, I think, create a wrong impression by suggesting some compulsion upon the liquidators to exercise the discretion s.140(9) makes available. The situation is, rather, one in which they must conscientiously turn their minds to the question whether the discretion should be exercised. 38 I decline to make a direction in the precise terms sought. For reasons I have stated, however, the court will make an analogous direction without the suggestion of compulsion or obligation, should the liquidators seek a direction in that form. The liquidators' second claim 39 I turn now to the liquidators' claim for: "An order pursuant to section 447A(1), that Part 5.3A of the Corporations Act operate in relation to One.Tel Limited and the companies in the attached Schedule as if the effect of section 446A(2) were that the following words were added: 'and (d) to have done so without the necessity of complying with the following regulations of the Corporations Regulations with respect to any creditor in relation to any debt or claim, or potential debt or claim, in an amount of $100 (or such other amount as the Court may determine) or less; (i) regulation 5.6.12; (ii) regulation 5.6.48(2)(b); (iii) regulation 5.6.65(1)(b); (iv) regulation 5.6.67(3)." 40 Reg. 5.6.122 deals with notices of meeting. The relevant part of the requirement it imposes is that notice of a meeting be given to "every person appearing on the company's books or otherwise to be" a creditor of the company. Reg. 5.6.48(2)(b) requires notice of the deadline fixed by a liquidator for submission of proofs of debt to be given to "every person who, to the knowledge of the liquidator, claims to be a creditor of the company, and whose debt or claim has not been admitted". Reg. 5.6.65(1)(b) - or, more specifically, reg. 5.6.65(1)(b)(iv) - requires that notice of the liquidator's intention to declare a dividend be given to any person whose debt or claim has not been admitted and who "to the knowledge of the liquidator claims to be, or might claim to be, a creditor of the company". Reg. 5.6.67(3) requires the liquidator who declares a dividend to send notice of the declaration to every person entitled to receive payment of the dividend. 41 The liquidators' aim, in seeking to be exempted from these requirements, is to avoid the costs of mailing, processing and handling in those cases where, according to the indicated rate of dividend, the amount involved is $30 or less. The first issue to be considered is whether the jurisdiction the liquidators seek to invoke to obtain the exemption is capable of providing it. The s.447A jurisdiction 42 Section 447A is as follows: " 447A. 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) For example, if the Court is satisfied that the administration of a company should end: (a) because the company is solvent; or (b) because provisions of this Part are being abused; or (c) for some other reason; the Court may order under subsection (1) that the administration is to end. (3) An order may be made subject to conditions. (4) An order may be made on the application of: (a) the company; or (b) a creditor of the company; or (c) in the case of a company under administration---the administrator of the company; or (d) in the case of a company that has executed a deed of company arrangement---the deed's administrator; or (e) ASIC; or (f) any other interested person." 43 It may be said at once that s.447A does not allow the court to make orders as to the way in which provisions of Pt. 5.6 are to operate. In Re Giga Investments Pty Ltd (unreported, FCA, 8 September 1995), Branson J said: "Section 447A is contained in Pt. 5.3A of ther Corporations Law . It provides by subsection (1) as follows:- 'The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company'. The payment of debts and claims upon the winding up of a company is governed by Subdivision D of Division 6 of Pt 5.6 of the Corporations Law . That is, the payment of claims upon the assets of the company, now that it is in liquidation, are not affected by the operation of Pt. 5.3A of the Corporations Law . They are affected by the operation of Pt. 5.6 of the Corporations Law ." 44 It follows that s.447A cannot be the source of an order having the effect the liquidators desire unless the order, as made, can properly be described as an order about how Pt. 5.3A, as distinct from Pt. 5.6, "is to operate in relation to" each of the companies under consideration. A first step, it seems to me, must be to show that, although the form of voluntary winding up that follows on from voluntary administration has come to apply in each of these cases, Pt. 5.3A is still operative in some way in relation to the company so that there can be an order that modifies it present and continuing operation in relation to the company.

The operation of s.446A 45 Each of the companies with which this application is concerned passed from Pt. 5.3A administration into creditors' voluntary winding up by virtue of a resolution of creditors under 439C(c). That is one of the three alternative circumstances that cause s.446A to apply: see s.446A(1). The words used are "This section applies if …". 46 Subsections (2), (3) and (4) of s.446A identify various things that are taken to have happened in such an event. The company is taken to have passed a particular resolution at a particular time (s.446A(2)(a)) and to have done so without the lodgement of a particular declaration (s.446A(2)(4)). The requirements of s.497 as to a meeting of creditors are taken to have been complied with (s.446A(3)). The company is taken to have nominated a particular person to be liquidator (s.446A(4)(a)) and the creditors are taken not to have made any nomination (s.446A(4)(b)). Thereafter, and by virtue of the various things ss.446A(2) to (4) cause to be taken to have occurred, the provisions with respect to creditors' voluntary winding up operate in relation to the company. They do so, however, not directly and of their own force by virtue of the existence of circumstances triggering their operation in its own right. They operate only indirectly and because s.446A causes them to operate. 47 Having thus brought the provisions with respect to creditors' voluntary winding up into operation in relation to the company, s.446A adds to them by causing to apply (in a modified form) a particular provision applicable to a different type of winding up. Section 446A(b) causes s.482 (a provision applicable, of its own force, only to winding up in insolvency or by the court) to apply in relation to the winding up produced through s.446A, although in the modified way described in s.446A(7). 48 The species of winding up brought about by s.446A may thus be regarded as a product of that section itself, rather than of the events which cause the provisions with respect to creditors' voluntary winding up to apply and operate of their own force. There is no special resolution under s.491(1), there is no lodgment under s.491(2), there is no meeting of creditors under s.497, there is no nomination or appointment of a liquidator under s.499. All those steps are lacking and, to the extent that their existence is integral to the initiation and conduct of the system of insolvent administration disregarded creditors' voluntary winding up, they are either dispensed with altogether or in some way deemed to exist. 49 By causing s.482 to apply (albeit in a modified way) in relation to the winding up as if it were a winding up by the court, s.446A imports its own method of effecting a stay or termination of the winding up, being a method that is not available in relation to a creditors' voluntary winding up brought about by the steps with which s.446A dispenses. Section 446A, once activated, thus becomes the source of a winding up regime different from the regime that comes to apply by the taking of the steps dispensed with. One may therefore properly regard s.446A as having an ongoing and sustaining operation for the duration of the winding up regime it has created. It is not, as it were, exhausted and spent once the winding up regime is in place. 50 In Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 35 ACSR 70, Austin J referred to the decision of Gummow J in Brown v Carpet Design Group Pty Ltd (1994) 50 FCR 526 as demonstrating that s.446A supplants, pro tanto, the general statutory provisions dealing with voluntary winding up. As a result of that supplanting - and particularly in light of the modified ongoing regime based on s.482 that it imposes - s.446A must continue to sustain the winding up until it reaches its natural conclusion. It is therefore both permissible and appropriate to regard a winding up of that kind as continuing to be referable to its sustaining source in Pt. 5.3A. The availability of s.447A in this case 51 Authoritative statements as to the scope and operation of s.447A are found in the joint judgment of Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270. The joint judgment was analysed by Austin J in Gibbons v Libertyone Ltd (2002) 41 ACSR 442. His Honour held that s.447A is capable of modifying the operation of s.446A in a case such as the present. Referring to the High Court judgment, Austin J said: "In their Honours' view, s.447A may be used where the subject company has been under administration, but by the operation of other provisions of Pt 5.3A the administration has come to an end: at CLR 282; ALR 35-6; ACSR 258. I observe that one of the ways the administration of a company comes to an end is by the company's creditors resolving under s.439C(c) that the company be wound up (s.435C(2)(c)), and in that event s.446A applies and the winding up proceeds as a creditors' voluntary winding up subject to the modifications imposed by the latter section. Importantly for present purposes, their Honours' observations at CLR 282; ALR 35-6; ACSR 258 mean that s.447A may be used to modify a provision of Pt 5.3A, such as s.446A, notwithstanding that the company is now in a creditors' voluntary winding up by virtue of the earlier operation of s.446A." 52 Austin J gave particular attention to the question whether s.447A can be used to alter accrued rights. On that, he said (again referring to Australasian Memory v Brien): "The High Court did not consider the question quite in those terms. It explored a more specific question, namely whether the section could be used to reinstate an administration, where to do so would interfere with rights that have accrued because the administration has previously come to an end: at CLR 282; ALR 35-6; ACSR 258. Their Honours distinguished between two kinds of case that may arise following termination of an administration. The first is where steps are taken which are predicated upon the administration having been terminated without a deed of company arrangement or a resolution for winding up. In such a case the directors resume management of the company, and they may take steps which affect the rights of third parties, such as trading or dealing with assets. The second is where steps are taken which are predicated upon the company having entered into a deed of company arrangement or having gone into liquidation, although in truth it has not done so because of some irregularity in the process of entering into the deed or meeting to resolve that the company be wound up. The High Court left open the question whether there is power to make an order under s.447A (1) in the first kind of case. The court held, however, that there was power under s.447A to make an order in the second kind of case, even though the order would operate to perfect rights which the parties to relevant transactions had intended to create but had not in fact created. In the present case, the order sought by the plaintiff will deprive the members of their statutory right, arising under s.1324 of the Corporations Act and perhaps under other provisions, to require the plaintiff to discharge his statutory obligation to convene and hold a meeting under s.508. In my opinion, however, this is no bar to the making of the order. The assumption that members might make in the absence of an order of the court (namely the assumption that the liquidator is required to convene and hold a meeting under s.508) is not the kind of assumption that leads to conduct affecting rights, such as conduct in trading or dealing. This case is not within the first of the two kinds of case identified by the High Court. Here the removal of the members' right is simply a corollary of the making of the order. My conclusion is that the High Court's reasoning in the Australasian Memory v Brien supports the view that the court has the power to make the order sought by the plaintiff in the present case. I was referred to some other cases on the general scope of s.447A. In my view, they do not add to the authoritative statement of the law made by the High Court." 53 In this case, as in Gibbons v Libertyone Ltd, the liquidators do not seek to modify a mandatory statutory provision applicable to creditors' voluntary winding up. As Austin J said: "Rather, the plaintiff seeks to qualify the extent to which a deeming provision of Pt 5.3A operates, in circumstances where the winding up falls within Pt 5.5 not because a creditors' voluntary winding up has been selected in the normal fashion, but because the creditors have taken a decision of another kind in the context of voluntary administration." 54 Austin J also noted the effect of s.446A as outlined earlier in these reasons, noting that since the form of winding up produced by s.446A "is made to fit into the creditors' voluntary winding up regime only by the operation of deeming provisions, and that those provisions qualify the way in which Pt. 5.5 applies, there is no great leap involved in using s.447A to modify s.446A in another respect, so as to suit the circumstances of the case. To do so is not to give s.447A an operation beyond Pt. 5.3A. It is to make an adjustment to the deeming provisions which 'borrow' Pt. 5.5 and adapt it to circumstances arising out of a voluntary administration." 55 Austin J subsequently took an identical approach to a s.447A application involving modification of s.446A in relation to the companies the subject of the present applications: see Re Application of Walker (as Liquidator of One.Tel Ltd) [2002] NSWSC 705. 56 There is, in both of his Honour's decisions, a recognition of the ongoing and sustaining operation that s.446A has in relation to the form of creditors' voluntary winding up that s.446A produces. I am satisfied that because s.446A - a Pt. 5.3A provision - is the continuing source of the modified winding up regime, s.447A is available to modify the future operation of s.446A in this case. The merits of the s.447A application 57 None of the exempting or excepting elements the liquidators seek to have introduced into s.446A will deprive any creditor of a right to participate in any meeting of creditors, to prove his or her debt or to participate in distribution of assets in respect of any admitted debt. If the modifications are made, rights of creditors will be curtailed or abrogated only to the extent that notices that would otherwise be sent personally to every person with a debt or claim (or potential debt and claim) will not be sent where the particular person's debt or claim is $100 or less. The issue is therefore one of notification and awareness. A first step in assessing the modifications sought is to consider the means of notification that will remain if the exceptions are created. 58 In the case of reg. 5.6.12 dealing with notice of a meeting, the requirement that the notice be "given" to each creditor is not supplemented by any requirement for advertising. Individually dispatched notices of meeting are thus the only envisaged means of communication on this subject. The importance of that mode of communication was emphasised by Goldberg J in Re Ansett Australia Ltd (No 2) (2002) 115 FCR 395. Modification of reg. 5.6.12 in the way sought would mean that each person with an actual or potential claim of $100 or less would have no means at all of knowing of a meeting in which they had a right to participate. 59 The position in relation to reg. 5.6.48(2)(b) is different. The fixing of a deadline for the proving of debts must, under reg. 5.6.48, be not only notified to relevant persons but also advertised in a newspaper circulating in every State and Territory in which the company carried on business. There is thus an alternative means by which persons concerned may receive the necessary information, although a notice appearing in a newspaper will obviously not be as effective as notice individually given, particularly where relevant persons have not been made aware of the need to keep an eye on the newspaper. 60 Reg. 5.6.65, which concerns a liquidator's intention to declare a dividend, follows generally the same pattern as reg. 5.6.48 just discussed, except that the general dissemination supplementing individual notification is by way of publication in the Commonwealth of Australia Gazette, rather than a daily newspaper. The Gazette is much less accessible to ordinary people than a newspaper, so that the shortcoming of newspaper advertisement referred to in the reg. 5.6.48 context is exacerbated here. 61 The requirement under reg. 5.6.67(3) is that, when a liquidator declares a dividend, notice of the declaration be given to every person entitled to receive payment of the dividend. The notice must be in accordance with Form 549. The form makes it clear that the notice it embodies will accompany payment of the dividend, the operative words of the form being: "A dividend at the rate of ….. in the dollar has been declared for the company and a cheque is attached for $….. calculated at the rate on your debt as admitted to rank for dividend for $….. ." 62 Implicit in the liquidators' s.447A application is the proposition that the claims or potential claims of persons with small balances, many or most of whom probably do not know that they have claims or potential claims, are worthy of less consideration than those of persons with claims for more substantial amounts. That is a proposition that must be approached with considerable care. The care is enjoined by remarks of Hayne J in Re Pyramid Building Society(1994) 13 ACSR 566. A liquidator has a duty to act impartially as among creditors and to act fairly towards each creditor. That duty would not allow the liquidators of the One.Tel companies to obscure the apparent rights of the creditors the subject of the application. In Re Autolook Pty Ltd (1983) 8 ACLR 419, Needham J said: "It is my opinion that if a liquidator were aware that a creditor had understated his claim he would be acting less than honestly and impartially if he distributed the assets available for payment of creditors without informing the creditor of the facts known to him. In doing so he would be acting on what he knew was a false basis and he would be preferring the other creditors to the extent that the one creditor had understated his claim. I do not think that any different principle would apply where the information in the liquidator's possession fails to instil complete conviction that the claim is understated but leads to a sense of strong probability that it is." 63 Reg. 5.6.12(1) concerning convening of meetings by a liquidator imposes an the liquidator a duty to identify the persons "appearing on the company's books or otherwise" to be creditors. Reg. 5.6.48(2) refers to "every person who, to the knowledge of the liquidator, claims to be a creditor". A liquidator's duty under reg. 5.6.65(1)(b)(iv) is concerned with a person who "to the knowledge of the liquidator claims to be, or might claim to be, a creditor of the company" [emphasis added]. These and other provisions reinforce the general duty to which Needham J referred. 64 I am nevertheless satisfied that unwarranted expense, disproportionate to the benefits involved, will be occasioned if the liquidators are held to full compliance with all of the provisions requiring individual notification of persons with claims or debts of $100 or less. But I do not accept that those persons should be deprived altogether of the kind of direct communication that the provisions in question would require to be made with them. Even allowing for the operation of s.140(9) of the Bankruptcy Act, it cannot be regarded as certain that all persons with claims of $100 or less will not receive a dividend. Every creditor with a small balance should, in my judgment, be given a reasonable explanation of the likely effects of the winding up as it affects him or her. 65 An appropriate balance would be struck in the present case by removing the requirements that notice under regs. 5.6.12, 5.6.48(2)(b) and 5.6.65 be sent individually to each person with a debt or claim of $100 or less, but with a substituted requirement that there be sent to all such persons whose names and addresses are identifiable from the books of the relevant company a single circular that appropriately informs them of matters relevant to their position in the winding up. Such a circular might

(a) explain the significance of s.140(9) of the Bankruptcy Act as it will apply in the winding up; (b) state that, as a result of an order of the court, notices of particular kinds (briefly described) will not be sent to those persons; (c) state that the liquidators will publish in a named daily newspaper or newspapers covering the whole of Australia, as well as posting on an internet website identified in the circular, every notice of meeting under reg. 5.6.12 and every notice published in the Gazette under reg. 5.6.65, as well as the notice required by reg. 5.6.48; (d) advise recipients that, if they wish to become aware of the relevant matters, they should take steps to monitor the particular newspaper or newspapers or the website; and (e) contain a plain language explanation of the significance of the content of the circular for persons with debts and claims of $100 or less. 66 It would also be part of any such substituted requirement that the matters referred to in the circular be advertised in the nominated newspaper or newspapers in a suitably prominent way and posted on the particular website, with these steps being taken in sufficient time to provide relevant persons with a reasonable opportunity to decide what, if anything, they wish to do in response. 67 Steps of this kind would mean that postage, stationery and overheads in relation to creditors with small claims would be confined to the mailing of the single circular, the processing of such proofs of debt as such creditors might see fit to lodge after being informed of the likely impact of s.140(9) and the despatch of a dividend with accompanying Form 549 to any ultimately entitled to dividend. There is no case for modifying the application of reg. 5.6.67(3), given that it requires despatch of a notice to "every person entitled to receive payment of the dividend". A person in respect of whom the discretion derived from s.140(9) of the Bankruptcy Act is exercised by the liquidators will not be within that class. 68 The Corporations Act does not sanction the entire exclusion of creditors with small claims, even where it is likely that s.140(9) of the Bankruptcy Act will be used to preclude payment of dividends to most of them. In this particular case, s.447A is available to modify the winding up provisions otherwise applicable, but no case has been made for depriving persons with small claims of all notification. The s.447A procedures might, however, be employed to reduce costs referable to such cases if an approach of the kind I have outlined, based on a single circular supplemented by information disseminated nationally by newspaper and also disseminated by means of the internet, were adopted. I regard the latter means of communication as particularly relevant here since many of the persons concerned were no doubt mobile phone subscribers and one would expect some measure of correlation between mobile phone ownership and familiarity with and access to the internet. Conclusion 69 The appropriate course is to stand over the interlocutory process for a short time so that the liquidators may revise the form of direction they seek in relation to s.140(9) of the Bankruptcy Act and give consideration to the form of any substitute order under s.447A in relation to the matter of notification of persons with debts and claims of $100 or less. **********

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