Australasian Memory Pty Ltd v Brien

Federal Court of Australia|2004-09-06|Before: Nicholson J

REASONS FOR JUDGMENT 1 In its originating process in respect of an application under s 596A and s 596B of the Corporations Act 2001 (Cth) ('the Corporations Act'), the plaintiff seeks an order with respect to service of notices of examination upon creditors. Section 596E of the Corporations Act provides that 'if the Court summons a person for examination, the person who applied for the summons must give written notice of the examination to: (a) as many of the corporation's creditors as reasonably practicable…'. The order sought is that the requirement upon the plaintiff pursuant to that paragraph be varied so as to require the plaintiff to give notice of proposed examinations to the liquidator of New Tel Limited ('New Tel'), Mr Gregory Winfield Hall of PriceWaterhouseCoopers, together with a request that the liquidator convey such notice to the creditors in such manner as the liquidator see fit. 2 The evidence relevant to consideration of this application derives from facts deposed to in affidavits by solicitors for the plaintiff, Messrs Blundell and Stork. In summary they depose to the fact that the plaintiff and its solicitors know nothing of the creditors beyond the very limited information provided in the liquidator's report to creditors and related documents; the liquidator himself does not know who all the creditors are; and the creditors are likely to be extensive and spread across Australia. There is evidence that there are approximately 3000 potential creditors of New Tel and that finalising the draft list of current creditors would cost approximately $2000.

corporations act section 1322(4) 16 The second source of jurisdiction relied on by the plaintiff is s 1322(4) of the Corporations Act. That subsection reads: '1322(4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of the Act or a provision of the constitution of a corporation; (b) an order directing the rectification of any register kept by ASIC under this Act; (c) an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a); (d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding; and may make such consequential or ancillary orders as the Court thinks fit.' The application of the subsection is also to be understood in terms of the two following subsections, which read as follows: '1322(5) An order may be made under paragraph (4)(a) or (c) notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence. 1322(6) The Court must not make an order under this section unless it is satisfied: (a) in the case of an order referred to in paragraph (4)(a); (i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or (iii) that it is just and equitable that the order be made; and (b) in the case of an order referred to in paragraph (4)(c) - that the person subject to the civil liability concerned acted honestly; and (c) in every case - that no substantial injustice has been or is likely to be caused to any person.' 17 It is submitted that s 1322(4) is not limited to making an order retrospectively validating a regularity: see, for example, NRMA Insurance Group Ltd v Spragg (2001) 38 ACSR 174 in which Santow J made prospective orders under s 1322(4) extending time to convene a meeting. It is further submitted that the language of the subsection is sufficiently broad to allow an order which had the effect of avoiding an irregularity occurring and that this would encompass a declaration that non-compliance with s 596E(a) does not invalidate the examination summonses issued. 18 Turning to the paragraphs of s 1322(4), there is no appropriate foundation for making an order under par (a) when no act, matter or thing to which it refers has been done, instituted or taken. That is not to say than an order cannot be made under s 1322(4) in respect of a future matter because par (d) expressly recognises the instance of an extension of the period of the doing of any act, matter or thing. It was within that category that the circumstances in NRMA Insurance Group Ltd v Spragg fell. Here, there is no period for extension pursuant to s 596E(a). What is sought is a variation of the terms of the section.

Declaratory relief 19 The third source of jurisdiction relied upon for the plaintiff is s 21 of the Federal Court of Australia Act 1976 (Cth). This is the Court's power to make a declaration. It is said that the Court may make a declaration that the plaintiff, has in the circumstances deposed to in the evidence, given written notice to 'as many of the corporation's creditors as reasonably practicable'. 20 Whether or not it may in the future be appropriate for this Court to exercise its power pursuant to s 21 of the Federal Court of Australia Act is not a matter which at this time requires consideration. The submissions in writing appear to appreciate that a declaration in the exercise of that power could only be made in respect of a written notice that has been given.

reasonable practicability 21 I am therefore of the opinion that none of the three sources of power sought to be relied upon by the plaintiff for the variation can be relied upon in the present circumstances. 22 However, I return to the terms of s 596E(a). The words 'as reasonably practicable' require examination of what is able to be so categorised on the evidence before the Court. It appears from the evidence before the Court that the liquidator is prepared to make available an incomplete list of creditors, being the initial list of creditors provided by the directors, and also to provide a list of creditors representing over 75 per cent in value of creditors' claims. For the liquidator to finalise a full and current list of creditors he requires payment of a sum of $2000, to which request the plaintiff has not acceded. The liquidator also wishes to await the outcome of applications made in respect of the examinations summonses before making appropriate arrangements. 23 There is not presently before the Court any affidavit of means concerning the plaintiff and in particular as to its ability or inability to meet the cost of $2000 for the preparation of a complete list of creditors. 24 It is for the plaintiff to determine what is 'reasonably practicable' and what will stand up to scrutiny as satisfying that requirement should subsequent scrutiny become necessary or appropriate. It is therefore for the plaintiff to decide whether or not it wishes to meet the cost of $2000 to have the complete list of creditors prepared. If the reasonable practicability of the written notice of the examination was called into question, the plaintiff would be required to show that it was not reasonably practicable for it to meet the cost of finalising the full and current list of creditors. It must decide whether, in such circumstance, it has presently made the appropriate decision when it decided not to meet that cost. 25 It is apparent that at the minimum the plaintiff is able to give written notice pursuant to s 596E to the creditors named in the initial list provided by the directors, crosschecked with the list of creditors representing over 75 per cent in value of creditor' claims. 26 In these circumstances it is not readily apparent, even if appropriate power existed, why the Court should order a modified operation of s 596E(a) in the manner sought by the plaintiff. It is for the plaintiff to take the responsibility of deciding whether the steps it takes in that regard are reasonably practicable in the circumstances. Guidance from the law is available to the plaintiff from the reasoning in Re Ansett Australia Ltd (No 1) (2002) 115 FCR 376 and Selim v McGrath (2003) 47 ACSR 537. 27 Accordingly I consider that the application for an order in terms of par 4 of the originating process should be refused. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice RD Nicholson.

Corporations Act 2001(Cth)ss 435A, 446A, 447A, 508, 596A, 596B, 596E, 1322

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