Australasian Memory Pty Ltd v Brien [2005] FCA 985 | Case summary

REASONS FOR JUDGMENT 1 Messrs Marsden and Kerr were appointed joint voluntary administrators of Motor Group Australia Pty Limited ('MGA') on 26 April 2005. On 13 May 2005 Emmett J made orders pursuant to s 439A(6) of the Corporations Act 2001 (Cth) ('the Act') that the period within which the administrators must convene a meeting of creditors pursuant to s 439A of the Act be extended up to and including 22 July 2005: see Motor Group Australia Pty Limited (Administrators Appointed) (ACN 101 051 101) in the matter of Motor Group Australia Pty Limited (Administrators Appointed) (ACN 101 051 101) [2005] FCA 695. 2 The background to the appointment of the joint voluntary administrators appears from Emmett J's judgment. One of the reasons an extension of time was sought was to enable the directors to consider the feasibility of propounding a deed of company arrangement ('DOCA'). 3 The directors of MGA have now formulated a proposal for a DOCA which deals with the claims of various classes of creditors, including the claims of 'warranty creditors'. 'Warranty creditors' are persons who purchased a new motor vehicle imported by MGA who had a motor vehicle warranty on 26 April 2005, and who have not made a warranty claim arising out of circumstances before that date. Such persons are contingent or prospective creditors of MGA as at 26 April 2005, as MGA's liability on the warranty is dependent on the occurrence of later events. As at 26 April 2005 MGA had issued motor vehicle warranties for 1901 vehicles in all. 4 The administrators' estimate is that if all of MGA's assets are realised, after payment of the secured creditor, the priority creditors and the administrator's costs and expenses, there will be no funds from which to pay any claim of unsecured creditors of MGA, including claims of warranty creditors. 5 The key aspects of the DOCA which the directors propose are: (a) that the shareholders, or companies associated with them forego their shareholder loans and post administration funding of approximately $2.7 million; (b) the provision of a fund of $1.2 million from external sources to meet the administrator's costs and expenses and to meet the claims of trade creditors expected to provide a return to the latter in excess of 95 cents in the dollar; (c) the provision of a contribution of $300 per vehicle from external sources towards the purchase of substitute warranty insurance on production of evidence of purchase of such insurance by a cut-off date. This will be available to each warranty creditor, irrespective of whether other circumstances qualify such a warranty holder as a creditor; and (d) that compliance with and payment under the DOCA will release MGA from the claims of all creditors, including the claims of warranty creditors, but not including the shareholder loans accounts referred to in (a) above. 6 I have before me an interlocutory process filed on 4 July 2005 which seeks various declarations, directions and orders the object of which is to ensure that if a DOCA is entered into in accordance with the directors' proposal, warranty creditors will be bound by its provisions. The problem arises because of the provisions of s 444A(4)(i) and s 444D(1) of the Act. Section 444A(4)(i) of the Act requires that a DOCA must specify: 'the day (not later than the day when the administration began) on or before which claims must have arisen if they are to be admissible under the deed'. Section 444D(1) of the Act provides that a deed of company arrangement binds all creditors of the company, so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i). The issue is whether the warranty holders are creditors of the company whose claims arose on or before 26 April 2005. 7 Part 5.3A refers to 'creditors' throughout, but the term 'creditor' is nowhere defined. The authorities establish that the concept of a creditor should be the same in a Part 5.3A administration as in liquidation: Brash Holdings Ltd v Katile Pty Ltd (1996) 1 VR 24; Selim v McGrath (2003) 47 ACSR 537. 8 All claims against a company (present or future, certain or contingent, ascertained or sounding only in damages), where the circumstances giving rise to the claims occurred before the commencement of the winding up, are provable in a liquidation pursuant to s 553 of the Act. A person having such a claim should thus be a 'creditor' for the purposes of Part 5.3A. 9 However, the position is not as clear cut as one might perhaps expect. Professor O'Donovan, in Company Receivers & Administrators (Lawbook Co, Sydney, 2001) at [17.2810] argues against warranty holders being classified as contingent creditors, as a DOCA 'is not intended to wipe the company's slate clean for all time and to deal with speculative claims. It is not intended to exorcise all the company's ghosts.' See also [17.2760] and the reference to the decision of the Full Court in Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (1976) 70 FCR 34 ('Lam Soon'), where it was held, obiter, that a right to sue for damages for a future breach of covenant - when looked at before the breach - is not a contingent claim, but rather a mere expectancy which could not be subject of proof. 10 As against that, in Community Development Pty Ltd v Engwirda Construction Company (1969) 120 CLR 455 the High Court treated a person towards whom, under an existing obligation, the company may become subject to a present liability on the happening of some future event as being a contingent or prospective creditor who was entitled to prove in a winding up. In Thiess Infraco (Swanston) Pty Ltd v Smith (2004) 50 ACSR 434, Finkelstein J analysed the history of insolvency legislation and at [16] expressly disagreed with the Lam Soon expectancy analysis. That disagreement was itself obiter, because he found as a matter of fact that the claim in question was that of a contingent creditor, a view upheld on appeal: Wallace-Smith & Thiess Infraco (Swanston) Pty Ltd [2005] FCAFC 49, where French J (at [106]) described Finkelstein J's expectancy analysis as academic, Weinberg J did not refer to it, and Allsop J (at [341]) said that it was unnecessary to deal with it. 11 McPherson: The Law of Company Liquidations (Andrew R Keay, 4th ed, LBC Information Services, Sydney, 1999)at p 547, treats a claim for damages for future breach of contract as an example of a contingent claim, and on p 548-549 the view is expressed that a person holding an insurance policy which has not matured or become payable prior to the commencement of the winding up is a contingent creditor, although there has been some difference of judicial opinion as to the proper method of estimating the claim. 12 This application has been made ex parte although notice of it was given to warranty creditors by a circular dated 30 June 2005. I cannot make a determination as to the legal position in these proceedings so as to bind those whose interests may be affected by it. I was asked to give a direction under s 447D of the Act that the administrators would be justified in treating the warranty holders as contingent creditors whose claims arose no later than 26 April 2005, but such a direction would not amount to a judicial determination of the issue: Murdoch v Crawford [1986] VR 97 at 99-100. 13 Under s 447A of the Act the Court may make such order as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company. The High Court confirmed the width of this power in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270. Their Honours said at [24]: '… s 447A is not properly described as a general power standing apart from the scheme found in Pt 5.3A. Section 447A is an integral part of the legislative scheme provided for by Pt 5.3A. In its terms, it enables the making of orders which alter the way in which "this Part is to operate in relation to a particular company". That is, it permits the making of orders which would alter how s 439A is to apply. It is not right to seek to characterise s 447A as some general source of power to which resort cannot be had because to do so would "circumvent" the statutory limitations upon the exercise of the power that is given by s 439A(6) to extend the convening period. So to characterise s 447A is to give to all of the other provisions of Pt 5.3A a fixed and unchanging operation in relation to all companies. Yet the evident legislative intention of s 447A is to permit alterations to the way in which Pt 5.3A is to operate.' 14 Even if it be correct to characterise the claims of warranty creditors as 'mere expectancies', s 447A empowers the Court to make an order that Part 5.3A is to operate in relation to MGA so as to include the warranty creditors as creditors whose claims arose no later than 26 April 2005. 15 One of the objects of Part 5.3A, expressed in s 435A(b) is to achieve a better result for creditors 'than would result from an immediate winding up of the company'. The DOCA appears to achieve that objective, hence the s 447A(1) power should be exercised in the present case. 16 It is true that warranty creditors and trade creditors are treated differently under the proposed DOCA, but the funds to pay the trade creditors and warranty creditors are to be provided from a source external to MGA. Both trade creditors and warranty creditors are better off under the proposed DOCA than on a liquidation. If a warranty creditor considers that the DOCA is unfairly prejudicial or unfairly discriminatory, then an application may be made under s 445D to terminate the deed. 17 I therefore make the following orders: 1. Pursuant to s 447A(1) of the Corporations Act 2001 (Cth) ('the Act'), Part 5.3A of the Act is to operate in relation to the second applicant so that a 'creditor' is deemed to include those purchasers (and their successors in title) of new motor vehicles imported by the second applicant who had a vehicle warranty on 26 April 2005, as creditors of the second applicant for the purposes of Part 5.3A of the Act, whose claims are deemed to have arisen no later than 26 April 2005. 2. Pursuant to s 447A(1) of the Act, the period within which Peter William Marsden and David John Kerr must convene the meeting of creditors of the second applicant pursuant to s 439A of the Act be extended up to and including 5 August 2005. 3. Pursuant to s 447A(1) of the Act, the meeting of creditors of the second applicant required by s 439A of the Act may be held at any time during, or within 5 business days after the end of, the convening period as extended by Order 2, notwithstanding the provisions of s 439A(2) of the Act. 4. The applicants' costs and expenses of this application be costs and expenses of the administration of the second applicant. 5. Pursuant to s 447A(1) of the Act, liberty to apply be granted to any interested person. 6. The directions hearing at 9:30 am on 29 July 2005 before Emmett J be vacated. 7. The proceeding be stood over until Monday 29 August 2005 at 9:30 am before Hely J.

Australasian Memory Pty Ltd v Brien

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