Australasian Memory Pty Ltd v Brien [2005] NSWCA 480 | Case summary

No-one did. 3 On Thursday 20 January the meeting was held and the chairman at page 81 of the blue book advised the meeting it was the intention of the liquidators to seek an order of the Court to pool all nine companies into one entity for the purpose of administration. 4 On 3 March 2005 the liquidators sent to all known creditors a circular of which the last page read (blue book 85): "Please find the attached notice to creditors requesting that should any creditor oppose our intention to pool the companies assets and liabilities, to please provide same in writing by 14 March 2005. Please note that in the absence of any opposition we will be progressing our application to pool the companies assets and liabilities. Should you have any queries in relation to this matter please do not hesitate to contact.....of this office." 5 There was attached a notice to creditors stating that the liquidators intended to make application to this Court for an order pooling the assets and liabilities for the nine companies for the purposes of liquidation process and the payment of dividends. Again there was no response. 6 Now none of those documents gave potential creditors or actual creditors much detail of the various possibilities that were open to them, apart from the possibility that: (a) there might have been a partnership between the nine companies; or (b) some of them; or (c) the companies could just have been a business name used by Mr Parsonage; or (d) that some of the companies may have no assets and others might be crammed full of assets so that some creditors would have been paid 100 cents in the dollar if they could establish their claim against one of the latter groups. There was also no specification as to how the distribution would be made. There was no indication of the difference between giving a pro rata distribution from pooled assets and a pro rata distribution from the company against which a creditor might have to chose to lodge a proof of debt. 7 The majority in number of the creditors appeared to be people who were employees, and we are told from the bar table that there are about 400 of these, but it does not seem to me that there was any proper information given that a person could readily absorb which would enable him or her to be able to chose whether they would assent to a pooled arrangement or not. 8 The originating process was filed on 4 May 2005. It sought on the facts stated in supporting affidavits an order pursuant to ss 477(1)(c), 506(1)(b) and 511(1) and (2) of the Corporations Act 2001 that the assets of the companies listed in schedule A be pooled. There were consequential orders as to how dividends should be paid and an application for costs. 9 The case was presented to the learned judge by Mr Rosenblatt, solicitor, who also appeared before us. There was no other party. It is quite clear that submissions were put to the learned judge that the way in which the liquidators had gone about the matter was sufficient to obtain the consent, waiver or acquiescence of the creditors to the adjustment of their rights that was involved in the pooling, and that his Honour should make the orders as asked. 10 Before us there was some criticism of Barrett J that when he had rejected that submission he should not have dismissed the proceedings, but rather sua sponte or after discussion with the solicitor for the applicants have canvassed other powers that might be used and perhaps together with the applicants, worked out some form of notification to ensure that creditors were given full information and a proper opportunity to consent or not consent to the pooling. That sort of procedure occurs in many cases under the Corporations Act, however where as here the applicants' solicitor presses very strongly for a particular form of order and insists that it be made, I cannot see any obligation on the trial judge at all to do anything other than either accede to that application or dismiss it. 11 The learned judge said that there were five possible ways of approaching the present problem. There could be (1) a scheme of arrangement under Part 5.1 of the Corporations Act; (2) a compromise under s 477(1)(c) as reinforced by s 506(1)(b); (3) an arrangement under s 510; (4) resort to s 447A if applicable; and (5) a deed of company arrangement where a Part 5.3A administration is in progress under Division 10 of Part 3 5.3A. Outside this there was no power in the court to make a pooling of assets and as the application did not fall within any of those five heads, it was dismissed. 12 The liquidators have appealed. On the appeal, apart from the assistance we were given by Mr Rosenblatt, we were very glad of the detailed submissions from Mr Mark Robinson of counsel who with leave appeared as amicus instructed by ASIC. 13 Mr Robinson's contribution has enabled us to dispose of this appeal today comforted by knowing that we have been appraised of all relevant material. 14 Mr Rosenblatt says that there are reported cases on pooling of assets, where courts have found no problem in authorising schemes of pooling assets, where the affairs of a group of companies appear to be hopelessly intertwined, and there is no doubt at all that this is the case. There is my decision in Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209, and my other decision in Re Charter Travel Co Ltd (1997) 25 ACSR 337, both of which were relied on by Mr Rosenblatt, and Justice Santow's decision in Re Switch Telecommunications Pty Ltd; Ex parte Sherman (2000) 35 ACSR 172. 15 However, one needs to look closely at those decisions and see the very limited basis on which they were decided. Each case appears to have been decided using one of the limited gateways available and within the five described by Barrett J, and by a sort of co-operation between the advocate for the liquidator and the judge as to finding a cheap and viable route through the maze of the provisions of the corporations law. 16 One cannot just cite them as saying that the Court has power to authorise a pooling of assets. Indeed, it is quite clear to me that the Court has no such power. When a company goes into liquidation there is no change in the property that each of the creditors have, each has a claim against the company for debt, damages or what have you. The only difference is the way in which that claim will be considered. Instead of the court deciding it, a proof of debt is put in and at least in the first instance the liquidator decides whether to admit the proof of debt or not. 17 However, before and after the liquidation the creditor has a legal or equitable right enforced against the company. There is no authority on anybody other than where there is a waiver or contract made by the claimant to forego, vary or modify that claim, or where a scheme of arrangement under the Corporations Act permits a prescribed majority to overrule individual rights, for those rights to be altered. The Court has no power to do so even if it might appear to be expedient, commercially, to do so. 18 However, there are various ways of tackling the problem. One is to secure the assent of all the creditors involved. The decisions of single judges in equity show that provided valid attempts are made to do this, they will look with favour on arguments where in the circumstances there has been assent. 19 However, in the instant case, what has happened is not one where one can say that there has been consents or assents by any of the creditors to waive or vary their rights. Nor has there been the facts which would show that there has been a compromise or arrangement between the creditors and the liquidators. 20 The propositions put to us by Mr Rosenblatt are that if the liquidators on three occasions as they have done here tell people in broad outline what they intend to do and nobody makes any complaint, that that is sufficient waiver or assent. That proposition must be rejected. 21 One of the leading cases in contract law is Felthouse v Brindley (1862) 11 CB (NS) 869; 142 ER 1037, where an offeror put an offer to his nephew to buy a horse for 30 pounds 15 shillings, saying "If I hear no more about him I shall consider the horse is mine". The court held and it was affirmed on appeal that that could not be a contract, there could be no acceptance of the offer by silence. And that flavour flows throughout the law. In a case in the corporations area decided by the Supreme Court of Queensland in Re Austcorp Tiles Pty Ltd (1992) 10 ACLC 62 it was held to be insufficient for a liquidator merely to ask the creditors whether they had any objections, and treat that as a consent to his application. 22 If one looks at the law of consent generally as I did, in my book, The Law of Consent (Law Book Co, Sydney, 1986) pp 22 and 23 and again on pp 33 and 34, one can see that generally there is a big difference between obtaining a consent and coming to the situation where a person makes no objection. Consent is something more than mere acquiescence. It implies an agreement to that which but for the consent could not exist and for which the party consenting has the right to forbid. That quote is from a South Carolina case. It was and is nonetheless my view that it represents the law of Australia. 23 Now I accordingly agree that Barrett J was clearly right in rejecting the submission that there was a compromise or that there was a consent by the creditors to vary their rights. Super-added to that is the fact that in the instant case I would not have thought that the creditors have enough information to indicate a valid consent from the three pieces of information to which I have already referred. 24 So that even if silence could be consent, in this case it was not an informed consent and would not have been operative. 25 The only real concern I have about the judgment of Barrett J is about a matter that was not really argued before him. As it was not to the forefront of the argument before us either I do not wish to make any further decision on it, but I should mention the problem of the interplay between s 511(2) of the Corporations Act and s 479(3). Section 511(2) says that "the Court, if satisfied that the determination of ... the exercise of power will be just and beneficial, may accede wholly or partially to any such application ... ". The words "exercise of power" obviously refer back to s 511(1)(b) where the liquidator can apply to the court to exercise any of the powers that the court might exercise if the company were being wound up by the court. 26 Logically, that refers back to s 477 which is headed "Powers of Liquidator" and which includes the power to compromise. However, in addition to s 477 there is s 479(3) which empowers the liquidator to apply to the court for directions in relation to any particular matter arising under the winding up. 27 Does s 511(2) pick up s 479(3)? Under s 479(3) the court can, rather similarly to s 63 of the Trustee Act 1925, give a direction to its officer, the liquidator, which will protect the liquidator but will not remove property or other rights from the people who have them. Thus if the liquidator administers the winding up in accordance with the court's direction under s 479(3) he or she will be protected from liability, but the people who have rights affected can still enforce those rights against other people; see for instance Re G B Nathan and Co Pty Ltd (1991) 5 ACSR 673. 28 The matter was not before Barrett J, and it is not to the forefront before us, and I thought I should draw attention to the matter so it may perhaps be developed in some later case, but it cannot affect the result of the present case. 29 I would have liked if it were possible to save costs by either sending the case back to Barrett J to see if some alternative way of obtaining the assent of the creditors could be obtained or perhaps this court even doing so itself. However I think the submission of Mr Robinson is correct that apart from making minor adjustments under s 109 of the Supreme Court Act, if the court is of the view that the appeal should be dismissed then it just dismisses the appeal. 30 However, it may well be possible for the liquidators to make a further application to the Equity Division putting forward a method of obtaining the assent of the creditors by a method other than calling meetings, but just how that should be done and if it is to be done by circular with a tear off slip or otherwise I will leave to the liquidators if they choose to go down that route. 31 I am not particularly impressed by the argument that it will be too costly to do that, and after all the liquidators' fees are $120,000, according to the resolution the creditors passed, and even circulating 400 creditors is not really going to be a large expense compared with that fee. 32 There were a lot of other matters which were canvassed before us, such as whether s 447A can come into play, even though the company has passed into liquidation. Generally my view is that one cannot utilize section 447A for making retrospective orders except for the rather odd situation such as in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270, but it is not necessary to go into that at all. 33 Mr Rosenblatt did stress on many occasions how the court needs to be sensible about these matters and so it must be. It must also look out for the protection of the creditors. 34 In my view the present application before Barrett J was one that just could not succeed and that sufficient examination of the law and circumstances did not take place and the proceedings before Barrett J were doomed to failure. Rather than accept his Honour's decision the liquidators decided to appeal and the appeal, despite the vehemence with which Mr Rosenblatt presented the argument, was again, doomed to fail. 35 I think this is a case where the court should, under s 99 of the Uniform Civil Procedure Act 2005, ask Messrs Abbott Tout to show cause why they should not personally pay the whole of the costs of the application and of this appeal. 36 Accordingly in my view the appeal should be dismissed with costs and the solicitors called upon under s 99 to show cause why they should not pay the costs personally.

ADDENDUM ON REVISION OF REASONS 37 I might add that even in jurisdictions where there is power to pool assets (see eg New Zealand Companies Act 1993, ss 271-2), there are guidelines set down by the legislature as to the use of the power; see Mountford v Tasman Pacific Airlines of NZ Ltd [2006] 1 NZLR 104. 38 SANTOW JA: I agree. I wish only to add this. While it be the case that the creditors were not provided with enough information to enable them to give a fully informed consent, such information does not need to quantify precisely the difference between a non-pooling of asset outcome and a pooling of asset outcome. Were, contrary to the fact, such precise quantification possible, that would indeed be a powerful argument for disallowing pooling. It would demonstrate that there was no practical obstacle to a conventional liquidation on an individual company basis as to do the calculation one would need to know which company in the group owed which creditor and how much. 39 In broad terms, what is called for by way of information is a clear and simple explanation of the qualitative difference between creditors claiming against a known debtor company as against claiming against a group of companies, assuming a pro rata distribution to creditors in the latter case with the latter amount only having to be quantified. Such an explanation should be perfectly feasible. 40 BRYSON JA: I feel a strong impulsion to find a pragmatic solution to the situation of the companies and their liquidators, but the hearing of the appeal has not presented an opportunity to do so. In the state of facts before the Court, it would not be possible to place each creditor in a completely informed position in making a decision whether or not to give consent. Although this seems to lower the value of consent or dissent of creditors it does not alter the importance in principle of consent, and there is none. 41 Intervention by the Court would have to be based on some power of the Court to alter rights on the basis of the Court's own view of a just and expedient outcome. It is not clear to me that the Court has any such power. I do not have a clear view to the contrary effect, that is, that there is no such power. Except in this respect I agree with the reasons of Young CJ in Eq. 42 SANTOW JA: Accordingly, the order of the Court is that this appeal is dismissed. 43 As to costs including ASIC's costs, this matter will need to return to this Court at a convenient date which can best be arranged shortly after the commencement of first term next year by contacting my associate. We are indebted to those who have been before us and particularly want to again express our appreciation to Mr Robinson and to ASIC.

Australasian Memory Pty Ltd v Brien

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