By Originating Process filed on 10 March 2016 the Plaintiffs, Mr Robert Whitton (in his capacity as creditors' trustee and former deed administrator) and Stirling Products Pty Ltd ("Company") seek a range of orders under ss 445G, 447A, 482 and 1322 of the Corporations Act 2001 (Cth). In the event, it will be sufficient to dispose of this application by dealing with the orders that are sought under s 447A of the Corporations Act and it will not be necessary for me to deal with the orders that are sought under the other sections.
First, Mr Whitton and the Company seek an order under s 447A of the Act that Pt 5.3A is to operate in such a way that s 445C of the Corporations Act is varied so that a deed of company arrangement (with creditors' trust) entered into on 27 October 2011, by the Company, Mr Whitton as administrator and Virtus Capital Pty Ltd ("Virtus") ("Original DOCA") did not terminate on 29 June 2012 and was not terminated at any time before 5 December 2012.
Section 447A relevantly provides that the Court may make such order as it thinks appropriate about how Pt 5.3A is to operate in respect of a particular company, including on the application of the company or an interested person. The Company has standing to apply for the order sought and Mr Whitton is plainly an interested person who also has standing to apply for the order sought. Section 455C provides that a deed of company arrangement terminates, relevantly, in specified circumstances.
The application is supported by affidavits dated 16 March 2016 and 29 April 2016 of Mr Whitton and an affidavit dated 29 March 2016 of Mr Peter Dykes, a person interested in a commercial proposal which is derivative of aspects of the deed of company arrangement. Mr Whitton and the Company also rely on an affidavit of Mr Hegarty, their solicitor, sworn 30 March 2016, which indicates that the relevant documents have been served, importantly, on the Australian Securities and Investments Commission ("ASIC"), which has written to Mr Hegarty, by a letter that is in evidence, confirming that the matter is properly left for the determination of the Court and that it does not propose to intervene in the proceeding or seek leave to appear at the hearing.
There is also evidence of consultation with persons associated with companies that were party to the relevant issues, which have since been deregistered. Strictly, it would not be necessary to give notice to those companies, where they have been deregistered and have no continued legal assistance but, in practical terms, those associated with them have been given notice in any event. I am therefore satisfied that I may proceed to determine the application on the basis that persons affected by it have proper notice of it.
Mr Whitton's first affidavit sets out the background to the administration and the history of dealings in respect of a deed of company administration and subsequently a creditors' trust. Those matters are also set out in submissions of Mr Newton, who appears on behalf of Mr Whitton in the application. Broadly, the Company, Mr Whitton and Virtus executed the a deed of company arrangement ("Original DOCA") on 27 October 2011, which included a definition of "End Date" in cl 1.1 as four months after the date of that document or such later date as Mr Whitton and Virtus agreed. Clause 2.4 provided for the Original DOCA to terminate and the Company to be wound up and Mr Whitton to be appointed as its liquidator if the conditions precedent were not satisfied on or before that date. Clause 10.1(d) also provided for termination of the Original DOCA on similar terms. The End Date was originally a date in late February 2012, but was subsequently extended by agreement to 30 June 2012.
Mr Whitton's evidence is that he communicated with Virtus until July 2012; it appears that neither he nor Virtus recognised that the Original DOCA would terminate, by its own force, on 29 June 2012 if not extended, and it was not in fact extended. Ultimately, Virtus did not proceed with the proposed transaction, although discussions with it appear to have continued until August 2012, when Virtus' solicitors advised Mr Whitton that a condition of the Original DOCA as to ASX's position in respect of a proposed relisting was not satisfied and the effect was that the Original DOCA had terminated. In fact, the Original DOCA had previously terminated by the expiry of the End Date on 29 June 2012.
Mr Whitton's evidence is that he did not consider that the Original DOCA had terminated, although it does not appear that view reflected a review of it, and he believed that he could cure any problem, although that may have given insufficient weight to the fact that Virtus' agreement would have been required to any further extension of the End Date under the Original DOCA. In the event, subsequent steps were taken, which depended on the continuance of the Original DOCA, which led to the entry into a varied DOCA and a creditors' trust. It is at least possible that those subsequent steps, and the payments to priority creditors which subsequently occurred, will be ineffective if the Original DOCA had terminated at this point.
Mr Whitton then seeks further orders under s 447A of the Corporations Act in respect of several further difficulties which had arisen in respect of an amended Deed of Company Arrangement which had been executed on 4 December 2012 ("Amended DOCA") between the Company, Autus Capital Ltd ("Autus") and Mr Whitton. In particular, Mr Whitton seeks an order under s 447A of the Corporations Act that Pt 5.3A is to operate in relation to the Company in such a way that s 445A of the Corporations Act is varied so that the Amended DOCA was validly entered into, and an order that Pt 5.3A is to operate in such a way that s 445C is varied so that the Amended DOCA did not terminate immediately upon its execution and was not terminated at any time before 18 September 2015. The significance of 18 September 2015 is that is a date after the entry into a creditors' trust which was derivative of the Amended DOCA.
Section 445A of the Corporations Act in turn provides that a deed of company arrangement may be varied by resolution passed by a meeting of the company's creditors under s 445F, if the variation is not materially different from a proposed variation set out in the notice of meeting. Here, a further meeting of creditors in November 2012 had unanimously agreed to a variation of the Original DOCA so as to accept a proposal from Autus. It is likely that the Original DOCA could only have been effectively varied, so as to bring about the Amended DOCA, if it had not terminated and that depends upon the orders under s 447A which are sought in respect of the Original DOCA. Mr Whitton did not retain solicitors to draft the amendments to the Original DOCA, since he was without funds. It appears a member of his staff had drafted those amendments, and the definition of "End Date" in the Amended DOCA, oddly, provided for an End Date of 31 October 2011 or such later date as the deed administrator may agree in writing. That was plainly an error, since that date was prior to the date of the creditors meeting that approved the Amended DOCA and prior to the execution of the Amended DOCA, so that it could have the extraordinary consequence that the deed which creditors had approved and which Mr Whitton had executed could have terminated at the point at which it was executed.
Mr Whitton's evidence is that there was no discussion of an End Date with Autus and that, not surprisingly, had that been proposed, he would have nominated an End Date which was in the future, not in the past. By letter dated 4 December 2012, Autus waived conditions precedent contained in the Amended DOCA, but that could only have assisted if the Amended DOCA continued in effect.
In late July 2013, Autus apparently became the subject of a winding up application and nominated Montrose Investment Group Pty Ltd ("Montrose") as its nominee to complete the Amended DOCA, and Mr Whitton advised that matter to ASX on 1 August 2013. Shares were subsequently issued to two entities, which I infer were associated with Autus, on the basis of a money payment by Autus or those entities, and the issue of those shares was ratified and a further share issue approved in September 2015.
Mr Whitton's evidence is that, putting aside the several difficulties noted above and a further difficulty which emerged, the Amended DOCA was completed following the making of contributions to it and the establishment of a creditors' trust on 17 September 2015. Pursuant to the terms of the Amended DOCA, control of the Company was returned to its directors and liabilities to creditors were transferred to the creditors' trust.
Mr Whitton's evidence is that deed contributions were made, broadly in accordance with cl 4.1 of the Amended DOCA, in the amount of $400,000 between November 2014 and September 2015, and payments were in turn made to priority employee creditors in March 2015, although unsecured creditors ultimately did not receive a distribution by reason of several matters. A further complexity arose because, as it turned out, by the time the latest of those contributions were made, Montrose had, without Mr Whitton's knowledge, been deregistered, and therefore was not in continuing legal existence. Mr Dykes, who gives evidence in the application, appears to have assisted with funding with the final contribution of $200,000 made in September 2015, which Mr Whitton assumed was made on behalf of Montrose. In the event, it could not have been, since Montrose then had no continuing legal existence.
It appears that Mr Dykes in turn seeks to use the Company, in ways which it is not necessary to explore, in connection with a listing of a new technology venture. That matter is relevant, for present purposes, so far as it has given rise to the urgency of the application, because that opportunity may be lost if the application is not determined today, and because it also means that Mr Dykes and persons associated with the proposal may be exposed to significant loss if the steps which had been taken to implement it are now frustrated.
Mr Whitton's evidence is that he first became aware of the error in the "End Date" in the Amended DOCA when that matter was drawn to his attention by a person associated with the transaction in February 2016. Mr Whitton's attention was then drawn to the possible difficulty in respect of the Original DOCA, and its termination on 30 June 2012, by his solicitors in mid-March 2016. He then subsequently became aware of the further difficulties arising from the deregistration of Montrose, which were addressed in his affidavit dated 29 March 2016.
There have plainly been more than the usual number of difficulties in respect of this administration. Having said that, it seems to me that the case for the exercise of the Court's jurisdiction under s 447A of the Corporations Act is a relatively clear one. The Court has a well-established power to vary a deed of company arrangement by order made under that section, as an alternative to a variation of the deed of company arrangement by creditors, while it remains on foot. In the present case, that latter avenue is no longer available, where the deed of company arrangement has terminated in accordance with its terms and the creditors' trust has come into existence. That jurisdiction is a wide one, as the High Court of Australia recognised in Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270. One circumstance in which it can be exercised is if, by operation of the provisions of Pt 5.3A, the administration of the relevant company has come to an end. In particular, as the High Court also there noted, the Court may make such an order where steps have been taken that are predicated upon a company having validly entered a deed of company arrangement, and the effect of the invalidity of those steps would be to frustrate the expectations of creditors, and the effect of a validation will be to make good the basis on which the parties have proceeded.
That approach was adopted by the Federal Court of Australia in Re Euco Ltd (in liq); Forrest Nursery Pty Ltd v Lopez [2006] FCA 935; (2006) 233 ALR 422 where French J made orders under that section and further orders terminating a winding up that had taken effect in that case, so as to give effect to creditors' expectations. The same approach was adopted by Hammerschlag J in Gordon, Re; Macquarie Towns Partners Real Estate Pty Ltd (Subject to Deed of Company Arrangement) [2011] NSWSC 806.
In the present case, it seems to me clear that Mr Whitton, the persons with whom he was dealing and creditors proceeded on the basis that the Original DOCA remained on foot in approving the entry into and executing the Amended DOCA. So far as the Amended DOCA had an error in the End Date, that error was manifest, although it was not recognised, and it was plain that the parties could not have intended that an End Date be adopted which was prior to the entry into the Amended DOCA. In those circumstances, it will give effect to creditors' expectations, and preserve the validity of transactions which all parties have assumed, including priority creditors who have received payments under the creditors' trust, to vary the operation of Pt 5.3A of the Corporations Act to preserve the continued operation of the Original DOCA and the Amended DOCA, so that they in turn underpin the validity of entry into the creditors' trust. It seems to me that the Court should also vary cl 2.1(c) of the Amended DOCA, so that the Amended DOCA did not terminate by payment of $400,000 procured by persons other than Autus, for the same reason. Here, it is in the interests of the persons who promote the new listing of the company that the steps taken be valid; and it is in the interests of creditors, and particularly priority creditors who have received distributions funded by the contribution under the Amended DOCA, that the steps by which those distributions have been funded also be valid.
For the same reason, the Court should exercise its powers under s 447A of the Corporations Act so that the Amended DOCA is not affected by the deregistration of Autus, which was party to it. In practical terms, that deregistration is of no significance to the continued operation of the creditors' trust, or indeed to the future of the proposal for the Company's relisting, where that is now being conducted by other persons.
In these circumstances, I will make orders under s 447A of the Corporations Act. Having done so, it is not necessary to make orders under s 1322 of the Corporations Act, so far as the operation of the Original DOCA and the Amended DOCA will be preserved, with retrospective effect, and will support the entry into the creditors' trust.
It is also not necessary or appropriate to make an order under s 482 of the Corporations Act terminating any liquidation of the company in this case. The effect of retrospective orders under s 447A of the Corporations Act is that no cause for liquidation of the Company had arisen, at least by reason of these circumstances, because the Original DOCA and the Amended DOCA each continued in effect, the creditors' trust was established, and the Company was returned to the control of its directors rather than passing into liquidation. In practical terms, there is no reason to terminate any liquidation or remove any liquidator, because no liquidator was ever appointed.
I make the following orders:
Order pursuant to s 447A of the Corporations Act 2001 (Cth), that Part 5.3A of the Act is to operate in relation to Stirling Products Limited ("Company") in such a way that s 445C of the Act is varied so that the Deed of Company Arrangement (with Creditor's Trust) entered into on 27 October 2011, by the Company, Robert Whitton (Administrator) and Virtus Capital Pty Ltd (Original DOCA) did not terminate on or about 29 June 2012 and was not terminated at any time before 5 December 2012.
Order pursuant to s 447A of the Act, that Part 5.3A of the Act is to operate in relation to the Company in such a way that s 445A of the Act is varied so that the Deed of Company Arrangement executed on 4 December 2012, by the Company, Autus Capital Ltd and the Administrator (Amended DOCA) was validly entered into.
Order pursuant to s 447A of the Act, that Part 5.3A of the Act is to operate in relation to the Company in such a way that s 445C of the Act is varied so that the Amended DOCA did not terminate immediately upon its execution and was not terminated at any time before 18 September 2015.
Order that Part 5.3A is to operate so that clause 2.1(c) of the Amended DOCA is varied and that the Amended DOCA did not terminate (i) by reason of the payment of $400,000 procured or made by persons other than Autus Capital Ltd or (ii) by reason of the deregistration of Autus Capital Ltd or Montrose Investment Group Pty Limited.
These orders be entered forthwith.
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Decision last updated: 16 June 2016