Australasian Memory Pty Ltd v Brien

Federal Court of Australia|2023-11-15|Before: O'Bryan J

Solicitor for the Plaintiff: Catherine Scott of ConMoto Group Pty Ltd

ORDERS TAD 31 of 2023 IN THE MATTER OF 351 PROPERTY MANAGEMENT & MAINTENANCE PTY LTD (IN LIQUIDATION) BETWEEN: SHELLEY-MAREE BROOKS IN HER CAPACITY AS LIQUIDATOR OF 351 PROPERTY MANAGEMENT AND MAINTENANCE PTY LTD (IN LIQUIDATION) (ACN 603 523 486) Plaintiff

order made by: O'BRYAN J DATE OF ORDER: 15 NOVEMBER 2023

Introduction 1 351 Property Management & Maintenance Pty Ltd (in liq) (Company) is presently being wound up. The plaintiff in this proceeding, Shelley-Maree Brooks of Rodgers Reidy, is the liquidator of the Company. 2 By originating process dated 25 October 2023, Ms Brooks seeks leave to be appointed voluntary administrator of the Company (and deed administrator of any deed of company arrangement, or DOCA, entered into by the Company in the course of the voluntary administration), a stay of the liquidation for the duration of the voluntary administration, and associated orders in relation to matters in the voluntary administration. 3 In support of the originating process, Ms Brooks relies on her affidavit affirmed 23 October 2023, an affidavit of Madeleine Jane Palser (a solicitor in the employ of ConMoto Group Pty Ltd, the lawyers for the liquidator) affirmed 9 November 2023, and a written outline of submissions dated 10 November 2023. 4 Notice of the application was given to the Company's creditors, none of which have opposed or otherwise sought to be heard on the application. 5 I heard the application the subject of the originating process on 15 November 2023, at the conclusion of which I made orders in the form sought by the plaintiff. These are my reasons for making those orders.

Background 6 In her affidavit, Ms Brooks deposes to the following matters by way of background to the present application. 7 In early 2015, the Company was incorporated in Tasmania and commenced trading. From 2015, the Company operated a property maintenance service business and, from 2020, a dog grooming business. 8 On 17 February 2023, pursuant to s 436A of the Corporations Act 2001 (Cth) (Act), the sole director of the Company, Jesse Maple, resolved to place the Company into voluntary administration and appointed Ms Brooks as voluntary administrator. 9 On 21 February 2023, Jesse Maple provided to Ms Brooks a completed Report on Company Activities and Property (ROCAP), as required by s 438B(2) of the Act. 10 On 28 February 2023, Ms Brooks convened the first meeting of creditors. 11 On 15 March 2023, Ms Brooks issued a report to creditors, summarising the Company's affairs and the steps taken in the administration, informing them of a DOCA proposed by Jesse Maple, and providing notice of a second meeting of creditors to be held on 23 March 2023. 12 On 23 March 2023, at the second meeting of creditors of the Company, the creditors resolved to accept the terms of the proposed DOCA. Ms Brooks was appointed as deed administrator of the Company. The DOCA was executed by Jesse Maple the following day. The terms of that DOCA are not presently relevant, save insofar as it contemplated the payment of a sum within three months of its acceptance by creditors (that is, by 30 June 2023), which payment was to be made possible by way of bank finance. That amount was to cover outstanding employee entitlements, the fees and disbursements of the voluntary administrator / deed administrator, and (to the extent of any surplus) outstanding amounts owed to ordinary unsecured creditors. 13 On 27 July 2023, at a further meeting of creditors of the Company, the creditors resolved pursuant to s 445E of the Act to terminate the DOCA and to wind up the Company, following a recommendation made by Ms Brooks in her capacity as deed administrator in circumstances where the payment contemplated by the DOCA had not yet been made, there was uncertainty as to when that payment would be made, and no variation to the DOCA had been proposed. By operation of s 446A of the Act, Ms Brooks became the liquidator of the Company. 14 On 14 September 2023, Ms Brooks received confirmation that Jesse Maple had obtained the necessary funding to enable a DOCA in similar terms to the previous DOCA to be put to the Company's creditors, and requested that Ms Brooks review the proposal and determine whether an application may be made to the Court to facilitate her appointment as administrator of the Company. The DOCA contemplates, among other things, the payment of a sum by Jesse Maple. Ms Brooks deposes that the full amount of the proposed DOCA sum has been paid into the Rodgers Reidy trust account. 15 On 25 October 2023, this application was lodged with the Court. 16 In her affidavit, Ms Palser deposes to the steps taken to notify the Company's creditors of the application. Those steps were as follows. First, an email was sent to each of the Company's creditors, informing them of the application, advising them of the steps necessary to participate in the application, and attaching a copy of the originating process. Second, a letter was sent by post to the registered addresses of those creditors who did not acknowledge service by email, informing them of the application (including the date and time of the hearing which, by the date on which the letters were sent, had been set down), advising them of the steps necessary to participate in the application, and attaching a copy of the originating process. Ms Palser deposes that none of the creditors communicated their intention to oppose the application.

Leave to appoint the Liquidator as voluntary administrator

Relevant principles 17 Section 436B relevantly provides: Liquidator may appoint administrator (1) A liquidator or provisional liquidator of a company may by writing appoint an administrator of the company if he or she thinks that the company is insolvent, or is likely to become insolvent at some future time. (2) A liquidator or provisional liquidator of a company must not appoint any of the following persons under subsection (1): (a) himself or herself; … unless: (f) at a meeting of the company's creditors, the company's creditors pass a resolution approving the appointment; or (g) the appointment is made with the leave of the court. 18 The principles that govern an application by a liquidator for leave to be appointed as voluntary administrator pursuant to s 436B(2)(g) are well-established. Those principles were summarised by Halley J in Mansfield (liquidator), in the matter of NR Complex Pty Ltd (in liq) (recs and mgrs apptd) [2023] FCA 614 (NR Complex) at [18]-[22]: (a) The test for leave is not an onerous one: Re Cobar Mines Pty Ltd (rec & mgr apptd) (in liq) (1998) 30 ACSR 125 (Re Cobar) at 126 (Bryson J); In the matter of Equiticorp Australia Ltd (in liq) [2020] NSWSC 143 (Equiticorp) at [21] (Gleeson J). Nevertheless, the grant of leave should not be treated as a "mere formality or mere procedural obstacle": In the matter of Keldane Pty Limited (in liq) [2011] VSC 385 at [13] (Pagone J); Australian Securities and Investments Commission v Diploma Group Limited (No 5) [2017] FCA 1147 (Diploma Group) at [40] (McKerracher J); Deputy Commissioner of Taxation (Cth) v Foodcorp Pty Ltd (1994) 13 ACSR 796 (Foodcorp) at 799 (Hodgson J). (b) A liquidator will generally be granted leave to appoint themselves as the administrator, unless there are distinct reasons why they are not a suitable person. This reflects the "desirability of continuity" of persons in charge of the management of the company: Parkes Leagues Club Co-op Limited (in liq) [2004] NSWSC 16 at [5] (Hamilton J) citing Re Cobar at 126. (c) The primary question on an application for leave for self-appointment as a voluntary administrator is whether the liquidator is "an appropriate person to be an administrator": Foodcorp at 799. A Court should generally grant leave if the person is an official liquidator with no prior association with the company and its officers, and there is no distinct reason why their appointment would be inappropriate: Foodcorp at 799. (d) The appropriateness of an appointment requires consideration of whether there are is "any matter such as a conflict of interest, a threat to independence, or anything else offensive to commercial reality in such an appointment": Diploma Group at [40]; Schwarz, in the matter of Gordon Smith Marketing Pty Ltd (administrator appointed) [2016] FCA 1378 (Gordon Smith) at [11] (Jagot J, as her Honour then was). (e) Relevant considerations on an application of this kind include: the proposed appointee's familiarity with the business and affairs of the subject company; the likely reduction in duplication and associated costs where a liquidator is appointed as administrator including where considerable work has already been undertaken; and where continuity of appointees is desirable having regard to ongoing negotiations and/or complex arrangements: Equiticorp at [23]; Diploma Group at [58]; Gordon Smith at [32(b)]. 19 There is also authority which suggests that, although the main consideration upon an application such as the present one is the suitability of the appointee as administrator, the Court is nevertheless interested in a general sense to see that there is some point in the move from winding up to voluntary administration: Kukulovski, in the matter of Corrimal Leagues Club Ltd (in liq) [2013] FCA 697 at [17] (Farrell J); Rupert Co Ltd v Chameleon Mining NL [2005] NSWSC 719 at [5] (Barrett J); see also Smith, in the matter of Actively Zones Pty Ltd (in liq) [2012] FCA 605 at [4]-[5] (Jacobson J); Diploma Group at [28]. In the present context, this requires consideration of whether there is a prospect that entry into the DOCA, for which the appointment of an administrator is proposed, will lead to a better outcome for creditors than liquidation.

Consideration 20 I am satisfied that leave should be granted for the appointment of Ms Brooks as voluntary administrator of the Company pursuant to s 436B(2)(g) of the Act for the following reasons. 21 First, Ms Brooks is a registered liquidator. She has many years of experience in that role, and in the field of corporate insolvency more generally. 22 Second, on the evidence before me in this application, there is no apparent conflict of interest, other threat to independence, or any other matter offensive to commercial morality that would render Ms Brooks an unsuitable appointee to the role of voluntary administrator. 23 Third, the evidence establishes that, as a result of her involvement with the Company since February 2023, Ms Brooks is familiar with the business and affairs of the Company and has undertaken considerable work in connection with the administration and, subsequently, the winding up of the Company. Relevantly, Ms Brooks deposes that she has taken the following steps with respect to the Company's affairs: (a) During the first period of voluntary administration between February 2023 and the execution of the first DOCA in March 2023, Ms Brooks met with the Company's sole director, Jesse Maple, and the Company's former director and operations manager, Micheal Maple (who is Jesse Maple's father), to interview them about the affairs of the Company, and continued to trade the two businesses that the Company was trading at the date of her appointment. Ms Brooks also convened two creditors' meetings during this period, and prepared a detailed report to creditors regarding the Company's affairs and the first proposed DOCA for the purpose of the second creditors' meeting on 23 March 2023. (b) During the administration of the first DOCA, Ms Brooks oversaw its execution and liaised with the relevant parties regarding the performance of the DOCA's terms and its ultimate termination. (c) During the subsequent winding up of the Company, Ms Brooks has taken steps to reduce certain significant liabilities of the Company's businesses, negotiated the sale of the Company's dog grooming business (which settled in August 2023), investigated the trading of the Company's businesses by Jesse Maple during the period of the first DOCA to ascertain whether the Company had continued to lodge and pay the Australian Tax Office (ATO) and employee superannuation during this period, filed lodgements due by the Company with the ATO, collected debts owing by trade debtors, and continued to engage with Jesse Maple and Micheal Maple in relation to the preparation of a second DOCA proposal, and the acquisition of sufficient funding to fully execute any such DOCA. 24 The appointment of a voluntary administrator other than Ms Brooks is likely to occasion a significant duplication of work and the loss of efficiencies in the conduct of the voluntary administration (and potentially the deed administration) going forward that arise from Ms Brooks' familiarity with, and understanding of, the Company and its affairs. Plainly, there is a real, practical advantage in maintaining continuity of identity between the liquidator and the voluntary administrator. 25 Fourth, to the extent that it is necessary to consider the purpose and utility of placing the Company back into voluntary administration, I am satisfied that the appointment of a voluntary administrator will facilitate the consideration by creditors of a second DOCA proposal that, if approved, is likely to provide a better return to creditors than in the liquidation. The evidence discloses that the Company is insolvent or is likely to be insolvent at the present time. Ms Brooks deposes that, in her view, the proposed DOCA will provide the best possible return to creditors in circumstances where they are unlikely to receive any return in a liquidation. As noted above, Ms Brooks also gives evidence that the sum proposed to be paid by Jesse Maple under the DOCA, which amount will discharge Ms Brooks' costs of this application and of the liquidation, employee entitlements, and (to the extent of any surplus) the balance owed to ordinary unsecured creditors, has been deposited into the trust account of Rodgers Reidy. This reduces the risk that the second proposed DOCA will meet the same fate as the earlier DOCA, and strengthens the conclusion that there is a real prospect that the grant of leave sought will produce a better outcome for creditors. The creditors' attitude to the application is also relevant in this regard. Having regard to the evidence of Ms Palser, I am satisfied that the Company's creditors have been given due notice of the application, and that no creditor has communicated their opposition to it. Moreover, none of the Company's creditors appeared or sought to be heard at the hearing of the application on 15 November 2023. 26 Ms Brooks also sought an order granting leave for her appointment as deed administrator of the Company in the event that the proposed DOCA is approved by creditors. Acknowledging that this order has been made in previous applications of this kind, a question arises as to whether such an order is strictly necessary under the terms of the Act. Section 436B of the Act, the terms of which are set out above, refers to the appointment of an "administrator". Pursuant to s 439C(c) of the Act, a company that is in voluntary administration may enter into a DOCA following a resolution of creditors to that effect at a meeting convened under s 439A. Section 444A(2) of the Act stipulates that the administrator of a company is to be the administrator of the DOCA unless the creditors, by resolution passed at the second meeting convened under s 439A, appoint someone else to be the administrator of the deed. It would appear to follow that, if the proposed DOCA is approved by creditors, Ms Brooks will be the administrator of the DOCA by force of s 444A(2) unless the creditors by resolution appoint someone else. Accordingly, any grant of leave for the appointment of Ms Brooks as deed administrator would appear to be redundant. Nevertheless, against the possibility that there is some uncertainty as to the scope of s 436B(2), I will make the order in the form sought by Ms Brooks. I note, however, that the grant of leave does not in any way circumscribe the right of creditors under s 444A(2) to appoint someone other than Ms Brooks as administrator of the proposed DOCA should they choose to do so.

Relevant principles 27 Ms Brooks seeks an order pursuant to s 447A of the Act to the effect that Pt 5.3A is to operate in relation to the voluntary administration of the Company on the following terms: (a) there is to be no requirement that a first meeting of creditors in the administration of the Company be convened or held; (b) s 438B(2) of the Act does not apply to the administration of the Company; (c) Ms Brooks (as administrator of the Company) may convene and hold meetings required under s 439A of the Act at any time during the convening period (as defined in the Act), provided that notice of such meetings is provided in accordance with r 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (Insolvency Rules); (d) in and for the purposes of the administration of the Company, Ms Brooks (as administrator of the Company) may accept as proofs of debt in the administration of the Company any proofs of debt submitted by creditors in the course of the liquidation of the Company without adjustment for interest in respect of any claims the subject of such proofs of debt; and (e) s 439C(c) of the Act does not apply to the administration of the Company. 28 Section 447A(1) provides that the Court may make such order as it thinks appropriate about how Pt 5.3A of the Act is to operate in relation to a particular company. 29 The Court's power under s 447A(1) is wide, although not entirely without limit: Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 (Australasian Memory) at [20] (Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ). In Australasian Memory, the High Court observed that (at [20]): Some particular limitations, suggested in the course of argument, must be examined: first, that s 447A does not permit a court to make an order altering the times fixed by those provisions of Pt 5.3A which contain express provision for variation of the time so fixed; second, that it permits only orders having prospective effect; third, that it does not permit the making of orders affecting vested rights; and, fourth, that it does not apply unless there is a continuing administration (or, presumably, an extant deed of company arrangement). 30 The Court's principal concern in exercising its power under s 447A is the best interests of a company's creditors as a whole: Strawbridge, in the matter of Virgin Australia Holdings Ltd (admins apptd) (No 2) FCA 717 at [104] (Middleton J).

Consideration 31 It is relevant to observe, firstly, that orders pursuant to s 447A of the kind sought in the present application (known as "truncated administration orders") are typically made in relation to the administration process where an administrator is appointed to a company that is already in liquidation: Hughes, in the matter of Vah Newco No. 2 Pty Ltd (in liq) [2020] FCA 1121 (Vah Newco) at [30] (Middleton J); Equiticorp at [32]-[40]; Diploma Group at [65]. 32 The first order sought by Ms Brooks is to dispense with the first meeting of creditors in the administration of the Company, as required under s 436E of the Act, on the basis that the first meeting was held during the earlier administration of the Company. Such an order is generally appropriate where creditors have already had an opportunity to familiarise themselves with the affairs of the relevant company, and where a first meeting would be an administrative and costly burden in those circumstances: Gordon Smith at [17]; Equiticorp at [34]; NR Complex at [32]. I accept that those circumstances arise in the present case. The avoidance of unnecessary cost in the administration of the Company will be to the ultimate benefit of its creditors. 33 The second order sought is to dispense with the requirement for the director of the Company to produce to Ms Brooks as administrator a report about the Company's business, property, affairs and financial circumstances. Ms Brooks submits that dispensation from this requirement will avoid unnecessary work and cost, in circumstances where such a report was produced in the first administration. It is also plain that s 447A enables the Court to excuse compliance with s 438B(2) of the Act: NR Complex at [33] citing Ngan, in the matter of JKB Constructions Pty Ltd [2006] NSWSC 1040 at [7] (Barrett J). In making the order sought, I was satisfied that it is appropriate to dispense with the requirement contained in s 438B(2), in circumstances where it would be duplicative of work already done and costs incurred - a report having already been produced to Ms Brooks in the prior administration - and where, having regard to Ms Brooks' evidence in this application, the affairs of the Company have already been the subject of extensive investigation and reporting in the first administration and the subsequent liquidation. 34 The third order sought is to allow for meetings required to be held under s 439A of Act to be held at any time during the convening period (as defined). Ms Brooks submitted that the purpose of the order is to enable her, as administrator, to convene meetings more quickly than Pt 5.3A contemplates, relying on NR Complex at [34] citing Sims, in the matter of Destra Corporation Limited [2009] FCA 1199 (Destra Corporation) at [25] (Lindgren J). The purpose of Ms Brooks' appointment as administrator is to put a further proposed DOCA before creditors for their consideration. An order of this kind is appropriate to enable Ms Brooks to convene a meeting for that purpose as quickly as possible, thus facilitating an efficient administration whilst ensuring that creditors are properly notified in accordance with r 75-225 of the Insolvency Rules. Accordingly, such an order is appropriate. 35 The fourth order sought is to permit Ms Brooks, as administrator of the Company, to accept as proofs of debt in the administration those proofs of debt lodged in the liquidation, without adjustment for interest. Ms Brooks submits that this order avoids the additional work and cost involved in requiring her to consider and address new proof of debt forms that have effectively already been submitted. This is an accepted course: in Destra Corporation at [5], Lindgren J regarded it as "desirable, efficient and economical", and considered that to require fresh proofs of debt to be lodged would be "superfluous and wasteful". Such considerations apply equally to the present case, and I was satisfied that it was appropriate to make the order. 36 The fifth order sought is the disapplication of s 439C(c) of the Act to the administration of the Company. Section 439C provides that, at a meeting convened under s 439A, the creditors may resolve that: (a) the company execute a deed of company arrangement; (b) that the administration should end; or (c) that the company be wound up. The proposed order prevents the creditors from resolving to wind up the Company in circumstances where it is presently in liquidation, and that liquidation will remain on foot (although stayed, as I discuss below) for the duration of the administration. Ms Brooks submits that this avoids the possibility of two parallel winding up processes. It also preserves an earlier relation-back day, which is relevant to, for example, certain recovery proceedings which may be brought under Pt 5.7B of the Act for the benefit of an insolvent company. Such an order has been made previously for this purpose in other proceedings: see Deputy Commissioner of Taxation v Advant Pty Ltd (admins apptd) [2017] FCA 1123 at [32] (Markovic J). I was satisfied that such an order was ultimately for the benefit of the Company's creditors, in the event that the liquidation continues, and that it was therefore appropriate to make this order. 37 I was further satisfied that the orders sought by Ms Brooks pursuant to s 447A are not affected by any of the particular limitations identified in Australasian Memory, and that there is no other reason why relief ought to be refused.

Direction under s 90-15 of the Insolvency Practice Schedule

Relevant principles 38 Ms Brooks further seeks a direction under s 90-15 of the Insolvency Practice Schedule (Corporations), being Sch 2 to the Act, that she would be justified and acting reasonably in not requiring any further ROCAP from the director of the Company (as would otherwise be required under s 438B(2) of the Act). 39 Section 90-15(1) provides that the Court may make such orders as it thinks fit in relation to the external administration of a company. That includes, without limitation, an order determining any question arising in the external administration of the company: s 90-15(3)(a). 40 The purpose of a liquidator's application for judicial advice is to obtain guidance as to the proper course of action to be taken in the liquidation, and thus to facilitate the performance of the liquidator's functions: In the matter of MF Global Australia Ltd (in liq) [2012] NSWSC 994; 267 FLR 27 (MF Global) at [7]-[9] (Black J) and the cases cited therein (with respect to the predecessor of s 90-15). In determining whether to give the direction sought, the Court must have regard to whether a judicial direction would be "of advantage" in the liquidation: MF Global at [8]; In the matter of Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 at [9] (Black J). The effect of a direction is to sanction a course of conduct by the liquidator so that they may adopt that course free from the risk of personal liability or breach of duty: MF Global at [8]. 41 A critical consideration is the nature of the conduct or decision in respect of which the direction is sought. The Court may give direction as to matters of law or the exercise of legal judgment, including one of substance or procedure, or one concerning power or the propriety and reasonableness of the decision. The Court will not, however, ordinarily do so where a matter relates to the making of a business or commercial decision, where no particular legal issue is raised, and there is no attack in the propriety or reasonableness of the decision: NR Complex at [45]; MF Global at [7]; Korda, in the matter of Ansett Australia (No 3) (2002) 115 FCR 409 at [65] (Goldberg J).

Consideration 42 I was satisfied that the direction sought by Ms Brooks does not concern a business or commercial decision. Moreover, for the reasons set out above with respect to the order sought under s 447A in relation to the requirement under s 438B(2), I considered that the direction would facilitate the more efficient conduct of the administration.

Relevant principles 43 Ms Brooks sought an order pursuant to s 482 of the Act that the winding up of the Company be stayed from the date on which a voluntary administrator is appointed until the end of the administration in accordance with s 439C. 44 Section 482 of the Act relevantly provides: (1) At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time, or terminating the winding up on a day specified in the order. (2) An application may be made by: (a) in any case - the liquidator, or a creditor or contributory, of the company; … 45 The Court's power to make an order under this section is discretionary and a person who seeks an order terminating the winding up must establish that such an order is appropriate: see, eg, Re Lorie Najjar & Sons Pty Ltd (in liq) [2013] NSWSC 798; 94 ACSR 561 (Black J) at [24]. There are a number of factors that may be relevant to the exercise of the power: see Vero Workers Compensation v Ferretti [2006] NSWSC 292; 57 ACSR 103 (Ferretti) at [17] (Austin J). Relevantly, a stay of a winding up on the appointment of an administrator may be appropriate where its purpose is to facilitate a proposed restructuring transaction and to finalise the external administration (rather than to restore the company to ordinary trading operations): NR Complex at [50]; Vah Newco at [32] citing Equiticorp at [53].

Consideration 46 Ms Brooks submits that the continuation of the liquidation of the Company in parallel with the voluntary administration would be "duplicative and wasteful", relying on NR Complex at [51]. Moreover, the effect of the order sought is only to stay - and not to terminate - the liquidation. The Court, therefore, retains the discretion to consider whether it would be in the creditors' interests for the liquidation to come to an end at a later point: NR Complex at [51]; Vah Newco at [44]. Finally, the stay of the liquidation will only take effect if Ms Brooks is appointed voluntary administrator, and will only endure for the length of the voluntary administration. 47 I accept those submissions. The proposed stay is limited in scope and comes into effect only once the company enters into voluntary administration consistently with the purpose for which it is sought, which purpose is an appropriate one. Moreover, none of the Company's creditors voiced any opposition to the proposed stay. As observed in Ferretti, the attitude of creditors is a relevant consideration. Accordingly, I considered it appropriate to exercise the discretion conferred on the Court under s 482(1) of the Act, and to make the order in the form sought.

Conclusion 48 For the foregoing reasons, I was satisfied that it was appropriate to make the orders in substantially the same form as those sought in the originating process. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan.

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