Australian Prudential Regulation Authority v Rural & General Insurance Limited

REASONS FOR RULING 1 On 9 September 2003 Australian Prudential Regulation Authority (APRA) commenced proceedings for the winding up of Rural & General Insurance Limited (Rural & General). As the application is made by APRA, the Court may order the winding up of a company if it is of opinion that it is in the interests of the public, or the members or of the creditors that the company should be wound up: s 461(1)(j) of the Corporations Act 2001 (Cth) (the Act). Section 462(3) provides: 'A person being, or persons including, APRA may only apply for an order to wind up a company if: (a) an inspector has been appointed to make an investigation in respect of the company under s 52 of the Insurance Act 1973; and (b) the company's liabilities, worked out for the purpose of the prudential standards (within the meaning of that Act), exceed the company's assets worked out for that purpose.' A separate question, to determine whether the condition laid down by s 462(3)(b) is satisfied, was ordered. I commenced hearing that application in December last year. That hearing has been adjourned to recommence on 15 March next. Subsequent to the last hearing date Rural & General resolved to appoint an administrator pursuant to s 436A of the Act. 2 It is submitted on behalf of Rural & General that s 440D of the Act requires that leave be granted for this winding up proceeding to proceed in the absence of the written consent of the administrator. It is submitted for APRA that s 440D does not relate to winding up proceedings which, in this context, are specifically dealt with by s 440A. On 25 February I decided that leave pursuant to s 440D was not required, with reasons to be delivered later. These are those reasons. 3 Counsel for APRA pointed to a number of cases before experienced judges which have proceeded upon the footing that s 440A governs the relationship between winding up and administration to the exclusion of s 440D. These include Re Deputy Commissioner of Taxation: In the Matter of First Netcom Pty Ltd [2000] NSWSC 989; Australian Guarantee Corp Ltd v Agapei [2002] NSWSC 1034; Deputy Commissioner of Taxation v Choice Design Homes Pty Ltd [1999] NSWSC 589; Unifor Office Systems Aust Pty Ltd v Brewer Partnership Pty Ltd (1999) 17 ACLC 642; Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd (2003) 44 ACSR 377; Waste Recycling and Processing Services of New South Wales v Local Government Recycling Co-operative Ltd (1999) 32 ACSR 194; and Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456. Counsel for Rural & General points out that the issue is not expressly discussed in any of those decisions, all of which concern the substantive operation of s 440A(2). It is possible that leave may have been granted pursuant to s 440D in such cases, although it is unlikely that this would have occurred and not been mentioned. Mr Aldridge SC, Counsel for APRA, was involved in a number of them and is able to say that there had been no application pursuant to s 440D in those cases. 4 The first relevant discussion was that by Stone J in Hall v Mercury Information Technology (South Australia) Pty Ltd [2002] FCA 272, (2002) 20 ACLC 496. The precise point in issue was whether an application for the appointment of a provisional liquidator of a company which is already in administration required leave pursuant to s 440D. The argument advanced was confined. It was argued that the application was not a proceeding 'against the company' but rather a proceeding 'in respect of the company' in the sense used by Austin J in Young v Sherman (2002) 20 ACLC 149whichwas concerned with a proceeding to challenge the validity of a Deed of Company Arrangement or to terminate a Deed of Company Arrangement. Stone J said (at [14]): 'The present application … seeks the appointment of a provisional liquidator as a precursor to an order that the first to fourteenth respondents be wound up and a liquidator appointed to each company. Such an order directly affects the whole of the relevant company's affairs and assets, taking them out of the control of the directors and vesting control in the liquidator. Ultimately such an order is directed to the dissolution of the company. It is difficult to think of an order that more directly and more comprehensively affects the company. It is difficult to imagine how a proceeding that seeks such an order could be other than a proceeding "against the company". If this is correct it follows that under s 440D the leave of the Court is required if this application is to proceed against MIT(SA) and MIT. As I propose, however, in exercise of my discretion under s 440D, to grant the applicant leave to proceed it is not necessary for me to consider this issue in the detail that would be required if I were not disposed to grant leave.' . 5 The point was noticed by Austin J in GIO Workers Compensation (NSW) Ltd v Primbee Pty Ltd (2003) 21 ACLC 1,481, [2003] NSWSC 591. In that case the application for winding up was commenced before the appointment of the administrators, by contrast with the situation in Hall v Mercury Information Technology. Austin J, after referring to his decision in Young v Sherman and to the decision in Hall v Mercury Information Technology, said (at [7]-[8]): 'S440A deals specifically with a case such as the present, where a winding up application is commenced and then an administrator is appointed. It requires the Court to adjourn the winding up application unless it is satisfied of certain matters. Arguably, s440A is an exhaustive text of the matters to be considered by the Court in such a case. On this argument it would be otiose for the legislature to require leave or the consent of the administrator under another provision by reference to less specific criteria. However, like Stone J, I am in the position in this case of having decided that it is appropriate to adjourn the winding up application for a short time in order to permit the creditors to consider a proposal for a deed of company arrangement. In such a case the issue whether leave is required to be granted and, if so, whether it should be granted having regard to discretionary matters, is an issue upon which I do not have to make a decision. That being so it is unnecessary for me to decide whether s440D applies in a case where a winding up application is followed by the appointment of administrators and so I leave the issue for another occasion.' 6 In Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd (2003) 47 ACSR 197 Austin J said (at [9]): 'S440D of the Corporations Act 2001 (Cth) states that during the administration of a company, a proceeding against the company cannot be begun or proceeded with except with the administrator's written consent, or the leave of the Court. I made an order under that section granting leave to Lubavitch Mazal to commence its winding up proceeding against the Yeshiva Properties companies, on terms intended to echo s440A(2) - that is, on terms that the appointment of a provisional liquidator would not be made if the Court was satisfied that it would be in the interests of their creditors that those companies should continue under administration rather than be wound up. The purpose of this order was to put Lubavitch Mazal, which had commenced its winding up proceeding on the day after appointment of the voluntary administrators, in the same position as Nelvet, which had commenced its winding up proceeding on the day before the appointment and was therefore directly subject to s440A(2).' 7 There is a good deal to be said for both sides of the argument. Section 440D(1) appears to be comprehensive in its terms and this is reinforced by the express exclusions in subsection (2). Stone J has expressed the opinion that a winding up proceeding is 'against the company'. It can be said that there is no necessary inconsistency between s 440D, so construed, and s 440A. The latter would still have operation when the application for winding up or for the appointment of a provisional liquidator comes on for hearing in the event of prior leave having been granted pursuant to s 440D. 8 On the other hand, Div 6 of Part 5.3A, dealing with the protection of the company's property during administration, has a series of provisions dealing with discrete topics, the first of which is s 440A dealing with winding up. Section 440A thus deals with particular proceedings. Section 440D deals with proceedings generally. It is submitted for APRA that the general provisions should be construed as not covering a proceeding dealt with by the particular provision, appealing to the familiar principle of construction known by the Latin maxim generalia specialibus non derogant. If Rural & General's argument is correct, then there would need to be the exercise of the unfettered discretion as to whether leave be granted pursuant to s 440D(1) and also, if granted, the exercise of discretion arising under s 440A(2) or (3). There is force in the argument for APRA that such duplication, arguably with different criteria and a different onus, is anomalous. It is not easy to see how leave pursuant to s 440D(2) is to be assessed, bearing in mind the existence of s 440A(2) and (3). That reasoning is reflected in the remarks of Austin J in GIO Workers Compensation v Primbee to which I have referred. 9 Counsel for Rural & General submitted that the principle generalia specialibus non derogant applies only where and to the extent that the special and the general provision are in conflict, and that where (as here) the general provision is found in the same division of the same Act as the special provision, a conflict is unlikely to be inferred. If both sections can operate harmoniously, there can be no implied derogation from the scope of one by the other (Shergold v Tanner (2002) 209 CLR 126, 133, 137; Reseck v Federal Commissioner of Taxation (1975) 133 CLR 45, 53; BP Australia Ltd v Brown (2003) 21 ACLC 1,535, 1,549; [2003] NSWCA 216 at [87]). It was submitted that these sections can operate together. Each related to a separate time. It was submitted that this proceeding was not yet at the stage where s 440A could operate. 10 I was referred to the Explanatory Memorandum relating to the Act, but I did not find that it illuminated this particular issue. There has been much discussion as to the interplay between Pt 5.3A administration and winding up. The cases to which I have referred have focused on s 440A, as have the commentators (eg 'Voluntary Admin and Section 440A - Adjournment of Winding Up Applications when Company under Administration' (2004) 4(6) INSLB 85; 'Is there a Shift in Favour of Administration over Liquidation?' (2002) 3(4) INSLB 69; 'Dealing with Winding Up Applications Following Appointment of Administrator' (2000) 18(1) C&SLJ 41). 11 In my opinion the better view is that a winding up proceeding is not caught by s 440D. If attention is only paid to the text of s 440D, there would be force in the opinion of Stone J that a winding up proceeding is 'against the company'. There is also force in the submissions for Rural & General as to inconsistency. However, a different conclusion follows from consideration of the whole of Div 6, bearing in mind the place it occupies in Pt 5.3A, which in turn is to be considered in the overall context of Pt 5. Part 5.3A administration is one form of external administration in insolvency, winding up is another. Neither is necessarily entitled to precedence. That interrelation needed to be dealt with and it is dealt with by s 440A. In each form of external administration it is necessary to have a moratorium for what might be called external claims. That is the role played by s 440D (compare s 471B in relation to winding up in insolvency, s 444E in the case of a deed of company arrangement and s 500(2) in the case of voluntary winding up.). 12 The form of s 444E is particularly significant. 'Protection of company's property from persons bound by deed