Australian Securities and Investments Commission v Diploma Group Limited

Counsel for the Proponent and Interested Parties: Mr KA Dundo

Solicitor for the Proponent and Interested Parties: HopgoodGanim Lawyers

Counsel for the Applicant Liquidators: Mr CF McLeod

Solicitor for the Applicant Liquidators: Norton Rose Fulbright Australia

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff

AND: DIPLOMA GROUP LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED (ACN 127 462 686) First Defendant

DIPLOMA CONSTRUCTION (WA) PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) (ACN 113 950 100) Second Defendant

DGX CONSTRUCTION PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) (ACN 147 094 335) (and others named in the Schedule) Third Defendant

JUDGE: MCKERRACHER J DATE OF ORDER: 20 SEPTEMBER 2017

1. The time for the making of a leave application pursuant to s 436B(2)(g) of the Corporations Act 2001 (Cth) (Act) be extended to 1 September 2017.
2. Pursuant to s 436B(2)(g) of the Act, the Provisional Liquidators of the First Defendant, David Mark Hodgson and Andrew Stewart Reed Hewitt, have leave to appoint themselves as Administrators of the First Defendant.
3. Pursuant to s 447A of the Act, the provisions of Pt 5.3A of the Act apply to the First Defendant as follows: (a) The need for convening and holding the first meeting of creditors of the First Defendant pursuant to s 436E of the Act be, and hereby is, dispensed with. (b) The convening period for the second meeting of creditors of the First Defendant pursuant to s 439A of the Act be varied so that the second meeting of creditors may be convened at the earliest convenient date determined by the Administrators.
4. The Applicants' costs of and incidental to this application be costs in the provisional liquidation of the the First Defendant, and are to be paid out of the assets of the First Defendant. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE APPLICATION 1 By interlocutory application pursuant to s 436B(2)(g) of the Corporations Act 2001 (Cth), the applicants, Mr David Mark Hodgson and Mr Andrew Stewart Reed Hewitt (Liquidators), initially in their capacity as provisional liquidators of the Diploma Group Limited (Receivers and Managers appointed) (Provisional Liquidators appointed), now as Liquidators of Diploma apply, essentially, for the following relief: 1 The time for the making of a leave application pursuant to section 436B(2)(g) of the Corporations Act 2001 (Cth) (Act) be extended to 1 September 2017. 2 Pursuant to section 436B(2)(g) of the Act, the Provisional Liquidators of [Diploma], David Mark Hodgson and Andrew Stewart Reed Hewitt, have leave to appoint themselves as administrators of [Diploma]. 3 Pursuant to section 447A of the Act, the provisions of Part 5.3A of the Act apply to [Diploma] as follows: (a) The need for convening and holding the first meeting of creditors of [Diploma] pursuant to section 436E of the Act be, and hereby is, dispensed with. (b) The convening period for the second meeting of creditors of [Diploma] pursuant to section 439A of the Act be varied so that the second meeting of creditors may be convened at the earliest convenient date determined by the administrators. … 2 On 6 September 2017, I appointed the Liquidators to Diploma and 19 other companies within the Group. Reasons were published in Australian Securities and Investments Commission v Diploma Group Limited (No 4) [2017] FCA 1107 (Diploma No 4). This application is confined to Diploma.

EVIDENCE 3 The interlocutory application is supported by an affidavit of Mr Hodgson, sworn on 1 September 2017. He recounts that pursuant to s 436A(1) of the Act, Mr Matthew James Donnelly, who subsequently resigned, Mr Hewitt and he were appointed as joint and several administrators of Diploma and other companies by its directors, Mr Nicola Domenico Di Latte, Mr Salvatore Di Latte and Mr Jeffrey Hill on 22 December 2016. 4 On 12 May 2017, I ordered that Mr Hewitt and Mr Hodgson be appointed as provisional liquidators of Diploma, amongst other companies, effective as at 22 May 2017. 5 Mr Hodgson explains that on 3 August 2017, the Liquidators were provided with a copy of a revised proposal for Deed of Company arrangement (DOCA proposal) for Diploma by Mr Nicola Di Latte on behalf of the Proponent of the DOCA, Cockburn Central West Pty Ltd. The Proponent was related to the shareholders of Diploma. The Proponent: (a) enquired as to whether the Liquidators' solicitors would be prepared to seek leave on behalf of the Liquidators to appoint themselves as administrators of Diploma so that an application could be heard on the same date as the winding up application; (b) advised that the Proponent's intention was to provide the Court with an alternative to making the winding up order on 4 September 2017, namely, that the DOCA proposal should be put to creditors; and (c) advised that such an application would be conditional upon the conclusion of an agreement with Swiss Re International SE as contemplated in the DOCA proposal. 6 The Liquidators instructed their solicitors to respond to the effect that they would only be prepared to make the leave application if a number of conditions (the leave conditions) were satisfied, being: (a) the provision of evidence that an agreement had been reached with Swiss Re; (b) funding being provided for the leave application to be made in the sum of $5,000; and (c) evidence being provided that Diploma's Australian Securities Exchange (ASX) listing fee had been paid, having been due for payment within 20 business days of of 31 July 2017. 7 There was a further revised DOCA proposal provided by the Proponent's solicitors on 29 August 2017 (29 August Revised DOCA Proposal). In covering correspondence it was confirmed that the ASX listing fee had been paid, the fee for pursuing the application would be paid and that an agreement had been reached with Swiss Re. Swiss Re subsequently advised that it will now support a DOCA substantially in terms of the 29 August Revised DOCA Proposal. 8 A further version of the 29 August Revised DOCA Proposal was provided to the Liquidators on 31 August 2017 (31 August DOCA Proposal). As noted in Diploma No 4, Mr Hodgson, at para 17 and para 18 of his affidavit, expressed the following matters: 17 Based upon our review of the [31 August DOCA Proposal], Mr Hewitt and I believe that there is potential for a better outcome for creditors of [Diploma] to be achieved under this proposal than in a liquidation of [Diploma]. However, the estimated returns under the 31 August Revised DOCA Proposal are conditional upon a number of events occurring. Mr Hewitt and I are unable to determine with certainty whether these conditions will be satisfied based upon the information provided to date and are not able to conclude that a better outcome for creditors will be achieved. 18 Conversely, whilst Mr Hewitt and I have identified potential voidable transactions and other claims which may be brought by [Diploma], we are at this stage unable to quantify the likely returns to creditors of [Diploma] in a liquidation scenario. 9 The creditors of Diploma have not had an opportunity to vote upon a proposal for a DOCA as an alternative to liquidation. That would occur if the leave application were granted. Messrs Hodgson and Hewitt are prepared to act as administrators of Diploma if the Court grants the leave application. 10 Mr Hodgson explains that it would be of benefit to Diploma that he and Mr Hewitt be appointed as administrators because they had previously performed that role and it would avoid the costs and expenses involved in the repetition of work already undertaken by them during the previous period of appointment as administrators of Diploma from 22 December 2016 to 12 May 2017. That work would necessarily be incurred again if others were appointed as administrators. The liquidators had the power to appoint others as administrators, but required the leave of the Court before they could appoint themselves as administrators. I will touch on that detail below. 11 The plaintiff (ASIC) has opposed the relief sought in the application, both in its entirety or, alternatively, in the terms sought. 12 The Proponent, of course, supports the application and in an affidavit sworn by Mr Domenico Buonaventura Di Latte on behalf of the Proponent, he confirms having paid the necessary annual listing fee to ASX to restore the currency of that payment ($27,500) on 29 August 2017. 13 He also annexes the 31 August DOCA Proposal. The terms of the proposal are as follows: REVISED PROPOSAL FOR DEED OF COMPANY ARRANGEMENT FOR DIPLOMA GROUP LIMITED (Diploma) (PROVISIONAL LIQUIDATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) DATED: 31 AUGUST 2017 Cockburn Central West Pty Ltd ACN 607 874 019 (Proponent), being a party related to members of the Di Latte Family themselves being shareholders of Diploma Group Limited (Provisional Liquidators Appointed) (Receivers and Managers Appointed) (Diploma), hereby submits a proposal for Diploma to execute a Deed of Company Arrangement on the terms outlined below. The terms of the proposal are as follows: 1. Deed of Company Arrangement It is proposed that a Deed of Company Arrangement be entered into by Diploma, to be administered by the Administrators and constituted as follows: (a) the Proponent will cause to be transferred 65,000,000 shares to the Administrators to be held for the benefit of provable claims of unsecured creditors of Diploma. (b) all unsecured creditors of Diploma will accept their entitlements in full satisfaction and complete discharge of any claims which they have, or claim to have, against Diploma, as at 22 December 2016; (c) the timing to finalise the Deed of Company Arrangement will be as follows: (i) the transfer of the shares referred to in paragraph 1(a) on or before 31 December 2017; (ii) payment of all Employee Entitlements as provided for in paragraph 2; (iii) the retirement of the Swiss Re Receivers and Managers as provided for in paragraph 4; (iv) the discontinuance / dismissal of ASIC's application to wind up and appoint liquidators to Diploma or an order termination the liquidation of Diploma; (v) satisfaction of the terms referred to in paragraph 5; and (vi) payment in respect of the Administrators / Deed Administrators costs and expenses in accordance with paragraph 11; (d) the approval of the Deed of Company Arrangement of Diploma is not dependent on any Deeds of Company Arrangement being approved by creditors of Diploma Construction (Provisional Liquidators appointed) (Receivers and Managers appointed) (Diploma Construction) and DGX Construction (Provisional Liquidators appointed) (Receivers and Managers appointed) (DGX Construction); (e) the shares referred to in paragraph 1(a) will be transferred to the Administrators to be held on trust for the unsecured creditors, subject to the claims being adjudicated by the Administrators and such transfer will occur within 30 days of such determination by the Administrators (provided within that period that no application has been made under section 445D of the Corporations Act 2001 (Cth) to terminate the Diploma Deed of Company Arrangement); (f) Swiss Re International SE and the members of the Di Latte family, including the Di Latte companies that are shareholders of Diploma as well as Swanhill Enterprises Pty Ltd, Precast Pty Ltd, ATD Developments Pty Ltd, 155 Adelaide Tce Pty Ltd and Flag Holdings Pty Ltd, will not prove for a dividend in the Deed of Company Arrangement; and (g) control of Diploma will pass to the directors upon: (i) the transfer of the shares referred to in paragraph 1(a); (ii) the retirement of Swiss Re receivers and managers, as provided in paragraph 4; (iii) the discontinuance/dismissal of the ASIC application to wind up and appoint liquidators to Diploma or an order terminating the liquidation of Diploma; (iv) payment of Diploma employee entitlements referred to in paragraph 2; and (v) payment of the Administrators/Deed Administrators' costs referred to in paragraph 11(b)(i). 2. Employee Entitlements All outstanding employee entitlements, including any outstanding superannuation are to be paid in full by the Proponent, subject to the employee's entitlement claims being adjudicated by the Administrators with payment to employees by the Administrators to occur within 30 days of such determination by the Administrators. The Proponent will pay into the Norton Rose Fulbright Australia's Trust Account, the sum of $51,000 (being the current estimate of the employee entitlements) upon execution of the Deed of Company Arrangement, such moneys to be held for the purposes of this paragraph. 3. FPDL Investments Pty Ltd (FPDL) FPDL, as secured creditor, will: (a) guarantee the payment of the amounts referred to in clause 2, 5, 9 and 11; (b) provide a release of its security over Diploma as and when required; and (c) be a party to the Deed of Company Arrangement. 4. Receivers and Managers On or before, the execution of the Deed of Company Arrangement, the Proponent will cause, the retirement of the Receivers and Managers appointed by Swiss Re over Diploma. Upon the retirement of the Receivers and Managers Swiss Re will release its securities over Diploma. 5. Corporate Restructure of Diploma (a) The Proponent will take steps to have Diploma reinstated to trading on the ASX by 30 June 2018 in accordance with paragraph (b) below; (b) The Proponent will cause Diploma to lodge all outstanding financial statements and reports with the ASX (estimated costs being $150,000). It will also seek to have the shares of Diploma reinstated to trading on the ASX (Re-instatement) including Diploma obtaining any necessary regulatory and shareholder approvals (including for working capital purposes) to give effect to the Re-instatement; At the date of the appointment of the Administrators, the market capitalisation of Diploma was $2,833,405.09, based on a closing price of $0.006 (refer to page 22 of the Administrators' Report dated 27 April 2017). The Proponent proposes to cause Diploma to have a market capitalisation (subject to regulatory and shareholder approval) of no less than $5,000,000. The market capitalisation value is a condition of the Deed of Company Arrangement and that condition will be required to be satisfied on or before 30 June 2018 or such later date as agreed by the Administrators; and (c) The board of directors of Diploma will comprise of at least 3 persons, all of which will be independent non-executive directors (one of which will be the chairman of the Board) and such persons will not be a member of the Di Latte family. 6. Settlement and Release of Creditors' Claims in full Upon the Deed of Company Arrangement being executed and the matters referred to paragraph 1(c) being satisfied, Diploma will be discharged from any unsecured provable claims which unsecured creditors may have and which existed against them as at 22 December 2016. 7. Priority of Payment The priority of payment will be governed by the provisions of the Corporations Act 2001 (Cth), including Section 556 and Schedule 8A of the Corporations Regulations. 8. Leave to Appoint Administrators On or before 1 September 2017, the Provisional Liquidators will file an application for the Provisional Liquidators to be appointed as Administrators (Leave Application). By 1 September 2017, the Proponent will cause FPDL to pay to the Provisional Liquidators or their solicitors, the sum of $5,000 plus GST to meet the costs and disbursements of the Leave Application. 9. Costs and Expenses of Creditors Meetings If the Leave Application is granted, then within seven (7) days of the date of the order the Proponent will cause FPDL to pay to the Administrators the sum of $40,000 plus GST to meet the estimated fees and disbursements of the Administrators for convening the Creditor's meeting of Diploma. 10. Appointment of Deed Administrators Mr Andrew Hewitt and Mr David Mark Hodgson will be appointed to act as joint Deed Administrators. 11. Costs of the Administrators/Deed Administrators (a) In respect of the Provisional Liquidators, Administrators and Deed Administrators costs and expenses, the sum of $275,000 plus GST will be provided for in a separate fund in respect of the Deed of Company Arrangement subject to the Deed Administrators having access to those funds for the purpose of their costs and expenses as approved by creditors and which will rank in accordance with Section 556 of the Corporations Act. (b) The Provisional Liquidators, Administrators and Deed Administrators' costs ($275,000 plus GST) will be paid into the Norton Rose Fulbright Australia's Trust Account; (i) $160,000 plus GST upon execution of the Deed of Company Arrangement; and (ii) $115,000 plus GST on or before reinstatement of Diploma as provided in clause 5 or within 7 days prior to the Administrators commencing to adjudicate on the unsecured claims of the creditors, whichever is the later. Those moneys are to be held for the purposes of this paragraph. 12. Powers of the Deed Administrators The Deed Administrators will be provided with sufficient powers to allow them to properly discharge their duties, as provided by the Deed of Company Arrangement and the Corporations Act. 13. Termination If the Deed Administrators form the view that there are any substantial breaches of the Deed of Company Arrangement, then the Deed Administrators may convene a meeting of creditors to terminate the Deed of Company Arrangement and to wind up the companies. 14. Deed of Company Arrangement The Deed of Company Arrangement is to be prepared by the solicitor for the Proponent, and on terms satisfactory to the Deed Administrators, and will incorporate all necessary terms and conditions including, but not limited to, powers and responsibilities of the Deed Administrators, powers and responsibilities of the Director(s), definitions and any other terms required to be incorporated into the Deed of Company Arrangements in order to make them effective at law. Dated this 31st August 2017 … 14 Mr Di Latte confirmed that Swiss Re agrees to the 31 August DOCA Proposal and: (a) will cause the retirement of the receivers and managers on execution of the DOCA; (b) will not prove for a dividend if any DOCA of Diploma is completed; and (c) if the DOCA proposal is accepted by creditors and a DOCA executed, Swiss Re will release its security, allowing the Proponent to take steps to have Diploma recapitalised and reinstated to trade on the ASX. 15 As Mr Di Latte says, under the 31 August DOCA Proposal none of the past directors would be directors of Diploma on its relisting on the ASX. He also says the 31 August DOCA Proposal provides for: (a) unpaid employee entitlements totalling $51,000 to be paid in full; (b) secured creditors' claims now totalling about $9 million being waived in proving for a dividend; and (c) unsecured creditors' claims of Diploma totalling in excess of $9 million being reduced by about $450,000 in respect of related parties who will not prove for a dividend. 16 Mr Di Latte also makes the point that in the first report under s 439A of the Act (issued on 27 April 2017) (the first s 439A report) for Diploma, the Liquidators estimated a return to unsecured creditors under the DOCA of: (a) a high return of 1.85 cents; (b) a medium return of 0.93 cents; and (c) a low return of nothing. 17 The DOCA proposal assessed by the Liquidators initially provided for unsecured creditors to receive 28 million shares in Diploma. That amount increased from the early DOCA to 65 million shares in Diploma by the 31 August DOCA Proposal. 18 Mr Di Latte says that based on a market capitalisation of $5 million in accordance with the DOCA proposal and the increase in the number of shares available to the unsecured creditors of 65 million shares, the return to unsecured creditors would be likely to be in the order of 8 cents in the dollar. The provisional liquidators assessed the return to unsecured creditors in liquidation to be between 0 and 0.4 cents in the dollar. He says without 'taking into account the potential upside to unsecured creditors' upon the reinstatement of Diploma on the ASX, the DOCA proposal would provide a substantially better outcome than liquidation for unsecured creditors and employees as they would be paid 100 cents in the dollar. 19 In a further affidavit sworn by Mr Hodgson on 11 September 2017, he confirms that in the first s 439A report, the Liquidators had commented on the conditionality and uncertainty of the completion of the DOCA proposed at that time and recommended that it would not be in the interests of creditors to resolve that Diploma execute a DOCA. He notes, however, that the creditors did not vote on the DOCA, as the s 439A meeting was adjourned. Since the Liquidators' appointment, the creditors have still not had an opportunity to determine to resolve if they want to accept a DOCA as an alternative to liquidation. 20 Mr Hodgson points out that the Liquidators have recently received the 31 August DOCA Proposal. Based on the Liquidators' review of Diploma's books and records and the 31 August DOCA Proposal, the Liquidators estimate that the return to unsecured creditors pursuant to a liquidation scenario would be 11.6 cents in the dollar, as a high scenario; 4.31 cents in the dollar, as a medium scenario; or nothing, as a low scenario. Whereas under a DOCA, the estimate was 3.31 cents in the dollar, as a high scenario; 0.02 cents in the dollar, as a medium scenario; or nil, as low scenario for unsecured creditors and 100 cents in the dollar for priority creditors. Diploma is currently without any funds to pursue the recovery from antecedent transactions. Any return to creditors in that scenario, based on a high scenario return or medium scenario return would require funding being obtained by the liquidators by either creditors, litigation funders or ASIC's Assetless Administration Fund (AAF) and, in any event, there would have to be a capacity to achieve any recovery against any judgment debtor following proceedings. 21 He makes the point that based on his review of ASIC's 'Regulatory Guide 109: Assetless Administration Fund: Funding criteria and guidelines' (RG109), it is uncertain whether funding would be granted to the Liquidators pursuant to the AAF to pursue recovery proceedings for claims based on antecedent transactions referred to in the reports by the provisional liquidators. It is also presently unknown, he says, if the liquidators would be able to obtain funding from creditors or from a litigation funder to pursue recovery proceedings and even if it were to be assumed that the proceedings would be successful, if they were unable to obtain funding, the return to any creditors in a liquidation would be likely to be nothing. 22 Mr Hodgson makes the point that the 31 August DOCA Proposal would provide a 100 cents in the dollar return to priority creditors, which was a significant factor in its favour. On the other hand, while the estimated returns for unsecured creditors under the 31 August DOCA Proposal had the potential to result in a better return to creditors than a liquidation, those returns remained conditional on a number of events occurring, including the reinstatement of Diploma to trading on the ASX by 30 June 2018; the increase of Diploma's market capitalisation to not less than $5 million by 30 June 2018; and the provision of sufficient funds to pay all employees' entitlements and the Liquidators' remuneration as administrators, provisional liquidators and liquidators. 23 The Liquidators are currently unable to determine whether these conditions will be able to be satisfied and, accordingly, based on the information presently available, they believe that if the 31 August DOCA Proposal remains in its current form and the leave application is granted, the comments and recommendations made in the first s 439A report are likely to be the same in the s 439A report to be prepared in respect of the 31 August DOCA Proposal, that is to say, that the liquidators would advise creditors against voting in favour of the DOCA. 24 However, as Mr Hodgson notes, the terms of the DOCA proposal could be further varied by the Proponent before the creditors' meeting and, in any event, such a recommendation from the Liquidators would not be binding on creditors. 25 Mr Hodgson makes the point that given: (a) the uncertainties as to whether there would be any return to any creditors in a liquidation scenario; (b) there would be at least 100 cents in the dollar return to priority creditors under the 31 August DOCA Proposal; and (c) the potential upside for other creditors if the conditions were able to be satisfied, the Liquidators are of the view that the 31 August DOCA Proposal should be put to creditors so they may decide whether or not to resolve that Diploma should execute a DOCA. 26 Mr Hodgson considers that to give creditors of Diploma that opportunity to express a view as to whether or not to resolve that Diploma should execute a DOCA would be consistent with the objectives of Pt 5.3A of the Act. 27 ASIC opposes the relief granted and relies on the following matters by reference to a further affidavit of Mr Richard Gomm, sworn on 12 September 2017, in which Mr Gomm, in addition to referring to his four previous affidavits, says ASIC has a number of concerns regarding the 31 August DOCA Proposal including: (a) the finalisation of the DOCA proposed in the 31 August DOCA Proposal is dependent on 'an order terminating the liquidation of Diploma'; (b) it is still not explained, despite the Proponent being able to put further evidence before the Court, how the Proponent will cause the shares of Diploma to be reinstated to trading on the ASX by 30 June 2018. This is particularly so in light of the comments made by the ASX in a letter to the Proponent dated 8 September 2017 that: 'Given that ASIC's investigation is ongoing there is no certainty that ASX would agree to a recapitalisation of DGX at this stage'; (c) it is still not explained, despite the Proponent being able to put further evidence before the Court, how the Proponent will cause Diploma to have a market capitalisation of no less than $5 million on or before 30 June 2018; (d) is not explained how the Proponent will determine whether Diploma has satisfied the condition of a market capitalisation of no less than $5 million; (e) it is not explained if the increase in market capitalisation may dilute the percentage of shares that the unsecured creditors will hold following implementation of the 31 August DOCA Proposal; (f) it is still not explained, despite the Proponent being able to put further evidence before the Court, how the value of the 65 million shares, central to the 31 August DOCA Proposal, is to be calculated; (g) it remains unclear, despite the Proponent being able to put further evidence before the Court, what activities Diploma will engage in if its shares are listed for quotation; (h) the 31 August DOCA Proposal does not contemplate how the interests of creditors of the Second Defendant to the Twenty-First Defendant will be affected; (i) implementation of the 31 August DOCA Proposal will discharge any liability Diploma may have in respect of the Fourth Defendant, the Ninth Defendant and the Twentieth Defendant. These defendants are creditors of Diploma: (i) Mr Nicola Di Latte and Mr Salvatore Di Latte, former directors of the Fourth Defendant, identified in the RATAs for the Fourth Defendant annexed to the report prepared by the Liquidators (then Provisional Liquidators) dated 6 July 2017 filed with the Court for the Fourth Defendant, that Diploma owes the Fourth Defendant $2,651,866; (ii) the financial records from CHEOPS for Diploma show that: (A) the Fourth Defendant is owed $3,453,026.05; (B) the Ninth Defendant is owed $1,000; and (C) the Twentieth Defendant is owed $260,204.26; the Liquidators represent the interests of the Fourth, Ninth and Twentieth Defendant as creditors of Diploma; (j) two former officers of Diploma are officers of the Proponent (being, Ms De Felice) and its holding company (being, Mr D Di Latte). The Liquidators in the Provisional Liquidators' report into Diploma identified that these individuals may have engaged in misconduct. The Liquidators are yet to finalise their investigation in relation to the already identified alleged misconduct of these individuals and have advised that: Due to the limited time available to consider all information in the Provisional Liquidators' possession and the responses provided by the directors, we are not in a position to express a concluded view and note that further investigations are required by a liquidator, subject to funding to do so; (k) it is unknown whether further investigation by the Liquidators may uncover other misconduct or possible recoveries, in this regard Mr Gomm notes that: (i) in the first s 439A report, in relation to a potential insolvent trading claim with respect to Diploma, the Liquidators stated: The likelihood of a claim and potential recovery would continue to be assessed only in the event that [Diploma] be wound up ... As such, we are unable to estimate a claim for insolvent trading until further investigations are completed into the financial position of the Group; (ii) in the schedule setting out the calculations undertaken in respect of the estimated returns in a liquidation and under a DOCA the Liquidators stated: Insolvent Trading Claim - We note that a dollar amount for potential insolvent claims was not previously included in the estimated outcomes statement in the Administrators' 439A report due to the preliminary nature of investigations undertaken. And: Antecedent Transaction Claim - We note that an amount for Antecedent Transactions was not previously included in reports issued by the Administrators' or Provisional Liquidation (sic) due to the preliminary nature of investigations undertaken. However, due to additional investigations we consider there to be a potential claim in relation to Unreasonable Director Related Transactions and Unfair Loans. While our investigations are ongoing, for the purpose of providing an Estimated Outcome Statement we have assumed the following recoveries ...; and (iii) the former directors of Diploma are yet to provide information sought by the Liquidators, notably in the Provisional Liquidators' report into Diploma it is noted: To date the directors have not provided a written response to our request to complete a director's questionnaire with regard to the affairs and activities of [Diploma]; (l) Mr Hodgson has said of the 31 August DOCA Proposal, which is conditional on a number of events occurring, that: Mr Hewitt and I are unable to determine with certainty whether these conditions will be satisfied based upon information provided to date and are not able to conclude that a better outcome for creditors will be achieved. Mr Hodgson also noted in his second affidavit (at para 16) that the conditional events are: a) the reinstatement of Diploma to trading on the ASX by 30 June 2018; b) the increase of Diploma's market capitalisation to not less than $5 million by 30 June 2018; and c) the provision of sufficient funds to pay all employee entitlements and the Liquidators' remuneration in their capacity as administrators, provisional liquidators and liquidators. (m) Mr Hodgson stated in his first affidavit (at para 18) that: ... based upon the information presently available, Mr Hewitt and I believe that, if the 31 August Revised DOCA Proposal remains in its current form and the Leave Application is granted, the comments and recommendations we made in the First 439A Report are likely to be the same in the 439A Report to be prepared in respect of the 31 August Revised DOCA Proposal ... (n) Mr Gomm refers to para 23 of Mr Hodgson's second affidavit, in which he states that before the Liquidators' initial appointment as administrators of Diploma, FPDL Investments Pty Ltd (FPDL) advanced the sum of $200,000 to partially cover remuneration and out of pocket costs for the administrations (and any subsequent deed administration) of Diploma, the Second Defendant and the Third Defendant (Initial Funding Offer). Reference was also made to para 24 of the Mr Hodgson's second affidavit, in which he stated: 'there were no conditions imposed on the conduct or outcome of the administration ...' attached to provision of the Initial Funding Offer. The 31 August DOCA Proposal also allows for the payment of remuneration to the Liquidators but unlike in the Initial Funding Offer, those payments are based on certain events occurring, such as: (i) $5,000 plus GST to file the application to be appointed as administrators of Diploma by 1 September 2017; (ii) $40,000 plus GST to convene a creditors meeting; (iii) $160,000 plus GST upon the execution of a DOCA in the terms of the Third August Proposal; and (iv) $115,000 plus GST on or before the reinstatement of Diploma; (o) Reference was further made to para 28 of the Mr Hodgson's second affidavit, in which he stated: Mr Hewitt and I do not consider that the performance of our duties as Deed Administrators if the [31 August DOCA Proposal] was accepted by creditors of [Diploma] would compromise our independence. That is, those duties under the DOCA essentially relate to determining the approval or rejection of proofs of debt and declaring dividends. As administrators of Diploma, the Liquidators may be determining the approval or rejection of proofs of debts and declaring dividends to the Fourth Defendant, Ninth Defendant and Twentieth Defendant, of which they are Liquidators; and (p) It was understood that if the Liquidators are granted leave to appoint themselves as administrators and are so appointed, that the Liquidators' investigations in relation to potential recoveries will be suspended.

CONSIDeration 28 It is difficult, in this instance, to separate the reason for seeking the relief sought from the relief itself. The DOCA cannot be totally ignored even though, even if approved by creditors, there will be another opportunity for the Court and interested parties to evaluate it on the application, if any, to terminate the liquidation. 29 A key question, however, in this application is the appropriateness of the appointment of the liquidators themselves as voluntary administrators and the need to obtain the leave of the Court in order for that step to be taken. Section 436B of the Act provides as follows: 436B 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; (b) if he or she is a partner of a partnership - a partner or employee of the partnership; (c) if he or she is an employee - his or her employer; (d) if he or she is an employer - his or her employee; (e) if he or she is a director, secretary, employee or senior manager of a corporation - a director, secretary, employee or senior manager of the corporation; 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. 30 On this topic, the Liquidators' position is that Diploma would save considerable funds by the task being carried out by them. Mr Hodgson confirms, more specifically, that the Liquidators have gained an in-depth working knowledge of Diploma's business and affairs and have undertaken the following tasks in respect of Diploma: (a) notifying key stakeholders of the administrators' appointments including all known secured and unsecured creditors, employees, landlords and utility providers; (b) notifying entities such as the Australian Taxation Office and the Office of State Revenue of the administrators' appointment and ensuring the administrators are registered for GST/PAYG; (c) assessing the financial position of Diploma; (d) liaising and meeting with management for Diploma, together with their legal advisors, to understand Diploma's businesses, key assets, operations and financial position; (e) liaising with creditors including both unsecured and secured creditors; (f) reviewing the security interests lodged on Diploma's personal property security registers to determine potential title claims by other secured creditors including obtaining security documents; (g) dealing with default notices served in respect of leased premises; (h) dealing with various litigation actions commenced prior to the appointment of the administrators; (i) seeking access to the books and records of Diploma to identify possible creditors of Diploma and for the purposes of undertaking the investigations required of the administrators pursuant to s 439A(5) of the Act; (j) preparing and distributing the first s 439A report to all known creditors of Diploma; (k) reviewing proofs of debts and proxies submitted by creditors for the purposes of the first meeting of creditors of Diploma; (l) convening and holding the first meeting of creditors for Diploma and establishing a committee of creditors for Diploma; (m) attending to statutory notifications with ASIC; (n) commencing investigations into the reasons for the failure of Diploma; (o) having discussions with HopgoodGanim, the legal advisors to the Proponent of the 31 August DOCA Proposal; (p) convening and holding meetings of the committee of creditors for Diploma; (q) seeking access to books and records of Diploma from alternate sources including Diploma's former advisors, solicitors and auditors; (r) attending to creditors' queries; (s) communications and attending meetings with key stakeholders including ASIC and the Building Commission; (t) applying to extend the convening period of the administration; (u) preparation of the 439A report and convening the second meeting of creditors; (v) preparation of the provisional liquidators' report pursuant to the orders made by me on 22 May 2017. 31 A question has also arisen as to whether there is any conflict in the Liquidators receiving payment for performing professional tasks in connection with putting the DOCA to creditors if leave is granted for them to appoint themselves as administrators. The point has been raised, but not strenuously pressed. Mr Hodgson makes the point that before the Liquidators initial appointment as administrators of Diploma, FPDL advanced the Initial Funding Offer of $200,000 to partially cover remuneration and out of pocket costs for the administration and any subsequent deed administration of Diploma, the Second Defendant and the Third Defendant. There were no conditions imposed on the conduct or outcome of the administration attached to the provision of the Initial Funding Offer. The payment was disclosed in the 'Declaration of Independence, Relevant Relationships and Indemnities' appearing at appendix B of the first s 439A report. There are no conditions imposed on the conduct or outcome of the administration attached to the provision of the funding offer pursuant to the terms of the 31 August DOCA Proposal (the Second Funding Offer). If the leave application is granted, the Liquidators will disclose the terms of the Second Funding Offer to creditors at the s 439A meeting. 32 It is common practice for the proponent of the DOCA proposal to make provision for the payment of administrator's fees on execution of the deed. I do not see this as a difficulty. Messrs Hodgson and Hewitt do not believe that the funding will compromise their independence in making recommendations to creditors as indicated. 33 The offer by FDPL, a secured creditor of Diploma, to provide funding to cover the Liquidators' costs to make the leave application (and if leave were granted) to convene a meeting of creditors, prepare a report and administer a DOCA, if approved by the creditors of Diploma, is not a factor compromising the independence of the Liquidators. The appropriateness of a funding proposal provided to the administrators was considered in Re Nardell Coal Corp Pty Ltd (2003) 47 ACSR 122, where Barrett J said (at [12]-[13]): 12 It may be accepted that. .. [the funding entity] has an interest in seeing the deed of company arrangement progressed. But I do not see that factor as compromising the ability of administrators funded by [the funding entity] to perform their duties in a proper way in relation to the administration in general and the deed proposal in particular. 13 This assumes, of course, that the funding arrangement entails no more than a simple and unconditional undertaking by [the funding entity] to pay the administrators' proper remuneration and expenses, with payment assured regardless of the steps they take, so as to enable them to do no more or less than to perform their duties as they see fit. Austin J commented in Bovis Lend Lease v Wily that it may be material for administrators to disclose funding arrangements to creditors. That comment appears to me to have relevance to this case and to raise at least a strong expectation that the administrators, in order to ensure that such matters cannot be the source of perceptions of unsuitability, should inform creditors, in connection with any deed proposals, or the precise terms of the unconditional and unconstricting funding arrangements they have ... (emphasis added) 34 I do not consider that the funding by FPDL would place the Liquidators in a position of conflict should they be appointed as administrators because: (a) it is appropriate that the costs of that application and the costs of convening the creditors' meeting, should be borne by the Proponent of the proposal sought to be put to creditors, and not by Diploma itself. In this respect, it is relevant that the FPDL undertaking to pay those costs is unconditional; (b) it is usual for the proponent of a DOCA proposal to make provision for the payment of the fees incurred by the insolvency practitioner under the terms of the DOCA; (c) the Liquidators, who are experienced expert insolvency practitioners whose view the Court should award weight, do not consider the provision of funding by FPDL can reasonably be asserted to compromise their ability to perform their duties as liquidators independently pending the convening of the meeting in approximately a month's time. In this regard it is noted that the provision of funding by FDPL in December 2016 for the initial administrations did not result in the Liquidators recommending acceptance of the DOCA proposal in the s 439A report; and (d) the terms for the provision of funds to cover the administrators' provisional liquidators'/liquidators' fees will be disclosed by the Liquidators to creditors prior to any creditors' meeting. 35 The Liquidators have not lodged an application with ASIC under the AAF. If a complete application is made under the AAF, that application may be responded to within six weeks of ASIC receiving it. 36 The Liquidators are obliged to continue their investigations in relation to the Second Defendant to the Twenty-First Defendant, even if leave is granted to them to appoint themselves as administrators of Diploma. ASIC says that the Court should not give its imprimatur to any step of a procedure which it does not consider to be in the public interest: Re Depsun Pty Ltd (1994) 13 ACSR 644 per Young J (in the context of whether there should be leave given to the liquidator to become an administrator). 37 The Liquidators intend to convene the s 439A meeting within 20 business days of receipt of funding from FPDL to do so. ASIC says Mr Hodgson does not explain why it is necessary for the second meeting to be convened within this timeframe. 38 ASIC considers that it is appropriate for the second meeting to be convened only after an application to ASIC for funding from the AAF has been lodged and determined. Accordingly, ASIC says, proposed order 3(b) should be amended to read as follows: The convening period for the second meeting of creditors of Diploma pursuant to section 439A of the Act be varied so that the second meeting of creditors may be convened at the earliest convenient date determined by the administrators but only after the administrators, in their capacity as liquidators, have applied to ASIC for funding from the Assetless Administration Fund and that application has been determined. (emphasis added) 39 This refinement to proposed order 3(b) is in the public interest, ASIC says, for three reasons: (a) First, whether the Liquidators have funding to investigate and pursue the recovery claims is crucial information for unsecured creditors voting at the second meeting. The liquidation scenario (high and medium) yields a better estimated return to unsecured creditors than the DOCA scenario, if funding to investigate and pursue the recovery claims can be obtained. Conversely, if funding cannot be obtained, the unsecured creditors may view the DOCA proposal more favourably. The importance of securing funding is reinforced in Mr Hodgson's affidavit sworn 11 September 2017 where he deposes (at [15]): Even if it were to be assumed the proceedings would be successful, if we are unable to obtain funding, then the return to any creditors in a liquidation scenario is likely to be nil. As matters presently stand, there is uncertainty about whether funding would be obtained. However, the uncertainty is self-imposed. ASIC says, it arises from the Liquidators' own decision not to apply to ASIC for funding to undertake further investigations, or apparently to investigate other sources of funding, before holding the second meeting. (b) Second, in circumstances where the Proponent has had months upon months to formulate a proposal, and the latest DOCA proposal requires only that the proponents will 'take steps' to have Diploma reinstated to trading on the ASX by 30 June 2018, there is no material difference between holding the second meeting within 20 business days of receipt of funding from FPDL and holding the second meeting after determination of the AAF application, which may be responded to within six weeks from receipt. (c) Third, the Liquidators' 'self-imposed' timeframe for convening the second meeting may not provide adequate opportunity to enable a thorough investigation of ASIC's concerns about the latest DOCA proposal. ASIC's concerns ought to be investigated by the administrators. The results of such investigation ought to be conveyed to creditors at the second meeting to enable them to make a fully informed decision. 40 The Court is not unduly constrained in the way it exercises the discretion conferred by s 436B(2): Taylor, in the matter of Origin Internet Solutions Pty Ltd (in liquidation) [2004] FCA 382 (at [6]). As to the essential question of whether it is appropriate that the Liquidators be appointed as the administrators of Diploma, in answering this question, it is necessary to consider whether there is any matter such as a conflict of interest, a threat to independence, or anything else offensive to commercial morality in such an appointment: Schwarz, in the matter of Gordon Smith Marketing Pty Ltd (Administrator Appointed) [2016] FCA 1378 (at [11]). Although the cases talk about the test not being a high one or an onerous one, in Re Keldane Pty Ltd (in liq) [2011] VSC 385, Pagone J observed that the granting of leave is not something to be treated as 'a mere formality, or mere procedural obstacle'. His Honour stated (at [13]): … Section 436B is the expression of a legislative policy designed to keep separate the roles, tasks, duties and privileges of liquidators on the one hand and of administrators of a company on the other. Its terms require compliance and dispensation from its requirements should not be given lightly. 41 ASIC's main concern derives from what it describes as a conflict between the Liquidators' duties as administrator of Diploma and the Liquidators' duties as liquidator of the Second to Twenty-First Defendants. There are two manifestations, ASIC says, of the 'threat to independence'. 42 First, the Liquidators represent the interests of the Fourth, Ninth and Twentieth Defendant as creditors of Diploma. On behalf of those companies, the Liquidators will seek to admit those claims for those companies to vote at the second meeting. The 'threat to independence' is that as administrators, the Liquidators will be tasked with the duty of forming a view as to the validity and amount of claims against Diploma for the purpose of admitting those who claim to be its creditors to vote at meetings: Re Chilia Properties Pty Ltd (1997) 73 FCR 171 where Lehane J stated (at 173) that: Section 448C quite plainly contemplates that a person who is a liquidator of a creditor of a company may nevertheless be appointed as administrator of the debtor company […] and it is well established that in the absence of any real, as opposed to theoretical, conflict of interest it is generally desirable that the external administration of a group of companies should be placed in the hands of one administrator. 43 The directors of Diploma say that the Fourth Defendant is owed the amount of $2,651,866. However, the CHEOPS system records the amount owed to the Fourth Defendant as $3,453,026.05. On this topic I note that, if appointed as administrators, the Liquidators have undertaken not to submit a proof of debt on behalf of any entity that they have been appointed as administrators or liquidators for voting purposes at the meeting of creditors. 44 Secondly, there is an inherent tension, ASIC says, between the Liquidators performing the role of 'surgeon' for Diploma and 'undertaker' for the Second to Twenty-First Defendants. As the liquidator of the Second to Twenty-First Defendants, the Liquidators may well be investigating the alleged misconduct of officers of the Proponent. Simultaneously, the Liquidators will be working collaboratively with officers of the Proponent to save Diploma in circumstances where: (a) the Liquidators will be receiving money from the Proponent apparently upon the completion of milestones such as the execution of the DOCA; and (b) the Liquidators will not be investigating the alleged misconduct of officers of Diploma during the attempt to resuscitate Diploma. 45 A liquidator, or provisional liquidator, is at liberty under s 436B(1) of the Act to appoint another person as administrator without the necessity of leave. Therefore, whether leave should be granted in an application pursuant to s 436B(2) depends on the whether the person or persons seeking to be appointed are appropriate to be appointed to that office: John R Turk & Sons (Artarmon) Pty Ltd v Newmont Television Pty Ltd [1999] NSWSC 622 per Austin J (at [14]). 46 As noted, the test for leave is not a high one, and an important part of its context is that the Court does not control the decision whether or not there is to be an administrator, and is asked for leave only on the subsidiary question of who that is to be: Re Cobar Mines Pty Ltd (in liq) (1998) 30 ACSR 125 per Bryson J (at 126). 47 In Parkes Leagues Club Co-Op Limited [2004] NSWSC 16 (at [5]), Hamilton J cited the desirability of continuity of those in charge of the management of the company and the implementation of a DOCA proposal as a reason why a liquidator should generally be given leave to appoint himself as administrator, unless there is some distinct reason as to why that person should not be deemed a suitable person in the circumstances. 48 The granting of leave pursuant to s 436B(2) of the Act requires consideration by the Court as to the appropriateness of a party: Deputy Commissioner of Taxation (Cth) v Foodcorp Pty Ltd (1994) 13 ACSR 796. In Turk v Newmont, Austin J held (at [14]): Given that [the liquidator] has had no association with the company and its directors before being appointed liquidator by this Court and that on his evidence he has not built up any personal relationship with directors after the appointment and that he has accumulated understanding of and information about the company in the performance of his duties as liquidator, I am persuaded that he is an appropriate person for the appointment. 49 The guiding principle in relation to the qualification and removal of an external administrator is that they must be both independent and seen to be independent of any matter requiring investigation: Flynn v Theobald [2008] WASC 263 (at [105]), citing Re National Safety Council of Australia [1990] VR 29 (at 34-35). 50 As noted, in Re Chilia (at 173), Lehane J held: ... it is well established that in the absence of any real, as opposed to theoretical, conflict of interest it is generally desirable that the external administration of a group of companies should be placed in the hands of one administrator. 51 The Liquidators have previously been administrators and are willing to be appointed as administrators of Diploma. The Liquidators say that they are able to perform the role of administrators and would be able to avoid the costs and expenses involved in the repetition of work already undertaken during the previous period of appointment as administrators of Diploma. 52 The Liquidators believe there may be the possibility for a greater return to unsecured creditors of Diploma. 53 Significantly, the Liquidators consider that it is appropriate to provide the creditors of Diploma with the opportunity (only) to determine whether to accept the DOCA proposal. That is, while they consider that there remain uncertainties as to whether the DOCA conditions will be satisfied, if they were resolved, then the DOCA may provide a better return for creditors than would be received in a winding up given that the Liquidators are currently without any funding to pursue recovery proceedings in the liquidation. 54 It is important to recognise that neither the appointment of the Liquidators as administrators by leave pursuant to s 436B(2)(g), nor the resolution of the creditors to approve a DOCA, would automatically terminate the winding up of Diploma: see Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 35 ACSR 70; Re Nardell Coal Corporation Pty Ltd [2004] NSWSC 281 per Austin J (at [74]) and s 482 of the Act. The Proponent acknowledges this in the concluding words to para 1(c)(iv) of the 31 August DOCA proposal. Indeed, one of the matters the Court must expressly take into account on an application to terminate the winding up is the content of the DOCA. In Mercy v Wanari Austin J said (at [47]-[53]): Termination of the winding up by Court order 47 In considering an application to stay or terminate a court-ordered winding up under s 482, the Court has regard to various categories of interests. First, the Court considers the interests of creditors, taking into account whether they object to the proposed termination. But even if all the existing creditors agree, the Court may take the view that the proposed termination puts at risk the interests of future creditors. For example, the Court is likely to be concerned where the proposal preserves the existing debts but defers their payment, particularly if the deferment has no enforceable status: see the remarks of Street J at first instance in Re Data Homes Pty Ltd [1971] 1 NSWLR 338, 341. Similarly, if the proposal is that the principal shareholder/creditor will pay out all the other creditors and seek recovery of his debt by instalments, the Court is unlikely to permit the company to start trading again and thereby incur additional debts, since if the company fails again, recovery by the new creditors may be prejudiced by the existing debt. However, if the principal shareholder/creditor capitalises his debt, the Court may well take a different view: Collins v G Collins & Sons Pty Ltd (1984) 9 ACLR 58. 48 The cases concerning the interests of creditors do not, in my opinion, establish inflexible rules. Specifically, I do not believe that there is any absolute rule that a winding up cannot be terminated as long as one or more debts remains undischarged. Instead, the cases identify the range of concerns which the Court is likely to have in exercising its discretion when an application is made, and therefore give guidance as to the matters upon which the Court will need to be satisfied. 49 Second, the Court considers the interests of the liquidator, particularly with respect to costs. That is not an issue on the facts of the present case. 50 Third, the Court considers the interests of contributories. Generally a stay or termination will not be granted unless each member of the company either consents or is otherwise bound not to object to it, or his or her rights are properly secured: Re Calgary and Edmonton Land Co Ltd [1975] 1 All ER 1046. In the present case there are two contributories, and they have both consented to resuming office as directors if the application succeeds. In my opinion this implies that they have consented as contributories as well. 51 Finally, the Court considers the public interest, including matters of commercial morality, taking the initial approach that insolvent companies should be wound up: Re Data Homes Pty Ltd [1972] 2 NSWLR 22. It is unnecessary to elaborate further in this case. 52 The applicants submit that if the approach outlined in the cases were to be taken in the present circumstances, the objects of Part 5.3A would be likely to be thwarted. They say that if a company in winding up is placed in administration and a deed of company arrangement is worked out, the Court should take an approach that maximises the chances of the company continuing in existence - or, if that proves not to be possible through failure of the deed, an approach that results in a better return for creditors than dissolution in winding up. They say that the case law stands in the way of these outcomes, because it prevents the Court from countenancing an arrangement under which debts are released without full payment, and some 'non-participating' creditors remain as such after the company resumes trading. 53 I have already expressed the view that the cases should not be seen as standing for any such absolute rules. They identify the range of discretionary concerns which the Court will need to address. If the company applies for an order terminating the winding up after its creditors have approved a deed of company arrangement, the objects of Part 5.3A are relevant matters, and in many cases they will be matters of great importance. Young J acknowledged their importance in Re Depsun, for example. Section 435A cannot be disregarded where the question of termination of a winding up arises in an administration context, whether the issue is presented under s 482 or under some provision of Part 5.3A, such as s 447A. The concerns reflected in the case law, including the pre-1993 case law which was mainly decided in the context of creditors' schemes of arrangement, will remain, but the Court will evaluate the application for termination in light of all the facts, including the terms and effect of the deed. 55 As the Liquidators do not now seek an order staying or terminating the winding up as part of the application, considerations such as 'the public interest, including matters of commercial morality' if the DOCA were to be approved are not presently relevant for the purposes of the leave application: Re Nardell Coal (at [60]-[75]). 56 The only issue on an application under s 436B(2)(g) of the Act is whether the Liquidators are appropriate persons to be administrators: Foodcorp; Re Cobar. 57 The most important consideration is independence, and specifically to ensure that there is no conflict of duty or interest if the liquidator is appointed as administrator: Taylor, in the matter of Origin Internet Solutions (at [5]); Peter Ngan, re JKB Constructions Pty Ltd [2006] NSWSC 1040 (at [5]). 58 Provided there is no potential for conflict, where considerable work has already been undertaken, it would be in the interests of creditors to grant leave as it would save considerable time, trouble and expense in the administration: Taylor, in the matter of Origin Internet Solutions (at [7]); Re Delsana Holdings Pty Ltd (in liq) [2013] FCA 500 (at [4]). The Liquidators have been in control of Diploma since 22 December 2016, having been originally appointed as administrators of Diploma on that date, and provisional liquidators of Diploma on 22 May 2017. During that period, the Liquidators and their staff have undertaken significant work, and gained an in-depth knowledge of Diploma's business and affairs, with the effect that their appointment as administrators would be more cost-effective than if any other person was appointed. Appointing the Liquidators as administrators of Diploma would reduce duplication and the costs associated with further steps being taken which would need to be borne by Diploma if a third party was appointed. 59 It is significant that the Liquidators consider that creditors should have at least an opportunity to vote on a DOCA, even if the Liquidators remain of the view that the creditors should vote against it. Secondly, even if that vote is in favour of the DOCA, it will be on an application to terminate the liquidation, that the appointment of the DOCA receives attention. The two stage process makes it clear that the constraints about any DOCA require consideration at the second stage, rather than at this application. In relation to investigations, I accept the Liquidators' contention that they have an obligation to undertake statutory investigations and to submit a report under s 533, but they do not have any money to undertake further investigations than that. In a comprehensive s 439A report, they have already (for the first administration) undertaken investigations. 60 The Liquidators have disclosed in the first s 439A report that they consider that offences may have been committed by officers of Diploma. They have already advised creditors that recovery actions are available, however, they have also pointed out to creditors, as they are obliged to do, that the prospect of recovery in any liquidation depends upon the usual litigation factors. First, they have to obtain funding for that litigation. Secondly, they have to obtain a judgment and, if they obtain a judgment, whether there is going to be any dividend available to creditors which will depend upon whether or not the Defendants have sufficient assets to satisfy any judgment. 61 All of those issues will be repeated in the s 439A report by the Liquidators on administration, if leave is given. 62 Although ASIC appears to criticise the Liquidators for failure to apply the AAF, they have not been in any position to do so prior to being appointed which was less than seven days prior to the criticism being raised. The other criticism about convening the meeting within 20 days seems to overlook the legislative requirement as contained in s 439A(5)(b) of the Act, which suggests 20 days. 63 Finally, to revisit issues that may arise as to the appropriateness of Liquidators' voting on behalf of certain creditors within the group in light of disputes as to the quantum, if any, of various intercompany loans. As noted, an undertaking was offered during the course of the hearing that the administrators of Diploma would not submit a proof of debt on behalf of any entity that they have been appointed as administrators or liquidators for voting purposes at the meeting of creditors. Rather than hold the Liquidators to that specific undertaking, I am satisfied that the Liquidators will exercise their own professional judgement as to the correct course to take depending on the circumstances as they arise.

Other matters 64 The ancillary orders sought in para 3 of the application are to dispense with the meeting of creditors which would otherwise be required within five business days of appointment under s 436E of the Act, and to allow the administrators to convene a meeting as soon as practicable to consider the proposal for a DOCA. The reasons for those orders are obvious: (a) Diploma has already been in administration, and a first meeting of creditors has been held at which creditors were given an opportunity to appoint a committee of inspection; and (b) the orders will avoid duplication of cost, and enable a meeting of creditors to be convened within a shorter period to consider whether or not to accept the DOCA proposal. 65 Truncated administration orders in the terms sought in the application are commonly sought, and made, where a liquidator seeks leave to act as an administrator: see Re Cobar; Parkes Leagues Club; and Rupert Co Ltd v Chameleon Mining NL [2005] NSWSC 719.

CONCLUSION 66 For these reasons, although the views of ASIC command respect, on this occasion, I have found favour in the arguments advanced by the liquidators in support of the relief sought in their application in its unamended form. 67 Specifically, I consider the orders sought by the liquidators: (a) will not give rise to any general or specific conflict of interests that is beyond the capacity of the liquidators as well advised and experienced insolvency practitioners to assess and handle; (b) will not have the effect, until further matters have been considered by the Court, of terminating the winding up of the first defendant; (c) will not have the effect of endorsing a DOCA which is a matter for the creditors; (d) will have the effect of providing the creditors one chance to approve or reject a DOCA. Whether a DOCA should be approved is something that will require further consideration by the Court if creditors do vote in favour of it; and (e) will not in themselves adversely affect the position on investigation and pursuit of potential legislative breaches in the sense that creditors will still have the opportunity, as advised by the liquidators, to consider the most appropriate course of action in that regard. Further, that matter can be revisited if there is an application for termination of the liquidations under s 482 of the Act. 68 Orders are made in terms of paras 1-4 of the Liquidators' application. I certify that the preceding sixty-eight (68) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.

SCHEDULE OF PARTIES WAD 177 of 2017 Defendants Fourth Defendant: DIPLOMA PROPERTIES PTY LTD (ACN 127 493 252) Fifth Defendant: DIPLOMA TCO HOLDINGS PTY LTD (ACN 147 094 880) Sixth Defendant: DIPLOMA CONSTRUCTION (NSW) (ACN 134 488 067) Seventh Defendant: DIPLOMA CAPITAL PTY LTD (ACN 147 094 344) Eighth Defendant: ALLEGRO REALTY HOLDINGS PTY LTD (ACN 147 095 109) Ninth Defendant: DIPLOMA DEVELOPMENT MANAGEMENT PTY LTD (ACN 610 257 219) Tenth Defendant: WESTSTRUCTURE PTY LTD (ACN 136 917 774) Eleventh Defendant: 24 FLINDERS LANE PTY LTD (ACN 130 756 535) Twelfth Defendant: 176 ADELAIDE TCE PTY LTD (ACN 142 882 513) Thirteenth Defendant: ROCKINGHAM SERVICED APARTMENTS PTY LTD (ACN 147 094 871) Fourteenth Defendant: CHEMLABS EMPORIUM PTY LTD (ACN 610 256 954) Sixteenth Defendant: 300 LORD ST PTY LTD (ACN 147 769 908) Seventeenth Defendant: 303 CAMPBELL ST PTY LTD (ACN 147 280 233) Eighteenth Defendant: 254 WEST COAST HWY PTY LTD (ACN 147 113 773) Nineteenth Defendant: SUBIACO RESIDENTIAL APARTMENTS PTY LTD (ACN 147 113 791) Twentieth Defendant: DIPLOMA CAPITAL SECURITIES PTY LTD (ACN 147 094 862) Twenty-First Defendant ALLEGRO REALTY PTY LTD (ACN 132 727 158)