He stated his belief that Mr Birch and he have sufficient knowledge of the DUSM file to take over from Messrs Rocke and Herbert as its liquidators.
25 Mr Birch, in a separate affidavit sworn in the same matter, dealt specifically with Keyros. He said that the liquidation of Keyros was finalised on or about 23 May 2005 and it was deregistered. However in February 2006 Mr Jared Palandri, a supervisor at the time but no longer employed by his firm, identified assets allegedly hidden by a director of Keyros. Keyros' registration was reinstated on 21 February 2006 and Mr Ashton resumed office as its liquidator. Copies of the relevant Supreme Court orders were annexed to Mr Birch's affidavit.
26 Mr Birch said that he was informed by Mr Ashton on or about 7 September 2007 of Mr Ashton's intention to resign as liquidator of Keyros. He was provided with the relevant ASIC form and a written notice of resignation. File reviews for Keyros were performed by Mr Palandri and then further reviewed by another staff member, Kirman, and by Mr Birch. Mr Birch stated his belief that it would cost approximately $3,000 to conduct a creditors' meeting for Keyros. The remaining tasks for the Keyros liquidators are to investigate and potentially pursue actions against the former director, call a final meeting of creditors, issue a final dividend (if funds permit) and finalise the liquidation. Mr Birch stated his belief that he has sufficient knowledge of the Keyros file to replace Mr Aston as its liquidator. He has consented to act as liquidator.
(ii) Application WAD178 of 2007 - Deeds of Company Arrangement and Creditors' Trusts
27 In application WAD178 of 2007, Mr Read swore an affidavit which identified staff members continuing with the "combined entity" who had day-to-day knowledge of the status of the external administrations for each of the companies the subject of the application in WAD178 of 2007. Each of these is a company subject to a deed of company arrangement. In addition, there are three Creditors' Trusts for which Messrs Herbert, Ashton and Read are trustees.
28 Mr Read identified Mr Kirman, Ms Breadmore, Mr Rew and Ms Stirling as staff members familiar with these administrations who would continue to be employed by the combined entity. He described again the file review and leadership meeting process referred to in his affidavit in proceedings WAD177 of 2007.
29 At least one of Messrs Ashton, Herbert and Rocke was appointed as deed administrator or trustee of the various companies and creditors' trust deeds the subject of the application. In relation to companies in which Mr Rocke was deed administrator, Mr Read had been provided with Mr Rocke's written notice of resignation. File reviews for those companies were performed by Mr Abberton, a senior analyst then, but no longer employed by Mr Read's firm, who acted as the job controller. These were further reviewed by Messrs Kirman and Birch. Mr Read believes that due to the large number of creditors spread both nationally and internationally it would cost approximately $16,000 to conduct a creditors' meeting for the companies affected by Mr Rocke's resignation. He stated his belief that the administration of the deed funds of the three Omegatrend companies, was 90% complete and did not require the appointment of a further deed administrator.
30 Mr Read referred to the companies in respect of which Mr Ashton was a deed administrator, they being Kitcher Property Investments Pty Ltd, Banwell Pty Ltd and Old Ferry Co Pty Ltd (the Ashton companies). Mr Ashton was also a trustee of the KPI Creditors' Trust and the Banwell Creditors' Trust (the Ashton trusts). Mr Read and Mr Ashton had been appointed deed administrators of the Ashton companies on 22 November 2002. Mr Ashton informed Mr Read of his intention to resign as deed administrator of the Ashton companies on or about 7 September 2007. File reviews for the Ashton companies were performed by Ms Breadmore who acted as job controller and were further reviewed by Messrs Kirman, Birch and himself. Administration of the deed funds of the Ashton companies is 80% complete. It would cost approximately $11,500 for the Ashton companies to conduct creditors' meetings to approve the resignation of Mr Ashton and the appointment of Mr Birch. Mr Read believes that Mr Birch has sufficient knowledge of the files of the Ashton companies to replace Mr Ashton as their deed administrator.
31 A similar position is said to exist in relation to the Ashton trusts. Mr Read believes that it would take approximately 30 days and cost a total of about $8,000 for the Ashton trusts to conduct creditors' meetings in order to approve the resignation of Mr Ashton and the appointment of Mr Birch. Again he stated his belief that Mr Birch had sufficient knowledge of the files of the Ashton trusts to replace Mr Ashton as their trustee.
32 Mr Read referred to the Carr Civil Contracting Creditors' Trust of which he and Mr Herbert were appointed trustees in or about April 2004. The file reviews for that trust were performed by Ms Stirling who acted as job controller. They were further reviewed by Messrs Kirman, Birch and himself. He stated his belief that the administration of the trust fund of the Carr Civil Contracting Creditors' Trust was 75% complete. It would take about 30 days and cost about $4,000 to conduct a creditors' meeting to approve the resignation of Mr Ashton and the appointment of Mr Birch.
(iii) Application WAD179 of 2007 - Westpoint companies and Pasticceria Australia Pty Ltd
33 Mr Read gave similar evidence in relation to the various companies referred to in application WAD179 of 2007. All but one of the companies the subject of this application are related to Westpoint Corporation Pty Ltd (In Liquidation). The company not so related is Pasticceria Australia Pty Ltd (In liquidation) (Pasticceria). In each case the liquidator was Court appointed. Mr Read said that the liquidations of the companies to which Mr Rocke had been appointed as liquidator were smaller and less complex than those to which Mr Herbert had been appointed and would not require the joint and several appointment of three liquidators. He believed that Mr Birch had sufficient knowledge of the files of the companies to which Mr Rocke had been appointed to replace Messrs Rocke and Carson as their liquidator. He also believed that Mr Birch had sufficient knowledge of the files relating to the companies of which Mr Herbert had been a liquidator to replace him in that office.
Submissions in support of the applications
34 In support of the application in WAD177 of 2007 it was said that the practical effect of the orders proposed would be that Messrs Rocke and Herbert would be removed in their capacity as liquidators of DUSM. I interpolate that the removal would be affected as a consequence of their tendering their resignations. As Barrett J set out in Re Application of Vouris (2004) 49 ACSR 543 the Act is silent on the effect of the resignation of one of several jointly appointed liquidators in a voluntary winding up. Messrs Read and Birch would fill the vacancies in the office of liquidator arising by reason of the resignations of Messrs Rocke and Herbert. Mr Ashton would be removed in his capacity as liquidator of Keyros and Mr Birch would fill the resulting vacancy. The costs of the application, if the orders sought were made, would be apportioned equally between DUSM and Keyros.
35 It was submitted that pursuant to s 502 of the Act the Court may fill a vacancy in the office of a liquidator where such a vacancy exists. Reference was made to the judgment of Barrett J in Re McGrath and Anor (as liqs of HIH Insurance Ltd (in liq)) (2005) 54 ACSR 55 in which it was held that the Court can make a prospective order appointing a liquidator contingent upon a vacancy being created by the liquidator's resignation. Re Application of Vouris (2004) 49 ACSR 543 was also cited.
36 It was submitted that the Court may consider an application in groups according to the source and nature of the appointment. The plaintiffs submitted that each appointment of liquidators to the companies should be grouped according to the nature of the liquidator or liquidators' appointment.
37 In relation to DUSM it was submitted that under s 499(5) of the Act a liquidator has the power to resign subject to lodging a Form 505 with ASIC. Messrs Rocke and Herbert had been appointed as liquidators of DUSM and had provided Forms 505. A similar position applied in relation to Mr Ashton as liquidator of Keyros.
38 On the question of the costs of the application, the plaintiffs submitted that the costs incurred in bringing it were properly incurred in winding up the companies. The liquidators of the companies, it was submitted, should be indemnified from the assets of the companies for the costs incurred in bringing the application on their behalf: In the matter of The Bonang Gold Mining Company, Limited (1893) 14 LR (NSW) Eq 262 and Re Mendarma Pty Ltd (In liq) (No 2) (2007) 61 ACSR 601.
39 Similar submissions were made in relation to the replacement of the deed administrators and trustees sought in WAD178 of 2007. It was pointed out that the practical effect of the orders sought would be that Mr Rocke would be removed in his capacity as deed administrator of the Omegatrend companies and that vacancy would not be filled. Mr Ashton would be removed in his capacity as deed administrator of the companies to which he had been appointed and Mr Birch would fill the vacancy in the office of a joint and several deed administrator arising by reason of Mr Ashton's resignation. He would hold office together with Mr Read who would continue as deed administrator of those companies. Mr Herbert would be removed in his capacity as trustee of the Carr Civil Contracting Creditors' Trust and his vacancy would be filled by Mr Birch who would hold office with Mr Read who would continue as a trustee. Mr Ashton would be removed in his capacity as trustee from the trusts for which he was trustee and his vacancy would be filled by Mr Birch who would hold office with Mr Read continuing as a trustee of those trusts.
40 Reference was made to s 449D of the Act and the decision of Barrett J in Re Application of Vouris 49 ACSR 543 that the Court can make a prospective order appointing a deed administrator contingent upon a vacancy being created by the resignation of a deed administrator. Reference was made also to s 447A as providing the Court with a very wide power to make such order as it thinks appropriate. Barrett J considered that the powers conferred on the Court by s 447A of the Act were wide enough to give the Court power to appoint a joint and several deed administrator.
41 In relation to the Creditors' Trusts reliance was placed on s 77 of the Trustees Act and s 93 of that Act under which an existing or incumbent trustee could bring to Court an application under s 77.
42 In relation to the resignation of Mr Rocke as a joint and several deed administrator, reference was made to the difficulty identified by Barrett J in Re Application of Vouris 49 ACSR 543 where a joint and several liquidator resigns or dies leaving only one of the joint and several liquidators remaining. Barrett J, it was said, held that two options were available to the Court in those situations:
- Appoint a second liquidator jointly and severally to fill the vacancy; or
2. Remove the remaining jointly and severally appointed liquidator and then appoint the previously remaining liquidator as a sole liquidator.
43 It was said that in the case of a deed of administration the difficulties identified in Re Application of Vouris 49 ACSR 543 would not arise where two or more deed administrators remained jointly and severally appointed. The plaintiffs submitted that Birch and Read remained jointly and severally appointed deed administrators of the companies from which Mr Rocke had offered his resignation so that no vacancy in the office of a joint and several deed administrator arose by reason of that resignation.
44 It was said that the proposed orders both in respect of the deeds of administration and the creditors' trusts would not prejudice creditors. Notification and the liberty to apply would give any objecting creditor an opportunity to approach the Court.
45 Again, it was submitted that pursuant to s 443 of the Act a deed administrator had priority to recover costs and expenses properly incurred from company assets. Section 71 of the Trustees Act provided a trustee with the ability to recover costs and expenses properly incurred from trust assets. The plaintiffs submitted that the costs incurred in bringing the application were properly incurred in the administration of the deeds and the Creditors' Trusts. On that basis the deed administrators and trustees should be indemnified from the assets of the companies for the costs incurred in bringing this application on their behalf. It was submitted that the costs be apportioned equally between the companies.
46 In application WAD 179 of 2007 relating to the replacement of the liquidators, similar submissions were made and it is not necessary to revisit them here.
A note on the Creditors' Trusts
47 "Creditors' Trusts" have been explained in a regulatory guide issued by the ASIC in May 2005 thus:
1.1 A creditors' trust in a [Deed of Company Arrangement] DCA is a mechanism used to accelerate a company's exit from external administration. To date, it has been used most commonly (but not exclusively) in connection with the rehabilitation of public companies listed on the Australian Stock Exchange Ltd (ASX). In some cases, this leads to a 'backdoor' listing.
1.2 Typically, under the terms of the DCA and one or more interconnected deeds, a trust entity is created and the company's obligations to some or all of the creditors bound by the DCA are compromised and transferred to the trust. Those creditors become beneficiaries of the trust. Occasionally, there may be separate creditors' trusts for employee and non-employee creditors, or for secured and unsecured creditors.
1.3 The company and/or third parties promise to make one or more payments (or transfer other property) to the trustee in satisfaction of the creditors' claims against the company. In return, the creditors' rights against the company are extinguished.
1.4 The trustee of the new trust becomes solely responsible to the former creditors (now beneficiaries) for:
(a) ensuring that the company and/or other third parties perform their payment and other obligations to the trustee;
(b) determining how much each of the former creditors is entitled to receive from the trust; and
(c) in due course, making any distribution to those former creditors.
48 The ASIC guideline notes that it is usual for the deed of company arrangement to be effectuated and to terminate after creditors' claims against the company have been removed in that way. When the deed of company arrangement terminates, the company ceases to be externally administered, the directors regain full control and it is no longer required to use the endorsement "subject to deed of company arrangement" on its public documents: see s 450E(2) of the Act. The relevant ASIC guideline is entitled 'External administration: Deeds of company arrangement involving a creditors' trust A Guide for registered liquidators appointed under Part 5.3A'. The guide is numbered Regulatory Guide 82 and was published in May 2005. The regulatory guide is quoted as an explanation of the creditors' trust in Ford's Principles of Corporations Law, (Butterworths) Part VII Chapter 26 at [26.200]. Creditors' trusts have been helpfully discussed in Heaver-Wren T, "DOCA Termination through Creditors' Trust Deeds" (2004) 12 Insolv LJ 117-120; see also McKenzie R, "Creditors' Trusts and the ASIC Guidelines" (2005) 17(3) Australian Insolvency Journal 4-6; Proudman D, "Some Issues Surrounding Creditors' Trust Deeds Parts 1 and 2" (2005) 6 INSLB 1-5 and 31-34. The mechanism has been touched on in the Supreme Court decisions: Ian Charles Francis and Michael Patrick Joseph Ryan as Trustees of The West Australian Shed Commercial Pty Ltd Creditors Trust Deed and West Australian Shed Co Pty Ltd Creditors Trust Deed [2003] WASC 39 (Pullin J); Open Telecommunications Ltd (Subject to Deed of Company Arrangement) [2003] NSWSC 1198 (Hamilton J) and Rupert Co v Chameleon Mining (2006) 24 ACLC 635 (Austin J).
49 The West Australian Shed Co case involved an application to vary the terms of a creditors' trust deed to allow for payment of a single lump sum to the trust in lieu of a requirement that 50% of the net profit generated by the companies in two successive financial years be paid in. The variation was there approved.
50 In Open Telecommunications Ltd (Subject to Deed of Company Arrangement) [2003] NSWSC 1198 a deed administrator applied to Hamilton J for directions under s 447D of the Act that he would be justified in executing and giving effect to a varied deed of company arrangement and a proposed creditors' trust deed. In discussing the creditors' trust deed, Hamilton J observed (at [4]):
The mechanism proposed by the deed administrator is quite ingenious. It is for the adoption of an amended DCA coupled with a creditors' trust deed. This would remove the sums promised to creditors from the ambit of the DCA to the ambit of a deed of trust. When this is done, the DCA could be discharged; the company would no longer be subject to a DCA; and it is likely that it could be restored to the Stock Exchange board and the contemplated additional capital sums raised, both to feed the promised amounts into a scheme for the creditors and to restore the company to viability. Although this would take the management of the money outside the ambit of the CA, it would be held and supervised in the creditors' interests according to the general law of trusts and their position would be thus protected. Even disputes as to entitlement, if they arose, would have a mechanism for their resolution through the provisions of s 63 of the Trustee Act 1925.
His Honour held in that case that there could be no objection on the ground of legality or propriety to the course that the administrator proposed to follow and gave directions accordingly. The arrangement was, of course, subject to approval by the creditors for its implementation.
51 In Rupert Co 24 ACLC 635, Austin J terminated a winding up of a company under s 482 of the Act having regard to the effect of a deed of company arrangement and creditors' trust which left the company with no significant body of creditors. As a result of those arrangements, it was solvent. The liquidator had advertised for creditors to lodge their claims against the trust. Describing the effect of the deed of company arrangement and the creditors' trust his Honour said (at [18]):
… the effect of the DOCA and the Creditors' Trust is to transfer the creditors' claims to the Trust and release the company from liability to pay those debts.
He observed that the arrangements appeared to conform to the ASIC guidelines of May 2005 and that ASIC did not oppose the application.
52 The three creditors' trusts affected by the proposed orders are the KPI Creditors' Trust, the Banwell Creditors' Trust and the Carr Civil Contracting Creditors' Trust.
53 The terms of the KPI Creditors' Trust are found in an amended Creditors' Trust Deed which was executed in December 2003 and took effect upon the termination of an amended varied deed of company arrangement executed by the company and the administrators on the execution date. The trust assets comprised the company's assets, a fund and the sum of $10. The fund was to be formed from the proceeds of realisation of the company's assets. Those assets were all of the company's assets or property and all of the assets or property of the KPI Tri Unit Trust and the KPI Trust No 2. Relevantly, cl 6 provided:
6.1 The Trustees shall consider the Claims of each of the Creditors for the purpose of determining the Creditors' Entitlements under this Trust Deed.
6.2 For the purposes of determining the Entitlements, to the extent that those Entitlements have not been determined under the Amended Varied DOCA, regulations 5.6.39 to 5.6.72 of the Corporations Regulations shall apply to this Trust Deed and to the Trustees as if the reference to the liquidator were references to the Trustees and references to winding up were references to this Trust Deed and with such other modifications as are necessary to give effect to this Trust Deed.
6.3 Subdivision A to E of Division 6 of Part 5.6 of the Corporations Act apply to the admission of Claims and payment of Entitlements under this Trust Deed as if the references to winding-up were references to this Trust Deed and with such other modifications as are necessary to give effect to this Trust Deed.
54 Clause 8 which governed the distribution of the Fund provided, inter alia, that the trustees were to pay from the Fund in priority following the administrators and trustees' remuneration:
… Creditors who would, if the Company were in liquidation, be entitled to a priority under section 556 of the Corporations Act, to the extent necessary to satisfy their Claims in full; …
Thereafter the trustees were required to pay what was called the 'Kitcher Payment' if it had not already been paid pursuant to the provisions of the Amended Varied DOCA. The Kitcher Payment meant the payment of the sum of $300,000 (or the assignment or transfer of an equivalent value of the company's assets) from the company's assets or the Fund by the company (by the Administrators) to the director.
55 These provisions are mentioned to show the close relationship between the amended varied DOCA and the KPI Creditors' Trust.
56 Similar provisions were found in the Banwell Creditors' Trust Deed which had a similar relationship to a deed of company arrangement executed by Banwell Pty Ltd (subject to Deed of Company Arrangement) and the Banwell administrators.
57 The Carr Civil Contracting Creditors' Trust had similar terms and a similar relationship to a deed of company arrangement executed by Carr Civil Contracting Pty Ltd (Administrators appointed) pursuant to a resolution of creditors on 5 April 2004.
Whether the orders sought should be made
58 In my opinion orders giving effect to the proposed replacements of the various liquidators, administrators and trustees can and should be made. In relation to the application under the Trustees Act I regard that application as falling within the accrued jurisdiction of the Court by reason of the close connection between the Creditors' Trusts and the Deeds of Company Arrangement to which they related. The replacement of the trustees arises out of the same set of events as has given rise to the application for the appointment of new liquidators and deed administrators. Although the term "the Court" in s 77 of the Trustees Act is defined as the Supreme Court of Western Australia, this Court may exercise the jurisdiction as part of its federal jurisdiction in accordance with Australian Securities and Investments Commission v Edensor Nominees Pty Ltd (2001) 204 CLR 559.
59 I do not consider it necessary to make the various declarations of vacancy which were sought in the originating applications. Moreover, in my opinion, the text of the letters proposed to be sent to the creditors should not be framed so as to give the appearance that any of the liquidators, administrators or trustees has been removed by order of the Court.
60 So far as the costs are concerned, I have had regard to the submissions of the plaintiffs that they should be treated as costs in the liquidations, deed administrations and trusteeships affected by these orders. It was submitted that the reorganisation should be regarded as an incident of the administrations and should, in effect, be part of their overhead costs. I do not accept that submission. In my opinion it is quite inappropriate that costs flowing from a voluntary restructuring of the firm whose members have assumed these various offices should effectively be visited upon creditors. I can see no reasonable basis upon which the orders sought could properly be made. The costs orders will be refused and I will make orders to make it clear that these costs are not recoverable out of the assets of the companies or trusts affected by them.
I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.