y Ltd (2015) 107 ACSR 406; [2015] NSWSC 1016
- Re Sales Express Pty Ltd (admins apptd) [2014] NSWSC 460
- Re SBL Solutions Pty Ltd (subject to a deed of company arrangement) [2021] NSWSC 1002
- University of Sydney v Australian Photonics Pty Ltd (subject to deed of company arrangement) (2005) 53 ACSR 579; [2005] NSWSC 412
- Vero Insurance Ltd v Kassem [2011] NSWCA 381
Category: Principal judgment
Parties: Monoova Global Payments Pty Ltd (Plaintiff)
ACN 613 909 596 Pty Ltd (subject to Deed of Company Arrangement) (First Defendant)
Michael Hogan as deed administrator of ACN 613 909 596 Pty Ltd (subject to Deed of Company Arrangement) (Second Defendant)
Brendan Copeland as deed administrator of ACN 613 909 596 Pty Ltd (subject to Deed of Company Arrangement) (Third Defendant)
Thanh Heip Le (Fourth Defendant)
Representation: Counsel:
J Foley (Plaintiff)
A Jordan (First to Third Defendants)
L T Fermanis (Fourth Defendant)
[2]
Solicitors:
HWL Ebsworth (Plaintiff)
Edwards Kirby Lawyers (First to Third Defendants)
Biz Lawyers & Advisory (Fourth Defendant)
File Number(s): 2023/103411
[3]
Nature of the application and chronology
By Originating Process filed on 30 March 2023, the Plaintiff, Monoova Global Payments Pty Ltd ("MGP") applies for an order under ss 447A, 445D(1)(e), 445D(1)(f) and 445D(1)(g) of the Corporations Act 2001 (Cth) ("Act") that a deed of company arrangement ("DOCA") relating to the Defendant, ACN 613 909 596 Pty Ltd (formerly Minle Wine Negociants of Australia Pty Ltd) (subject to Deed of Company Arrangement) ("Company") be terminated.
The Company was the First Defendant in the proceedings. The Second and Third Defendants, Messrs Hogan and Copeland (to whom I will refer as the "Administrators") were initially the voluntary administrators appointed to the Company and then its deed administrators. They did not consent to or oppose MGP's application; they were nonetheless represented by Counsel throughout the whole of the proceedings, a course that was not warranted by their minimal engagement with the substantive issues that emerged in the course of the hearing. The Company's director, Mr Thanh Hiep Le, took an active role in the proceedings and opposed the relief sought by MGP.
[4]
Chronology
I first set out a chronology of events, as to which there is no controversy, which I have partly drawn from the Plaintiff's short form listing of the facts and circumstances for which it contends, and partly from the affidavit and documentary evidence led in the proceedings.
MGP was incorporated on 27 July 2016 and conducted a wholesale liquor business, and export sales and excise duty drawbacks associated with those sales accounted for nearly all of its revenue (Ex P3, 492). Mr Le and Mr Giuseppe Minissale were the directors of the Company until Mr Minissale resigned on 19 August 2021.
In the financial year ending 30 June 2018, the Company had sales revenue of $16,510,821 and incurred a net loss before tax of $9,293 (Ex P3, 502; Ex D1.1, 1428-1431). From March 2019, the Company undertook foreign exchange ("FX") trades with MGP. In the financial year ending 30 June 2019, the Company had sales revenue of $15,755,720 and a net profit before tax of $103,275 (Ex P3, 502; Ex D1.1 1428-1430).
In around February to March 2020, the FX products held by the Company with MGP substantially decreased in value due to movements in the AUD/USD exchange rate and, on 16 March 2020, MGP closed out those products, crystallising a loss of approximately $1,641,985.35 for the Company and MGP applied collateral deposited by the Company of $334,944.30 against that loss. On 28 September 2020, MGP demanded that the Company pay it $1,307,041.04, being the unpaid balance of its FX loss. The Company did not do so and, on 15 December 2020, MGP commenced proceedings ("MGP Proceedings") against the Company claiming that amount from the Company. The Company defended those proceedings and filed a Cross-Claim.
In the period to 30 June 2022, the Company wound-down its business, reducing its revenue from $13,583,908 in FYE 2020, to $4,339,640 in FYE 2021, and to $2,205 in FYE 2022. At some point in FYE 2021, the Company ceased to have any trading or operational activities other than the conduct of its defence and Cross-Claim in the MGP Proceedings. In the same period, another company controlled by Mr Le, Wine Vendor Pty Ltd ("Wine Vendor"), developed a substantial export business. As I noted above, on 19 August 2021, Mr Minissale resigned as a director of the Company.
On 21 September 2022, MGP filed an application for security for costs with respect to the Cross-Claim in the MGP Proceedings and, on 13 December 2022, the Court ordered the Company to provide security for costs in respect of the Cross-Claim of $136,310.60.
[5]
Affidavit evidence
MGP reads the affidavit dated 15 March 2023 of Mr Andrew Kilroe who was head of foreign exchange at MGP during the relevant period. Mr Kilroe details the foreign exchange services provided by MGP to the Company, and the terms on which those services were provided; identifies several foreign exchange transactions undertaken by the Company with MGP; and refers to the circumstances in which the Company failed to comply with a demand for collateral by MGP and relevant transactions were closed out, giving rise to a claimed liability of the Company to MGP of $1,307,041.04. Mr Kilroe was not cross-examined and there appears to be no substantial contest as to the existence of that liability or MGP's status as a creditor of the Company in these proceedings.
MGP also reads the affidavit dated 29 March 2023 of Mr Hugh Evans, a founder and director of MGP, which referred to the proceedings previously commenced by MGP against the Company to seek to recover the amount due to MGP, and to MGP's commitment to fund liquidators appointed to the Company for at least $20,000 exclusive of GST for initial investigations, and possible further funding depending on the outcome of those investigations. Mr Evans was also not cross-examined.
MGP read an affidavit dated 23 March 2023 of Mr Liam Healey, an experienced insolvency practitioner who, with Mr Olde, has consented to act as joint and several liquidators of the Company if the DOCA is terminated. Mr Healey set out the steps which he and Mr Olde would undertake as liquidators to collect, protect and realise the Company's assets and undertake further investigations and make any necessary reports to the Australian Securities and Investments Commission, if appointed as liquidators of the Company. He also indicated his expectation that initial investigations could be completed with 35 hours of work, involving remuneration of no more than $20,000 exclusive of GST, the amount which MGP has offered to fund such investigations. Mr Healey was also not cross-examined. Mr Olde and Mr Healey have each given consents to act as liquidator in the appropriate form (Ex P2, 258).
MGP also read the affidavit dated 28 March 2023 of its solicitor, Ms Courtney McDonald, who referred to the conduct of the proceedings brought by MGP against the Company, an order for security for costs made against the Company in those proceedings and to the Company's entry into voluntary administration on 23 December 2022, the first meeting of creditors of the company and the circumstances in which its entry into a DOCA was approved at the second meeting of creditors. I have addressed aspects of those matters in the chronology of events above. By a second affidavit dated 17 April 2023 Ms McDonald addressed questions as to the conduct of these proceedings and a third affidavit of Ms McDonald dated 19 April 2023 largely exhibited documents. Ms McDonald was not cross-examined and I accept her outline of relevant events.
[6]
MGP's application to terminate the DOCA under s 447A of the Act
As I noted above, MGP seeks an order terminating the DOCA under s 447A of the Act. I summarised the principles applicable to such an application in Re Citadel Financial Corporation Pty Ltd (subject to Deed of Company Arrangement) [2020] NSWSC 886 ("Citadel") at [16]ff on which I have drawn for the summary that appears below.
Mr Foley refers to Joseph Khoury & Sons v Zambena Pty Ltd (1999) 217 ALR 527; [1999] NSWCA 402, where Fitzgerald JA (with whom Beazley JA and Davies AJA agreed) observed (at [80]) that:
"… the court should not encourage the notion that 'anything goes' provided only that a deed of company arrangement provides some benefit for dis-satisfied creditors. Commonly, companies proposing deeds of company arrangement are insolvent and what is proposed involves some benefit for unsecured creditors. That cannot be permitted to be used by those who promote such proposals as a critical factor which warrants the Court's refusal to terminate or declare void such deeds, especially when different groups of unsecured creditors are treated differently."
That passage was quoted with approval by Campbell J in Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (2005) 226 ALR 510; [2005] NSWSC 1235 ("Bidald Consulting") at [28] and in Re Hayes Steel Framing Systems Pty Ltd (admins apptd) [2017] NSWSC 385 ("Hayes Steel Framing") at [30].
In Blacktown City Council v Macarthur Telecommunications Pty Ltd (2003) 47 ACSR 391; [2003] NSWSC 883, Barrett J terminated a voluntary administration where a company's sole director placed the company in voluntary administration with a view to adopting a deed of company arrangement by a decision of creditors (being himself and two persons allied with him) of doubtful value that would bar particular claims already being litigated against the company. In Public Trustee (Qld) v Octaviar Ltd (subject to deed of company arrangement) (recs and mgrs apptd) (2009) 73 ACSR 139; [2009] QSC 202 at [182], McMurdo J noted that a winding up may serve the public interest where investigations and recovery proceedings are likely to be funded and could realistically lead to persons who engaged in suspect transactions being brought to account.
In Re Sales Express Pty Ltd (admins apptd) [2014] NSWSC 460 ("Sales Express"), Brereton J reviewed the scope of the Court's power to terminate a voluntary administration under s 447A of the Act and observed (at [19]) that:
"It is clear from s 447A(2)(b) that the Court may make an order that an administration end, if the administration provisions of the Corporations Act are being abused. In Workers Compensation Nominal Insurer v Perfume Empire Proprietary Ltd [2011] NSWSC 379, Barrett J, as his Honour then was, observed (at [22]) that the cases in which the Court had intervened under that provision to terminate a voluntary administration were cases in which there had been what might be termed as some ulterior element or purpose. His Honour referred to cases in which the directors had put the company into administration not for a purpose envisaged by the legislation but with a view to installing an administrator who might be more compliant than the provisional liquidator already in office [Aloridge v Christianos (1994) 13 ACSR 99]; where a secured creditor had imposed an administrator when an appeal by the company was pending against the dismissal of its application for an order setting aside a statutory demand served by that creditor [Spacorp v Australia Pty Ltd v Fitzgerald [2001] VSC 61; (2001) 19 ACLC 1979]; where a sole director imposed voluntary administration with a view to the adoption of a deed of company arrangement by a decision of creditors (being himself and two persons allied with him) of doubtful value, which would bar particular claims already being litigated against the company [Blacktown City Council v Macarthur Telecommunications Pty Ltd [2003] NSWSC 883; (2007) 47 ACSR 391]; and where an administrator was imposed by the sole director in the face of a pending winding up application, in order to manipulate the relation-back day to his own personal advantage [St Leonards Property Pty Ltd v Ambridge Investments Pty Ltd (2004) 210 ALR 265; (2004) 50 ACSR 443; [2004] NSWSC 851]. His Honour distinguished (at [25]) the case then under consideration from one in which there had been an attempted distortion or manipulation or one where any enhancement of the return to creditors generally would be at the expense of persons who had been innocent bystanders in the event leading to voluntary administration and ultimate winding up."
[7]
MGP's application to terminate the DOCA under s 44D(1)(e)-(g) of the Act
Alternatively, MGP contended that the DOCA should be terminated under s 445D(1)(e) or s 445D(1)(f) or s 445D(1)(g) of the Act.
An order terminating a deed of company arrangement may be made under s 445D(1)(e) of the Act if effect cannot be given to that deed without injustice; the element of injustice may be established if the effect of the deed would be to avoid a proper investigation of relevant transactions; and this paragraph is directed to the effect rather than the purpose of a deed of company arrangement: Cresvale Far East Ltd (in liq) v Cresvale Securities Ltd (2001) 37 ACSR 394; [2001] NSWSC 89 at [191], varied on appeal Kirwan v Cresvale Far East Ltd (in liq) (2002) 44 ACSR 21; [2002] NSWCA 395; Deputy Commissioner of Taxation v TMPL Pty Ltd (subject to deed of company arrangement) (No 3) (2011) 289 ALR 69; [2011] FCA 1403 at [96]; Guo v Song; Re SG Capricorn Investments Pty Ltd (subject to deed of company arrangement) [2018] NSWSC 12 ("Guo v Song")at [146]; Citadel at [21].
Mr Foley submits that effect cannot be given to the DOCA without injustice because it will have the effect of preventing or avoiding a proper investigation of relevant transactions. I would have accepted that submission, had it been necessary to do so, where the effect of entry into the DOCA would likely have retarded inquiry into the circumstances in which the "loan" of stock made by the Company to Wine Vendor and the amount of that loan was extinguished by subsequent journal entries, the basis of which is unclear from the evidence led in these proceedings; and as to the circumstances in which the Company had ceased its export business and, at about the same time, Wine Vendor had commenced an export business, possibly conducted in a somewhat different way, generating substantial revenues. Mr Fermanis responds that the basis for termination of the DOCA under s 445D(1)(e) is not established, because the Administrators have already conducted a proper investigation and a liquidator's investigation would not produce a different outcome. I do not accept that submission, where it is not apparent that the Administrators have fully explored the circumstances of the stock loan or how the associated debt owed by Wine Vendor was extinguished by journal entry, or have undertaken any real investigation of the circumstances in which the Company ceased and Wine Vendor commenced an export business, at a time that Mr Le was a director of both entities.
[8]
Costs and orders
My preliminary view is that costs should follow the event, as between MGP and Mr Le, and Mr Le should pay MGP's costs of the proceedings as agreed or as assessed. The Administrators confirmed at the hearing, by their Counsel, that they had not yet drawn down remuneration or disbursements relating to their involvement in these proceedings from the Deed Fund, and that they would not do so prior to the delivery of this judgment. My preliminary view is that there should no order for costs in favour of, or against, the Administrators in respect of these proceedings, and they should not entitled to recover any remuneration or costs relating to their attendance at this hearing on 20 and 22 June from the Deed Fund. It seems to me that there was no utility in the Administrators being represented by Counsel and solicitors for two days of this hearing in order to make limited submissions and, when asked in closing submissions to address the question whether the evidence emerged in the hearing had affected the Administrators assessment of the issues, to decline to engage with that question. However, I will allow the parties an opportunity be heard as to costs.
I direct the parties to bring in short minutes of order to give effect to this judgment, including as to costs, within two business days and, if there is no agreement between them, their respective draft orders and submissions as to the differences between them, not exceeding 5 pages in Arial font in one and a half spacing.
[9]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 04 July 2023
Shortly thereafter, on 23 December 2022, the Company changed its name from Minle Wine Negociants of Australia Pty Ltd to its present name and Mr Le resolved to place the Company into voluntary administration and appointed the Administrators as voluntary administrators to the Company. The first meeting of creditors was held on 9 January 2023 (Ex P3, 490).
By letter dated 20 January 2023 (Ex P3, 429) MGP's solicitors wrote to the Administrators and provided a detailed outline of events in the proceedings brought by MGP against the Company, and referred to the fact that MGP's proof of debt was rejected at the first creditor's meeting, when the Administrators treated it as a contingent claim and took the position that they did not have sufficient information to make a just estimate of the value of the claim. They placed the Administrators on notice that:
"In the event any deed of company arrangement is proposed which does not substantially benefit [MGP], or a resolution is passed for the Company to enter into any such deed of company arrangement, we put you on notice that [MGP] will:
(a) oppose any such resolution; and
(b) apply to terminate the deed of company arrangement if entered."
The Company's solicitors also there identified several matters that were ultimately established in these proceedings which may support a liquidation of the Company, including that the Company's business had been substantially "wound down" (or, possibly, diverted to a related company) before it was placed in voluntary administration; and drew attention to the circumstances in which a deed of company arrangement might be terminated, on which MGP now relies in this application.
On 25 January 2023, the Administrators' solicitors wrote to MGP's solicitors requesting that MGP put forward any funding proposal for a liquidation and meet with the Administrators "to discuss any… funding proposals" and "answer any questions you may have" (Ex P3, 443-468). MGP did not then take up that offer.
On 31 January 2023, MGP submitted an amended proof of debt and substantial supporting documentation to the Administrators (Ex P3, 443-468).
On 1 February 2023, Mr Le proposed a deed of company arrangement ("DOCA Proposal"). Under the terms of the DOCA Proposal, Mr Le was to contribute $100,000 which would comprise the Deed Fund; the Deed Fund was subject to a lien in favour of the Administrators for their fees, and would be paid first in satisfaction of the Administrators' remuneration and expenses (as voluntary administrators and deed administrators) and then in payment of claims of participating creditors; Mr Le would be a non-participating creditor, so his purported claim against the Company was not extinguished by the DOCA and MGP's claim would be extinguished.
By their report to creditors dated 1 February 2023 (Ex P3, 484) the Administrators noted that the Company had operated an alcohol wholesale and export business in Australia and exported to China, Singapore and Hong Kong and that:
"The Company ceased to trade on or around October 2020 after the Company's directors decided it was not in the Company's best interest to trade beyond this date, as a result of the impacts of the COVID-19 pandemic, changes to excise duty drawback legislation, China imposing an embargo on wine imports and cashflow shortages" (Ex P3, 487).
That explanation of the circumstances in which the Company ceased to trade was likely false, where, in about the same period that Mr Le caused the Company's business to be "wound down", he and Mr Minissale also caused Wine Vendor to commence an export trade, structured in a somewhat different manner, and Wine Vendor undertook that export business with apparent success notwithstanding the suggested obstacles to doing so.
The Administrator's report also referred to the transfer of two motor vehicles, which were the subject of considerable attention in the evidence in cross-examination in these proceedings, although it is doubtful whether their financial value warranted the extent of that attention. The unsecured creditors who were identified in the voluntary administrator's report were Mr Le, related entities of Mr Le and the Company, and the Companies' solicitors, accountants and Mr Fermanis, who appeared for Mr Le in the hearing. MGP was not included in the list of creditors and the Administrators noted that they had received an amended proof of debt and documents shortly prior to issuing the report, and were unable to determine MGP's status as a creditor of the Company and the value of any claim. The Administrators report recorded an amount paid to MGP of $335,000, which had been set off against its claims against the Company, had been funded by a loan of $167,000 received from Wine Vendor to the Company. It is now common ground that that proposition was untrue. The Administrators' report also disclosed the amount of remuneration for which the voluntary administrators would be seeking approval at the second meeting of creditors; unusually, in my experience, Mr Hogan indicated in evidence that the Administrators would now not seek to recover remuneration beyond the amount of that estimate.
The Administrators' report also referred to Mr Le's DOCA Proposal, expressed the view that it would provide a better return to creditors compared to a winding up, and recommended the execution of the DOCA. The Administrators there estimated that if MGP's debt was admitted, participating creditors would receive a distribution of $0.03 in the dollar; and, if MGP's Debt was not admitted, participating creditors would receive a distribution of $0.17 in the dollar.
On 7 February 2023, MGP's solicitors wrote to the Administrators' solicitors and the Administrators (Ex P3, 552) advancing detailed criticisms of the Administrators' report to creditors and, arguably unreasonably, seeking a response "by no later than 8.00am on 8 February 2023", the day of the second creditors meeting. MGP's solicitors there pointed, rightly, to the implausibility of the explanation of why the Company had ceased to trade that was recorded in that report, where that followed MGP's demand for payment of the unpaid balance of the Company's FX loss, and where Chinese tariffs on Australian wine experts were not imposed until well after the cessation of trading which Mr Le partly attributed to them. They also pointed to affidavit evidence given by Mr Le in the MGP Proceedings that "due to the [c]laim made by [MGP], [the Company] has scaled back its business affairs considerably". They pointed to issues as to the transactions between the Company and Wine Vendor, including a purported transfer of stock by the Company to Wine Vendor on 1 October 2020, recorded as a loan in the Company's books, and pointed to the apparent lack of investigation of those matters by the Administrators, admittedly within the relatively short time available before the second meeting of creditors. The Administrators provided a copy of that letter to creditors at the second meeting of creditors (Hogan [87]), but that has limited significance where the creditors admitted to vote at that meeting were only Mr Le, Wine Vendor, their associates and their advisers.
At the second meeting of creditors on 8 February 2023 (Ex P3, 622), Mr Le was permitted to vote for a claim of $248,555, a claim which it now appears was not properly based; Wine Vendor was permitted to vote for a claim of $221,575, a substantial part of which, it appears, was also not properly based; and associated entities and advisers to Mr Le and the Company were permitted to vote. MGP's proof of debt in the voluntary administration was rejected by the Administrators and MGP was not permitted to vote at the second creditors meeting. In opening submissions, Mr Foley, who appears for MGP, points out that related creditors constituted over 98% of total creditors by value admitted to vote at the second meeting of creditors and unrelated creditors of $10,007, excluding MGP, amounted to nearly 2% of creditors by value and were Mr Le's and the Company's solicitors and accountants. Perhaps unsurprisingly, Mr Le, Wine Vendor, their related entities and advisers to the Company voted in favour of the DOCA and the resolutions in respect of the claims for remuneration of the Administrators were also approved at that meeting.
On 10 February 2023, MGP's solicitors wrote to the Administrators' solicitors foreshadowing an application to set aside the Administrators' decision to reject MGP's proof of debt (which was not pursued) and for an order terminating the deed of company arrangement ("DOCA") and requested that the Administrators provide undertakings to not take, or purport to take, any steps towards the effectuation of the DOCA (Ex P3, 566-570).
On 13 February 2013, the Administrators, the Company and Mr Le executed the DOCA on the terms outlined in the DOCA Proposal.
On 14 February 2023, the Administrators' solicitors wrote to MGP's solicitors (Ex P3, 573-630) stating that the Administrators gave undertakings not to take any steps to effectuate the DOCA without 14 days' notice to MGP and provided reasons for rejecting MGP's proof of debt for the purposes of voting at the second meeting of creditors (Ex P3, 578).
On 22 February 2023, MGP's solicitors wrote to the Administrators' solicitors (Ex P3, 634-638) stating that further investigations into the Company's examinable affairs were warranted; creditors were not adequately informed about the basis of the comparison between the Proposed DOCA and a winding up or the possibility of a better return from a winding up; and MGP would be making an application to terminate the DOCA, and inviting the Administrators to take a neutral role in that application. MGP then commenced these proceedings on 30 March 2023.
By his affidavit dated 19 May 2023, Mr Hogan indicated that he and Mr Copeland did not oppose the relief sought by MGP and that the purpose of his affidavit was "to put before the Court material which the Court would need to decide the issues before it, and to respond to allegations that had been raised against the Deed Administrators personally". I should pause to note that MGP had, in fact, made clear that it advanced no direct attack upon the Administrators, although it did raise several concerns, which ultimately proved to be justified, as to the adequacy of the Administrators' review of several issues. Mr Hogan there set out a number of inquiries which had been made by the Administrators; the steps that he had taken to understand the Minle group of companies which were associated with Mr Le and Mr Minissale; the information which he had been provided as to the winding down of the Company's business in 2020; and the position as to specific transactions to which MGP drew attention, including monies held by MGP in respect of the Company's FX positions (described as the "MoneyTech Bond") and a transfer of stock from the Company to Wine Vendor, as to which part of Mr Hogan's affidavit was admitted with a limiting order under s 136 of the Evidence Act 1995 (Cth) as submission. Mr Hogan also addressed the transfer of motor vehicles from the Company to Wine Vendor, as to which parts of Mr Hogan's affidavit was also admitted as submission. Mr Hogan also addressed a claim by Mr Le to underpayment of wages for the period from July 2017 to September 2020, which the Administrators had recognised as permitting Mr Le to vote at the second meeting of creditors, but which was likely unjustified. Mr Hogan also referred, at least by way of denial, to matters raised in correspondence from MGP's solicitors concerning the conduct of the administration.
Mr Hogan was cross-examined at some length. Mr Hogan was cross-examined (T23)ff as to the steps involved in the transfer of stock from the Company to Wine Vendor; he responded to several questions by noting that the transaction which was put to him was what was recorded in the Company's records. That answer fairly recognised the limits of Mr Hogan's knowledge, and of his inquiries, so far as he implicitly recognised that he had no knowledge whether the entries in the Company's financial records accurately reflected any anterior transaction. His evidence was that he did not know whether the Company had given physical possession of the stock to Wine Vendor in connection with the purported transfer of the stock to Wine Vendor, and his response to the question whether the Company had sold the stock to Wine Vendor was again that "[t]hat is what the records show". He accepted that the Company's financial records disclosed that the Company had purchased the stock for approximately $1.23 million; sold it for approximately $1.33 million; received the proceeds of the sale, so far as the Company's financial records go; and then credited those proceeds to Wine Vendor, by reference to a loan account (T24-25). Mr Hogan accepted that there was a profit on the sale of the stock, based on the Company's financial accounts, of $100,000 and that the accounts show that Wine Vendor took the profit of that sale, at least if that could be calculated as the amount by which the sale price of the stock exceeded its cost price (T26). Mr Hogan accepted in cross-examination that he had no knowledge of the reasons why the stock sale to Wine Vendor was undertaken (T28).
Mr Hogan also acknowledged, in cross-examination, that as at 30 September 2020, Wine Vendor owed the Company approximately $1.9 million; the financial records show that loan was "repaid" between October 2020 and 30 June 2021; although the Administrators took steps to identify repayments that were recorded in bank records, not all transactions constituting the suggested repayment were recorded in bank accounts (T28-29). Mr Hogan offered the speculation that some payments were made by Wine Vendor to creditors (T29), but that was plainly no more than speculation on his part. He accepted that the transactions by which the debt owed by Wine Vendor was "repaid" include customer deposits (T31-32), and there is no evidence to explain why those deposits would have been treated as to the benefit of Wine Vendor rather than as the Company's property. Mr Hogan accepted (T33-34) that he had no knowledge whether the relevant journal entries reflected relevant payments, or whether deposits were correctly recorded in respect of particular transactions. He also accepted that Wine Vendor's loan to the Company was substantially "repaid" by journal entries (T34). The result of those journal entries was that Wine Vendor purportedly ceased to be a substantial debtor of the Company and the financial records ultimately showed it as a creditor for about $221,000 of the Company (T34). One of the transactions that resulted in that credit was a loan of $167,000 by Wine Vendor to the Company which was recorded by journal entry in the Company's accounts, which it is now accepted did not exist (T35-37).
Mr Hogan was also cross-examined as to the substantial increase in Wine Vendor's revenue, by way of sales exports and excise drawbacks, in the period in which the Company had ceased its export activities (T42). He accepted that the fact that a different company of which Mr Le was a director had exported very significant sums of alcohol led him to question the veracity of Mr Le's claim that market conditions required the Company to cease its export activities in the same period, an explanation that had been recorded in the Administrators' report (T43). Mr Hogan was also cross-examined as to the circumstances of the transfer of two motor vehicles from the Company to Wine Vendor, which it is ultimately not necessary for me to address. He was cross-examined as to the basis of Mr Le's claim that he was underpaid wages, namely that the wages paid to him were less than a market wage, on the basis of which Mr Le had claimed to be a creditor in the voluntary administration (T50). Mr Le put a quite different claim in cross-examination, to which I refer below. Mr Hogan accepted that there was no record of any deferred salary owed to Mr Le in the Company's financial records (T51).
Mr Hogan acknowledged in cross-examination that the amount of the remuneration and disbursements that the Administrators had incurred was significantly larger than had been anticipated in their report to creditors at the second meeting of creditors but (unusually, in my experience) indicated that they did not seek (or at least did not presently seek) to recover additional remuneration or disbursements to that approved by creditors at the second meeting of creditors (T54).
Plainly, Mr Hogan had no personal knowledge of events concerning the Company which preceded the Administrators' appointment and I approach his evidence on that basis. It seems to me that his affidavit evidence and his evidence in cross-examination indicated that he may too readily have accepted the information provided to him by Mr Le in the voluntary administration, including entries in the Company accounts, although he has now fairly recognised at least some of the matters that give reason to doubt the accuracy of this information.
The Fourth Defendant, Mr Le, read his affidavit dated 19 May 2023. Mr Le's evidence was that, from about 2017 until October 2020, the Company carried on the business of supplying alcoholic beverages to domestic and overseas markets and mainly exporting alcoholic beverages overseas (Le [3]). He referred to the Company's foreign exchange account with MGP and certain transactions in respect of that account, and to the closing out of option positions with MGP which crystallised losses on 16 March 2020. He referred to the claim brought by MGP against the Company and the Cross-Claim brought by the Company. Mr Le's evidence was that, after security for costs was awarded against the Company in respect of the Cross-Claim, he could not continue to cause further funds to be loaned to the Company and resolved to place the Company into voluntary administration (Le [22]).
Mr Le's evidence (Le [23]) was that:
"As this was the first time, I had ever been involved in a company which was facing potential insolvency, I decided to proceed with administration rather than liquidation because:
(a) Of the certainty that the administration process provided;
(b) The ability for me to propose an opportunity to restructure the Company;
(c) The potential for less stigma attached to the administration opposed to a company in liquidation which may have had a negative impact on my reputation and ability to obtain home loans and other personal finance and the like in the future; and
(d) As is my legal right in accordance with section 436A of the Corporations Act."
It does not appear that the voluntary administration involved any real prospect of a restructuring of the Company since, by the time it had been placed in administration, it had ceased its wine business including its export business; Wine Vendor had commenced an export business; it had no employees and no business activities; and no proposal appears to be advanced that it would commence business after implementation of the DOCA.
Mr Le also addressed (Le [28]) the position in respect of the suggested loan of $167,000 from Wine Vendor to the Company, to which reference was made in the Administrators' report and he accepted that he could not identify such a loan based on his review of the draft FY 22 accounts. He also addressed (Le [29]) the transfer of stock from the Company to Wine Vendor as follows:
"At the time the Company ceased trading on or about October 2020, the Company held stock in the form of wine and spirits which was recorded at cost value on the Company's financials…The [s]tock was purchased on credit and had a corresponding liability relating to the sellers of the [s]tock. The Company had no reason to retain the stock.
I had a number of options in relation to winding up the affairs of the Company, which was to either sell the [s]tock (at the risk of having to discount the [s]tock), or transfer the [s]tock to another entity which would then be liable to satisfy the corresponding liability for that [s]tock.
Rather than selling the [s]tock at a discount which would result in less funds available to creditors, I decided to transfer the [s]tock to Wine Vendor at the cost paid by the Company, and Wine Vendor would be responsible to pay the liabilities related to the [s]tock."
Mr Le was cross-examined at some length concerning this evidence. There are substantial difficulties with the evidence. First, Mr Le's affidavit evidence suggests that Wine Vendor, to which the stock was transferred, would sell the stock, as an alternative to the Company doing so at a loss. In fact, the Company sold the stock, at a profit, and Wine Vendor rather than the Company retained the benefit of that profit. There is no evidence that Wine Vendor or any entity other than the Company satisfied any liability for the stock or the associated cost of sales. It appears that the only effect of the transfer of stock and associated financial transactions was to transfer the profit on the sale of the stock to Wine Vendor. Second, so far as the transaction was purportedly intended to avoid selling the stock at a discount which would result in less funds available to creditors, it had the opposite effect, transferring profits of the sale to Wine Vendor at the expense of the Company's creditors. Mr Le also addressed the transfer of two motor vehicles from the Company to Wine Vendor and he was cross-examined as to that matter at some length. I have ultimately not considered it necessary to reach findings as to this matter, given the findings which I have reached on other grounds.
Mr Le also addressed his explanation of the "winding down" of the Company, and he refers to the explanation recorded in the Administrators' report, which I have addressed above and the impact of losses in dealing with MGP on the Company's solvency. Mr Le also referred to his claim for debt as to unpaid wages and sought to justify that claim by reference to evidence (which was not in proper form and was rejected) that his salary should have been at least $150,000 per year based on his experience rather than the lower amount that he was paid. He wrongly claimed that the debt was admitted only for $1.00 by the Administrators for voting purposes at the second meeting of creditors. In cross-examination, he offered an entirely different account of the basis on which he had a claim for wages, asserting that he and Mr Minissale had previously agreed that he be paid a higher salary than he had in fact taken. That agreement is undocumented, not addressed in his affidavit evidence and inconsistent with the basis on which he had previously claimed to be a debtor for unpaid salary, and I do not accept it. Mr Le also addressed the Company's revenue and profitability in the period from 2018 to 2022, and his evidence emphasised the extent to which its revenue had declined for the financial years 30 June 2021 and 30 June 2022, in the same period as Wine Vendor established an export business and made increasing profits.
In cross-examination, Mr Le accepted that the Company had transferred its stock to Wine Vendor at cost price, of approximately $1.23 million, by recording a loan entry as an amount payable by Wine Vendor to the Company; that the Company rather than Wine Vendor then sold that stock, and "eventually" received payment for those sales; and he accepted that he had no reason to doubt the statement in the Administrators' report that the Company received $1.33 million for those sales (T64). He did not acknowledge that that amount was then treated in the Company's accounts as a credit in favour of Wine Vendor, and his evidence was that he did not know "how the accounts are computed", and he answered "yes and no" as to whether the Company's accounts were prepared on his instructions (T64). His evidence in cross-examination was that the Company paid the supplier of the relevant stock, although he also contended that Wine Vendor "paid off the stock" and had paid the suppliers of that stock (T69-70), although there is no other evidence that that had occurred. Mr Le also contended that the transaction was undertaken to allow the Company to pay its suppliers, but he was unable to explain how a transfer of stock by the Company to Wine Vendor that was implemented by journal entry rather than cash payment would have assisted in the payment of suppliers. He again suggested that Wine Vendor made payments to suppliers of the Company (T74), but, as I noted above, there is no other evidence that that had occurred. I give little weight to Mr Le's explanation of the transaction, which at best indicates a lack of understanding of the financial steps involved in that transaction and provides no support for the accuracy of the record of it in the Company's financial records.
Mr Le accepted that the loan by Wine Vendor to the Company of $167,000, to which reference was made in the Administrator's report to creditors, did not exist (T76) and sought to attribute that to the manner in which the accountant had recorded the transaction (T77). He sought to explain the fact that Wine Vendor had established a substantial export business, at the same time as the Company had abandoned its export business, by suggesting that the Company and Wine Vendor were not exporting to the same countries and the business model had changed (T77); however, that explanation did not explain why the Company could not make those changes in its business model, rather than abandoning its export business and leaving Wine Vendor to establish a new business with that somewhat different business model. Mr Le was also cross-examined as to the information which he had provided the Administrator as to the amount of his salary, which supported his voting at the second meeting of creditors (T97)ff, and sought to support that position by reference to a different explanation of events than that which he given to the Administrator, namely that he had previously agreed with Mr Minissale that he should be paid a higher salary. I am not persuaded of the truth of that evidence and I approach Mr Le's evidence with caution.
MGP relied, in reply, on the affidavit dated 2 June 2023 of its solicitor, Mr Dickinson, largely annexing correspondence. A further affidavit dated 15 June 2023 of Mr Dickinson largely addressed production of documents by the Defendants and a significant number of documents were exhibited to that affidavit (Ex P7).
His Honour there emphasised the significance, in that case, of the facts that the only unrelated creditor was opposed to the administration continuing and that, if one looked at the interest of creditors generally, there was nothing in the proposed deed of company arrangement for the benefit of the related creditors who proposed to vote in favour of the deed, and the only apparent benefit in the deed is for the unrelated creditor, who did not support it. Each of these elements is also present in this case, although here the DOCA has been executed. His Honour also observed (at [27]-[29]) that:
"That review of the position reveals that the only person who will benefit from the deed of company arrangement is in substance [the defendant's sole director], who will avoid the prospect of companies in which he has a very substantial interest from being pursued for debts owed to [the defendant]; he will also avoid examination of his conduct in connection with the transfers of the trademarks; and he will avoid any investigation of the solvency of the company and when in truth it became insolvent. It can only be to procure substantially those benefits for him that the related creditors under his control would endeavour to foist the deed of company arrangement on the unrelated creditor...
The provisions of Pt 5.3A were not intended to enable directors, through their control of the majority of creditors, to avoid having their conduct of the affairs of the company scrutinised, at least where the unrelated creditors desire that to happen. That is not to say that the interests of related creditors are necessarily to be disregarded: they may have as valid and proper an interest in the outcome of an insolvency as an unrelated creditor. But as in [Deputy Commissioner of Taxation v Alternative Business Solutions (Aust) Pty Ltd (admins apptd) [2006] FCA 400] and in this case, where they wish to vote in favour of a deed of company arrangement which offers no benefit for them and which the unrelated creditors do not wish to have imposed on them, generally speaking the interests of the unrelated creditors will prevail.
For those reasons, I am satisfied that the provisions of Pt 5.3A are being abused in the relevant sense, and accordingly that the administration should end."
Mr Foley also refers to Australian Securities and Investments Commission v Midland Hwy Pty Ltd (admin apptd) (2015) 110 ACSR 203; [2015] FCA 1360 ("Midland Hwy"), where Beach J considered the circumstances in which an order could be made under s 447A of the Act to set aside a resolution of creditors before a deed of company arrangement was executed, and noted the relevance of the factors under s 445D of the Act in those circumstances. His Honour held that such an order could be made where it was in the public interest that the company's administration come to an end and that it be wound up. His Honour observed (at [67]-[68]) that the Court's power under that section is to be exercised having regard to, inter alia, the interests of creditors as a whole and the public interest, but the public interest may override the creditors' interests and favour liquidation, and that the public interest included considerations of commercial morality and the interests of the public at large. His Honour also observed (at [69]) that the Court could apply by analogy the principles applicable under s 445D in exercising a power under s 447A to set aside a resolution to enter into a deed of company arrangement and order a winding up. His Honour noted (at [70]) that that power extended to the situation where creditors may be better off under the deed of company arrangement than a liquidation, although the Court would no doubt have regard to that matter as tending against such an order. His Honour also noted (at [74]) that the fact that the entry into a deed of company arrangement may prevent an effective investigation by a liquidator into relevant transactions and the opportunity for greater returns may render it contrary to creditors' interests.
The factual basis of MGP's claim is set out in a short form listing of the facts, matters and circumstances for which it contends in seeking the termination of the DOCA. I have referred to events noted in that document in the chronology set out above. MGP there identifies several transactions which it contends warrant further investigation by a liquidator of the Company, namely the purported loan of $167,000 by Wine Vendor to the Company in FYE 2022 (which it is now common ground did not occur); the 'transfer' of $1,200,000 in stock by the Company to Wine Vendor, where the transfer was to a related entity, was purportedly made three days after MGP issued a demand for the Debt, was purportedly 'recorded as a loan' (presumably by the Company to Wine Vendor) which was purportedly repaid by Wine Vendor to the Company in a nine-month period in FYE 2021; and the transfer of two motor vehicles from the Company to Wine Vendor. MGP contends that the Company's affairs warrant further investigations where these transactions also raise a question whether other matters may be revealed by further investigations.
MGP contends that the explanations for these transactions given by Mr Le should be treated with caution, where Mr Le's explanation as to why the Company began winding down its activities (namely changes to the business environment) is not consistent with evidence given by Mr Le in the MGP Proceedings (namely that the winding down occurred as a result of MGP's claim); and also points to the circumstances of Mr Le's claimed debt of $300,000 on account of unpaid wages, and the scale of the 'wind-down' in the Company's activities in the space of two financial years. MGP contends that the DOCA process is being used by Mr Le to shield the Company, his related companies (particularly Wine Vendor), himself (and perhaps Mr Minissale) from scrutiny, where the Company has ceased to trade and has no operational functions and no other parties stand to gain any substantive benefit from the DOCA. MGP also contends that the DOCA would have the effect of allowing the Company, its director, its former director, and related entities of the Company to avoid such scrutiny. MGP points out that it has agreed to fund initial enquiries by a liquidator, and liquidators have consented to act and indicated that they would conduct such enquiries. In these circumstances, MGP contends that the DOCA ought be terminated under ss 447A, 445D(1)(e)-(g) of the Act.
Mr Foley points, in opening submissions, to several matters on which MGP relies to contend that the DOCA should be set aside as an abuse of process under s 447A of the Act, namely:
"(a) on its own evidence, [the Company] ceased trading in October 2020;
(b) to the extent [the Company] ever had employees, it had no employees at the time the DOCA was entered into;
(c) the creditors that voted in favour of the DOCA were comprised of companies of which Mr Le was a director and shareholder (directly or through Minle Holdings) and [the Company's] advisors (which advisors had very small debts);
(d) the DOCA provides no benefit at all to creditors of [the Company], and in all events, would and could only have ever provided a minimal benefit to creditors; and
(e) the only entities which will benefit from the DOCA are Mr Le and his associated entities, in particular Wine Vendor, in that they will avoid the scrutiny associated with investigations which a liquidator will be able to conduct."
Mr Foley also points to the "transfer" of stock by the Company to Wine Vendor and points out that the suggested arrangements are unsupported by any contemporaneous documents, other than the financial records which record their financial impact and that the purported arrangements for the "transfer" and sale of the stock make no commercial sense. I have pointed to the difficulties with Mr Le's evidence as to that transaction above. Mr Foley also refers to the "winding down" of the Company's operations and submits that the Company ceased its operations (which mainly involved exporting alcohol), and at substantially the same time Wine Vendor increased its trading income from $133,110 to $13,037,491 (an approximately 100-fold increase) and changed the nature of its business, such that international exports of alcohol comprised the major component of its revenue ($10,804,179 or approximately 83% of its revenue). Mr Foley submits that this casts "substantial doubt" on Me Le's claim that he did not transfer any goodwill from the Company to Wine Vendor in conjunction with "transferring" the Company's stock to Wine Vendor in October 2020. It seems to me that, whether or not any "goodwill" was transferred in any legal sense, this transaction at least gives rise to potential issues as to conflict of interest or the diversion of corporate opportunity, where Mr Le was a director of both companies and there is no apparent reason that the Company could not have adopted the profitable model for its export business that Wine Vendor adopted, other than the fact that that would have benefited its creditors and not only its shareholders. Mr Foley emphasises that the identification of these transactions results from limited inquiries made by MGP, to the extent that such inquiries have been possible in the context of these proceedings, and submits that these transactions warrant further investigation by a liquidator.
Mr Jordan, who appears for the Administrators, points out that they have put evidence before the Court of the investigations they have undertaken, and that they do not suggest that there is any lack of utility in a liquidation, as to which they remain neutral. I acknowledge that they did not have the time or resources for investigation that would be available in a liquidation, and they rightly submit that the Court will view their actions in the light of their more restricted role. I have, however, noted above that a greater degree of scepticism as to entries made in the Company's accounts would likely have been warranted in the circumstances.
Mr Fermanis, who appears for Mr Le, submits that the Court could not conclude that the Company's affairs warrant further investigation without finding that the Administrators failed to conduct sufficient investigations and that their conduct is in question. I do not accept that submission since, as the Administrators point out, the extent of their investigations was confined by their role; and, plainly, more information is available to the Court than was available to the Administrators, including the fact that Mr Le is unable to explain adequately many aspects of the impugned transactions in cross-examination. I have also noted above that it seems to me that the Administrators would have done well to show greater scepticism, and require greater corroboration, of the explanations of transactions offered by Mr Le than they appear to have done.
Mr Fermanis also points to the general objectives of the voluntary administration regime, which are well-established, and relies on the investigations by the Administrators of the transactions on which MGP placed primary focus. Mr Fermanis submits that "it is trite to say that…[the Administrators] did not determine that [Mr Le] (or the Company for that matter) had engaged in any wrongdoing or anything worthy of further investigation" in respect of those matters. I recognise, however, that the Administrators now accept that the purported loan by Wine Vendor to the Company did not in fact exist; and they do not suggest that they are or could be satisfied that the transfer of stock from the Company to Wine Vendor, and subsequent journal entities extinguishing the corresponding loan by the Company to Wine Vendor, does not require further investigation, where they have not tested the journal entries by which that loan was extinguished; and the evidence now before the Court does not adequately explain them. Mr Fermanis also refers to Mr Le's explanations of these transactions and I have referred to Mr Le's evidence above. Mr Fermanis refers, in submissions, to several cases in which the wishes of an individual creditor, including an unrelated creditor, have been overridden at a second creditors meeting, including by votes of related creditors, and he refers to Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 34 ACSR 391; [2000] NSWSC 99 in that regard. I accept that is a possible outcome, but I also recognise that the Act provides a mechanism for termination of a DOCA in a proper case, under s 447A or under s 445D of the Act, and I have referred above to cases in which that course has been taken. Mr Fermanis also relies on the matters on which he relies to submit that the DOCA should not be terminated under s 445D of the Act to submit that it should also not be terminated under s 447A of the Act. I address Mr Fermanis' submissions in that respect below. For the reasons set out below, it does not seem to me that those submissions displace the factors that warrant termination of the DOCA under s 447A of the Act.
I am satisfied that the DOCA should be set aside under s 447A of the Act and the Company should be wound up. Here, as was also the case in Citadel, the Company's creditors would only benefit in a minimal way from the DOCA, at the point it was executed, and will now not benefit from it. The only creditors of the Company who voted in favour of the DOCA were associated with Mr Le and the Company. The DOCA did nothing to promote the continued operation of the Company's business, which had ceased, or the welfare of its employees, since it had none. The entry into the DOCA was an abuse of the process of Pt 5.3A of the Act and it should now be set aside. Where this order can and should be made to preserve the integrity of Pt 5.3A of the Act, it does not matter whether MGP will fund further investigations by the Company's liquidator, although in fact it will do so. For completeness, Mr Fermanis points to a question, if a basis for termination of the DOCA is established, whether the DOCA should be terminated as a matter of the Court's discretion: Britax Childcare Pty Ltd (ACN 006 773 600) v Infa Products Pty Ltd (ACN 092 222 994) (admins apptd) (2016) 115 ACSR 322; [2016] FCA 848 ("Britax"); Re Recycling Holdings Pty Ltd (2015) 107 ACSR 406; [2015] NSWSC 1016 ("Recycling Holdings") at [29]. I accept that the Court must exercise a discretion in that regard, but the matters to which I have referred above seem to me to have the consequence that that discretion should be exercised in favour of terminating the DOCA, given the conclusions that I have reached as to the basis for that termination.
An order terminating a deed of company arrangement may also be made under s 445D(1)(f) of the Act, on which MGP alternatively relies, if that deed is oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more of the company's creditors or is contrary to the interests of the creditors of the company as a whole. Mr Foley here points to the observation of Santow J in JA Pty Ltd v Jonco Holdings Pty Ltd (2000) 33 ACSR 691; [2000] NSWSC 147 at [90] that, where it is clear that it is not possible for the Company or its business to continue in existence, then those who support a deed of company arrangement bear an onus to show that it would result in a better return for the Company's creditors and members than would result from an immediate winding up. In University of Sydney v Australian Photonics Pty Ltd (subject to deed of company arrangement) (2005) 53 ACSR 579; [2005] NSWSC 412 at [37], Palmer J observed, in respect of s 445D(1)(f), that:
"In determining whether a deed should be terminated under s 445D(1)(f), the court does not make a judgment founded upon mere possibility or speculation; it makes a determination on the characteristics of the deed as they are seen to be at the date of hearing. If a deed is to be terminated under s 445D(1)(f), it has to be seen as having operated, or as presently operating, or as highly likely to operate in the future, in a way which is oppressive, unfairly prejudicial, unfairly discriminatory or contrary to the interests of the creditors as a whole. If the future operation of a deed is in question under s 445D(1)(f), the court should be satisfied that its adverse effect is not a mere possibility or speculation but is, at least, highly likely."
That passage was treated as common ground between the parties in Vero Insurance Ltd v Kassem [2011] NSWCA 381, where Campbell JA (at [83]) (with whom Meagher JA agreed) and Young JA (at [144]) expressed no disagreement with it, and was also approved in Re Pilot Advisory Pty Ltd (2019) 141 ACSR 458; [2019] FCA 2171 at [82].
Whether a deed of company arrangement has the characteristics noted above will be determined by reference to the general principles underlying Pt 5.3A, including a creditor's right to be paid or wind up a company or have the company administered by the administrator in a way which will see the creditor paid from the company's property: Fleet Broadband Holdings Pty Ltd v Paradox Digital Pty Ltd (2005) 228 ALR 598; [2005] WASC 261 at [59]-[60]; Mondello Farms Pty Ltd v Annatom Pty Ltd (subject to deed of company arrangement) (2007) 64 ACSR 91; [2007] SASC 296 at [114]; Recycling Holdings at [60]-[61]; Guo v Song above at [148]; Citadel at [21]. Mr Foley points out that the requisite unfairness may arise where a deed of company arrangement deprives creditors of fuller examinations that a liquidator would undertake, or prevents creditors from seeking to set aside voidable transactions, particularly where the creditors which voted in favour of the deed were parties with an interest in avoiding actions to set aside such transactions: Bathurst City Council v Event Management Specialist Pty Ltd (2001) 36 ACSR 732; [2001] NSWSC 34; Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612; [2003] NSWSC 467 Grocon Constructors Pty Ltd v Kimberley Securities Ltd (admins apptd) (2009) 72 ACSR 305; [2009] NSWSC 541.
Mr Foley also refers to Brereton J's observation in Sales Express at [28] that:
"The provisions of Pt 5.3A were not intended to enable directors, through their control of the majority of creditors, to avoid having their conduct of the affairs of the company scrutinised, at least where the unrelated creditors desire that to happen. That is not to say that the interests of related creditors are necessarily to be disregarded: they may have as valid and proper an interest in the outcome of an insolvency as an unrelated creditor. But as in [Deputy Commissioner of Taxation v Alternative Business Solutions (Aust) Pty Ltd (in admin) (2006) FCA 400] and in this case, where they wish to vote in favour of a deed of company arrangement which offers no benefit for them and which the unrelated creditors do not wish to have imposed on them, generally speaking the interests of the unrelated creditors will prevail."
Mr Fermanis in turn refers to Burley J's identification in Britax at [115] of matters relevant to determining whether a deed of company arrangement is oppressive or unfairly prejudicial, including the objects of Pt 5.3A; the interests of other creditors, the company and the public; the comparable position of the creditor on a winding up compared with their position under the DOCA; and other relevant facts such as the relative position of all creditors under the DOCA (that is, whether they are better off), the existence of a collateral benefit to the shareholders and the whole of the effect of the DOCA. Mr Fermanis submits that, on the Administrators' estimate in his report to creditors, if MGP is admitted as a creditor, creditors would receive 3 cents in the dollar in the DOCA by comparison with a nil return in a liquidation. However, the return in a DOCA would be extinguished by any further claim for remuneration by the Administrators, if they were to change their present intention not to bring such a claim. It also seems to me that he Administrators' estimate of the return in a liquidation requires qualification for the potential for recoveries in relation to the stock loan and the steps by which the debt owed by Wine Vendor was subsequently extinguished, and any claim in respect of any diversion of business from the Company to Wine Vendor.
I would also have found that the DOCA was oppressive and unfairly prejudicial to MGP and contrary to the interests of creditors as a whole, had it been necessary to do so, where MGP's claims are extinguished without prospect of any substantial recovery, which could only be funded by claims against Mr Le or related companies, and creditors as a whole do not benefit from the DOCA, other than to the extent they are companies associated with Mr Le who have an interest in proceedings not being brought against Mr Le or Wine Vendor.
An order terminating a deed of company arrangement may also be made under s 445D(1)(g) of the Act, on which MGP alternatively relies, if the Court is satisfied that the deed should be terminated for some other reason. I have referred above to relevant factors identified by Beach J in Midland Hwy at [69]-[74]. His Honour there noted (and I followed these observations in Citadel at [20]) that:
"… I accept that s 445D(1)(g) is broad and on one view unconstrained, save by its context and s 435A generally, such that this proposition may only be of theoretical interest. …
The Court may set aside a DOCA pursuant to s 445D even where creditors may be better off under the DOCA than with a liquidation: Bidald Consulting at [286]-[291] per Campbell J. It may do so in the public interest.
Where the relevant company is not trading and there is no likelihood of its resuming its former business, the public interest in placing the company in the hands of a liquidator may prevail over the interests of creditors (see Australian Securities and Investments Commission v Storm Financial Ltd (recs and mgrs apptd) (admin apptd) (2009) 71 ACSR 81; [2009] FCA 269 at [69] and [71] per Logan J).
In QBI Corporation Pty Ltd v Plantation Rise Pty Ltd (admins apptd) (recs and mgrs apptd) (2010) 77 ACSR 573… a DOCA was set aside where there was no continuing business preserved and the structure designed and enshrined in the DOCA was to allow and facilitate the director of the company and third parties who were susceptible to voidable transactions to be protected from relevant action.
Generally, the breadth of s 445D(1)(g) is such that in a particular case the public interest can justify the termination of a DOCA even where it is not established that this would necessarily be in the creditors' interests.
Finally, in any event, the preclusion of an effective investigation by a liquidator into relevant transactions and the opportunity for greater returns may render a DOCA contrary to the creditors' interests overall (see Canadian Solar v ACN 138 535 832 Pty Ltd [2014] FCA 783 at [37] (per Perry J)."
In Habrok (Dalgaranga) Pty Ltd v Gascoyne Resources Ltd (2020) 149 ACSR 1; [2020] FCA 1395, Beach J observed (at [410]) that:
"But generally speaking, one should not terminate a DOCA and order a company to be wound up if the DOCA will restore the company to financial health and the DOCA does not have the purpose or effect of unjustifiably quarantining third parties from investigation. If the company is trading and it is likely that its business will continue, then unless there are real public interest concerns, termination of a DOCA and causing a company to be wound up are inappropriate outcomes. The interests of creditors should be the primary consideration, but they may be outweighed if the DOCA has a fraudulent or wrongful purpose."
His Honour also there observed (at [412]) that, even if any of the criteria in s 445D are satisfied, the Court retains a discretion whether to terminate a DOCA, having regard to the creditors' interests and the public interest; see also Re SBL Solutions Pty Ltd (subject to a deed of company arrangement) [2021] NSWSC 1002 at [81]ff.
In opening submissions, Mr Foley identifies several "other reasons" that warrant the setting aside of the DOCA, namely that the DOCA would allow the Company, as an insolvent Company, to continue to trade. I do not accept that submission, where it appears that the debts of the Company would largely be extinguished by the DOCA and it is not apparent that there is any intent that the Company would continue to trade in any event. Mr Foley submits that there is a public interest in liquidators examining the affairs of the Company and the DOCA had the purpose, or at least the effect, of unjustifiably quarantining third parties, implicitly Mr Le and Wine Vendor, from investigation and that the DOCA provides no benefit to creditors. I accept that each of those matters are other reasons which would support setting aside the DOCA, although they also support my finding that the DOCA should be terminated under s 447A of the Act above.
Mr Fermanis responds that there are no facts which would warrant intervention for some other reason. It seems to me that the matters to which I have referred above would also support termination of the DOCA and the appointment of a liquidator, on the basis that there is a public interest in the liquidator's examination, at least of the circumstances of the stock transfer and the cessation of the Company's business and expansion of Wine Vendor's export business.
I would have made an order terminating the DOCA under s 445D(1)(e) or s 445D(1)(f) or s 445D(1)(g) of the Act, had I not found that the DOCA should be terminated under s 447A of the Act in any event.