By Amended Originating Process filed on 1 July 2016, A Murray & Sons Pty Limited ("A Murray & Sons") sought an order for the winding up of the Defendant, Denham Constructions Pty Limited ("Denham") on the grounds of insolvency. It did so in its capacity as a substituted creditor, having been substituted for an earlier applicant for winding up, CSR Building Products Limited ("CSR"), which had not proceeded with a winding up application. The winding up application brought by A Murray & Sons was listed for hearing today.
Yesterday, in other proceedings brought between Hakea Holdings Pty Limited and Denham, Ball J considered various aspects of the financial position of Denham and reached certain conclusions, which are not probative in this hearing so far as it involves other parties. His Honour did not set aside earlier orders that had been made by the Court restraining Denham from taking steps to enforce certain adjudication determinations in respect of other entities, which continue by their terms. As a result, Denham would not be in a position to proceed to enforce those determinations, or to recover moneys which might otherwise be paid to it under them.
Following the delivery of that judgment, a secured creditor of Denham, 5G Capital SPV27 Pty Limited ("5G Capital") appointed Messrs Albarran and Ingram as administrators of Denham pursuant to s 436C of the Corporations Act 2001 (Cth). That section provides that a person who is entitled to enforce a security interest in the whole, or substantially the whole, of a company's property may by writing appoint an administrator of the company if the security interest has become, and is still, enforceable. I should note, for good order's sake, that the criterion for an appointment of an administrator under that section turns on whether the relevant security interest has become enforceable, and to that extent raises different issues from the appointment of an administrator by a company's directors, which may only occur where the directors have formed the view that the company is insolvent or likely to become insolvent at some future time.
The appointment of the administrators in turn raises a question as to the position in respect of the winding up application which was listed for hearing today. Section 440A(2) of the Corporations Act provides, relevantly, that the Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up.
The administrators, who are represented by Mr Katekar in this application, seek a relatively short adjournment of the winding up application, at least in the first instance, to the week commencing 29 August 2016, which would be shortly after the first meeting of creditors is required to be held in the administration. The application for an adjournment is opposed by A Murray & Sons, who were represented by Mr Burnett in the application. I will refer below to the evidence on which the parties rely, and the submissions which they put, in respect of their respective positions. I should first, however, refer to the relevant authorities.
Section 440A(2) of the Corporations Act, to which I have referred above, requires the Court to adjourn the winding up of proceedings if the relevant precondition is satisfied, namely that it is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up. Whether the court is satisfied of that matter is to be determined in the relevant circumstances, and the authorities make clear that it requires a sufficient possibility, and not mere speculation, that creditors' interests will be advantaged by the adjournment of the winding up application: see Creevey v Deputy Commissioner of Taxation (1996) 19 ASCR at 456-457. The circumstances in which that question is to be determined may differ between, for example, an application such as this application which seeks a short adjournment, immediately after administrators are appointed, to a position where, for example, administrators have been in office for some time and the court has to assess whether further to adjourn a winding up, to allow a proposed deed of company arrangement, or other alternatives which may be available in an administration, to go forward. The relevance of the circumstances in which the application is brought was emphasised in Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd [2003] NSWSC 47; (2003) 44 ACSR 377 where Campbell J recognised (at [18]) that what will be required for the court to be persuaded that it is in the interests of the company's creditors for the company to continue under administration rather than to be wound up, and accordingly to adjourn the winding up application, will differ depending on the circumstances in which the application comes before the court. His Honour there noted:
"It is common enough, in applications under s 440A, for an administrator to need to seek an adjournment very soon after his or her appointment, at a time when he or she knows very little about the affairs of a company. In that sort of situation, comparatively little material might be needed to justify a short adjournment. As time goes on, however, and the occasion that there has been for the collecting of evidence increases, so the amount of material which might need to be put before the court before it is persuaded, would increase."
The parties have here drawn attention to several other authorities which deal with questions of adjournment under s 440A of the Corporations Act, some of which deal with analogous circumstances and others of which deal with somewhat different circumstances. Mr Burnett draws attention to the decision in Deputy Commissioner of Taxation v KJ Consulting Pty Ltd [2005] FCA 1827, which was an application made where the administration was somewhat further advanced, immediately before the second meeting of creditors was due to be held. In that case, Gyles J drew attention to several factors in favour of an adjournment, including that it would enable the general body of creditors to exercise commercial judgment as to their best interests, and other factors tending against the adjournment, including that the company was not trading and that its situation was not likely to be revived by trading as such. Mr Burnett submits that Denham is not trading, at least in the sense that it is not undertaking continuing construction work. I will return to that proposition below.
Mr Katekar draws attention to the decision of Australian Securities and Investments Commission v Storm Financial Ltd (recs and mgrs apptd) (admin apptd) [2009] FCA 269; (2009) 71 ACSR 81, where the Federal Court noted the decision in Creevey v Deputy Commissioner of Taxation above and subsequent decisions that had followed it, including the decision of Philip McMurdo J in Re Octaviar Ltd (formerly MFS Ltd) [2008] QSC 216, which had in turn also referred to the observations of Campbell J in Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd above. Mr Burnett also draws attention to my decision in Weriton Finance Pty Ltd v PNR Pty Ltd (in admin) [2012] NSWSC 1402; (2012) 92 ACSR 88, where I undertook a relatively detailed review of the relevant authorities, in circumstances that the question whether the winding up application should be adjourned had arisen several months after the appointment of the administrator.
Mr Katekar draws attention to the decision of Brereton J in Re Bobos Engineering Australia Pty Ltd [2015] NSWSC 2027, which has some similarity to the facts of this case. In that case, a voluntary administrator was appointed shortly before the hearing date for a winding up. Brereton J referred (at [4]) to the fact that Courts should approach an appointment of an administrator that is made at a last moment before a hearing of a winding up application with a degree of scepticism, where a company has previously opposed a winding up application: see, for example, Re Offshore and Ocean Engineering Pty Ltd [2012] NSWSC 1296 at [15], aff'd Offshore and Ocean Engineering v Greenwich Contractors Pty Ltd [2012] NSWCA 371. The present case does not involve, strictly, that position. Here, the appointment of the administrators has been made by a secured creditor rather than by the Company's directors, albeit a secured creditor that has appeared, by leave, throughout the winding up application. Here, there is also an intervening event, since, whatever the position of Denham prior to the judgment of Ball J delivered yesterday, the continuance of injunctions preventing the enforcement of the relevant adjudications was plainly adverse to its financial position.
The decision in Re Bobos Engineering Australia Pty Ltd above is also relevant, for present purposes, because his Honour there recognised that a short adjournment could be sought, as here, to facilitate exploration of the possibility of a deed of company arrangement, even where his Honour noted that the evidence before him was insufficient to establish that it was in the interests of the company's creditors for the company to continue under administration indefinitely rather than be wound up. His Honour recognised that the mere possibility that a deed of company arrangement may ensue would be insufficient to satisfy the relevant test, but also noted (at [9]) that:
"When one is looking not at the indefinite continuation of the administration, but its continuation for a very short period, the considerations are somewhat different. It seems to me that there is a realistic possibility that a deed of company arrangement may be proposed ... It is in the interests of the company's creditors for the administration to continue, albeit only for a short period, to ascertain whether a DOCA that would have that effect is likely to emerge ... no real detriment to the position of the creditors from such an adjournment has been identified, other than the costs of the administration."
It seems to me that his Honour's judgment is significant in identifying that, in an application brought at an early point in administration, the question may properly be identified as not whether a deed of company arrangement that may or may not eventuate would ultimately be in the interests of creditors, but instead whether it is in the interests of creditors that an opportunity should be provided for administrators to take control of the company's assets, assess its position, and for any person who may propose a deed of company arrangement to do so, and to indicate the terms of that arrangement, at least to the extent that would be necessary to secure any further adjournment of the winding up application beyond the short adjournment that might initially be sought.
With that background, I turn now to the evidence which is relied upon in this application. The administrators rely on the affidavit of Mr Albarran dated 16 August 2016 which indicates that Mr Albarran provided a consent to act as administrator yesterday, and was appointed, with Mr Ingram, as joint administrators of Denham by 5G Capital yesterday. Mr Albarran also refers to a conversation with the solicitor for 5G Capital which indicated that 5G Capital was currently "considering" proposing a DOCA "in an amount that could provide a better return to creditors than a liquidation", and also referred to the fact that 5G Capital would need some form of investigation to work out what amount might be proposed.
Mr Burnett points out, and I accept, that the indication of the possibility of a deed of company arrangement in that statement is highly qualified, so far as it goes no further than the consideration of that possibility; indicates only that the amount involved "could provide" a better return to creditors; and indicates that further investigation would be required to work out such an amount. Plainly, that conversation did not amount to any commitment by 5G Capital to propose such a deed of company arrangement, still less in a form that would ultimately deliver a better return to creditors than a liquidation. That may have been determinative, if this was an application made, when an administration was further advanced, to adjourn a winding up application. It is not necessarily determinative where the application is made at this point, and allowing an adjournment for a short period may allow 5G Capital, in effect, to formulate such a proposal or not, and if it fails to do so, the Court might then not further adjourn a winding up application.
The administrators also rely on an affidavit dated 17 August 2016 of Mr Hunt, the solicitor for 5G Capital, which in turn refers to an affidavit of the sole director of 5G Capital dated 9 August 2016 sworn in other proceedings. That affidavit indicates the circumstances in which 5G Capital became involved with the McGrath Group, of which Denham forms part, and refers to that director's understanding that the 5G Group could assist the McGrath Group to restructure and refinance. Mr Burnett submits that the evidence of that director should be given limited weight, so far as this application is concerned, and I accept that there are some difficulties in extrapolating that evidence to 5G Capital's current position. These include that the evidence was given in respect of the conduct of due diligence in early 2015, and it may well be that the position of Denham, as a stand-alone company, is today worse than the position of the McGrath Group in early 2015; second, as Mr Burnett points out, that the conversation relates to the position of the McGrath Group, rather than specifically to the position of Denham; and third, that the evidence suggests that some of the assets and liabilities referred to were in other companies within the McGrath Group.
Having said that, Mr Hunt's affidavit also indicates that he is instructed by the sole director of 5G Capital that it "intends to offer a deed of company arrangement in order to give the creditors of [Denham] a better return than liquidation." I would not read that statement as significantly stronger than that contained in Mr Albarran's affidavit to similar effect, but it does provide at least some indication that, given further time, 5G Capital would propose such a deed of company arrangement, and that may provide a better return than liquidation. That proposition finds some support in the commercial logic of the position since, as I will note below, it is plain that Denham has significant claims against creditors, as well as significant liabilities, and there may be an advantage to 5G Capital, as a secured creditor of the McGrath Group, in avoiding a liquidation of that company. Whether that is ultimately the case, and whether a deed of company arrangement proposal ultimately emerges and is ultimately more favourable to creditors of Denham than a liquidation, will only be known if the Court allows at least some short adjournment, to allow the opportunity for such a proposal to emerge.
The administrators also tendered an affidavit of Mr Steven McGrath, the sole director and shareholder of Denham, dated 15 July 2016, a part of which was admitted on a limited basis. I do not consider that that affidavit establishes that Denham is conducting an ongoing construction business, if by that one means that it is conducting ongoing activities of construction at particular sites. That affidavit does, however, suggest that Denham has a number of ongoing dealings with a number of clients, which support the proposition that there may be benefit to 5G Capital in seeking to achieve a deed of company arrangement in respect of Denham, in order, potentially, to resolve the position in respect of those clients. I would also read that affidavit as establishing that Denham has a number of claims against such other clients, although I recognise that, no doubt, such other clients may also have claims against Denham.
A Murray & Sons in turn tenders a balance sheet of Denham Constructions as at June 2016, which it seems to me should be approached with a degree of caution, where it appears to be unsigned and unaudited, but, on its face, indicates a significant level of trade debtors, a significant level of trade creditors, which may or may not be disputed, and a substantial liability to 5G Capital, exceeding the level of trade creditors. I am conscious that the accuracy of that balance sheet may depend upon issues that are contested, including, for example, claims of parties such as the Deputy Commissioner of Taxation, which previously sought to intervene in and then withdrew from these proceedings. However, that balance sheet also indicates at least the possibility, as I noted above, that Denham has significant claims against third parties, which might provide a commercial reason for the development of a deed of company arrangement. A Murray & Sons also relies on an affidavit of Mr Cordingley dated 5 August 2016, which indicated that Denham has not undertaken ongoing construction work at a particular project since late 2015. There may be a question as to the weight to be given to that affidavit, and as the extent to which Mr Cordingley is aware of the position since January 2016, but it is not necessary to determine that question, since it does not seem to me that the continuance of construction works at one or more projects of Denham is a significant issue, so far as the short adjournment which is sought is concerned.
As I have noted above, the case law establishes that, in order to adjourn a winding up application under s 440A of the Corporations Act, the Court must be satisfied, by more than mere speculation, that it is in the interests of Denham's creditors for Denham to continue under administration, at least for the period of that adjournment, rather than be wound up. Mr Katekar submits that, in this case, it is in creditors' interests to grant that adjournment, for the short period that is sought, where the appointment of the administrators to Denham will ensure that an independent party takes control of its assets over the short period that the adjournment is sought; creditors as a whole can then vote at the first meeting of creditors as to whether the administrators remain in office, or another administrator is appointed; there will be an opportunity for 5G Capital and the administrators to advance any proposal for a deed of company arrangement in that period; and, when the matter is next before the Court, either the Court will be satisfied, on the evidence then before it including any further evidence as to the state of that proposal, that a further adjournment should be granted, or the Court may then decline to adjourn the winding up application and proceed to determine it. Mr Katekar also draws attention to evidence that, if a liquidator is appointed, 5G Capital will appoint receivers and managers over the assets as to which it has security. I accept that that proposition has some relevance, so far as it means that the steps that could be taken by a liquidator would be limited, essentially to investigating any potential claims that may be available in respect of insolvent transactions or for insolvent trading, where all, or substantially all of Denham's assets would be in the hands of the receivers and managers, and that there would be an impact on the costs of the insolvency, so far as both a liquidator and receivers would then be in place.
Mr Burnett in turn submits that the evidence rises no higher than a speculation that a deed of company arrangement may be forthcoming. I have noted above that the evidence falls well short of any commitment that a deed of company arrangement will be advanced, or that its content will be such that it is ultimately more advantageous to creditors than a liquidation. However, the question before me today is not whether to adjourn the winding up application indefinitely, or for a substantial period, but whether to adjourn it for a relatively short period, which would allow such a proposal to be advanced, in the period of that adjournment. Mr Burnett submits, and I accept, that there is less reason to grant such an adjournment, where a company is not engaged in an ongoing business. However, I have noted above that it seems to me that Denham, whether or not it is engaged in active construction work, at least is engaged in dealing with various clients, in respect of the claims by it and against it, and that there may, as I have noted, be commercial reasons why 5G Capital may seek to propose a deed of company arrangement in that context.
Mr Burnett also points out, and I also broadly accept, that the earlier evidence of 5G Capital's interest in assisting with a restructuring of the McGrath Group of is of limited relevance, but it does not seem to me to follow from that proposition that the evidence which is now given of its intent to propose a deed of company arrangement, qualified as it is, should not be given some weight. Mr Burnett also raises the possibility that, where there is no evidence as to the funding of the administrators, the appointment of administrators will be adverse to Denham's creditors, so far as their remuneration may be a claim against Denham's assets. It seems to me that, on balance, that risk is limited, first because their appointment will be for a relatively short period; second because, as Mr Katekar points out, there is a possibility that they may be appointed as liquidators, if liquidators are ultimately appointed, and their work would not be wasted; and, third, even if another administrator is appointed at the first meeting of creditors, or the Court is ultimately persuaded that a liquidator who was not nominated by 5G Capital should be appointed, that administrator or liquidator is likely then to be able to take advantage of any work that the administrators have undertaken in the interim.
On balance, it seems to me that this case is one that is closely analogous to that considered by Brereton J in Re Bobos Engineering Australia Pty Ltd above. The case is one where the administrators have only recently been appointed; the evidence that is before me suggests that there is at least a possibility that a deed of company arrangement will be proposed, and a short adjournment may allow that possibility to be advanced; it seems to me that it is generally in the interests of Denham's creditors that they have an opportunity to receive an indication of the terms of such an arrangement, rather than be deprived of that opportunity at this point; and there is limited detriment to creditors from a short adjournment of the winding up application at this point. It should not be assumed that these matters would support a further adjournment of the winding up application, after the matter is listed again following the first meeting of creditors. No doubt, 5G Capital might prefer to undertake an extended investigation, before proposing a deed of company arrangement. However, it may not have the opportunity to do so, in this case, by reason of the scepticism with which the Court approaches administrations commenced shortly before a winding up application, and in circumstances that, by the time of the next listing, the Court would expect to have an assessment made by the administrator before it, of the extent of Denham's creditors on the one hand and its assets on the other. The short adjournment of the winding up application which I propose to order is, in the present case, the product of the recent appointment of the administrators, and the short period for which an adjournment is sought, and does not indicate that such an adjournment would be extended without significantly more evidence than was available today.
There have also been discussions between Counsel and the Court as to directions which should properly be made to allow the further listing of this matter to be dealt with efficiently, and I will also make directions in that respect. Mr Burnett has also, rightly, drawn attention to the fact that the original winding up application, brought by CSR, was filed on 22 February 2016, and accordingly the application has now been on foot for nearly six months. Section 459R of the Corporations Act provides that an application for a company to be wound up in insolvency is to be determined within six months after it is made. Section 459R(2) of the Corporations Act provides that the Court may by order extend that period, but only if the Court is satisfied that special circumstances justify the extension, and the order is made within the period prescribed in s 459R(1) of the Act. The concept of special circumstances is directed to circumstances that are out of the ordinary. It seems to me that, although it is by no means unknown that an appointment of an administrator intervenes, immediately prior to the date on which a winding up application is heard, that is by no means the ordinary course of events. Other matters which distinguish this matter from the ordinary course of events include the complex issues that arose as to the question whether A Murray & Sons should be substituted, as it has been, for CSR in the winding up application and also issues which arose in respect of the service of the original winding up application. I am satisfied that, in the present case, there are such special circumstances which justify the extension, which include that the winding up application has been diligently pursued by A Murray & Sons, but has not been able to be determined within the six-month period, by reason of events outside its control, including the issues relating to the original application, and now the appointment of the administrators which has prevented a hearing of the application today.
In this matter I make the following directions:
Pursuant to s 440A(2) of the Corporations Act, the proceedings be adjourned to 9.15am 1 September 2016 before Black J.
The costs of today be reserved.
Pursuant to s 459R of the Corporations Act, extend the time for determination of the winding up application in respect of Denham Constructions Pty Ltd to 30 November 2016.
The administrators of Denham Constructions Pty Ltd to serve, and send to the Associate to Black J, all affidavits on which they rely, and their submissions, in respect of any further application for an adjournment of the winding up proceedings, or otherwise in respect of the proceedings, by 4pm 29 August 2016.
A Murray & Sons to serve, and send to the Associate to Black J, any affidavits and submissions on which it relies by 4pm 31 August 2016.
[3]
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Decision last updated: 12 October 2016