Berjaya Group (Aust) Pty Ltd v Ariff [2007] NSWSC 1049 | Case summary

[20] It is thus clear that CCL is by far the largest creditor of each of the other three companies and that the Berjaya companies account for approximately 90% of the debts of CCL. The deeds of company arrangement work on the basis that recoveries within each of CCA, CK and CM are fed into deed funds established under the CCL deed, one for employees and the other for other creditors, on the basis that all creditors of all companies will participate in the CCL funds, but with the Berjaya companies participating on a deferred basis that affords priority to other creditors. In these circumstances, the main focus of the present application is upon CCL." 3 In the present proceedings, the plaintiffs (conveniently referred to together as "Berjaya") seek various relief recognising, in effect, that the deeds of company arrangement have terminated by operation of s.445C of the Corporations Act 2001 (Cth) or should be terminated by the court under s.445D. The position the plaintiffs take, in these respects, is that Mr Ariff has no further functions to perform as deed administrator and must cease operating as deed administrator; and that the directors of the Carlovers companies are now entitled to function without regard to the impact of the deeds. 4 Mr Ariff, for his part, has filed an interlocutory process seeking relief the effect of which, if granted, would be to put an end to the deeds (assuming they are still operative) but in the context of measures designed to safeguard the interests of Mr Ariff in the quantification of his remuneration and the payment of both his remuneration and disbursements. 5 The parties are thus agreed that, if the deeds have not already terminated, they should be terminated, although Mr Ariff's position is that this should be done only on terms as to the matters I have just mentioned. There is no agreement, however, on the preliminary question, that is, whether the deeds have already terminated. 6 When the matter came before me for hearing on 13 September 2007, Mr B.A.J. Coles QC and Mr J.P. Redmond appeared for Berjaya and Mr S.R. Donaldson SC and Ms R. Francois appeared for Mr Ariff. With the concurrence of counsel on both sides, attention was confined to the preliminary question whether the deeds have already terminated. That is essentially a question of construction to be answered in the factual context created by the evidence. It was agreed that the court should rule on the preliminary question before returning to remaining matters some of which, depending on that ruling, might not need to be addressed. 7 Mr Coles contended that, according to the proper construction of each deed, s.445C has already operated to terminate the deed. Mr Donaldson submitted that s.445C has not operated in that way. Section 445C is in these terms: " When deed terminates A deed of company arrangement terminates when: (a) the Court makes under section 445D an order terminating the deed; or (b) the company's creditors pass a resolution terminating the deed at a meeting that was convened under section 445F by a notice setting out the proposed resolution; or (c) if the deed specifies circumstances in which it is to terminate--those circumstances exist; whichever happens first." 8 It was accepted on both sides that the only relevant part of s.445C is s.445C(c) and that, as contemplated by s.445C(c), each deed "specifies circumstances in which it is to terminate". The difference of views centres on the question whether, in the words of s.445C(c), "those circumstances exist". It is in this way that the question of construction arises in relation to the deed provisions. 9 I should mention at this point that, although there are four separate deeds of company arrangement, they together create a scheme of combined administration of funds for the benefit of creditors of all four companies. The deed in relation to CCA is, as it were, the "lead deed" in that it contains comprehensive provisions and makes detailed specifications which are picked up by and apply for the purposes of the three other deeds. The parties accept that, in approaching the question of construction before the court, it is sufficient to have regard to the CCA deed alone. 10 The provision of the CCA deed which is said to specify circumstances in which the deed is to terminate is clause 30.1: "This Deed will continue in operation until it is terminated: (a) by an order of the Court under section 445D of the Corporations Act; (b) by a Resolution of the Creditors at a meeting convened under section 445F of the Corporations Act and in accordance with clause 26; (c) by the payment to all Admitted Creditors of the Dividend; or (d) by the happening of events which are by the terms of this Deed expressed to terminate this Deed automatically without recourse to the Court or to a meeting of the Creditors." 11 For reasons I sought to explain in Lo Pilato v Eden Construction Pty Ltd (2002) 20 ACLC 1744 at [7], a provision such as this defining, in terms of some event, the point until which a deed is to continue in operation is properly regarded as one which specifies, by reference to the happening of the event marking that point, a circumstance in which, the deed "is to terminate". 12 In the present case, the event in clause 30.1 upon which Berjaya relies is: "… the payment to all Admitted Creditors of the Dividend". 13 Berjaya says that that event has happened. Mr Ariff says that it has not. This makes it necessary to consideer a number of other provisions of the deed before turning to the factual background. First, I set out the definitions of "Admitted Creditors" and "Dividend" found in clause 1.1: " 'Admitted Creditors' means creditors whose claims are ascertained and admitted by the Administrator and entered into the register of Admitted Claims in accordance with clause 24." " 'Dividend' means the distributions to which the Admitted Creditors will be entitled under clause 11, including any interim distributions which the Administrator in his absolute discretion may those to declare." 14 Clause 11 of the deed is in these terms: " Payment of dividend to creditors The Administrator will pay each Dividend to each Admitted Creditor on or before the Payment Dates. The Administrator will make these payments by cheque sent by ordinary pre-paid post to the last address of each Admitted Creditor notified to the Administrator." 15 "Payment Dates" is defined by clause 1.1 as follows: "'Payment Dates' means in relation to payment of the Admitted Claims, a date or dates to be determined by the Administrator in his absolute discretion, however the last of which dates shall be approximately 15 months from the Commencement Date and following receipt of all moneys to be received by the Administrator in accordance with paragraphs 13 and 15 hereof." 16 It is unnecessary to examine the process for the identification of "Admitted Creditors". As I understand the position, there is no dispute that, with one exception, the "Admitted Creditors" have been determined and that their claims have been quantified. The exception relates to Westpoint. I shall return to this. 17 The consequences and significance of "Admitted Creditor" status emerge from a number of provisions. First, there are definitions of "Deed Fund Number 1 Creditors" and "Deed Fund Number 2 Creditors". The latter expression refers to "Priority Creditors" (a concept distinct from "Admitted Creditors") and to certain of the "Admitted Creditors", being all "participating unsecured creditors" other than certain of those creditors specifically identified. "Deed Fund Number 1 Creditors" are all "Admitted Creditors" other than the "Deed Fund Number 2 Creditors". 18 Provision is made in clause 13.1 for the creation of a fund designed "Deed Fund Number 1". Clauses 13.2 and 14 then specify the way in which "Deed Fund Number 1" is to be applied and set out an order of priority of payment - including "in payment of the Dividend to the Deed Fund Number 1 Creditors". Payment of "the Dividend" is something required of the deed administrator by clause 11. 19 Clauses 15 and 16 make similar provision in relation to "Deed Fund Number 2". Clause 15.1 says what is to make up that fund, while clauses 15.2 and 16 deal with the manner of its application. Again, provision is made for "payment of the Dividend" (the matter covered by clause 11), but in this case to "Admitted Creditors, not being Deed Fund Number 1 Creditors". 20 Deed Fund Number 1 and Deed Fund Number 2 are both comprehended by a definition of "Funds" in clause 1.1. There are several references to "the Company's property and the Funds". These words appear in clauses 7.1 and 7.3 which are concerned with recoupment by the deed administrator of "all Costs and Expenses of this Deed", which expression is defined in clause 1.1 in such a way as to cover, among other things, all costs of implementing the deed and the remuneration of the deed administrator under clause 6. The last mentioned clause says that the deed administrator will be "remunerated by the Company for work performed under this Deed" at rates described in the clause; and that the deed administrator will be "reimbursed by the Company for all other Costs and Expenses of this Deed". Clauses 7.1 and 7.3 create, in favour of the deed administrator, a right of indemnity out of and a lien over "the Company's property and the Funds" in respect of "all Costs and Expenses of this Deed". 21 The deed draws a distinction between "the Funds" (as defined) and "the Company's property" (undefined). I doubt that this is intended to indicate that "the Funds" are not property of the company (cf Federal Commissioner of Taxation v All Suburbs Car Repairs Pty Ltd (1994) 14 ACSR 753; Lombe v Wagga Leagues Club Ltd (2006) 56 ACSR 387; Re Purchas; Estore Pty Ltd (2006) 154 FCR 246; Purchas; Worldwide Workers Pty Ltd [2006] FCA 1223). The indication is, rather, that such property of the company as is not within either of the two designated funds is to be dealt with, together with the property within the funds, in the ways specified in relation to "the Company's property and the Funds" - while property within a particular fund (but not other property) is to be dealt with in the ways specified in relation to that fund. 22 It is now necessary to say something more about the provisions concerning the two funds. I deal first with Deed Fund Number 1. 23 Under clause 13.1, the components of Deed Fund Number 1 are, first, "cash deposits" (undefined) held by the deed administrator on account of CCL, CCA, CK and CM; second, 70% of all proceeds recovered by the deed administrator from moneys owing to those companies by franchisees of those companies (net of costs of recovery); third, the net proceeds of the sales of specified properties at Lismore and Underwood; fourth, a sum of $180,000 payable by the companies to the deed administrators by specified instalments over a period to 31 December 2004; and, fifth, certain interest becoming payable to the companies. 24 In his affidavit of 24 August 2007, Mr Ariff states that Deed Fund Number 1 currently stands at $39.37. His affidavit makes it clear that, subject to one clear qualification and one possible qualification, all items to be allocated to this fund have been so allocated and that no possibility of augmentation of the fund exists. The clear qualification relates to the element concerning net proceeds of recoveries from franchisees. Mr Ariff refers in his affidavit to action taken to pursue various franchisees and results achieved in terms of receipt of moneys then allocated to Deed Fund Number 1. He then says: "(g) There are still a number of franchisees who owe franchise fees to the Companies. I have not made a final decision about whether to pursue these potential recoveries. In November 2006 my previous solicitors, Clayton Utz ceased acting for me. In December 2006 I was served with these proceedings. At around this time I decided to defer taking any further steps to pursue franchisee recoveries for the following reasons: (i) It would be costly to instruct new solicitors to pursue the claims; (ii) These proceedings raised questions about my continue role as Deed Administrator of the Companies; (iii) I considered the remaining potential recoveries to be problematic claims and I was doubtful that recoveries could be made without securing judgments against those franchisees. I considered that given the risks of litigation, the quantum of the potential recoveries, the costs of litigation, and prospects of recovering payments, that further recovery action would be unlikely to produce further commercial benefits for the Companies. (iv) The Committees of Inspection (that comprise representatives of the plaintiff) would not approve my remuneration." 25 There thus exists a possibility of further recoveries from franchisees. Mr Ariff says, quite clearly, that some franchisees still owe franchise fees to the companies; and that, while, in about December 2006, he decided to defer taking further steps to pursue franchisee recoveries, he has "not made a final decision about whether to pursue these potential recoveries". The possibility of accretions to Deed Fund Number 1 thus plainly exists. Whether accretions will eventuate depends on whether Mr Ariff decides to pursue potential recoveries and, if so, whether his actions in that direction are successful. 26 The possible qualification referred to at [24] above relates to a sum of about $11,000.00 expected to be received from former solicitors for the companies. Mr Ariff deposes to an opinion that these moneys should be paid into Deed Fund Number 1 "as they fall within the property available to Deed Fund 1 under clause 13.1". The reason why this should be so (and why the receipt will not simply be part of "the Company's property" separate from "the Funds") is not elucidated and, for present purposes, need not be pursued. 27 I refer next to the modes of application of Deed Fund Number 1 prescribed by clauses 13.2 and 14. The leading specification is that in clause 13.2, namely, that Deed Fund Number 1 be distributed to the "Deed Fund Number 1 Creditors" pro rata to their Admitted Claims. But this is qualified by clause 14 which states that, subject to a qualification in clause 34 which, as it were, grants a "super priority" to certain costs and expenses of the deed administrator and the administrator under the antecedent voluntary administration (which "super priority" appears to attach to the part of Deed Fund Number 1 consisting of "cash deposits"), Deed Fund Number 1 is to be applied, first, towards the trading shortfall and disbursements of the deed administrator and the voluntary administrator; second, towards "the Costs and Expenses of the Deed"; third (and as previously noted), "in payment of the Dividend to the Deed Fund Number 1 Creditors"; and, fourth, so that any balance is allocated to Deed Fund Number 2. 28 It is Mr Ariff's evidence that the first class of items has been satisfied in full out of Deed Fund Number 1, that the second class has been satisfied in part only and that the balance of $39.37 still available is applicable to that second class but will not satisfy the class in full. On this basis - and assuming that there are no future accretions to Deed Fund Number 1 because of further recoveries from franchisees (see [25] above) - there will be nothing in Deed Fund Number 1 applicable towards payment of the Deed Fund Number 1 Creditors - or, of course, for transfer to Deed Fund Number 2. 29 The components of Deed Fund Number 2 are set out in clause 15.1. They are a sum of $180,000 to be paid by the companies to the deed administrator by way of instalments over a period to 31 December 2004 (this is in addition to the like sum to go into Deed Fund Number 1), any surplus transferred from Deed Fund Number 1 in the way already noticed and any interest on instalments transferred by the companies into the two funds later than the due dates for transfer. 30 Deed Fund Number 2 is, by clauses 15.2 and 16, made applicable towards the Admitted Claims of Deed Fund Number 2 Creditors, on the footing that Admitted Claims of Priority Creditors are to be met first on a pro rata basis and any balance in the fund is to be applied, as already noted, "in payment of the Dividend to Admitted Creditors, not being Deed Fund Number 1 Creditors" - in other words, "Deed Fund Number 2 Creditors" (see [17] above). 31 Mr Ariff's evidence makes it clear that Deed Fund Number 2 has been fully constituted, in the sense that all items contemplated by clause 15.1 have been allocated to that fund. What I have just said is, however, subject to the same qualification as exists in relation to Deed Fund Number 1. To the extent that there remains a possibility that Deed Fund Number 1 may be augmented by further and future recoveries from franchisees (see [25] above), so too there remains, at least in theory, the same possibility in relation to Deed Fund Number 2. This is because, at a theoretical level, the further and future recoveries from franchisees might be sufficient not only to meet in full the several claims cast by the deed upon Deed Fund Number 1 but also to produce some surplus in that fund which becomes transferable to Deed Fund Number 2, thus augmenting that fund as well. 32 The evidence is that all the admitted Claims of Priority Creditors to which Deed Fund Number 2 is first to be devoted have been met in full. The other claims cast upon Deed Fund Number 2 have been satisfied to the extent of 18 cents in the dollar. Some future accretion to Deed Fund Number 2 under the provision causing it to be augmented by any surplus from Deed Fund Number 1 would thus produce further dividends for Deed Fund Number 2 Creditors. 33 The remuneration of the deed administrator has not yet been fixed or quantified. The remuneration of the administrator under the antecedent voluntary administration has been fixed for part of the administration period only. These items form part of the "Costs and Expenses of this Deed" in respect of which the deed administrator is entitled to indemnity out of "the Company's property and the Funds" under clause 7.1. Having regard to clause 7.5 and the order of priority set out in clause 14, the administrator's claim for as yet unquantified remuneration has a call on not only "the Company's property" (undefined) but also a call on "the Funds", the latter call being superior to the right of any Admitted Creditor to receive a distribution out of either of the funds. How the burden of "Costs and Expenses of this Deed" is to be borne as between "the Company's property" and "the Funds" does not appear to be explained. It seems to me to follow that, unless and until the remuneration items are fixed and fully quantified (and, I suspect, unless the extent of "the Company's property" is known), there can be no finding about the extent of the inroads that "Costs and Expenses of this Deed" will make upon "the Funds" - and therefore no finding about how much of either of "the Funds" will be available to be applied towards purposes lower in the order of priority applicable to the particular fund than "Costs and Expenses of this Deed". 34 I have referred at [16] above to Westpoint. It claims to be entitled to Admitted Creditor status relevant to Deed Fund Number 1 and has lodged a proof of debt accordingly. Mr Ariff has rejected that proof. Westpoint has instituted proceedings in the Supreme Court of Western Australia appealing against the decision to reject. Attempts have been made to settle the matter. In the meantime, it cannot be said that all creditors entitled to participate in Deed Fund Number 1 have been identified or that all claims of such creditors relevant to that fund have been quantified. 35 Against this background, I return to the central question whether there has been "payment to all Admitted Creditors of the Dividend". As I have said, "Admitted Creditors" has become a closed class in relation to Deed Fund Number 2, although (having regard to the Westpoint position) not in relation to Deed Fund Number 1. The "Admitted Creditors" whose claims are relevant to Deed Fund Number 2 have received "payment", in the sense that money has been transferred to them. Of those Admitted Creditors, some (being the employee creditors), have received 100 cents in the dollar and others (unsecured trade creditors) have received 18 cents in the dollar. But the Admitted Creditors whose claims are relevant to Deed Fund Number 1 have received no "payment" in the sense of transfer of money. 36 Mr Coles submitted, however, that the question whether the circumstance described in claim 30.1(c) has arisen cannot be decided simply by seeing whether there has been a transfer of money to every Admitted Creditor and, if there has not, saying that there has not been "payment" of "the Dividend" to all of them. This is because the relevant concept of "payment" takes its meaning from the definition of "Dividend" which refers to distributions to which the Admitted Creditors "will be entitled under clause 11". Emphasis is to be placed upon the word "entitled". The result, Mr Coles submitted, is that if, in the circumstances actually prevailing, there will be such a shortage of cash resources that all those resources will be absorbed in meeting claims superior to those of "Admitted Creditors" (or a relevant class or group of them), the "entitlement" in effect evaporates and disappears so that the fact that relevant "Admitted Creditors" have received no money does not stand in the way of a conclusion that there has been "payment" of the "Dividend" to those creditors. Because they are, in the postulated circumstances, "entitled" to nothing, receipt by them of nothing is said to represent payment to them of that to which they are entitled. 37 I do not need to come to a conclusion about the correctness of this construction. This is because I am of the opinion that circumstances of the kind it contemplates do not exist in this case. In short, it cannot be said that Deed Fund Number 1 is fully constituted, that all claims having a call upon "the Funds" superior to the claims of Admitted Creditors have been quantified or that all "Admitted Creditors" relevant to the application of Deed Fund Number 1 have been identified. Lack of full constitution of Deed Fund Number 1 (which might also mean that Deed Fund Number 2 is not fully constituted) is a product of Mr Ariff's evidence about potential pursuit of franchisees in the future. Lack of quantification of superior claims upon the funds comes from the circumstance that remuneration has not been fixed and quantified. Lack of full and final definition of the "Admitted Creditors" relevant to Deed Fund Number 1 comes from lack of resolution of the Westpoint situation. 38 Mr Coles emphasised that the question whether any "entitlement" exists is to be answered according to the balance of probabilities. Assuming that to be so, the evidence as to amounts and values does not, in my view, allow the court to conclude, to the requisite standard, that one possible outcome is more probable than another. The available information is simply inconclusive, even when the civil standard of proof is applied. 39 In summary, it is not, as I see it, open to the court at this stage to conclude that the circumstance in clause 30(1)(c) (… the payment to all Admitted Creditors of the Dividend") has arisen. The court therefore will not proceed on the footing that s.445C(c) has operated to terminate the deeds of company arrangement. 40 At this point, the appropriate course is merely to note the conclusion that s.445C(c) has not operated to terminate the deeds and to arrange for the proceedings to be listed at 10am on 24 September 2007 before me for directions regarding the other claims raised by Berjaya's originating process and Mr Ariff"s interlocutory process. Costs of the hearing that resulted in publication of these reasons will be reserved. **********

Berjaya Group (Aust) Pty Ltd v Ariff

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Judgment (14 paragraphs)

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