Blacktown City Council v Macarthur Telecommunications Pty Ltd

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

4407/03 BLACKTOWN CITY COUNCIL v MACARTHUR TELECOMMUNICATIONS PTY LIMITED JUDGMENT - Ex Tempore 1 HIS HONOUR: These proceedings relate to the affairs of Macarthur Telecommunications Pty Limited. It is a company which was, in effect, controlled by a Mr Cullen. It was engaged by Blacktown City Council to act as the supervisor of various roadworks. Blacktown Council alleges that certain civil engineering works connected with those roads were not carried out properly, and that Macarthur is liable to it for those deficiencies. There are two proceedings in the District Court where Blacktown Council makes those allegations. Those proceedings are District Court proceedings 6351/99 and 6352/99. 2 Proceedings 6352/99 were originally begun by some landowners against Blacktown Council, making allegations of trespass. The trespass related to a sewer which had been constructed on their land and some soil nails which had been put into their land. The work in the course of which the landowners alleged these trespasses had occurred was work which was being carried out under the supervision of Macarthur. Blacktown Council settled with the landowners, as long ago as 14 September 1999, for $180,000 plus costs, agreed at $20,000. 3 There remained on foot in those proceedings a cross-claim which Blacktown Council had brought against Macarthur. There was also a cross-claim which Macarthur had brought against QBE Insurance. QBE Insurance had, it seems, issued a professional indemnity policy to Macarthur relating to the year in which a claim was made against Macarthur by Blacktown Council, and Macarthur sought indemnity from QBE under that policy. QBE had contested various of the facts upon which Macarthur's claim was based, asserted that there was some non-disclosure or misrepresentation which would have resulted in a larger premium being paid and also, most significantly, asserted that there was an exclusion of the liability in the terms of the policy. 4 Those two cross-claims were set down for hearing in the District Court, with the hearing to commence on 18 August 2003. In the week before 18 August 2003 the communications from Macarthur's solicitors to the Council looked very much like the sort of communications which pass between solicitors in the week immediately preceding a complex trial, dealing with minutiae which need to be attended to to get the trial ready for hearing. 5 On Friday 15 August 2003 there was a letter from the solicitors for Macarthur, which stated that Macarthur was in the process of appointing an administrator, that Macarthur had no assets, was not trading, that its sole activities at present were defending the two claims which had been brought against it by Blacktown Council and pursuing its own claim against QBE. The letter said that Macarthur was unable to fund its defence of Blacktown Council's claim. It pointed out that pursuant to s 440D of the Corporations Act 2001 (Cth), the appointment of the administrator operated as a stay of the District Court proceedings brought by Macarthur. 6 On 18 August, the District Court proceedings were called on but, once it had been satisfactorily established that an administrator had indeed been appointed to Macarthur, they were adjourned. Initially, the adjournment was to 25 August 2003, for mention. 7 On 19 August 2003 the originating process for these proceedings was filed. It sought an order under s 440D of the Corporations Act, or alternatively s 447A, permitting Blacktown Council to proceed with the District Court cross-claim against Macarthur, or alternatively, an order ending the administration of Macarthur. The hearing of that application has been set for 22 September 2003, in the Corporations List. 8 On 1 September 2003 solicitors for Blacktown Council notified the administrator of their estimate of the amount for which they were a creditor. They estimated that in proceedings 6351/99 their claim against Macarthur was for $729,000, and their estimate of costs claimed in those proceedings was $325,000. In proceedings 6352/99 the estimate of the amount claimed (inclusive of interest) was $273,700 and the costs of those proceedings was estimated at $215,000. 9 On 3 September 2003 the administrators sent out to creditors a report, of the kind required by the legislation. That report gave some detail of the District Court litigation. It disclosed that the company had assets of the order of $44,000. It had creditors, which were said to be unsecured, of the order of $337,000. Of this amount, a little over $237,000 was owing to Hicksons, the solicitors who had been acting for Macarthur in the District Court proceedings. $5,500 was owing to the company's accountants, and a little short of $95,000 was owing to Mr Cullen. The claim of Hicksons was said in the report to be unsecured; today Mr Johnson, for the administrator, pointed out that it may be that if any moneys were to be recovered in any of the District Court litigation, those solicitors would have a "fruits of the action" lien over the proceeds, and in that event become a secured creditor. 10 The report stated that a proposal had been received from the director for a deed of company arrangement. That proposal was contained in a letter annexed to the report. There was no draft deed, and turning the proposal into a workable deed of company arrangement would take a certain amount of work. There were also some matters which would need to be included in a deed of company arrangement which were not addressed at all in that letter. 11 On 9 September 2003 - that is, yesterday - the solicitors for Blacktown Council wrote to the administrator enclosing a proof of debt, for a total amount of $1,542,700 (including GST) said to be "damages claims". The proof of debt contained an attachment which set out the four amounts which I have earlier referred to in this judgment, as being the estimated amounts of judgment, and costs, in the two District Court proceedings. It said, "The full particulars of the claims upon which the debts are based are set out in the pleadings in proceedings 6351/99 and 6352/99." 12 Yesterday evening, at about 7.30, the solicitor for the administrator spoke to the solicitor for the Council, saying that he would be faxing a letter the next morning, saying that the administrator needed to be able to form a view about the value of the claim of Blacktown Council, and that at this stage he was unable to form a view. 13 The foreshadowed letter was sent before 9am this morning. It asked for information and documentation to enable the administrator to consider the proof of debt. 14 The application before me today is one which seeks an order that the meeting of creditors convened to take place on 11 September be adjourned to the same time and place on 2 October 2003. Mr Young, counsel for Blacktown Council, made clear that there was nothing special about the date of 2 October 2003, it was just a date which was well after 22 September, when the main proceeding in this case would be heard. 15 Mr Young has outlined the claims which it is sought to bring in the substantive proceedings. The flavour of the outline which he gave effectively reverses the significance of the alternative orders which were sought in the originating process. The claim put in the forefront of submissions today was that the administration should be brought to an end. The basis upon which that claim is put up is that the appointment of the administrator on the eve of the District Court hearing was an abuse of the provisions of Pt 5.3(a) which was intended to frustrate the plaintiff from having its claim in the District Court determined to judgment. 16 The evidentiary basis which was urged in support of that claim was that Macarthur had no assets worth speaking about, was not trading and had not traded for a long time - the report as to affairs says that it has not traded since prior to June 2002. As well, reliance is placed on the fact that up to the eve of the hearing, the defendant gave every appearance that it was actively defending the proceedings and propounding a cross-claim in them. 17 Another basis on which it is sought to argue that the administration is an abuse of the procedure is that administration is for companies "seeking to continue to trade" and "seeking to maximise the chance of it remaining in business", see Foxcroft v The Ink Group Pty Limited (1994) 12 ACLC 1063 per Young J and Brian Rochford Limited (Administrator Appointed) v Textile Clothing & Footwear Union of New South Wales (1998) 47 NSWLR at 47 per Austin J. Macarthur has long since stopped trading, and there is no realistic prospect of it resuming business. 18 Mr Young also pointed to s 435A of the Act which says: "The object of this Part is to provide for the business, property and affairs of an insolvent company to be administered in a way that: (a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or (b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company." 19 In response to this last submission Mr Johnson, for the administrator, says that even if it was not possible for this company or its business to continue in existence, there was always the possibility of there being a deed which would result in a better return for the company's creditors and members than would result from the immediate winding up of the company. 20 The meeting which is to be held tomorrow is on either the last day when it is possible to hold a meeting under s 439A or perhaps the day before the last day when it is possible to hold such a meeting. The administrator has taken no steps to extend the convening period. 21 The plaintiff says that there is a real prospect that at a meeting held tomorrow the creditors might decide to adopt a deed of company arrangement. If that were to happen, then the Council would have been denied the opportunity to run the argument that it wishes to run, that this administration is one which ought be terminated. And the deed would have been adopted as a result of an invalid - or at least improper - administration. 22 Mr Young accepts that if a deed were to be resolved to be adopted at the meeting tomorrow, it would still be possible for his client to ask the court to terminate the deed, under s 445D. As part of such an application, the question of the validity and propriety of the administration would fall to be determined. However, it is still a different application to the one which has now been commenced before the court. 23 When there is a challenge to the validity and propriety of the administration itself there is, it seems to me, a different situation to what commonly arises when there are disputes about whether an administration has proceeded in the correct way. In my view, in the circumstances of this particular company it is preferable for the challenge to the validity and propriety of the administration to be determined before any vote takes place on the adoption of any deed of company arrangement. This is a case where there is no ongoing business to preserve, no debts being incurred in the course of running a business, and none of the urgency that often comes when a decision needs to be made about whether a business should be terminated, or restructured, or sold. In my view the only disadvantage which is likely to follow to the creditors of the company, small in number as they are, is that some extra costs will be involved in the administration being somewhat protracted. 24 Section 447A of the Corporations Act allows the court to make "such order as it thinks appropriate about how this Part is to operate in relation to a particular company." The court has an extremely wide jurisdiction under that provision - see Australasian Memory Pty Limited v Brien (2000) 200 CLR 270. 25 The plaintiff proffers to the court an undertaking that if the order it seeks is made, it will pay the reasonable costs which are thrown away by reason of the adjournment of the meeting. 26 The situation is complicated by the fact that at a meeting of creditors, there is power to adjourn the meeting under s 439B(2), but that power of adjournment is one which is regulated by reg 5.6.18 of the Corporations Regulations, so that an administrator does not have an unfettered power to adjourn the meeting as he thinks fit - see generally John Vouris Re; Epromotions Australia Pty Limited and Relectronic-Remech Pty Limited (in Liq) [2003] NSWSC 702. The effect of this is that the question of whether the meeting should be adjourned tomorrow is not one which lies in the hands of the administrator alone. 27 The order I make is that, upon the plaintiff giving to the court an undertaking that reasonable costs thrown away by reason of the adjournment will be paid by it, then Part 5.3A of the Corporations Act 2001 is to operate in relation to Macarthur Telecommunications Pty Limited (Administrator Appointed) (ACN 003 234 679) as if the meeting called for 11 September 2003 had been adjourned to the same time and place on 26 September 2003. 28 I direct the plaintiff to file and serve any supplementary affidavits on which it seeks to rely for the purpose of the hearing on 22 September 2003 by 4pm on 15 September 2003. I direct that any amended originating process in those proceedings also be filed and served by 4pm on Monday 15 September 2003. I direct the defendant to file and serve any affidavits on which it seeks to rely by noon Friday 19 September 2003. 29 The plaintiff seeks the costs of the present application. It points out that it foreshadowed the making of such an application on 9 September 2003 and said that if it needed to approach the court to have the second meeting of creditors adjourned, it would also be asking that the administrator pay the costs of the application. 30 The adjournment of the meeting is, as I have earlier said, not a matter which lies in the uncontrolled discretion of the administrator - the administrator could not have undertaken that the meeting would be adjourned. 31 The order that has been obtained is one which fills the same function as an interlocutory injunction. As with an interlocutory injunction obtained by a plaintiff to protect its position pending a hearing, the question of whether the plaintiff should obtain its costs of the interlocutory order will be affected by whether it ultimately succeeds in obtaining the final relief which it seeks. I reserve the costs of today's application. **********

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