Brash Holdings Ltd v Katile Pty Ltd 12 ACLS 472

4 On 6 January 1998 administrators were appointed to QMT Constructions Pty Ltd pursuant to s.436A of the Corporations Law. Zion Electrical Pty Ltd lodged a proof of debt in the sum of $11,442.82 on 30 January 1998. A deed of company arrangement was entered on 12 February 1998. The admissible claim date under the deed is 6 January 1998.

5 On 18 March 1998 Zion Electrical Pty Ltd served Davids Distribution Pty Ltd with notice of intention to claim a charge under the Subcontractors' Charges Act 1974, and it served QMT Constructions Pty Ltd with a notice of claim of charge under that Act.

6 Initially there was dispute as to whether the notice of claim of charge had been given out of time (see s.10), QMT Constructions Pty Ltd asserting that the work had been completed as early as July 1997. However, for the purposes of the present application QMT Constructions Pty Ltd conceded that the notice was given within time.

7 On 15 May 1998 Zion Electrical Pty Ltd commenced a plaint against QMT Constructions Pty Limited in the Magistrates Court at Brisbane. The claim made was as follows:-

"The Plaintiff's claim is for the sum of ELEVEN THOUSAND FOUR HUNDRED AND FORTY TWO DOLLARS AND EIGHTY TWO CENTS being the balance of monies due and owing and payable to the Plaintiff in this district for work and labour done and materials supplied at the defendant's request pursuant to contracts between January 1996 and 30 January 1997, the contracts and breach occurring in the district."

8 On 27 May 1998 an entry of appearance and defence was filed in which QMT Constructions Pty Ltd alleged that Zion Electrical Pty Ltd was bound by the deed of company arrangement and as such prohibited from proceeding with the action without the leave of the court, which had not been sought. Further, it admitted that Zion Electrical Pty Ltd had carried out work and labour and supplied materials to it at 628 Kingston Road, Loganlea during the period January 1996 to 27 June 1997 and it admitted that the balance of $11,442.82 was still owing.

9 On 24 August 1998 Davids Distribution Pty Ltd paid moneys into the District Court at Brisbane on account of a number of claims, including the $11,442.82 claimed by Zion Electrical Pty Ltd.

(c) if it was initially effective and if it has not been extinguished, whether the applicant ought to be given leave to bring the action against QMT Constructions Pty Ltd.

11 Pursuant to s.5 of the Subcontractors' Charges Act the payment of moneys payable or to become payable to a subcontractor may be secured by a charge on money payable to the contractor by the employer, in this case Davids Distribution Pty Ltd. Section 10 provides for the giving of a notice of claim of charge within certain time limits. By s.12(1) the subcontractor may recover the amount of the charge from the person by whom the money subject to the charge is payable.

12 The charge comes into existence when the notice claiming it is given. In Ex parte Pavex Constructions [1979] Qd R 318 it was held that a subcontractor whose notice claiming a charge is not given until after the commencement of the winding up of the head contractor, nevertheless gains the benefit of the charge. The creation of a security by giving a notice of charge and the subsequent enforcement of that security do not represent attachment of a debt, and they do not represent a disposition by or on behalf of the company of its property (Companies Act 1961 ss.227-228; see now Corporations Law s.468.)

13 In the present application counsel for the respondent submitted that it would be antithetical to the purposes of part 5.3A of the Corporations Law (which deals with the administration of a company's affairs with a view to executing a deed of company arrangement) for a person who would otherwise be bound by the deed to be able to turn himself into a secured creditor. He submitted that the purpose of the relevant provisions of the Corporations Law is to identify persons with claims as at the date specified (in this case 6 January 1998) and to subject them to the conditions of the deed. He referred to Brash Holdings Ltd v Katile Pty Ltd (1994) 12 ACLC 472 at 478 and Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd [1996] FCA 899; (1996) 22 ACSR 169 at 175.

14 Section 437D of the Corporations Law provides:-

"437D(1) [Transaction affecting company property] This section applies where

(a) a company under administration purports to enter into; or

(b) a person purports to enter into, on behalf of a company under administration, a transaction or dealing affecting property of the company.

437D(2) [Transaction void] The transaction or dealing is void unless:

(a) the administrator entered into it on the company's behalf; or

(b) the administrator consented to it in writing before it was entered into; or

(c) it was entered into under an order of the Court.

437D(3) [Exempt payments] Subsection (2) does not apply to a payment made:

(a) by an Australian bank out of an account kept by the company with the bank; and

(b) in good faith and in the ordinary course of the bank's banking business; and

(c) after the administration began and on or before the day on which:

(i) the administrator gives to the bank (under subsection 450A(3) or otherwise) written notice of the appointment that began the administration; or

(ii) the administrator complies with paragraph 450A(1)(b) in relation to that appointment;

437D(4) [Court order] Subsection (2) has effect subject to an order that the Court makes after the purported transaction or dealing.

437D(5) [Contravention by officer] If, because of subsection (2), the transaction or dealing is void, or would be void apart from subsection (4), an officer of the company who:

(a) purported to enter into the transaction or dealing on the company's behalf; or

(b) was in any other way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the transaction or dealing;

15 The creation of a charge under the Subcontractors' Charges Act is not the result of purported action by or on behalf of the company. As such it does not come within s.437D(1). In this regard the position is similar to that of a subcontractor who services a notice of claim of charge after the head contractor has gone into liquidation.

16 Pursuant to s.444D, a deed of company arrangement binds all creditors so far as claims arising on or before the date specified in s.444A(4)(i). A secured creditor is not prevented from realising or otherwise dealing with the security except so far as the deed so provides in relation to a secured creditor who voted in favour of a resolution of creditors because of which the company executed the deed or the court orders under s.444F. Section 444E provides:-

"444E(1) [Until deed terminates] Until a deed of company arrangement terminates, this section applies to a person bound by the deed.

444E(2) [Winding up application] The person cannot:

(a) make an application for an order to wind up the company; or

(b) proceed with such an application made before the deed became binding on the person.

444E(3) [Proceedings against company] The person cannot:

(a) begin or proceed with a proceeding against the company or in relation to any of its property; or

(b) begin or proceed with enforcement process in relation to property of the company;

(d) in accordance with such terms (if any) as the Court imposes.

`property' in relation to the company, includes property used or occupied by, or in the possession of, the company."

17 In the circumstances I consider that the charge was initially valid. The effect of the giving of the notice was to transform Zion Electrical Pty Ltd from an unsecured creditor to a secured creditor. But whether unsecured or secured, Zion Electrical Pty Ltd was bound by the deed (its claim having arisen by 26 May 1997), and it needs the leave of the court to bring proceedings.

18 Sections 12 and 15 of the Subcontractors' Charges Act provide:-

12.(1) Where the person to whom notice of claim of charge has been given does not pay or make satisfactory arrangements for paying to the claimant the amount claimed, the subcontractor may recover the amount of the charge from the person by whom the money subject to the charge is payable.

(2) Claims and all other matters arising under this Act between a person claiming a charge and any other person alleged to be liable to pay an amount claimed or otherwise interested in money that may be affected by a charge or claim of charge and between persons or classes of person claiming a charge may be heard, determined and enforced by proceedings pursuant to this Act in a court of competent civil jurisdiction.

(2A) Notwithstanding subsection (2), the Supreme Court shall have jurisdiction in all matters arising under this Act.

(3) An action to enforce a charge under this Act may be brought by or on behalf of any number of subcontractors claiming charges.

(3A) Every action brought by a subcontractor to enforce a charge shall be deemed to be brought on behalf also of every other subcontractor who has given notice of claim of charge pursuant to section 10 and who in accordance with rules of the court and this Act becomes a party to the action.

(3B) Subject to any rules of the court, every such subcontractor may become a party at any time before the date appointed for the hearing or any adjournment thereof (whether or not the subcontractor has given a notice of claim of charge) by filing in the court and serving on all other parties in the same manner as if the subcontractor were commencing the action a statement of claim endorsed with a request that the subcontractor be joined as a party in the proceedings."

15.(1) A proceeding in respect of a charge under this Act -

(a) in the case of a claim of charge in respect of retention money only - shall be commenced within 4 months after such retention money or the balance thereof is payable and no later;

(b) in all other cases - shall be commenced within 2 months after notice of claim of charge has been given pursuant to section 10 and no later;

(2) For the purposes of a proceeding under this section, it shall be sufficient if the subcontractor proves that the charge in respect of which the proceeding is brought attached to money payable on any date prior to the date of hearing.

(3) Every charge shall be deemed to be extinguished unless the subcontractor duly commences a proceeding under this section to enforce it."

19 By s.15 the charge in favour of Zion Electrical Pty Ltd is deemed to have been extinguished unless it commenced a proceeding in respect of the charge under the Act within two months after notice of claim of charge was given.

20 An action was commenced against QMT Constructions Pty Ltd (the head contractor) but Davids Distribution Pty Ltd (the employer) was not joined. The failure to join the employer is not necessarily a fatal flaw, so long as the claim made against the head contractor fits the description of a proceeding in respect of a charge under the Act. See Re Kemp [1994] 1 Qd R 285.

21 The claim made in the Magistrates Court plaint was simply for moneys owing for work and labour done. It was not a claim or other matter arising under the Subcontractors' Charges Act. In other words, it was not a proceeding in respect of a charge under the Act. In the premises, the charge has been extinguished by failure to commence an appropriate action within two months.

22 Had the charge not been extinguished, it would have been appropriate to grant leave nunc pro tunc to bring the proceeding. Under the Subcontractors' Charges Act the bringing of proceedings is the only effective way of enforcing the charge: see s.12. I refer also the principles for the grant of leave which were discussed in Meehan v Stockmans Australian Cafe (Holdings) Pty Ltd (1996) 22 ACSR 123.