Brooke v No.5 Lorac Avenue Pty Ltd

REASONS FOR JUDGMENT 1 Stockport (N.Q.) Pty Ltd (Receiver and Manager Appointed) (Subject to a Deed of Company Arrangement) (Stockport) is incorporated in South Australia. Its principal business activities are the provision of civil engineering services in Queensland. On 16 July 2002 National Australia Bank Ltd (NAB) appointed a receiver and manager of its assets under a first ranking fixed and floating charge over its assets. Also on 16 July 2002, Stockport appointed Bruce James Carter as administrator under s 436A(1) of the Corporations Act 2001 (Cth) (the Act). His administration ceased upon the appointment of Bruce James Carter and Martin David Lewis (the administrators) as deed administrators of Stockport under a Deed of Company Arrangement entered into on 23 August 2002 (the Deed) relating to Stockport. 2 The Deed was executed following a meeting of the creditors of Stockport on 14 August 2002 pursuant to s 439A of the Act, when it was resolved that Stockport should enter into the Deed under Part 5.3A of the Act, and appointing the administrators. 3 The administrators now seek directions under s 447D of the Act about the effect of the Deed on certain of Stockport's creditors. Under s 447D, the administrator of a deed of company arrangement is entitled to apply for directions from the Court "about a matter arising in connection with the operation of, or giving effect to, the deed" or "about a matter arising in connection with the performance or exercise 'of the administrators' functions or powers". The circumstances in which it is appropriate under s 447D of the Act to give directions to an administrator of a company, or of a deed of company arrangement, have recently been discussed by Goldberg J in In the Matter of Ansett Australia Ltd and Mentha [2001] FCA 1439 at [58]-[69]. I respectfully agree with, and adopt, his Honour's analysis of the authorities discussed and the conclusions which he reached. In this matter, no argument was addressed about the relevant principles. Each creditor of Stockport who might have had a real or direct interest in the directions sought or the consequences of the directions sought has been served with the proceedings, in the circumstances set out below. No party appearing at the hearing of the application contended that it was inappropriate for the Court to give directions about the matters now raised. The directions do not seek commercial advice, nor the imprimatur of the Court upon commercial action proposed to be taken by the administrators. They concern the proper construction and operation of the Deed, in circumstances where there is some uncertainty as to the range of its application and as to the mode of its operation. The consequence of the giving of the directions will be to protect the administrators from liability for any alleged failure to comply with the terms of the Deed. See the authorities discussed by Goldberg J at [59], and in In the matter of Ansett Australia Ltd and Mentha [2002] FCA 639 at [45] to which I add reference to the caution to similar effect expressed by Hayne J in Brooke v No.5 Lorac Avenue Pty Ltd (1994) ASCR 717 at 724-725. In the circumstances, I consider it appropriate to respond to the application of the administrators. 4 The issue which arises is how the administrators are to deal with the creditors of Stockport who have lodged proofs of debt as creditors for the purpose of the administration of the Deed, and who also claim to be secured creditors of Stockport by virtue of the Sub-contractors Charges Act 1974 (Qld) (the Charges Act) and so may be entitled to recover some or all of their debts as a result of a statutory charge from moneys outside of the fund established under the Deed. 5 On 20 December 2002 I gave directions to the administrators of the Deed that: (1) creditors of Stockport who are entitled to a charge under s 5 of the Charges Act on money payable to Stockport and who have given notice of the claim under s 10 of that Act after the commencement of the administration (being the date specified in the Deed pursuant to s 444A(4)(i) of the Act) and whose claim has not been extinguished, or whose claim under the Charges Act has not been withdrawn, are secured creditors of Stockport for the purposes of s 444D(2) of the Act and of the Deed, and are not bound by the Deed from realising their respective securities; (2) creditors of Stockport who fall within the category of creditors referred to in direction (1) hereof are not "Contractor Creditors" of Stockport as that term is defined in the Deed and are not entitled to participate in any distribution from the Contractor Creditors Fund established under cl 8(a)(ii) of the Deed. 6 These are my reasons for giving the directions. To the extent that there is any right of appeal from the directions given, under O 52 r 15(a)(iii) of the Federal Court Rules I extend the time by which any appeal may be brought to run from the date of these reasons. 7 It is desirable first to identify in more detail how the issue arises and the creditors of Stockport who may be affected by it. 8 The Deed was put to, and adopted by, creditors of Stockport as part of a proposal under which Global Pacific (Qld) Pty Ltd (Global) would acquire all the issued shares in Stockport or a related entity of Stockport and the parent company of Global, Global Pacific Group Ltd (Global Group) would establish and provide a fund of $1,542,000 for the benefit of the creditors of Stockport. Following the execution of the Deed by Stockport on 23 August 2002, the settlement of the arrangement took place on 27 August 2002. Global Group paid the sum of $1,542,000 in accordance with the Deed. The payment of that money meant that, in accordance with the terms of the Deed, the creditors of Stockport bound by the Deed had no access to any of its assets. Such recourse as they had to secure repayment of the amounts owed to them by Stockport was to come from the funds established under the Deed. 9 Clause 5 of the Deed provides, inter alia, that: "This Deed binds every Creditor of Stockport except to the extent that any Creditors are not bound by virtue of the operation of sub-section 444D(2) or (3)." It also contains the usual terms precluding creditors from taking any step to wind up Stockport or from prosecuting or taking any step in any proceedings against Stockport in respect of debts incurred by Stockport before the commencement date of the Deed. The commencement date as defined is 16 July 2002. 10 The critical clause of the Deed for present purposes is cl 8. It relevantly provides: "(a) Within 24 hours of the passage of the resolution of creditors referred to in recital F, Global must pay into a fund to be established and maintained by the Deed Administrator the sum of $1,542,000 which will be apportioned: (i) in the sum of $80,000, as a fund to be applied to Claimants who are admitted to rank for a dividend as Trade Creditors; and (ii) in the sum of $1,462,000, as a fund to be applied to Claimants who are admitted to rank for a dividend as Contractor Creditors and which fund will be applied towards a distribution to any Claimants admitted by the Deed Administrator as a Contractor Creditor, in an amount not exceeding 50 cents for every dollar admitted. (b) Any amount held from time to time in either Claims Fund will be held on trust by the Deed Administrator: (i) firstly to meet the Agreed Costs; and (ii) secondly, for those Claimants eligible to participation in any distribution from the relevant Claims Fund; and (c) If the fund referred to in sub-paragraph (a)(ii) above is not exhausted by the distribution to any Claimant as described therein or in respect of the Agreed Costs, the undistributed amount shall be added to the fund referred to in sub-paragraph (a)(i) above and be applied to Claimants who are admitted to rank for a dividend as Trade Creditors." The term "Claimant" is defined in the Deed (excluding certain preferential creditors not presently relevant) as being an entity having a claim against Stockport at the commencement date of the Deed and "Claim" is correspondingly defined, again by reference to the commencement date. The term "Creditor" is defined to have the same meaning as that term as used in Part 5.3A of the Act, but excluding NAB. 11 As can be seen, cl 8 of the Deed provides for two separate funds for two separate categories of creditor. A "Contractor Creditor" is defined as follows: "Contractor Creditor means a Creditor of Stockport who would but for the provisions of this Deed, be entitled (to the satisfaction of the Deed Administrator) to make a claim in respect of an amount owing to the Contractor Creditor, and which is the subject of a charge under the Subcontractor Charges Act 1974 (Qld)." and "Contractor Creditor's Fund" is defined to mean the fund to be established under cl 8(a)(ii) of the Deed. The term "Trade Creditors" is defined to include the other creditors of Stockport, that is creditors who are not entitled to the benefit of the charge for any or all amounts owing by a claim under the Charges Act. The "Trade Creditor's Fund" is the fund established under cl 8(a)(i) of the Deed. 12 The Contractor Creditor's Fund is $1,462,000 and the Trade Creditor's Fund is $80,000. If the funds in the Contractor Creditor's Fund are not exhausted by distribution to Contractor Creditors as contemplated, any surplus remaining is then included in the Trade Creditor's Fund for distribution to the "unsecured" creditors of Stockport: cl 8(c) of the Deed. 13 Clause 9 of the Deed provides that no creditor of Stockport has any claim against the assets of Stockport (which remain with Stockport, and which by the transfer of its shares passed to the control of Global Group), but obliges the administrators to distribute the funds paid into the two claim funds in accordance with ss 556 and 561 of the Act (the statutory priorities) but "… in the case of Contractor Creditors only, on receipt of a Form 5 under the Subcontractor [sic] Charges Act 1974 (Qld)". Valid claims are then to rank equally, and to be paid on a pari passu basis in respect of any distributions out of either fund. The Form 5 under the Charges Act is one which provides for the withdrawal of a notice of claim of charge in accordance with s 11(8) of the Charges Act. 14 Section 444D of the Act provides: "(1) A deed of company arrangement binds all creditors of the company, so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i). (2) Subsection (1) does not prevent a secured creditor from realising or otherwise dealing with the security, except so far as: (a) the deed so provides in relation to a secured creditor who voted in favour of the resolution of creditors because of which the company executed the deed; or (b) the Court orders under subsection 444F(2). (3) Subsection (1) does not affect a right that an owner or lessor of property has in relation to that property, except so far as: (a) the deed so provides in relation to an owner or lessor of property who voted in favour of the resolution of creditors because of which the company executed the deed; or (b) the Court orders under subsection 444F(4)." 15 Some creditors of Stockport have, after commencement of the administration of Stockport under s 435C(1), and after the commencement of the Deed, served notice of charge under s 10 of the Contractors Act on Stockport and did not vote in favour of the Deed. If they are secured creditors of Stockport in the circumstances, they are not prevented by reason of s 444D(2) from realising or otherwise dealing with their securities. That is not to say that they are not bound generally by the Deed. There is no application for any order under s 444F(2). The first issue therefore is whether such persons are secured creditors who are realising or are entitled to realise their security under s 444D(2)(a) of the Act. 16 All creditors of Stockport have been notified of this proceeding. 17 There are 51 claimants against Stockport who have lodged notices of charge under s 10 of the Charges Act after the commencement of the administration, being the date specified in the Deed. Of those claimants, 28 voted for the Deed and so are bound by its terms: s 444D(2). The remainder either attended the meeting and voted against the Deed or abstained from voting, or did not attend the meeting either in person or by proxy. Since that time, a number of the remaining 23 contractor creditors have provided to the administrators notice under s 11(8) of the Charges Act that they do not, or do not any longer, claim to be secured creditors of Stockport entitled to the benefits of the Charges Act. 18 Those persons who had or may have had a charge under the Charges Act against Stockport, and who either voted for the Deed or who have provided the withdrawal of the notice of claim of charge under s 11(8) of the Charges Act, are and have accepted that they are bound by the Deed. They have, according to the administrators, released any "claim" under the Charges Act. They are to be treated as Contractor Creditors who may participate in the Contractor Creditor's Fund established under cl 8(a)(ii) of the Deed and in accordance with its terms. 19 There are 14 claimants who still claim the benefits of the Charges Act. Each of the 51 claimants has been made aware of this application so that each might make submissions in relation to it. Only five of those claimants sought to be, and were, heard on the application: Boral Resources (Qld) Pty Ltd, Piling Contractors (Qld) Pty Ltd; Walls Quarries Pty Ltd; Wagner Investments Pty Ltd; and Pioneer Road Services Pty Ltd. They are each claimants who claim the benefits of the Charges Act. Each also asserts the right to enjoy the status of "Contractor Creditor" so that, to the extent that their claims against Stockport are not met by the "security" provided by the Charges Act, they wish to participate in distributions from the Creditor's Contractor's Fund. 20 Those remaining 14 contractor creditors, the administrators contend, are not "secured creditors" of Stockport and so should also be treated as bound by the Deed and also be entitled to participate in any distribution from the Contractor Creditors' Fund. That is because, it is argued, those entities (including the five who appeared on the hearing) were not "secured creditors" at 16 July 2002 because it is only by the giving of notice under s 10 of the Charges Act that the status of a subcontractor or contractor creditor of Stockport changes from that of an unsecured creditor to that of a secured creditor. It is then argued that Part 5.3A of the Act, and in particular Div.10 concerning deeds of company arrangement, does not permit of a change of status after the commencement of the administration. 21 As the helpful submissions of all counsel disclosed, the directions which the administrators sought therefore involve two separate issues. The first is whether the claimant creditors in the group of 14 creditors of Stockport identified (who I shall call the "claimant creditors") are "secured creditors" of Stockport prior to the giving of notices under s 10 of the Charges Act, so that they were each secured creditors prior to the commencement of the Deed. Alternatively the first question is whether the claimant creditors became "secured creditors" of Stockport by the giving of notices under s 10 of the Charges Act after the commencement of the Deed but are nevertheless entitled to enforce their respective securities against Stockport notwithstanding the Deed. The second issue is whether the claimant creditors, if they are secured creditors of Stockport so they can enforce their security under the Charges Act, may also prove as Contractor Creditors and participate in any distribution from the Contractor Creditor's Fund established under cl 8(a)(ii) of the Deed to the extent of the unsecured portion of the respective indebtedness. 22 All counsel agreed that the resolution of those issues depended upon the meaning and operation of the Charges Act, the interaction of Part 5.3A of the Act with the Charges Act, and upon the terms of the Deed. They also all agreed that the answers to those questions are not clearly apparent from a consideration of existing decisions. 23 The starting point is s 5 of the Charges Act. It relevantly provides: "(1) If an employer contracts with a contractor for the performance of work upon or in respect of land or a building, or other structure or permanent improvement upon land or a chattel, every subcontractor of the contractor is entitled to- (a) a charge on the money payable to the contractor or a superior contractor under the contractor's, or superior contractor's, contract or subcontract; and (b) subject to subsection (4), a charge on any security for the contractor's, or superior contractor's, contract or subcontract. (2) The charge of a subcontractor secures payment in accordance with the subcontract of all money that is payable or is to become payable to the subcontractor for work done by the subcontractor under the subcontract. (3) The total amount recoverable under the charges of subcontractors does not exceed the amount payable to the contractor or subcontractor under the contract or subcontract, as the case may be. (4) The charge on a security to which a subcontractor is entitled under subsection (1)(b) secures a payment mentioned in subsection (2)- (a) only if the payment can not be satisfied by the charge mentioned in subsection (1)(a); and (b) to the extent of the security's maximum possible value for securing performance of the contractor's, or superior contractor's, contract or subcontract, other than to the extent that the security is required to be used for securing, wholly or partly, the performance of the contract or subcontract. (5) To remove any doubt, it is declared that, for a subcontractor's claim of charge relating to retention money only- (a) the charge to which the subcontractor is entitled under subsection (1)(a) is not limited to merely a charge on retention money; and (b) the charge to which the subcontractor is entitled under subsection (1)(b) is not limited to merely a charge on any security that has been exchanged for, or is held instead of, retention money. (6) Money that is or is to become payable to a subcontractor for work done by the subcontractor under a subcontract, and the payment of which is secured under subsection (2)- (a) includes money the payment of which is governed by a provision of the subcontract still to be complied with, including for example the following - (i) a provision establishing a procedure for the certification of the amount, quality or value of work that has been performed; (ii) a provision establishing a procedure for the resolution of a dispute about the amount, quality or value of work that has been performed; and (b) does not include the following- (i) damages for breach of contract or in tort; (ii) an amount payable on the basis of an extra-contractual remedy, including, for example, as reasonable compensation for work done; (iii) damages or other relief under another Act or an Act or another State or the Commonwealth, including damages or other relief under the Trade Practices Act 1974 (Cwlth)." Section 3 defines "charge" to mean "a charge under this Act". The claimant creditors contend principally that, as subcontractors, they became entitled to a charge upon monies payable by the employer to their principal contractor, i.e. Stockport, under s 5(1) in respect of monies payable by the respective employers to Stockport for amounts payable to Stockport for work done by the several claimants as subcontractors of Stockport as described in s 5(2) by operation of s 5 of the Charges Act. The administrators contend that any charge under the Charges Act does not arise by operation of s 5, but only upon the giving of notice by the several claimant creditors under s 10 of the Charges Act. In this instance, no notices under s 10 were given before the commencement of the Deed, and so (it is contended) no charges under the Charges Act arose by that time. The administrators further contend that no charge of the kind contemplated by s 444D of the Act can arise after the commencement of the Deed. 24 Section 10 of the Charges Act relevantly provides: "(1) A subcontractor who intends to claim a charge on money payable under the contract to the subcontractor's contractor or to a superior contractor- (a) must give notice to the employer or superior contractor by whom the money is payable, … (b) must give notice of having made the claim to the contractor to whom the money is payable. … (1B) A notice of claim of charge must be supported by a statutory declaration of the subcontractor, or, if the subcontractor is a corporation, of an officer of the corporation, about the correctness of the claim, including the correctness of the amount of the claim. … (2) A notice of claim of charge may be given although the work is not completed or the time for payment of the money in respect of which the charge is claimed has not arrived, but if the work is completed must be given within 3 months after such completion. … (4) If notice is not given pursuant to this section, the charge does not attach. …" 25 Section 11 then obliges the recipient of the notice of claim of charge given under s 10 to retain a sufficient amount of the moneys payable to the principal contractor to satisfy the claim, until the claim is either withdrawn, or is acknowledged by the principal contractor so that the employer should satisfy the claim as it is resolved by a court (and to pay the moneys in issue into the court pending such resolution). 26 Section 15 of the Charges Act obliges the proceeding "in respect of a charge" under the Charges Act to be commenced within a specified period after "notice of claim of charge" has been given. Section 15(3) provides that: "Every charge is deemed to be extinguished unless the subcontractor duly commences a proceeding under this section to enforce it." 27 In my view, those provisions indicate that the charge arises by operation of s 5 of the Charges Act and not only upon giving notice of claim of charge under s 10 of the Charges Act. Section 5(1) is expressed as giving rise to a present or existing entitlement to a charge on money payable to the principal or superior contractor in the events to which it refers and to the extent provided for in s 5(2). It is not expressed as being conditional upon the giving of notice under s 10. Section 5(1)(b) and s 5(4), in the events to which they refer, are consistent with that view. Section 5(5) similarly refers to "the charge to which the subcontractor is entitled" under s 5(1). Section 5(6) identifies the moneys secured by a charge. It refers to the payment of those moneys being "secured under subsection (2)" rather than being secured under s 5(2) and s 10 or by reason of a notice given under s 10. Section 10(1) appears to draw a distinction between the charge to which an entitlement arises under s 5(1) and (2) on the one hand, and the notice of claim of charge on the other. Thus, for example, s 10(1B) requires the notice of claim of charge to be supported by a statutory declaration about "the claim". The consequences of failing to give notice of claim of charge under s 10(1) are specified in s 10(4): the charge "does not attach". It does not provide that there is no charge, or that the entitlement under s 5(1) to a charge is a notional entitlement which comes into existence as a charge only upon the giving of a notice under s 10(1). The consequences of the notice of claim of charge having been duly given are then spelled out in the succeeding provisions. 28 I note further that s 6 of the Charges Act addresses the inclusion in the amount payable by an employer to a principal contractor amounts paid to persons other than the claiming subcontractor except if: "… that money is paid in good faith and not for the purpose of defeating or impairing a claim to a charge existing or arising under this Act." In my view, the reference to a charge "existing or arising under this Act" is also more consistent with the notion that the charge comes into existence by operation of s 5 (so that the giving of the notice under s 10 causes a "floating charge" to "crystallise") rather than by the giving of the notice under s 10. I note that Dunn J in Ex parte Pavex Constructions [1979] Qd R 318 (Pavex) at 326 described such a concept as "far-fetched". There is a clear distinction on the one hand between a charge (or some other right) arising by operation of statute when certain circumstances occur, and on the other hand one arising by the action of a person for the creation of which the statute prescribes a procedure. In the latter case, it is not entirely appropriate to describe it as a charge which exists or arises under the Act. 29 I accept the contention of senior counsel for the claimant creditors who appeared on this application that the charge created by s 5(1) and (2) of the Charges Act is analogous to that of a floating charge, so that it "crystallises" or attaches to the moneys payable to the principal or superior contractor, in this case Stockport, by the giving of the notice under s 10: see the discussion in Sykes & Walker The Law of Securities, Law Book Company 5th ed, (1993) pp 958-959; and In Re Colonial Trusts Corporation; Ex parte Bradshaw (1879) 15 Ch D 465 per Jessel MR at 472. In Re Victoria Steamboats Ltd; Smith v Wilkinson [1897] 1 Ch 158, Kekewich J appointed a receiver and manager of the assets and business of the company which granted the charge under a floating charge before the charge had crystallised. (A petition for winding up the company had been presented, but apparently the charge was not drawn with the sophistication of modern instruments as the presentation of the petition did not itself result in crystallisation of the charge). His Honour did so because the charge: "… is a subsisting one, though not immediately effective. So long as the debentures have not crystallized, the charge will not be effective, but the charge is there: everything has been done to make it a charge; and all that is wanted is something to call it into activity." See also the description of a floating charge given by Lord Macnaghten in Illingworth v Houldsworth [1904] A.C. 355 at 358. In Evans v Rival Granite Quarries Ltd [1910] 2 KB 979, Fletcher Moulton LJ at 994 quoted with approval Lord Macnaghten's description of a floating charge, one feature being that it does not of itself fasten and settle even on property then existing. His Lordship added: "It is an existing charge, and is rightly termed so, but care must be taken to remember that it has not settled down and fastened on the property which is the subject of the charge. I find no difficulty in grasping such a concept." 30 Those descriptions of a floating charge are, in my view, appropriately applied to a charge created by s 5(1) and (2) of the Charges Act. It does not attach until the crystallising event, namely the giving of notice under s 10, but it is nevertheless an existing charge once the events occur which activates the statute. Paine J in Re Dalle Nogare (1964) 6 FLR 277 at 282 regarded the concept of attachment in that way, being the affixing of the charge resulting only upon the prescribed notice being given. I do not think the decision of Austin J in Re Summit Design & Construction Pty Ltd [1999] NSWSC 1136; (1999) 33 ASCR 301, to which I was referred by counsel for the administrators, informs the issue as it appears that in the circumstances of that case there was no trust or other proprietary claim made in the application: see at [18], 305. 31 For the reasons I have given, in my view s 5 of the Charges Act operates to create a set of rights in a subcontractor in relation to the money payable by an employer to the principal or superior contractor although there is no crystallisation of those rights so as to create specific proprietary interest in the moneys or the chose in action being the entitlement to those moneys by attaching the rights to the specific property until notice is given under s 10 of the Charges Act. Nevertheless, such a charge has characteristics equivalent to those of a floating charge as described by Romer LJ in Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 at 215, even though it operates by virtue of statute, namely the Charges Act, rather than by any grant made by the employer or by the principal or superior contractor. 32 Thus far, I have reached my views by consideration of the provisions of the Charges Act. It is necessary also to consider the cases in which the issue has been addressed. Counsel referred to a number of authorities on the provisions of the Charges Act, as they have stood from time to time and their analogues in other jurisdictions. It was acknowledged that no decision is precisely on point because the relevant provisions of the Charges Act as now in force are not in precisely the same terms as those in force at the times of other decisions. 33 Re QMT Constructions Pty Ltd [1999] QSC 2, [2000] 1 Qd R 284 (QMT Constructions) concerned an application by a subcontractor under s 444E of the Act for leave to commence proceedings nunc pro tunc against a principal contractor to enforce a charge under the Charges Act where the principal contractor had entered a deed of company arrangement after the work the subject of the claimed charge had been carried out but the notice of claim of charge had been given after the commencement of the deed. The proceedings had been commenced, but without the necessary leave, within the time prescribed by s 15 of the Charges Act. Wilson J concluded that the proceedings as instituted to enforce the claimed charge were not in fact proceedings in accordance with s 15 of the Charges Act, but simply to recover the debt. Hence, the charge under the Charges Act had been extinguished by s 15(3) of the Charges Act. Otherwise, her Honour would have given the leave sought, as she regarded the charge as initially valid and that the notice under s 10 as having transformed the subcontractor "from an unsecured creditor to a secured creditor" (at [17], 287). Her Honour said at [12] 285-6: "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)." 34 She rejected the contention that such a conclusion would be antithetical to the purposes of Pt 5.3A of the Act by permitting an unsecured creditor to become a secured creditor after the commencement of a deed of company arrangement, and in particular s 437D(1), because "the creation of a charge under the [Charges Act] is not the result of purported action by or on behalf of the company" ([15], 287). 35 It does not appear that the argument was there presented that the charge arises by reason of s 5 of the Charges Act independently of the notice under s 10 of the Charges Act, as distinct from the argument that the Charges Act permits the creation of the charge after the commencement of the Deed. 36 In Pavex, the decision which Wilson J followed (apparently without argument to the contrary) concerned an earlier expression of the Charges Act. It decided that it was the giving of the notice under s 10 of the Charges Act (as then in force) which gave rise to a charge, but that such a notice could be given so that a charge could arise after the commencement of the winding up of the principal contractor. Section 5 of the Charges Act then provided that the subcontractor, in the circumstances to which it referred, "shall be entitled to a charge" and s 10(4) then provided that the failure to give notice of claim of charge meant that "the charge shall not attach". Dunn J was referred extensively to decisions concerning legislation similar to the Charges Act. It was there argued (as here) firstly that under the then terms of the Charges Act, a subcontractor who had not given notice under s 10 of the Charges Act at the commencement of the winding up of the principal contractor was an unsecured creditor of the principal contractor, and secondly such a subcontractor could not by a notice under s 10 subsequently given convert itself into a secured creditor. As to the first argument (which Dunn J accepted), his Honour distinguished the decision in Re Williams; Ex parte The Official Assignee (1899) 17 NZLR 712 (Williams), (a decision expressly approved by the Judicial Committee of the Privy Council in Farrier-Waimak Ltd v Bank of New Zealand [1965] NZLR 426 at 443) which decided the charge under the similar New Zealand statute was created by the Act itself rather than by the giving of the notice. In Williams, Edwards J concluded at 723: "The true meaning of all the sections taken together appears to be that the lien or charge is created by this Act, and not by the notice, but that until the notice is given the charge is a floating charge, and is liable to be defeated to the extent and in the manner provided by the statute." 37 The provisions of the New Zealand legislation were not on all fours with the present provisions in the Charges Act. Dunn J in Pavex noted two particular comparisons in distinguishing that case: s 5 of the New Zealand legislation provided that "a subcontractor is entitled to a charge" whereas at the time Pavex was decided it provided the subcontractor shall be entitled to a charge, and secondly that s 12 of the New Zealand legislation referred to the charge "created by this Act". As can be seen, the distinctive feature of s 5 is now reflected in s 5 of the Charges Act, but not the distinctive feature of s 12. Dunn J also noted that those two distinguishing features of the New Zealand legislation also existed in the 1906 version of the Queensland Charges Act (then ss 6 and 13). Dunn J noted further that s 6 of the Charges Act to which I have referred above (which in relevant respects is still in the same terms) refers to "a charge existing or arising under this Act". His Honour at 326 regarded that expression as: "… more consistent with the notion that a charge comes into existence when a notice claiming a charge is given than with the notions that the Act creates the charge, and that the giving of the notice causes a 'floating charge' to 'crystallise' (a concept which would seem to me to be far-fetched, but for the authority of In Re Williams). Reading the Act as a whole, I interpret s. 6 as meaning that any employer is (for the purposes of the charge of a subcontractor) accountable for money paid in reduction of the contract price to a head contractor, unless he has paid the money in good faith and not for the purpose of defeating or impairing a claim to a charge or which he has been given notice (i.e., an 'existing' charge) or a claim to a charge which may yet be made, if a subcontractor who has done work should give the required notice (i.e., a charge which may 'arise'). For the reasons I have already given, upon consideration of the terms of s 5 of the Charges Act and of the provisions of the Charges Act generally, I have come to a different conclusion about the significance of s 6 of the Charges Act. It is in terms similar to the expression which Edwards J in Williams regarded as significant. 38 The different statutory expressions applicable in the cases to which I have referred on the point mean that none is directly on point. They also mean that, whilst I have had careful regard to the processes of reasoning used in them, I do not need to express disagreement with any of them. In the only case decided on the current particular legislative expressions, that is QMT Constructions, the present point appears not to have been argued. 39 That resolution of the issue may turn on fine differences in expression is evidenced by other cases. Paine J in Re Dalle Nogare concluded that a charge arose under s 7(2) of the Workmen's Liens Act 1893 (SA) by reason of the words "A sub-contractor shall have a charge on any money payable to the contractor …" so that the charge was in force prior to the vesting of the property of the contractor in the trustee in bankruptcy upon the making of a sequestration order: s 60 Bankruptcy Act 1924 (Cth), even though notice of the charge was given after the sequestration order was made. There was, under that legislation, no provision in terms of s 10(4) of the Charges Act and s 7(3) of that South Australian legislation provided that the charge "shall attach" to certain monies which become due by the giving of the notice, and the charge "shall lapse" if action to enforce the claim to such moneys is not brought within a specified time. Lander J in Re Trademark Homes (Aust.) Pty Ltd (1996) 67 SASR 107 at 120 reached the same view that the South Australian legislation itself created a statutory charge. His Honour noted that the decision of the Full Court (Murray CJ and Angas Parsons J, Richards J dissenting) in Miller's Lime Ltd v Royal Agricultural and Horticultural Society of South Australia [1956] SASR 306 to the contrary effect of the decision of Paine J in Re Dalle Nogare was itself doubted by a later Full Court (Bray CJ and Zelling J, Chamberlain J dissenting) in Albert Del Fabbro Pty Ltd v Wilckens and Burnside Pty Ltd (Receiver and Manager Appointed) [1971] SASR 121: see the discussion by Lander J at 118-120. 40 I note also that, in a different context, namely s 9 of the Finance Act 1894 (UK), the expression that a person "shall be entitled to" a charge was held by the House of Lords to itself create a charge and not merely a faculty to make one: Lord Advocate v Moray [1905] AC 531 per Lord Dunedin (with whom the Lord Chancellor Lord Halsbury and Lords Macnaghten, Davey and James agreed) at 545-546, and per Lord Macnaghten at 542. 41 However, in case I am wrong about that conclusion, it is appropriate that I consider the alternative argument of the claimant creditors who appeared. 42 The alternative argument is that they could give a notice under s 10 of the Charges Act after the commencement of the Deed so as then to take the benefit of enforcing their security under s 444D(2). The argument was one presented and accepted by Dunn J in Pavex, and then by Wilson J in QMT Constructions. In the latter case, as I have noted, the decision was based on a different point, but Wilson J also addressed the present issue in a considered way and in relation to the Charges Act as presently in force, and so it is directly on point. Counsel for the administrators contended that each of those decisions was wrongly decided and should not be followed. It was argued in Pavex that the provisions of the Companies Act 1961 were inconsistent with such an outcome. Dunn J concluded that the subcontractors could, by notice given after the commencement of the winding up of the principal contractor under s 10, obtain the security to which the Charges Act provided they "shall be entitled". His Honour regarded that as the plain intendment of the Charges Act, and as an outcome not inconsistent with the Companies Act. The "attachment" to which s 10(4) referred related to the creation of securities over debts without the need to recover judgment before having recourse to such debts (at 327). 43 A construction of the provisions of Part 5.3A of the Act which would promote the object specified in s 435A is to be preferred: Lam Soon Australia Pty Ltd (admin. apptd) v Molit (No.55) Pty Ltd (1996) 22 ASCR 169 at 176. 44 It is clear that Pt 5.3A of the Act reflects an important public policy. That is to ensure that the business, property and affairs of a company in financial difficulty can be administered in a way that gives the company the best chance of continuing in existence, and if it is not to do so then to achieve a better result for its creditors and members than would follow from a winding up: see s 435A. During administration, the unsecured creditors of the company may not enforce their debts except in accordance with and under a deed of company arrangement, and the rights of a chargee, and of an owner or lessor of property usually occupied by the company, are heavily circumscribed: s 440B and ss 441A-441K in Div. 7, although their interests are preserved in the longer term: ss 442C and 443B. 45 Once a company resolves to appoint an administrator under s 436A of the Act, administration of the company under Part 5.3A of the Act formally commences: s 435C(1)(a). In this instance, the administration then continued until 23 August 2002, when the Deed was executed by Stockport and the administrators: s 435C(1)(b) and s 435C(2)(a). During the administration, the administrator must convene the first and subsequent meetings of creditors under ss 436E and s 439A(1) in the brief periods specified, and must investigate the affairs of the company and form the opinions directed by s 438A and report to the committee of creditors for the purposes of its meeting under s 439A, in this instance held on 14 August 2002: ss 438A and s 439A(4). 46 The administrators place considerable weight upon the restrictions imposed upon creditors other than secured creditors (as to which, see ss 441A-441K in Div 7 of the Act) by ss 440B-440F. It is clear that those provisions constitute a moratorium under which the rights of creditors of a company under administration are suspended, and then, depending on whether a deed of company arrangement is entered into under s 439A of the Act, the rights of creditors of the company are converted into rights under the deed of company arrangement: ss 444D and 444E: see e.g. J & B Records Ltd v Brashs Pty Ltd (vol admin apptd) (1994) 13 ACSR 680; Australian Liquor, Hospitality and Miscellaneous Workers' Union v Terranora Lakes Country Club Pty Ltd (1996) 19 ACSR 687. The deed of company arrangement may, and commonly does, involve some compromise of the debts of the company which existed at the date specified in the deed of company arrangement: s 444D(1). That date must be a date on or before the day the administration began, in this instance on or before 16 July 2002: see s 444A(4)(i). The Deed specifies that date. The administrators further contend that the expression "debts or claims the circumstances giving rise to which occurred before the relevant date" should have the same meaning as in s 553 of the Act, so as to comprehend future or contingent debts or claims. 47 As noted above, Dunn J in Pavex at 326-327 found nothing in the Companies Act which prevented a subcontractor from giving notice of claim of charge under s 10 of the Charges Act after the commencement of the winding up of the principal or superior contractor so as to obtain the security provided by the Charges Act. His Honour regarded the "attachment" to which s 10(4) of the Charges Act referred as being different from the process of getting in of judgment debts of the principal or superior contractor. He considered the consequence of his conclusion, namely those creditors entitled to a charge under the Charges Act are advantaged over other creditors of the company, as being one provided for by the legislature. Wilson J in QMT Constructions was confronted with an argument in terms similar to that now presented by the administrators: see at [13], 286. Her Honour for reasons similar to those expressed by Dunn J in Pavex reached the same conclusion: at [15]-[17], 287, and noted that s 437D relates only to transactions or dealings to which the company under administration is a party or which are entered into on its behalf, and which take place after the commencement of the administration. 48 In my judgment, the reasoning of Dunn J and Wilson J in Pavex and QMT Constructions respectively is correct, and is applicable in the present circumstances. I accept, as counsel for the administrators contended, that Pavex is technically distinguishable because it concerned a company in liquidation. Although the purpose and structure of Part 5.3A of the Act is new, and of course did not apply at the time Pavex was decided, I do not think the considerations which influenced Dunn J are any the less apposite to the regime under Part 5.3A of the Act. I also accept, as I have already indicated, that the ratio decidendi of QMT Constructions was that the claimed charge under the Charges Act had been extinguished by reason of the failure to bring proceedings under s 15. However, Wilson J specifically addressed the point in issue and carefully considered it. Her conclusion and reasons are therefore of strong persuasive value, as they concern precisely the legislative context in which the present application arises. 49 I do not consider that there is anything in Part 5.3A of the Act which points clearly to preventing a notice under s 10 of the Charges Act (or under comparable legislation) taking effect. The effect of the notice is to notify the employer and the principal or superior contractor of the claim and of the amount of the claim. If it is not given in the time permitted, it does not attach. The critical time may well expire during the period of administration under a deed of company administration. Indeed, it may well be almost entirely within and expire during the period of administration under a deed of company administration. It may expire in the period of time during the administration of an administrator under s 435C (the commencement of which may be, and often is (as here) the date specified in a deed of company arrangement pursuant to s 444A(4)(i)) if the creditors resolve under s 439A that the company enter a deed of company arrangement and before the resolution under s 439A. The creditors may on the other hand resolve to wind up the company, or simply to bring the administration to an end: s 439C. In the latter event, it is not apparent why Part 5.3A should have operated so as to prevent the giving of a notice under s 10 of the Charges Act with the adverse consequences to the claimant to which s 10 refers. 50 Whilst Div 6 of Part 5.3A operates to protect the property of a company during administration, I do not consider it was intended to exclude or prevent the securing or attaching of a charge under the Charges Act during that period. Section 440B renders a charge "unenforceable" except in certain circumstances during the administration of a company. Section 440F provides that, during the administration of a company, no enforcement process in relation to its property may be "begun or proceeded with" except by leave of the Court. I do not think the giving of a notice under s 10 of the Charges Act does not have that character. The expression "enforcement process" is defined in s 9 of the Act to mean, in relation to property, execution against that property or an enforcement process involving a court or a sheriff. It is therefore used in the well recognised sense of the process of securing or enforcing a judgment against a debtor: see e.g. Re Pannowitz; Ex parte Wilson (1975) 38 FLR 184 at 193 per Riley J. On the alternative argument now being considered, the notice obtains or secures the charge, but it is not an enforcement process. It does not cause the charge to be enforced. The charge, once obtained or secured, is subject to s 440B. The giving of the notice does not expose the company to the risk of a multiplicity of proceedings; cf the discussion by Austin J in Summit Design at [15]-[16], 304-305. It operates to establish the existence of a charge as provided for by the Charges Act, so that the status of the claimant as a secured creditor of the company is established. The rights of the several categories of creditors of the company are then implemented as between those categories of creditors according to law, and depending upon the terms of the creditors' resolution under ss 439A and 439C of the Act. The assets of the company, in this case Stockport, are not diminished by the giving of notice under s 10 of the Charges Act. What may alter is the extent to which its assets are available to its unsecured creditors. But that is a consequence provided for by the legislation. And, in the case of a creditors resolution that the company enter into a deed of company arrangement and of the company duly doing so, the rights of the creditors of the company inter se then include the rights provided for by s 444D(2). 51 Counsel for the administrators drew attention to s 441E, which expressly preserves the right to give a notice under the provisions of a charge despite ss 437C or 440B during administration. It clearly contemplates a notice being given under an existing charge, rather than the creation of a new charge (as contemplated by the alternative argument now being considered). I do not consider that s 441E should be read, by allowing for such notices, as indicating a legislative intention to exclude the entitlement to give a notice under State legislation such as the Charges Act to secure a charge provided for by that legislation. Indeed, the administrators did not contend that there was any inconsistency between the provisions of Part 5.3A of the Act and the provisions of the Charges Act. In my view, s 441E is simply addressing a different circumstance. 52 Overall, I do not consider there is anything in Part 5.3A which either expressly or by implication precludes a person from becoming a secured creditor of Stockport by giving notice under s 10 of the Charges Act after the commencement of the administration. The enforcement of the charge, once it arises, will of course be subject to the provisions of Part 5.3A: see s 440B. And, as control of the affairs of Stockport passes from the company during the administration and during the Deed: ss 437A and 444A, no fresh charge may be created by any officer of Stockport during its administration: s 437C, except the administrator: s 442A. However, the securing of a charge by notice under s 10 of the Charges Act is effected partly by operation of the Charges Act and by the notice itself (on the alternative argument) and does not require any action by either the administrators or by any officer of Stockport; it is provided for under the Charges Act itself. The indemnity of the administrator granted by s 443D is itself an entitlement which affects the rights of the creditors of Stockport, inter se, as they existed at the commencement of the administration: see ss 443E, and is the subject of a lien: s 443F. Part 5.3A does not appear to freeze, as at the commencement of the administration and irrespective of its outcome at the creditors' meeting held under s 439A of the Act, the basis of the entitlements of all the creditors of Stockport inter se. Section 444D(2) itself allows for secured creditors to deal with securities, subject to certain restrictions, but does not draw any line between securities which existed at the commencement of the administration or the date specified in the Deed under s 444A(4)(i) and those which may have been secured at some later date. 53 I turn to consider whether the 14 claimant creditors who have given notice of claim of charge under s 10 of the Charges Act, and have not withdrawn those claims, and who did not vote in favour of the Deed, may both realise or otherwise deal with their securities and then participate in the Contractor Creditor's Fund established under par 8(a)(ii) of the Deed to the extent that the realisation or dealing with their securities has not satisfied the indebtedness of Stockport towards them. 54 The answer must turn upon the terms of the Deed, and in particular the definition of "Contractor Creditor" in cl 2(l) set out above. Each of the 14 creditors referred to is a creditor of Stockport. Each is entitled to make a claim in respect of an amount owing which is the subject of a charge under the Charges Act. That is the effect of the answer to the first question which I have addressed. But the definition contemplates two categories of such persons: those who may exercise their charge under the Charges Act, and those who by reason of the Deed may not do so. That is the categorisation dictated by the adjectival expression "who would but for the provisions of this Deed be entitled" to make the claim. As those creditors are not prevented by the provisions of the Deed from making such a claim under the Charges Act, but are entitled to make such a claim notwithstanding the terms of the Deed, in my view they do not fall within the definition of "Contractor Creditor" in the Deed. They are otherwise creditors of Stockport, as "creditor" is defined as having the same meaning as that term is used in Part 5.3A of the Act excluding NAB. The term "creditor" is not defined in Part 5.3A itself, but it is a term given its wide and common meaning: Re Midland Coal, Coke & Iron Co. [1895] 1 Ch 267 at 277; Re Southern Australia Perpetual Forests Ltd [1971] VR 475. Part 5.3A clearly contemplates secured creditors as being within the canvas of the expression "creditors": see e.g. ss 437C(4), 440B, 441A-441K, 442B, 442D, 444D and 444F. 55 Consequently, in my view, it is clear that the 14 claimant creditors within the category described do not fall within the definition of "Contractor Creditor" and the Contractor Creditor's Fund is not held by the administrators on trust for them (and others) because they are not eligible to participate in any distribution from the fund. I add that the outcome I have arrived at by reference to the definition of Contractor Creditor accords with the overall concept underlying the Deed in relation to Contractor Creditors: it is that the Contractor Creditors should be entitled to participate in the fund to the exclusion of any other entitlement: see cl 15 of the Deed and cl 9(c) of the Deed which contemplates that a distribution to a Contractor Creditor may be made only after their claim to a charge under the Charges Act is withdrawn pursuant to s 11(8) of the Charges Act. Moreover, the operation of the Deed contemplates that the payment from the Fund should be made with some promptitude rather than wait what might transpire to be a lengthy delay before all actions under s 15 of the Charges Act are resolved and charges under the Charges Act are enforced to see if there is any still unsatisfied indebtedness which might then be proved under the Deed: see cl 9(f) of the Deed. 56 Accordingly, I reached the conclusion that I should give the administration the directions sought under s 447D of the Act in the terms set out in [5] hereof. I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

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