City of Swan v Lehman Brothers Australia Ltd

City of Swan v Lehman Brothers Australia Ltd - [2009] FCAFC 130 - FCAFC 2009 case summary — Zoe

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Allatech v Construction Management Group Pty Ltd (2002) 41 ACSR 587 American Dairy Queen (Qld) Pty Ltd v Blue Rio Pty Ltd (1981) 147 CLR 677 Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99 Australian Securities and Investments Commission v DB Management Pty Ltd (2000) 199 CLR 321 Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 Blue Metal Industries Ltd v Dilley (1969) 117 CLR 651 Brash Holdings Ltd v Katile Pty Ltd (1996) 1 VR 24 Bridges v Hershon [1968] 3 NSWR 47 Bropho v Western Australia (1990) 171 CLR 1 Re Buildmat (Australia) Pty Limited & the Companies Act (1981) 5 ACLR 689 Re Buka Minerals NL (1983) 8 ACLR 507 CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384 Clissold v Perry (1904) 1 CLR 363 Commissioner of Taxation v Comcorp Australia Ltd (1996) 70 FCR 356 CTM v The Queen (2008) 247 ALR 1 Re Dowling; Ex parte Jamison; Jamison v Allen (1976) 36 FLR 384 Fitzgerald v Masters (1956) 95 CLR 420 Fowler v Lindholm, in the matter of Opes Prime Stockbroking Limited [2009] FCAFC 125 Gifford v Strang Patrick Stevedoring Pty Limited (2003) 214 CLR 269 Re Glendale Land Development Ltd (In Liq) (1982) 7 ACLR 171 Honest Remark Pty Ltd v Allstate Explorations NL (2006) 234 ALR 765 International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 Isles v Daily Mail Newspaper Ltd (1912) 14 CLR 193 Lam Soon Australia Pty Ltd (Admin Appt) v Molit (No 55) Pty Ltd (1996) 70 FCR 34 M & S Butler Investments Pty Ltd v Granny May's Franchising Pty Ltd (1997) 24 ACSR 695 Macquarie University Union Ltd (in prov liq) v Venues at Macquarie Pty Ltd [2007] FCA 721 Malika Holdings Pty Ltd v Stretton (2001) 204 CLR 290 Australian Securities Commission v Marlborough Gold Mines Ltd (1992) 177 CLR 485 Mentha v GE Capital Ltd (1997) 154 ALR 565 Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24Minister for Employment and Workplace Relations v Gribbles Radiology Pty Ltd (2005) 222 CLR 194 Ex parte Mirabita; In re Dale (1875) LR 20 Eq 772 MYT Engineering Pty Limited v Mulcon Pty Limited (1999) 195 CLR 636 Re New Tel Ltd (in liq) [2004] FCA 1154 Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 Perry v Clissold [1907] AC 73 Potter v Minahan (1908) 7 CLR 277 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328 Reed Constructions Australia Limited v DM Fabrications Pty Limited (2007) 25 ACLC 1,463 Sargood Bros v The Commonwealth (1910) 11 CLR 279 Toal v Aquarius Platinum Ltd [2004] FCA 550 Wentworth v New South Wales Bar Association (1992) 176 CLR 239 Re Westfield Holdings Ltd (2004) 49 ACSR 734 Zhu v Treasurer of New South Wales (2004) 218 CLR 530

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Question 8 of the questions reserved for the consideration of the Full Court by Rares J on 28 July 2009 be varied by deleting "1, 3 and 5" and substituting "1, 2, 3, 4, 5, or 6".
The questions reserved for the consideration of the Full Court by order of Rares J made on 28 July 2009 be answered as follows: Question 1. Whether clause 7.1 of the DOCA, on its proper construction, confers on the Deed Administrators the sole conduct and control of any Insurance Claim and an absolute discretion regarding the prosecution and resolution of any Insurance Claim, which otherwise could have been conducted, prosecuted or resolved by a creditor of the Company against an insurer for indemnity or other relief in respect of any insurance policy which insures or otherwise provides benefits to the Company or a Lehman Entity, excluding any claim for indemnity under any insurance policy held by Lehman Brothers Asia Holdings Limited (in Liquidation)? Answer Yes Question 2. If the answer to question 1 is 'yes', is clause 7.1 of the DOCA, in so far as it confers on the Deed Administrators the sole conduct and control of any Insurance Claim and an absolute discretion regarding the prosecution and resolution of any Insurance Claim, valid and binding on the creditors of the Company, having regard to sections 435A, 444A, 444D, 444H and Part 5.3A of the Act? Answer No. Question 3. Whether clause 9 of the DOCA, on its proper construction, operates so as to provide for a moratorium against a General Creditor and/or a Litigation Creditor in respect of a claim or an Insurance Claim, in favour of a Lehman Entity? Answer Yes Question 4. If the answer to question 3 is 'yes', are the provisions of clause 9 of the DOCA, in so far as they provide for a moratorium in favour of each Lehman Entity in respect of a claim or the Insurance Claims, binding on the creditors of the Company, having regard to sections 435A, 444A, 444D, 444H and Part 5.3A of the Act? Answer No Question 5. Whether clause 11 of the DOCA, on its proper construction, operates such that, upon payment in full of the Litigation Creditors' Final Dividend, all claims and Insurance Claims of a General Creditor and/or a Litigation Creditor against a Lehman Entity are forever released, discharged and extinguished, in favour of a Lehman Entity (except the Preserved Contractual Rights)? Answer Yes. Question 6. If the answer to question 5 is 'yes', are the provisions of clause 11 of the DOCA, in so far as they forever release, discharge and extinguish a claim and Insurance Claims of a General Creditor and/or a Litigation Creditor against a Lehman Entity (upon payment in full of the Litigation Creditors' Final Dividend and except the Preserved Contractual Rights), valid and binding on the creditors of the first defendant, having regard to sections 435A, 444A, 444D, 444H and Part 5.3A of the Act? Answer No Question 7. If the answer to any of the questions 2, 4 or 6 is 'no': 7.1 Is the DOCA a 'deed of company arrangement' on the proper construction of sections 435A, 444A, 444D, 444H and Part 5.3A of the Act? Answer Yes; it is a deed of company arrangement to which ss 444G(1) and 447A may apply. 7.2 Is the DOCA void and of no effect? Answer Yes

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Construction 10 The argument that the DOCA releases members of the Lehman Group and their insurers from claims of the plaintiffs arises from cl 11.5 which states: On payment in full of the Litigation Creditors' Final Dividend, all Claims by Litigation Creditors against the Company or a Lehman Entity and all Insurance Claims except those that arise out of the Preserved Contractual Rights are, for ever released, discharged and extinguished. 11 Many of the terms used in this clause are defined in the DOCA and require some explanation. The relevant definitions, taken from cl 1, are: "Admitted Litigation Creditors" means the Litigation Creditors whose claims are ascertained and admitted by the Deed Administrators in accordance with the provisions of this deed. "Litigation Creditors" means the current or former clients of the Company that acquired or purchased Financial Products and who assert a Claim. "Litigation Creditors' Dividend" means a distribution from the Litigation Creditors' Funds to the Admitted Litigation Creditors in accordance with clause 8 or to a class of Admitted Litigation Creditors, and includes the Litigation Creditors' Final Dividend. "Litigation Creditors' Final Dividend" means the distribution from the Litigation Creditors' Fund in accordance with clause 8 by which either: (a) all of the Admitted Litigation Creditors receive (in aggregate with prior distributions) a maximum of 100 cents in the dollar on their Admitted Litigation Claims; or (b) the Deed Administrators distribute to the Admitted Litigation Creditors the whole of the Litigation Creditors' Fund which includes the Insurance Proceeds of every Insurance Claim once resolved either by way of judgment, order or settlement. "Claim" means any debt, claim or liability, present or future, certain or contingent, ascertained or sounding in damages against the Company as at the Admissible Claim Date. "Lehman Entity" means Lehman Bros Holdings Inc, and any body corporate not incorporated in Australia that was partly or wholly owned directly or indirectly by Lehman Brothers Holdings Inc at, or in 6 months prior to, 15 September 2008. "Insurance Claim" means any claim for indemnity or other relief in relation to any insurance policy which ensures or otherwise provides benefits to the Company or any Lehman Entity in connection with any Claim or any claim, including any claim under statute, for the proceeds of, or a charge over the proceeds of, such insurance policy, but excluding any claim for indemnity under any insurance policy held by LB Asia. 12 The Company referred to in this clause is, of course, the first defendant in this proceeding. In the DOCA there is, as is now common in commercial documents, an almost infinite regress of definitions with the express definitions containing other defined terms. For present purposes, however, it is not necessary to include all the definitions of the terms used in cl 11.5. 13 The definition of "Insurance Claim" and its use of "Claim" and "claim" shows that the convention of indicating defined terms with initial capitalisation has been adopted. The document is replete with other instances of this convention. See, for example the definition of "Admitted Litigation Creditors" and its use in the definition of "Litigation Creditors' Dividend" and "Litigation Creditors' Final Dividend". Unfortunately, however, the drafters of the DOCA have not been entirely consistent in their practice. In my view, it is this inconsistency which is largely responsible for ambiguity in the construction of cl 11.5. The clause refers to "Claims by Litigation Creditors against the Company or a Lehman Entity". Since "Claim" is defined to be a claim "against the Company" those words in cl 11.5 appear to be superfluous while the reference to Claims "against a Lehman Entity" is inconsistent. 14 In submitting that cl 11.5 does not purport to extinguish their claims against Lehman Entities the plaintiffs would construe the clause by ignoring the reference to Lehman Entities and reading the clause as referring only to claims against the Company. While words may be omitted where it is necessary to avoid absurdity or inconsistency (see Fitzgerald v Masters (1956) 95 CLR 420 at 426) in this case I can find no justification for the approach which, it seems to me, would more accurately be described as severance (of the reference to Lehman Entities) than as construction. 15 In my view it is far more likely, and in my experience more common, that the distributive use of "Claims" that gives rise to the ambiguity derives from inattention to the drafting convention about initial capitalisation and is simply an error. 16 The conclusion that the intention in cl 11.5 was to release the Lehman Entities as well as the first defendant finds support in other provisions of the DOCA. As mentioned above, the definition of Insurance Claim observes the convention and in doing so makes clear that it refers to proceeds of insurance policies in favour of Lehman Entities as well as the first defendant. Clause 4 which sets out the purposes and objects of the DOCA states: 4. Purposes and objects of this deed The purpose and objects of this deed are to provide for the business, property and affairs of the Company to be administered in a way that: (a) … (b) provides for an assessment, determination and compromise of all Claims against the Company; (c) … (d) provides for subordination of the claims of the Lehman Entities for the benefit of the Litigation Creditors and the General Creditors; (e) … (f) provides for an assessment, determination, compromise and release of all Claims against the Company and the Lehman Entities and in due course, the Company's insurers (in certain circumstances), but not for the release of any of the Preserved Contractual Rights; (h) … 17 Clause 7.1 purports to confer on the Deed Administrators the sole conduct and control of any Insurance Claim and an absolute discretion regarding the prosecution and resolution of any Insurance Claim. Clause 4 clearly indicates an intention to provide in the DOCA for a moratorium on Creditors taking any action against the Lehman Entities and to provide for the release of the Lehman Entities. The better view of cl 11.5 is that it purports to give effect to that intention. This approach is consistent with principles of construction articulated by Dixon CJ and Fullagar J in Fitzgerald v Masters at 426. 18 A similar inconsistency permeates cl 9.1 which should be construed commensurately with cl 11.5.

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Power and validity 19 The plaintiffs submit that the provisions of Pt 5.3A dealing with the execution and effect of a deed of company arrangement bind the creditors in respect of their claims against the company but not in respect of claims that they have against other entities, whether creditors of the Company or not. Consequently, they submit, the provisions of the DOCA that purport to suspend or extinguish their rights against Lehman Entities are void and of no effect. Those provisions are: · Clause 7 - purports to preclude creditors from pursuing insurance claims against the insurers of Lehman Australia and the Lehman Entities; · Clause 9 - purports to impose a moratorium on claims against Lehman Entities; and · Clause 11 - purports to preclude creditors' claims against Lehman Entities. 20 The heading of Part 5.3A of the Corporations Act indicates that it deals with "Administration of a company's affairs with a view to executing a deed of company arrangement". Its objects are set out in s 435A as follows: 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. 21 The normal outcome of the administration of a company is for a deed of company arrangement to be executed following a resolution to that effect passed by a majority of the creditors in both number and value. The deed must be executed by the company within 15 business days of that resolution (unless the period is extended by the Court) and by the administrator/s either before the company executes it or as soon as practicable thereafter; ss 444B(2) and (5). The Act does not require any other signatories to the deed. 22 Once the deed has been executed by the company and the administrator/s it becomes a deed of company arrangement; s 444B(6). Section 445G(2) provides that the Court may declare "the deed or a provision of it, to be void or not to be void, as the case requires". Until the Court exercises its power to declare a deed void it would appear that a deed that has been executed in accordance with s 444B is a valid, even if voidable, deed. This much is clear from s 445H which provides that: The termination or avoidance, in whole or in part, of a deed of company arrangement does not affect the previous operation of the deed.

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23 Part 5.1 of the Act which deals with company arrangements and reconstructions, provides a significant supervisory role for the Court including convening scheme meetings and approval of the proposed scheme(s). In contrast Pt 5.3A provides for important procedural steps to be taken without Court supervision. In the light of that difference it would not be surprising to find greater latitude in what might be provided for in respect of compromises and arrangements under Pt 5.1 than in a deed of company arrangement under Pt 5.3A. 24 The focus of Pt 5.3A is on the business, property and affairs of the insolvent company and a tight timetable for convening meetings of creditors and investigating the company's affairs is imposed on administrators. At the second creditors' meeting convened under s 439A, the creditors may resolve to end the administration, to wind up the company or that the company should execute a deed of company arrangement. A deed of company arrangement affects creditors' rights to an extent not possible under the common law by binding them irrespective of whether they voted in favour of the deed or against it. Section 444D(1) 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). 25 Presently at issue is the extent of that power. It could not sensibly be contended that the objects set out in s 435A give the administrators, the company and the creditors an entirely free rein in respect of what is included in a deed of company arrangement. The fact that s 445G contemplates the Court declaring void a deed that was not entered into in accordance with Pt 5.3A or that does not comply with it, is sufficient to establish that point. There is, however, considerable flexibility built into s 445G in that the Court may declare a deed valid if there has been substantial compliance with the statutory provisions and there will be no injustice consequent on the contravention; s 445G(3)(b). The Court may also vary the deed but only with the consent of the deed's administrator; s 445G(4). 26 Pt 5.3A clearly and precisely limits the extent to which creditors' rights to debts owed by the company may be restricted. Pursuant to s 444H the company is released from debt only to the extent provided in the deed and only in respect of a creditor who is bound by the deed. In addition there is a clear temporal limitation in s 444D(1) in that the claim to which it refers must have arisen "on or before the day specified in the deed". 27 There is no express provision in Pt 5.3A that either permits or forbids a deed of company arrangement to interfere with creditors' rights against an entity other than the company. What follows from this silence? 28 The construction of s 444D(1) for which the defendants contend would have the effect of permitting a deed of company arrangement to deprive creditors (including those who did not vote in favour of the deed) of the benefit of claims they may have against entities other than the company under administration. 29 There is a long established principle that a statute should not be interpreted as taking away an existing right unless it does so by clear words that are not reasonably capable of another construction: Sargood Bros v The Commonwealth (1910) 11 CLR 279 per O'Connor J. The principle rises to a presumption (rebuttable) in relation to vested property interests; Clissold v Perry (1904) 1 CLR 363 at 373 (HC), Perry v Clissold [1907] AC 73 at 80 (PC). More recently the principle has been articulated by the High Court in Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328 at 341 per Mason ACJ, Wilson and Dawson JJ. McHugh J expressed the need for caution in applying the principle in both Malika Holdings Pty Ltd v Stretton (2001) 204 CLR 290 at 298-9 and in Gifford v Strang Patrick Stevedoring Pty Limited (2003) 214 CLR 269 at 284; see also P Finn, "Statutes and The Common Law: The Continuing Story" in Interpreting Statutes S Corcoran and S Bottomley 2005, 52. 30 While it is clear from the authorities cited in Pearce and Geddes Statutory Interpretation in Australia 6th ed. (2006) at [5.30], the principle still has life, it is not, in my view necessary to rely on it here. In my view, when the objects, purpose and contents of Pt 5.3A are taken into account, the language of s 444D(1) must be construed as referring only to claims that creditors of the company have against the company under administration. 31 In a decision that predates the insertion of s 444J into Pt 5.3A, Spender J considered a deed of company arrangement that, inter alia, purported to prevent a creditor from enforcing guarantees given by the directors of the company in M & S Butler Investments Pty Ltd v Granny May's Franchising Pty Ltd (1997) 24 ACSR 695. His Honour held that the deed could not so provide and held, at 703: A deed of company arrangement can only deal with company property: it is not competent for an administration under Pt 5.3A … to exempt directors from their personal guarantees.

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33 It follows from this comment that the Supreme Court construed the section as referring to claims against the company which is subject to the deed of arrangement. This statement was approved by the Full Federal Court in Lam Soon Australia Pty Ltd (admin apptd) v Molit (No 55) Pty Ltd (1996) 70 FCR 34 at 39-40. 34 The plaintiffs referred to these authorities in support of their position, however, while the two decisions support the conclusion that "claims arising on or before the day specified in the deed" refers to claims against the company they did not resolve the ambiguity in s 444D(1). First, the Supreme Court's statement does not go so far as to read the section as referring only to claims against the company. Secondly, the authorities were not dealing with the phrase "so far as concerns" which are the words on which the defendants rely in support of their claim. 35 It was submitted that, the phrase, "as far as concerns" in s 444D(1) is ambiguous in that it is analogous to phrases such as "in relation to" or "relating to". As such, it was submitted, a deed will "concern" a creditor's claim "if it provides for a regime of provisions which affect that claim". 36 There are many phrases that might, in the context of s 444D, substitute for "as far as concerns". In addition to those suggested by the defendants they include "in respect of" and "to the extent of". In my view, however, none of those phrases alter the meaning that I would attribute to the section. In particular I do not accept that those phrases would carry the meaning that the fourth defendant ascribes to them. 37 Pt 5.3A is directed to dealing with the debts of an insolvent company. In accordance with the object of the Part set out in s 435A, it aims to do so in a manner that enables the company to stay in business or to get "a better return for the company's creditors and members than would result from an immediate winding up"; [emphasis added]. It is the company's debts that drive the processes laid down in Pt 5.3A. 38 Section 444A(4) sets out the required elements of the deed. The required elements are directed to providing an orderly process for the realisation of the company's assets and the payment of its creditors. They address, inter alia, the extent to which the company is to be released from its debts and, importantly, the cut-off date before which "claims must have arisen if they are to be admissible under the deed"; ss 444A(4)(d) and (i). In that context, 'claims' clearly refers to claims against the company. 39 In s 444A and throughout Pt 5.3A creditors are referred to in their capacity as creditors of the company. The Part provides for a deed of company arrangement to alter the rights of the creditors and consequently adjusts the claims that they may make against the company. Conspicuous by its absence is any express provision having the effect of diminishing a creditor's rights against entities other than the company. In fact the combination of ss 444H and 444J ensure by express words that a release of the company's debt is limited to the provisions of the deed and does not affect the relevant creditor's rights under a guarantee or indemnity. 40 In the context of a statutory scheme that provides (a) expressly and in some detail for the adjustment of the rights of the creditors of the company under administration; and (b) that the adjustment may be forced on a minority of creditors by a majority, I attach considerable weight to the absence of any provision dealing with claims against entities other than the company. 41 There is no suggestion that the DOCA was not executed in accordance with s 444B and therefore, as explained at [22] above it is a deed of company arrangement however the impugned provisions cannot stand. They purport to impose obligations and restrictions on creditors that go beyond what is contemplated and permitted under Pt 5.3A. It follows that they lack the necessary statutory force to bind the creditors. For the reasons given by Perram J at [154]-[155] they are not severable from the deed which must be declared to be void. 42 At the hearing the defendants made much of the need for the Court to consider the "commercial realities" behind the arrangements made in the DOCA. In its written submissions the fourth defendant claimed that: By focussing only on the releases (and associated moratorium and insurance claims provisions) the plaintiffs obscure the true nature of the inquiry concerning the validity of the DOCA.

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RARES J 46 On 28 July 2009 I reserved eight separate questions under s 25(6) of the Federal Court of Australia Act 1976 (Cth) for the consideration of the Full Court. The questions concern first, the proper construction of a number of provisions in the deed of company arrangement of Lehman Brothers Australia Limited (subject to a deed of company arrangement) (Lehman Australia) and, secondly, whether there is power under Pt 5.3A of the Corporations Act 2001 (Cth) for a deed of company arrangement to include such provisions. In substance, the deed contemplates that related companies of Lehman Australia, including the principal proponent of the deed, Lehman Brothers Asia Holdings Limited (in liq) (Lehman Asia), a Hong Kong corporation, as well as their parent company incorporated in the United States of America, Lehman Brothers Holdings Inc. (Lehman Brothers), are entitled to the benefit of releases by other creditors of their (as distinct from Lehman Australia's) liabilities to those creditors, together with some controls over the creditors' rights to sue insurers of Lehman companies and a moratorium contained in the deed that benefits not only Lehman Australia but other Lehman companies. The deed refers to the other Lehman companies as "Lehman entities" and it is convenient to use that description in these reasons. 47 The plaintiffs are local government councils that invested in collateralised debt obligations sold to them by Lehman Australia. The effect of the impugned provisions of the deed of company arrangement will be to release not only Lehman Australia but also the other Lehman entities from all claims that any of the creditors of Lehman Australia may have against them. The deed will also prevent those creditors from enforcing their rights under policies of insurance that may respond to their claims pursuant to statutory charges such as those afforded by s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). In addition, there is a question as to whether, if the clauses do not mean what the parties appear to say they do, the Court has power under Pt 5.3A of the Act to rectify or amend the deed to include similar clauses. 48 It was common ground that the background is accurately summarised inthe following paragraphs taken, largely, from the plaintiffs' written submissions: "2. BACKGROUND 8. On 15 September 2008, Lehman Brothers filed for Chapter 11 Bankruptcy with the US Bankruptcy Court, Southern District Court of New York. 9. On 17 September 2008, KPMG was appointed the provisional liquidator of Lehman Asia. Lehman Asia is now in liquidation. 10. On 26 September 2008, the administrators were appointed to Lehman Australia. 11. On 19 March 2009, the Administrators published a report to creditors of Lehman Australia pursuant to section 439A of the Act. The March Report included details of a proposal for a deed of company arrangement put forward by Lehman Brothers Asia Holdings (Lehman Asia) (the March Proposal). 12. The March Report detailed that the creditors of Lehman Australia fell into two categories, ordinary creditors (secured creditors, unsecured creditors and employees etc) and 'Contingent Claimant Creditors' (properly described as creditors with unliquidated claims). In the March Report Contingent Claimant Creditors was defined as entitles or persons that have commenced, or are contemplating commencing proceedings against Lehman Australia for, amongst other things misleading and deceptive conduct in offering for sale certain financial products (Litigation Creditors). 13. There are 308 Litigation Creditors of Lehman Australia that held CDOs that Lehman Australia had acquired for them or on their behalf bearing a Face Value of AUD $1,283,878,000. 14. Broadly, the March Proposal provided that: (a) Lehman Australia's proprietary book of investments would be "close[d] out" in an orderly manner by the Administrators; (b) The realisation of Lehman Australia's proprietary book of investments would be available for Distribution to 'ordinary creditors' (i.e. those that have quantifiable crystallised non litigation claims) on a pari passu basis; (c) The (then) provisional liquidators of Lehman Asia would agree to 'subordinate' the first AUD 35 million of its dividend entitlement to fund the 'Contingent Creditor Deed Pool' in which Litigation Creditors would be entitled to claim; (d) Recovery would be 5.6 cents in the dollar to each Litigation Creditor; and (e) The Litigation Creditors would be required to provide releases to: i. Lehman Australia; ii. All other Australian domiciled Lehman Brothers entities; iii. All other Lehman global entities; iv. The directors, officers, and employees of all Lehman Companies. 15. On 18 May 2009, the Administrators published a supplementary report to the creditors of Lehman Australia (the Supplementary Report). The Supplementary Report contained a more detailed proposal for a deed of company arrangement put forward by Lehman Asia (the May Proposal). 16. In summary, the May Proposal provided that: (a) A separate 'Litigants Fund' be created, comprising an amount of AUD 35 million in cash and the proceeds of any insurance policy (clause 2.2(a)); (b) The 'Litigation Creditors' receive the full amount of their claims on a pari passu basis (clause 2.2(e)(iii)); (c) In the event that a 'Litigation Creditor' elected to pursue claims against a third party, the 'Litigation Creditor' would grant an indemnity in favour of the 'Lehman Entities' (including each of their directors and officers), extending to the recovery of all loss and damage that a 'Lehman Entity' may suffer arising from such proceedings against a third party (clause 3(b)); (d) The claims of a 'Litigation Creditor' against Lehman Australia and a 'Lehman Entity' which were not 'Preserved Contractual Rights' would forever be released, discharged and extinguished when they receive their entitlements, if any, pursuant to the May Proposal (clause 4.1); (e) Lehman Australia would release the directors of Lehman Australia, all Lehman Entities and their directors and officers from any claim or liability whatsoever arising prior to the execution of the May Proposal (clause 9.2); and (f) A 'Lehman Entity' was defined to mean a 'related body corporate', as that term is defined in the Act, of Lehman Australia, including any entity that was a 'related body corporate' in the 6 month period prior to 15 September 2008 (clause 2.2(d)). 17. In the Supplementary Report, the Administrators recommended that the creditors of Lehman Australia not execute the May Proposal for reasons including the following: (a) The Administrators were concerned about the enforceability of the required releases and the indemnities from creditors in favour of Lehman Australia, its officers and the Lehman Entities and their officers, and the potential for such provisions to breach section 445D of the Act; (b) It was essential that the releases and any moratorium provided by the Litigation Creditors in the May Proposal did not prejudice any insurance recovery in relation to the claims by the Litigation Creditors, and that there was inadequate information contained in the May Proposal to assess this issue; and (c) In the circumstances, the Administrators recommended that the creditors resolve to wind up Lehman Australia. 18. On 27 May 2009, the second meeting of the creditors of Lehman Australia was held pursuant to section 439A of the Act (the Second Meeting). 19. At the Second Meeting, KPMG in its capacity as the representative of Lehman Asia circulated a revised proposal for a deed of company arrangement (Revised May Proposal). 20. In summary, the Revised May Proposal provided, inter alia, for: (a) The removal of any limitation on creditors making claims or commencing actions against third parties; (b) The removal of any requirement that creditors provide releases to the directors and officers of Lehman Australia and the Lehman Entities; (c) The removal of any requirement that parties bound by the Revised May Proposal indemnify Lehman Australia and the Lehman Entities for any loss caused by the commencement of third party claims; (d) An increase of the 'Litigation Creditors Fund' from AUD 35,000,000 to AUD 42,000,000; 21. The Second Meeting was then adjourned to 4.00 pm on 28 May 2009, in order to allow the Administrators time to draft a revised report. 22. At approximately 11.00 am on 28 May 2009, the Administrators published a further report to the creditors of Lehman Australia (the Further Report). 23. In the Further Report, the Administrators stated that in their opinion, it was in the interests of the creditors of Lehman Australia to execute a deed of company arrangement in the form of the Revised May Proposal on the basis: (a) That Creditors would receive payments much earlier than if Lehman Australia was placed in liquidation; (b) Of the comparative returns available on liquidation; and (c) The fact that Litigation Creditors would have their claims dealt with without the need to resort to 'expensive and protracted' litigation, the outcome of which was uncertain. 24. On the resumption of the second meeting of creditors on 28 May 2009, the administrators proposed a resolution to the creditors of Lehman Australia, namely that the Company execute a Deed of Company Arrangement in the form of the amended Lehman Brothers Asia Holdings Limited. 25. The resolution was passed at the meeting according to the following votes: (a) 61 creditors voted in favour of the resolution. (b) 58 creditors voted against the resolution. (c) Creditors admitted to vote representing $256,237,474.48 voted in favour of the resolution. (d) Creditors admitted to vote representing $71,802,996.19 voted against the resolution. 26. Accordingly, the resolution was passed both by a majority in number and a majority in value, and therefore carried. 27. Of the 61 creditors who voted in favour of the resolution, 9 of those creditors included Lehman entities which represented $245,160,674.20 by value of the creditors present and voting. 28. On 5 June 2009, the first and second plaintiffs commenced these proceedings against Lehman Australia and Lehman Asia. The third plaintiff was subsequently joined as was Lehman Brothers (on its own application). 29. Immediately prior to the first return date on 12 June 2009, the administrators on behalf of Lehman Australia and Lehman Asia executed the DOCA to give effect to the resolution and to appoint the administrators as the deed administrators. 3. THE DOCA AND THE WAY IT OPERATES 30. The parties to the DOCA are: (a) Lehman Australia; (b) Lehman Asia; and (c) The administrators. 31. The DOCA contains the following provisions, amongst others, that purport to govern its implementation and effect. 32. Subsequent to the DOCA coming into effect, the Deed Administrators will realise and get in the property of Lehman Australia and establish a fund comprising the property of Lehman Australia to distribute to the creditors of Lehman Australia (Deed Fund) (clause 5.1). 33. The Deed Administrators will distribute the Deed Fund in the following order of priority: (a) Payments to the Administrators on account of their costs, expenses and remuneration; (b) Reimbursement and payment of the 'Costs and Expenses' of the DOCA; (c) Priority distributions including the payment of the remuneration of the Deed Administrators and any 'Priority Creditors' including 'Eligible Employee creditors'; (d) $43,200,000 to establish the "Litigation Creditors' Fund"; (e) Payments to 'Admitted General Creditors' up to an amount which does not exceed $9,000,000; (f) Payments to the Lehman Entities in full in proportion to their 'Admitted Claims'; (g) Payments of interest to the 'Admitted General Creditors' or 'Admitted Lehman Entities'; (h) Payment of the 'Subordinated Debt' to Lehman Granica; and (i) Payment to the shareholders of Lehman Australia; (clause 5.3). 34. Anytime after the distributions of the Deed Fund (referred to in the preceding paragraph) have been made subject to clause 5.3(a) to (e) of the DOCA, the investment assets of the Company in the form of securities, Financial Products, financial derivatives or other marketable investments (but not cash, receivables or any other assets) may be transferred to a special purpose vehicle (SPV). 35. If such an SPV is created, an Investment Panel will be created, consisting of a representative of Lehman Asia, Lehman brothers, Lehman Brothers International Europe and both Deed Administrators. The Investment Panel will appoint a Fund Manager to manage the SPV (clause 13.2(a) and (b)). 36. After distributions of the Deed Fund and if the Deed Administrators are satisfied that any personal liability is provided for, Lehman Asia may elect to allow all other Lehman Entity Creditors (Lehman Entities who assert a Claim) to take their distribution entitlement in cash or in specie of any assets held in the SPV. 37. The "Litigation Creditors' Fund" will consist of: (a) $43,200,000; and (b) The 'Insurance Proceeds' (meaning the proceeds of any claim for indemnity or other relief in relation to any insurance policy which insures or otherwise provides benefits to the Company or any Lehman Entity in connection with any Claim or any claim, including any claim under statute, for the proceeds of, or a charge over the proceeds of, such insurance policy, but excluding any claim for indemnity under any insurance policy held by LB Asia) as and when they are received up to the time when every 'Insurance Claim' has been resolved by the Deed Administrators; (clause 6.2) 38. The Deed Administrators will realise and get in all the 'Insurance Proceeds' and the Deed Administrators will have the sole conduct and control of any 'Insurance Claim' and an absolute discretion regarding the prosecution and resolution of any 'Insurance Claim', subject to appropriate consultation with the 'Litigation Creditors Fund Committee', and pay all of the 'Insurance Proceeds' into the "Litigation Creditors' Fund" (clause 7.1). 39. 'Admitted Litigation Creditors' are not to receive more than 100 cents in the dollar on their 'Admitted Litigation Claims', and any surplus of the "Litigation Creditors' Fund" will remain with or be paid by the Deed Administrators into the Deed Fund (clause 8.4). 40. On payment in full of the "General Creditors' Final Dividend", all 'Claims' of the 'General Creditors' against Lehman Australia and (subject to the construction issue raised below) a Lehman Entity are forever released, discharged and extinguished (clause 11.1). 41. General Creditors' must accept their distributions under the DOCA in full and final satisfaction and discharge of all 'Claims' against Lehman Australia or a Lehman Entity and each of them must, if called upon to do so, execute and deliver to the Deed Administrators such form of release of any 'Claim' against Lehman Australia and or a Lehman Entity as the Deed Administrators may require (clause 11.2). 42. On payment in full of the "Litigation Creditors' Final Dividend", all 'Claims' by 'Litigation Creditors' against Lehman Australia and (subject to the construction issue raised below) the Lehman Entities and all 'Insurance Claims' are forever released, discharged and extinguished (except those that arise out of the 'Preserved Contractual Rights') (clause 11.5). 43. The 'Litigation Creditors' must accept their distributions under the DOCA in full and final satisfaction of all 'Claims' and 'Insurance Claims' (except those that arise out of the 'Preserved Contractual Rights') and must, if called upon to do so, execute and deliver to the Deed Administrators such form of release of any Claim and any Insurance Claim as the Deed Administrators may require (clause 11.6). 44. Distributions from the "Litigation Creditors' Fund" are to be made in the following order of priority: (a) First, in reimbursement and payment of the remuneration of the Administrators and Deed Administrators (clause 8.2(a)); (b) Next, in payment of the legal costs and expenses of the Wingecarribee Shire Council in conducting Federal Court of Australia proceedings NSD 2492 of 2007, up to an amount not exceeding $1,000,000 (clause 8.2(b)); (c) Next, in payment of the legal costs and expenses of Gowing Brothers Limited, up to an amount of $200,000 (clause 8.2(c)); and (d) Next to 'Litigation Creditors' in proportion to their 'Admitted Litigation Claims' as determined in accordance with the guidelines. 45. There will be a moratorium in favour of Lehman Australia and (subject to the construction issue raised below) the Lehman Entities during the period which the DOCA is operative for all 'Claims' and during that period a 'Creditor' must not: (a) Wind up or take or concur in any step to wind up Lehman Australia or a Lehman Entity or to continue to prosecute any application for the winding up of Lehman Australia (clause 9.1(a)); (b) Except as otherwise provided in the DOCA, institute or prosecute any legal proceedings or continue to prosecute any legal proceedings on or before 12 June 2009, including any legal proceedings in relation to any 'Claim' or any 'Insurance Claim' without the express written consent of the Administrators (clause 9.2(b)); (c) Take or concur in any step or any further step for the purpose of enforcing any judgment debt owed by Lehman Australia or a Lehman Entity (clause 9.2(c)); (d) Exercise any right of set-off or defence, cross claim or cross action to which that 'Creditor' would not have been entitled had Lehman Australia or a Lehman Entity been would up on the 'Admissible claim Date' (clause 9.1(d)); (e) Commence or take any further step in any arbitration against Lehman Australia or a Lehman Entity, or to which Lehman Australia or a Lehman Entity is a party, in relation to any matter arising or occurring before the 'Admissible Claim Date', including any arbitral proceedings in relation to any 'Claim' or any 'Insurance Claim', without the express written consent of the Administrators (clause 9.1(e); (the Moratorium). 46. The Moratorium provided for in clauses 9.1(b) and 9.1(e) of the DOCA: (a) includes any application to a court by a Litigation Creditor for leave to proceed or any proceedings for a charge in respect of an 'Insurance Claim' (clause 9.2(a)); and (b) applies to the Litigation creditors for a period of 24 months from 12 June 2009, and thereafter, only with the prior written consent of the Administrators, or should that consent not be provided within 28 days of a written application for it having been made to the Deed Administrators, by leave of the Court (clauses 9.2(b) and 9.2(c))."

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THE SEPARATE QUESTIONS 49 The separate questions reserved for the consideration of the Full Court included a question whether any amendment or addition to those questions was necessary. The separate questions used the definitions of terms in the deed of company arrangement and (incorporating an uncontentious amendment to question 8: see [127] below) were as follows: "Defined Terms 'Act' means the Corporations Act 2001 (Cth). 'Admissible Claim Date' has the same meaning as contained in clause 1.1 of the DOCA. 'claims' means any debt, claim or liability, present or future, certain or contingent, ascertained or sounding in damages as at the Admissible Claim Date. 'Company' means Lehman Brothers Australia Limited (subject to a Deed of Company Arrangement). 'Deed Administrators' means the second and third defendants. 'DOCA' means the deed of company arrangement dated 12 June 2009 between the first, second, third and fourth defendants. 'General Creditor' has the same meaning as contained in clause 1.1 of the DOCA. 'Insurance Claim' has the same meaning as contained in clause 1.1 of the DOCA. 'Lehman Entity' has the same meaning as contained in clause 1.1 of the DOCA. 'Litigation Creditor' has the same meaning as contained in clause 1.1 of the DOCA. 'Litigation Creditors' Final Dividend' has the same meaning as contained in clause 1.1 of the DOCA. 'Preserved Contractual Rights' has the same meaning as contained in clause 1.1 of the DOCA. Questions for separate determination 1. Whether clause 7.1 of the DOCA, on its proper construction, confers on the Deed Administrators the sole conduct and control of any Insurance Claim and an absolute discretion regarding the prosecution and resolution of any Insurance Claim, which otherwise could have been conducted, prosecuted or resolved by a creditor of the Company against an insurer for indemnity or other relief in respect of any insurance policy which insures or otherwise provides benefits to the Company or a Lehman Entity, excluding any claim for indemnity under any insurance policy held by Lehman Brothers Asia Holdings Limited (in Liquidation)? 2. If the answer to question 1 is 'yes', is clause 7.1 of the DOCA, in so far as it confers on the Deed Administrators the sole conduct and control of any Insurance Claim and an absolute discretion regarding the prosecution and resolution of any Insurance Claim, valid and binding on the creditors of the Company, having regard to sections 435A, 444A, 444D, 444H and Part 5.3A of the Act? 3. Whether clause 9 of the DOCA, on its proper construction, operates so as to provide for a moratorium against a General Creditor and/or a Litigation Creditor in respect of a claim or an Insurance Claim, in favour of a Lehman Entity? 4. If the answer to question 3 is 'yes', are the provisions of clause 9 of the DOCA, in so far as they provide for a moratorium in favour of each Lehman Entity in respect of a claim or the Insurance Claims, binding on the creditors of the Company, having regard to sections 435A, 444A, 444D, 444H and Part 5.3A of the Act? 5. Whether clause 11 of the DOCA, on its proper construction, operates such that, upon payment in full of the Litigation Creditors' Final Dividend, all claims and Insurance Claims of a General Creditor and/or a Litigation Creditor against a Lehman Entity are forever released, discharged and extinguished, in favour of a Lehman Entity (except the Preserved Contractual Rights)? 6. If the answer to question 5 is 'yes', are the provisions of clause 11 of the DOCA, in so far as they forever release, discharge and extinguish a claim and Insurance Claims of a General Creditor and/or a Litigation Creditor against a Lehman Entity (upon payment in full of the Litigation Creditors' Final Dividend and except the Preserved Contractual Rights), valid and binding on the creditors of the first defendant, having regard to sections 435A, 444A, 444D, 444H and Part 5.3A of the Act? 7. If the answer to any of the questions 2, 4 or 6 is 'no': 7.1 Is the DOCA a 'deed of company arrangement' on the proper construction of sections 435A, 444A, 444D, 444H and Part 5.3A of the Act? 7.2 Is the DOCA void and of no effect?" 8. If the answer to any of the questions 1, 2, 3, 4, 5, or 6 is "no", does the Court have power, pursuant to Part 5.3A of the Act or otherwise, to vary or rectify the DOCA to insert clauses which would have the effect that the clauses in those questions would have if the answer to those questions was "yes".

[30]

THE STATUTORY SCHEME 50 Part 5.3A was introduced into the Act by the Corporate Law Reform Act 1992 (Cth). The Explanatory Memorandum explained that the Bill for that Act addressed three major law reform reports, one by the Senate Standing Committee on Constitutional and Legal Affairs entitled "The Social and Fiduciary Duties and Obligations of Company Directors", a second by the Australian Law Reform Commission in its "General Insolvency Inquiry" (ALRC 45), known as the "Harmer Report", and the third by the Companies and Securities Advisory Committee on "Corporate Financial Transactions". The Act did not adopt the terms of the draft legislation prepared by the Harmer Report. Thus, while the purposes of the reform can, to some extent, be gleaned from the Harmer Report, the Parliament chose its own means for giving effect to it. 51 Critically, the object of Pt 5.3A is stated s 435A: "435A Object of Part 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." 52 The normal outcome of the administration of a company will be that, first, a deed of company arrangement is executed by both the company and the deed administrator, or secondly, the company's creditors resolve under s 439C(b) that the administration should end, or alternatively, that the company be wound up under s 439C(c): s 435C(2). 53 While the company is under administration, in the period leading up to one of the outcomes contemplated, a number of important steps must be taken within a relatively strict and narrow time frame. Once the board of the company has decided, by resolution, to appoint an administrator, (under s 436A) or where a liquidator or provisional liquidator appoints an administrator (under s 436B), the administrator must convene a meeting of the company's creditors within eight business days after the administration begins (s 436E(2)). While the company is under administration, the administrator's role is to control the company's business property and affairs. The administrator has power to carry on its business, manage its property and affairs, terminate or dispose of all or part of that business and any of the property of the company and to perform any function that the officers of the company could perform (s 437A)(1)). While the administrator is in office, the company's officers' powers over it are suspended and only the administrator can deal with the company's property (ss 437A and 437C). The members of the company are not able to transfer shares, except in some limited circumstances (s 437F). 54 Under Div 4 of Pt 5.3A, as soon as practical after the administration commences, the administrator must investigate the company's business, property, affairs and financial circumstances and form an opinion as to whether it would be in the interests of the company's creditors for one of the three outcomes to occur, namely that the company execute a deed of company arrangement, the administration end or the company be wound up (s 438A(b)). The directors must assist the administrator by delivering, or giving information about the location of its books, preparing a statement about the company's business, property, affairs and financial circumstances and attend on the administrator to give him or her such information as is necessary for the administrator to perform his or her functions (ss 438B and 438C). 55 Next, under Div 5 of Pt 5.3A, the administrator of a company under administration must convene a meeting of the company's creditors, in ordinary circumstances, within 20 business days of the administration commencing, but the Court can extend that period (ss 439A(1), (5) and (6)). The notice that the administrator must give for the meeting must be accompanied by a report he or she has prepared about the company's business, property, affairs and financial circumstances together with a statement setting out the administrator's opinion about each of the three possible principal outcomes of the administration. The administrator must provide the creditors with his or her reasons for those opinions and such other information known to him or her that will enable the creditors to make an informed decision about each matter upon which he or she has expressed that opinion, together with a statement setting out details of any proposed deed of company arrangement (s 439A(4)). 56 The administrator will preside at the second meeting of creditors. That meeting can be adjourned from time to time for a period of no more than 45 business days (s 439B). Importantly, s 439C provides for the outcome of this meeting to be decided as follows: "439C What creditors may decide At a meeting convened under section 439A, the creditors may resolve: (a) that the company execute a deed of company arrangement specified in the resolution (even if it differs from the proposed deed (if any) details of which accompanied the notice of meeting); or (b) that the administration should end; or (c) that the company be wound up." 57 The company is given a number of protections from external interference by Div 6 of Part 5.3A. It cannot be wound up (s 440A), charges are not enforceable (s 440B), liens and pledges must be held in suspension by the holder (s 440BA), distress for rent must not be carried out (s 440BB), an owner or lessor cannot recover property used by a company (s 440C), all legal proceedings are stayed, with certain very limited exceptions (s 440D), and enforcement processes, including execution under a court order, are suspended (ss 440F and 440G), unless the Court gives leave or in certain circumstances with the administrator's consent. 58 Importantly, s 440J provides that during the administration of the company a guarantee of a liability of the company cannot be enforced against a director who is a natural person or a spouse or relative of such a director except with the leave of the Court, but a creditor can apply for protective remedies against such persons under s 1323 (s 440J). Division 7 deals with rights of chargees, lienees, pledgees, owners or lessors and provides them with particular remedies. Under Div 8 the administrator is given particular powers and under Div 9 he or she assumes liability for debts he or she incurs in the performance or exercise of his or her functions and powers as administrator but obtains a right of indemnity in respect of that liability. 59 The next important set of provisions are found in Div 10. Under s 444A(1) a number of provisions are made to apply where, at a creditors' meeting under s 439A, the company's creditors resolve that the company execute a deed of company arrangement. The provisions of ss 444A and 444D are as follows: "444A Effect of creditors' resolution (1) This section applies where, at a meeting convened under section 439A, a company's creditors resolve that the company execute a deed of company arrangement. (2) The administrator of the company is to be the administrator of the deed, unless the creditors, by resolution passed at the meeting, appoint someone else to be administrator of the deed. (3) The administrator of the company must prepare an instrument setting out the terms of the deed. (4) The instrument must also specify the following: (a) the administrator of the deed; (b) the property of the company (whether or not already owned by the company when it executes the deed) that is to be available to pay creditors' claims; (c) the nature and duration of any moratorium period for which the deed provides; (d) to what extent the company is to be released from its debts; (e) the conditions (if any) for the deed to come into operation; (f) the conditions (if any) for the deed to continue in operation; (g) the circumstances in which the deed terminates; (h) the order in which proceeds of realising the property referred to in paragraph (b) are to be distributed among creditors bound by the deed; (i) the day (not later than the day when the administration began) on or before which claims must have arisen if they are to be admissible under the deed. (5) The instrument is taken to include the prescribed provisions, except so far as it provides otherwise. ... 444D Effect of deed on creditors (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: (c) 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 (d) 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). (4) Section 231 does not prevent a creditor of the company from becoming a member of the company as a result of the deed requiring the creditor to accept an offer of shares in the company." (emphasis added) 60 Next, by force of s 444E(1) "… a person bound by the deed" cannot apply, or proceed with an application, to wind up the company (s 444E(2)) or, except with the leave of the Court, bring or continue any proceeding against the company or its property or other enforcement process against the property of the company (s 444E(3)). And, under s 444E the Court may order a secured creditor of the company not to realise or otherwise deal with its security except as permitted by the order. A deed of company arrangement is made binding on the company, its officers and members and the deed's administrator by force of s 444G. And s 444H provides that a deed of company arrangement releases the company from a debt only in so far as, first, the deed expressly provides and, secondly, the creditor concerned is bound by the deed. However, s 444J expressly provides that such a release does not affect a creditor's rights under a guarantee or indemnity. 61 Division 11 of Pt 5.3A provides for the variation, termination or avoidance of deeds of company arrangement. Under s 445D the Court can make an order terminating the deed on a wide variety of grounds. But, the previous operation of a deed of company arrangement is not affected by its termination or avoidance by force of s 445H. Under s 447A(1), which is in Div 13 of Pt 5.3A, the Court is given a wide power or discretion to make such order as it thinks appropriate about how the Part is to operate in relation to a particular company. The power or discretion is not unconstrained as Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ explained in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 at 281-282 [24], 283-284 [29]-[32].

[36]

THE POWER ISSUE 70 The defendants argued that because some decisions under Pt 5.1 have approved compromises or arrangements under that Part, that have the effect of causing or requiring creditors of the company to release persons other than the company, a deed of company arrangement under Pt 5.3A should be capable of achieving the same result. 71 That argument can only be valid if, on its proper construction, Pt 5.3A creates such a power. The circumstances in which compromises and arrangements can be made under Pt 5.1 differ significantly from administration of a company under Pt 5.3A. For a company to enter into administration under Pt 5.3A it is essential for its directors to resolve that they, or the majority, hold the opinion that the company is insolvent or likely to be insolvent at some future time (s 436A(1)). No such precondition exists for a compromise or arrangement to be proposed for a company under Pt 5.1 (although, as s 411(1) provides, a company being wound up may be the subject of a compromise or arrangement under Pt 5.1). 72 And, the objects of Pt 5.3A in s 435A focus on providing for the administration of the business, property and affairs of an insolvent company. That administration is driven by consideration of alternatives to the actual or likely insolvency at the hands, not of the company, but of the creditors, assisted by the administrator's opinions. The timeframe and information available for decision-making on the company's future is limited by Pt 5.3A. Importantly, both paragraphs in s 435A focus on what is to happen to the company's business, property and affairs. In contrast, compromises and arrangements under Pt 5.1 can be directed to a large variety of purposes including the orderly reorganisation of a group of companies where the continued existence of separate corporate entities may no longer be convenient or commercially desirable. While the interests of creditors will always be a relevant concern of the Court in considering a proposed compromise or arrangement under Pt 5.1, often their interests will not loom large because the continuing solvency of the reorganised debtor is not in doubt. 73 Moreover, by providing that the company execute the proposed deed of company arrangement, s 444B(2) " … requires a visible expression of the company's assent to the terms that are recorded in the instrument": MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636 at 645 [18]. There Gleeson CJ, Gaudron, Gummow and Hayne JJ explained that the intention revealed in Pt 5.3A is that the company's transition from being subject to administration to being subject to a deed of company arrangement did not depend exclusively on the wish of the creditors and the assent of the administrator. If the company withholds its consent for more than 15 days after the creditors' resolution then the company will be wound up by force of s 446A(2).

[37]

POWER TO INCLUDE RELEASES BINDING ON DISSENTING CREDITORS 74 The defendants' proposed construction of the power given to a meeting of a company's creditors under Pt 5.3A to resolve that the company enter a deed of company arrangement is very broad. It would permit the majority of creditors to use their voting power to interfere with, indeed to confiscate, the minority's property rights and causes of action. In Wentworth v New South Wales Bar Association (1992) 176 CLR 239 at 252 Deane, Dawson, Toohey and Gaudron JJ said: "There are certain matters in relation to which legislative provisions will be construed as effecting no more than is strictly required by clear words or as a matter of necessary implication (see Bropho v Western Australia (1990) 171 CLR 1 at pp 17-18, for a general statement of the rule). They include important common law rights (ibid, at pp 17, 18; see also Corporate Affairs Commission (NSW) v Yuill (1991) 172 CLR 319 at pp 322, 338 and cases there cited, 346-347. As to property rights, see American Dairy Queen (Q) Pty Ltd v Blue Rio Pty Ltd (1981) 147 CLR 677 at pp 682-683. As to the right to carry on business, see The Commonwealth v Progress Advertising & Press Agency Co Pty Ltd (1910) 10 CLR 457 at p 464.) ..." 75 In American Dairy Queen (Qld) Pty Ltd v Blue Rio Pty Ltd (1981) 147 CLR 677 at 682-683 Mason J (with whom Gibbs CJ, Murphy, Aickin and Brennan JJ agreed, see too Potter v Minahan (1908) 7 CLR 277 at 304 per O'Connor J, Clissold v Perry (1904) 1 CLR 363 at 373 per Griffith CJ) said: "The general rule is that the courts will construe a statute in conformity with the common law and will not attribute to it an intention to alter common law principles unless such an intention is manifested according to the true construction of the statute. See Reg v Morris ((1867 LR 1 CCR 90 at p 95); Potter v Minahan ((1908) 7 CLR 277 at p 304); see also Craies on Statute Law, 7th ed (1971), pp 188-189. This rule certainly applies to the principles of the common law governing the creation and disposition of rights of property. Indeed, there is some ground for thinking that the general rule has added force in its application to common law principles respecting property rights." 76 In Bropho v Western Australia (1990) 171 CLR 1 at 18 Mason CJ, Deane, Dawson, Toohey, Gaudron and McHugh JJ said: "The rationale of all such rules lies in an assumption that the legislature would, if it intended to achieve the particular effect, have made its intention in that regard unambiguously clear. Thus, the rationale of the presumption against the modification or abolition of fundamental rights or principles is to be found in the assumption that it is "in the last degree improbable that the legislature would overthrow fundamental principles, infringe rights, or depart from the general system of law, without expressing its intention with irresistible clearness; and to give any such effect to general words, simply because they have that meaning in their widest, or usual, or natural sense, would be to give them a meaning in which they were not really used" (Potter v Minahan ((1908) 7 CLR 277 at p 304), and see, also, Ex parte Walsh and Johnson; In re Yates ((1925) 37 CLR 36, at p 93). If such an assumption be shown to be or to have become ill-founded, the foundation upon which the particular presumption rests will necessarily be weakened or removed." 77 The defendants' broad construction of the reach of Pt 5.3A should be rejected. First, no express words in Pt 5.3A support it. Secondly, because no deed of company arrangement can come into effect unless the company has executed it (by force of ss 444B(2), see too MYT 195 CLR at 645-646 [18] and 446A(2)), a debtor would be able to be party to taking away its creditor's rights against other persons. This result was expressly rejected by the Parliament's later enactment of s 444J. That confirmed that a release of the company's debt by force of a deed of company arrangement did not affect a creditor's rights under a guarantee or indemnity in its favour. By enacting s 444J, the Parliament made clear that by giving a release of its debt, the company did not release the creditor's other rights against third parties, such as other (solvent) companies in the group, directors, officers and members of the company and their relatives (see s 440J). Yet, if the defendants' construction were correct, the majority creditors could vote that a minority creditor would release, or could be taken to appoint the administrator to execute on its behalf a release, of its rights under a guarantee or indemnity.

[38]

The scope of s 444D 78 The defendants' construction requires s 444D(1) to be read as not merely complementing the other provisions of Pt 5.3A, but as expanding them to include subjects not expressly mentioned in the Part. The section 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)." 79 The defendants, in general, accepted that the expression "claims arising on or before the day specified in the deed" in s 444D(1) should be read as having the same content as the expression "debts or claims the circumstances giving rise to which occurred before the relevant date" in s 553 of the Act. No challenge was made to the correctness of the decisions of the Appeal Division of the Supreme Court of Victoria in Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24 at 32-34 or of the Full Court of this Court in Lam Soon Australia Pty Ltd (Admin Appt) v Molit (No 55) Pty Ltd (1996) 70 FCR 34 where that construction was found to be correct. Additionally in International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 171-172 [39] and [42] Gummow, Hayne, Heydon, Crennan and Kiefel JJ applied the construction of s 444D(1) reached in Brash [1996] 1 VR 24, by Brooking, JD Phillips and Hansen JJ. 80 The defendants argued that s 444D(1) provided that a deed of company arrangement bound creditors in respect of their "claims" not just against the company, but also against other creditors, insurers and other third parties. Lehman Bros added a further gloss on this expansive construction by arguing that the expression "so far as concerns", meant "relating to", "connected with", "being of interest or importance" or "affecting" claims against the company. Those meanings derive from the Macquarie Dictionary meaning of "concern". 81 The task of statutory construction must be approached as McHugh, Gummow Kirby and Hayne JJ said in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 382 [71]: "Furthermore, a court construing a statutory provision must strive to give meaning to every word of the provision (The Commonwealth v Baume (1905) 2 CLR 405 at 414 per Griffith CJ; at 419 per O'Connor J; Chu Kheng Lim v Minister for Immigration Local Government & Ethnic Affairs (1992) 176 CLR 1 at 12-13 per Mason CJ). In The Commonwealth v Baume ((1905) 2 CLR 405 at 414) Griffith CJ cited R v Berchet ((1688) 1 Show KB 107 [89 ER 480]) to support the proposition that it was 'a known rule in the interpretation of Statutes that such a sense is to be made upon the whole as that no clause, sentence, or word shall prove superfluous, void, or insignificant, if by any other construction they may all be made useful and pertinent'." 82 The terms of s 444D(1) provide that a deed of company arrangement binds all creditors of the company in a particular respect. That respect is "so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i)". Thus, the class of claims to which s 444D(1) applies are those that arise on or before a particular day. And, s 444A(4)(i) identifies a requirement that a deed of company arrangement specify "the day … on or before which claims must have arisen if they are to be admissible under the deed". This, in turn, refers back to the requirement in s 444A(4)(b) that the instrument specify the property of the company "… that is to be available to pay creditors' claims". In addition, s 444(A)(4)(d) requires the instrument to specify the extent to which the company is to be released from a particular class of claims, namely debts. 83 The relationships regulated by a deed of company arrangement must be or, at least include, those for which s 444A(4) specifies the deed must provide. Those relationships are between: · the administrator, the company and the creditors; · the company and the creditors. The significance of the provisions of s 444A(4)(b) and (i) in the construction of s 444D(1) is obvious. The parties to a deed need not include any of the creditors. This is because by force of s 444B(6) an instrument prepared under s 444A(3) and (4) becomes a deed of company arrangement when executed by the company and the administrator. That is why the creditors must be bound so far as concerns their claims against the company by force of the Act through the operation of s 444D(1). The purpose of a deed of company arrangement is to regulate the rights of creditors in respect of their claims against the company and its property. 84 The detailed provisions of Div 10 of Pt 5.3A make no express mention of a deed of company arrangement applying to the rights of the company's creditors against, not the company, but each other or strangers, except that in s 444J there is a limited preservation of creditors' rights against sureties of a debt of the company released by a deed. The Parliament considered it necessary, in order to give effect to a deed of company arrangement, to make it binding on all persons "bound by the deed" so as to constrain their rights to proceed against the company or to take enforcement action against it or its property (s 444E). This statutory moratorium applies only to persons bound by a deed so far as they seek to affect the company, but it does not apply to third parties or other creditors. In addition, s 444F gives the Court power to constrain the rights of secured creditors of a company the subject of a deed, and s 444G makes the deed binding on the company, its members, and the deed's administrator. Importantly, these provisions recognise that the company and its property must be protected by, and the company must get the benefit of, the provisions of the deed. 85 However, Div 10 of Pt 5.3A does not make any such provision in respect of the effect of a deed of company arrangement on the rights of creditors of the company against third parties, unless s 444D(1) can be given the construction for which the defendants contend. Yet, s 444D(2)(a) and (3)(a) evince an intention that, unless a secured creditor, or owner or lessor of property actually voted in favour of the resolution proposing that the company execute the deed, they will not be bound by it except if the Court exercises a specific power to make an order against such a creditor under ss 444E or 444F. The structure of Div 10 of Pt 5.3A thus tells against the sweeping reach of s 444D(1) for which the defendants contend. 86 The only way that, and the extent to which, the creditors are to be bound by a deed is by force of the express provisions of Pt 5.3A, unless particular creditors have consensually become parties to the deed by giving covenants for which the Act has not provided. This is the statutory context in which s 444D(1) operates. Thus s 444D(1), as reinforced in s 444D(2)(a) and 3(a), binds the creditors, whether or not they are parties to a deed of company arrangement, in the particular manner the section identifies. The claims that s 444D(1) provides for are those of creditors of the company arising before the day specified in s 444A(4)(i). That day is specified so that there is a clear cut-off date for claims that are admissible under the deed for which the company's property is to be available to pay creditors' claims as specified under s 444A(4)(b). 87 The literal, grammatical, and common sense, construction of s 444D(1) is that it refers to claims of creditors corresponding to those referred to in s 444A(4)(b) and (i) that will be admissible under the deed of company arrangement for payment by the company to the extent that the deed provides in substitution for the rights that the creditors would have been able to exercise had the company not entered into a deed or administration. And, if the creditors are owed debts by the company, then the deed may provide that these be released under s 444A(4)(d). That release is given force by s 444H, but, as s 444J makes plain, the release of the debt does not operate to release a surety to the creditor under a guarantee or indemnity. However, s 444H does not deal with the release of claims other than debts. 88 In Blue Metal Industries Ltd v Dilley (1969) 117 CLR 651 at 659 the Privy Council (Lords Morris of Borth-y-gest, Pearce, Wilberforce, Pearson and Diplock) considered the construction of a statutory power of compulsory acquisition of outstanding shares following a take-over offer under s 185 of the Companies Act 1961 (NSW). Lord Morris of Borth-y-gest, delivering their Lordships' advice, said: "They consider it important to bear in mind that the statutory procedure provided by s. 185 and invoked in this case is one which involves the involuntary acquisition by a private interest of the property of another--an exceptional interference with rights of individual ownership. They can find nothing in the scheme or philosophy of the companies legislation to suggest that the legislature intended to permit this power to be exercised merely because a majority, even an overwhelming majority, thought fit to agree to it. It is particularly significant that the power can not be exercised by an individual or, even on the hypothesis that plural acquisition is possible by a company or companies and an individual or individuals together. This seems strongly to support the indication that the section is a company structure section and not one of concentration of property interests." (emphasis added) 89 Here, there are no express words in Pt 5.3A that permit the result contended for by the defendants. That result involves the involuntary destruction of the private rights and interests of some creditors against third parties, including, but not limited to other creditors of Lehman Australia. The scheme of Pt 5.3A is able to operate effectively by employing the grammatical construction of s 444D(1) without extending it to a wide class of creditors' claims, not against the company, but against others who may be strangers to the meeting under s 439A and who may not, themselves, be creditors of the company. 90 The purpose of Pt 5.3A, identified in s 435A, is to enable the company or its business either to have the best chance of continuing to operate or, if that cannot be achieved, to pay creditors more than in a winding up. These purposes are not reflective of the Parliament expressing an intention that in order for this result to occur, the majority of creditors is entitled to deprive some of their number of other rights to recover claims or debts they may have, not against the company, but against third parties. The defendants' construction, if correct, would justify the creditors resolving that the company execute a deed of company arrangement that released first, the company's debt to its bank, and secondly some of those creditors' debts to the same bank incurred by them to support their extension of credit to the company, or their acquisition of its shares.

[40]

The power of creditors to pass the resolution under s 439C 92 The subject matter of a deed of company arrangement is a resolution of creditors at the meeting convened under s 439A that, in accordance with the power in s 439C(a), "the company execute a deed of company arrangement". The defendants' arguments fail to recognise that the resolution is about the company being asked by the creditors to execute a deed of company arrangement that, if executed under s 444B(2), will lead to a new relationship between it and its creditors. The power in s 439C(a) does not extend to authorising the creditors to use Pt 5.3A to deprive some of their number of their legal rights against persons other than the company. All of Pt 5.3A can be read harmoniously with a construction that limits the statutory effect of a resolution under s 439C(a), and the instrument that the administrator must prepare as the proposed deed of company arrangement under s 444A(3), to the direct relationship between the company and its creditors. That does not prevent the creditors consensually (i.e. unanimously) arriving at a wider arrangement or compromise, the effect of which can be included in a deed of company arrangement, not as additional covenants binding by force of s 444D(1), but because those persons have agreed, individually, to adjust their legal rights, interests, liabilities and obligations as part of an overall rescue package for the insolvent company. This construction is reinforced by the requirements of s 444A(4) when read with ss 444D, 444E, 444F, 444G, 444H and 444J. 93 If a creditor with a statutory charge over insurance moneys payable in consequence of the company's liability to that creditor (e.g. under s 6 of the Law Reform (Miscellaneous Provisions) Act 1946), sued the insurer, how would a term of a deed of company arrangement that the creditor had released that creditor's statutory charge against the insurer operate? Could the insurer plead the release in the deed in bar of the claim, even though the creditor dissented from the resolution under s 439C(a)? The insurer, in this scenario, is a debtor or contingent debtor to the company in respect of the insurance claim. Nothing in Pt 5.3A provided for the insurer's exoneration from its contractual liability to indemnify the company or, more importantly, from its statutory liability to persons such as the creditor. That leaves open whether the compromise of the company's liability to the creditor in the deed may or may not be relevant to the quantification, and enforceability, of some or all of the statutory charge, depending on the terms of the insurance policy, the nature of the liability and the nature and extent of the statutory charge. Those questions are not in issue here.

[41]

Extrinsic aids to construction 94 In addition to the above considerations, the Explanatory Memorandum for the Corporate Law Reform Bill 1992 does not expressly support the defendants' construction. The insertion of the new Pt 5.3A was primarily designed to address concerns that Australia's then current corporate insolvency laws were inflexible "… and that they too easily and too often lead to the liquidation of companies, when some such companies could have been saved". The Explanatory Memorandum noted that proposed s 435A would also recognise that no matter how efficiently the new administration procedure operated, there would be cases when it was not possible to save the company or its business. In the latter class of case the object of the new provisions would be to provide for a fair and efficient winding up and one that resulted in a better return for the company's creditors and members than would result from an immediate winding up. 95 The purpose of the moratorium in s 440D was explained as being to protect the company from all civil action so that the administrator could formulate a rational plan for future action. And, the Explanatory Memorandum explained the purpose of s 440J as removing the perceived impediment to the earlier appointment of an administrator to a company in financial difficulties where directors had personally guaranteed the obligations of the company and feared that, immediately upon the appointment, the guarantee would become enforceable. The Explanatory Memorandum said that to remove that perceived impediment, the proposed s 440J aimed to impose a stay on any enforcement action under a guarantee against a director, spouse, de facto spouse or relative of the director while the company was under administration, except with leave of the Court. In addition, a creditor would be entitled to apply to the Court for orders to preserve the assets of the director during the administration and a wide definition of "guarantee" would be included. 96 The Explanatory Memorandum said that proposed Div 10 would specify certain minimum requirements, together with rules for the protection of the rights of dissenting parties. It recognised that the contents of a deed might vary according to the needs of a particular company and its creditors, though it might often be expected to provide for some form of comprise of debts, such as the repayment of debts by delaying instalments. In exchange, the Explanatory Memorandum noted that the activities of company management might be subjected to supervision by the creditors and that "[t]he new Pt 5.3A will not seek to limit in any way the scope for a company and its creditors to reach an arrangement suitable to all parties". 97 The explanation of s 444B noted that the moratorium on action against the company that prevailed during administration would be replaced by the more limited restriction on actions against the company set out in the succeeding provisions of the division. Importantly, the explanation of s 444D(1) was as follows: "The meeting of creditors may settle on a deed of company arrangement which will involve a long postponement of some of their rights. It will be possible that some creditors may oppose the deed. Dissenting unsecured creditors will be bound by the decision of the majority (though they will have an important protection against oppressive action by the majority creditors provided by proposed paragraph 445D(1)(f))."

[42]

The supposed analogy with arrangements under Pt 5.1 of the Act 98 Contrary to Lehman Asia's argument, the use of the word "arrangement" in the composite expression "deed of company arrangement" did not import into Pt 5.3A all, or sufficient, of the attributes of an arrangement in Pt 5.1: cf MYT 195 CLR at 644 [11]-[13]. That expression is an allusion to the earlier forms of arrangement made on the insolvency of individuals by deed of arrangement: MYT 195 CLR at 644 [13]. However, its effect in Pt 5.3A must depend on the words of the Act. No authority has considered the present question. Finklestein J observed that arrangements made pursuant to Pt 5.3A are not to be more narrowly confined than arrangements made under s 411 of the Corporations Law: Mentha v GE Capital Ltd (1997) 154 ALR 565 at 571-572. But he was considering the question of whether two or more insolvent companies could be bound by a deed of company arrangement under which their assets and creditors would be consolidated. In that sense, his Honour was not suggesting a construction of Pt 5.3A supporting the proposed deed of company arrangement as being aided by a construction of the word "arrangement". 99 Lehman Bros contended that since the decision of McLelland J in Re Glendale Land Development Ltd (In Liq) (1982) 7 ACLR 171, (also partly reported in [1982] 2 NSWLR 563), an "arrangement" under s 411 and its predecessors could include a release of third parties. Contrary to this proposition, McLelland J said in Glendale [1982] 2 NSWLR at 567D-E: "…approval of the scheme by the court would not create any rights or obligation as between MPCL [then an outsider] on the one hand and the company, its creditors or members on the other hand. It is therefore necessary that in some other way MPCL become bound to implement the scheme. In cases such as the present where participation by an outsider is an essential element in the scheme I think that normally the court should not approve the scheme unless the outsider first becomes bound by contract to implement the scheme. Again I think that where, as here, the scheme involves transactions directly between creditors or members on the one hand, and the outsider on the other, a contract should ordinarily be made with the company but for the benefit of those other parties as well." (emphasis added) 100 In the emphasised parts of the quoted passage, McLelland J recognised that the binding force of an order of the Court approving a scheme of arrangement would not do the very thing the defendants here asserted could be done - that is to affect (by in this case destroying and in Glendale [1982] 2 NSWLR 563 creating) relationships between persons bound by the scheme of arrangement and third parties. That is why his Honour required the third party to take a separate step to bind itself to implement the scheme by entering into a covenant with the company for the benefit of the company, the liquidator, scheme creditors and scheme participants to do all things necessary to be done to implement the scheme: Glendale [1982] 2 NSWLR at 567F; as he further explained in Re Buka Minerals NL (1983) 8 ACLR 507 at 510; see too his earlier discussion in Re Glendale Land Development Ltd (In Liq) (1982) 7 ACLR 171 at 172 and the discussions by French J in Toal v Aquarius Platinum Ltd [2004] FCA 550 and Barrett J in Re Westfield Holdings Ltd (2004) 49 ACSR 734 at 739-740 [14]-[15]. In other words, the scheme did not bind those third parties. Rather the contract or covenant that the third parties had to enter or give would bind them to implement the scheme. That further, voluntary, step created a sufficient ancillary relationship to justify the exercise of the power of the Court to convene scheme meetings and later approve the scheme. 101 It was because of the existence, independent of s 411, of the complementary contract or covenant with the third parties that the scheme would be effective; neither the statute nor the scheme itself bound those third parties or affected their relationships with creditors. That relationship, and hence the overall efficacy of the scheme, came about because of a contract or covenant outside the scheme, and as a condition of the Court approving what would otherwise be an incomplete arrangement. 102 Thus, McLelland J held that there was power to approve a scheme that had a further, but extraneous, element, being a consensual contract or covenant with outsiders that complemented and gave effect to the scheme. He did not give any support to the defendants' proposition that, by voting for the scheme, the majority or the Act could affect or cause to be released rights of the minority against outsiders or other scheme participants in their relationships outside the company. 103 As noted above, there would be no objection to the legal efficacy of a deed of company arrangement that included truly consensual (i.e. not by majority vote) provisions that required creditors to act in particular agreed ways in respect of their rights against outsiders or third parties or other creditors in relationships between them separate from the company. Indeed, s 444D(2)(a) and 3(a) contemplate that by voting in favour of a resolution proposing that the company execute a deed of company arrangement a secured creditor, or owner or lessor of property will become bound by the deed, where otherwise they would not be bound unless and until a court ordered that result. And, if releases were to be given to a third party who gave no consideration (eg an insurer) then the releasing creditor would have to execute a deed. This is because an agreement or vote for the deed of company arrangement is not sufficient to amount to a release in law and the third party, as a volunteer, would not have any equitable right to enforce the release. 104 A similar position to that in Glendale [1983] 2 NSWLR 563 had been reached in Isles v Daily Mail Newspaper Ltd (1912) 14 CLR 193 at 200-201 per Griffith CJ with whom Barton J agreed, and 205-206 per Isaacs J. As Isaacs J said (Isles 14 CLR at 204-205): "Is the arrangement one which the Court would have jurisdiction to sanction under sec. 35? The only arrangements which it has jurisdiction to sanction are those between the debtor and the creditor; putting it shortly, none others are stated to be bound, and therefore there are no others with whom, by force of the Statute operating on the curial order, the minority can be brought into compulsory contractual relation." (emphasis added) 105 Moreover, the consequences of the defendants' argument would be that certain creditors would be bound by a deed of company arrangement to release or be deemed to have released an outsider, yet the converse of the outsider becoming bound by force of Pt 5.3A would not be possible. That converse demonstrates the fallacy of the whole argument that has been evident in arrangements in bankruptcy for over a century: Ex parte Mirabita; In re Dale (1875) LR 20 Eq 772 at 774 per Bacon CJ; Isles 14 CLR at 206. 106 After we reserved judgment, the Court invited the parties to make submissions on whether the word "arrangement" under the bankruptcy laws had significance in the construction of Pt 5.3A beyond the "allusion" referred to in MYT 195 CLR at 644 [13]. This resulted in our being referred to the decision of Riley J in Re Dowling; Ex parte Jamison; Jamison v Allen (1976) 36 FLR 384at 389-390. There, he held that the creditors could resolve that a deed of arrangement under the then provisions of Pt X of the Bankruptcy Act 1966 (Cth) include a binding release by creditors of a third party who had promised, by his own separate deed, to make payments to the trustee in bankruptcy. Riley J held that: "…there is nothing in those provisions that offends any provision of the Act": Re Dowling 36 FCR at 390. However, the fact that additional matters may have been included in a deed of arrangement under the then provisions of Pt X, does not support the conclusion arrived at by Riley J that those provisions operated as a statutory, as opposed to consensual, arrangement. They do not. This was the point of McLelland J's analysis in Re Glendale [1982] 2 NSWLR 563 which I find convincing. 107 All parties referred to the recent decision by Finklestein J in In the matter of Opes Prime Stockbroking Ltd (recs and mgrs apptd) (in liq) (2009) 258 ALR 362. He held that s 411 permitted the Court to approve an arrangement under s 411 that required unsecured creditors of the company to release their claims against outsiders by authorising the scheme administrators to execute releases on the creditors' behalf. No Australian authority supported his Honour's reasoning. It is inapposite to Pt 5.3A for the reasons above. In Opes 258 ALR at 373 [36]-[38] Finkelstein J did not follow the decision in Re Buildmat (Australia) Pty Ltd and the Companies Act (1981) 5 ACLR 689 at 692, where Needham J held that the discharge of a debt under a scheme of arrangement did not release the liability to the creditor of a surety for that debt. That is the very result confirmed by s 444J in respect of deeds of company arrangement. 108 Since reserving judgment, another Full Court has dismissed an appeal from Finkelstein J's decision: Fowler v Lindholm, in the matter of Opes Prime Stockbroking Limited [2009] FCAFC 125. There, Emmett, Gordon and Jagot JJ observed that the parties to the appeal had agreed that there was no binding authority that had determined that an arrangement or compromise under s 411 could or could not include releases of, and indemnities in favour of, two creditors providing substantial funds into the scheme fund. They said (Fowler [2009] FCAFC 125 at [69]): "It is permissible to incorporate in a scheme of arrangement an involvement or participation by an outsider, being a person or entity who is not a party to the scheme as a company or creditor (see Re Glendale Land Development Ltd (In liquidation) (1982) 1 ACLC 540). Such arrangements are commonplace in relation to schemes involving takeovers. A scheme of arrangement made between a company and its creditors under s 411 binds only the company and the creditors. Nevertheless, there is no reason why a bargain might not be struck between a company and creditors whereby the creditors are bound to enter into an arrangement with third parties. So long as there is some element of give and take, such that the creditors receive something in return for the benefit conferred on a third party, there is no reason in principle why that term could not be part of a scheme of arrangement as contemplated by s 411." 109 But, their Honours did not refer to or analyse why McLelland J held that an outsider could be involved in a scheme of arrangement saying (Fowler [2009] FCAFC 125 at [73]): "There is also no principled basis for a restrictive approach. Provisions of s 411 are intended to provide a flexible mechanism to facilitate compromises and arrangements between insolvent companies and their creditors as an alternative to liquidation. If there is an adequate nexus between a release or indemnity, on the one hand, and the relationship between the creditor and the company, as creditor and debtor, on the other hand, there is no reason in principle why a scheme could not validly incorporate a release and indemnity such as is provided for in the Schemes. The claims against Merrill Lynch and ANZ that are released and are the subject of the indemnity arise out of dealings with the Scheme Companies. Thus, the claims of creditors against the Scheme Companies and the claims against Merrill Lynch and ANZ substantially overlap. The arrangement involves a settlement of claims that are significantly interrelated. Without the release, there could be no compromise or arrangement." 110 It is apparent that I cannot accept that reasoning as being relevant or correct in relation to the operation of Pt 5.3A, based on my analysis of the authorities and the Act. The operation of Pt 5.1 is independent and distinct from the operation of Pt 5.3A. The latter was introduced as an alternative to the processes prescribed by Pt 5.1 and winding up under other parts of Ch 5 of the Act. What may be achieved in an arrangement or compromise in Pt 5.1 does not bear on the construction of Pt 5.3A and the power it contains to include binding provisions in a deed of company arrangement. 111 Thus, it is not necessary to decide whether Finkelstein J in Opes 258 ALR 362 or the Full Court on appeal in Fowler [2009] FCAFC 125 correctly construed s 411, but these reasons should not be seen as endorsing the reasoning in either decision. However, the Full Court did not refer to the basic principles of statutory construction that require interpretation of legislative provisions in such a way as will not affect individuals' property rights without the clearest words: American Dairy Queen 147 CLR at 682-683; Bropho 171 CLR at 18; Blue Metal Industries 117 CLR at 659. Nor did they examine the ratio of McLelland J's reasoning in Re Glendale [1982] 2 NSWLR 563, that the Court order authorised by s 411 of the Act (or its predecessors) does not give any validity to so much of a scheme as affects rights or liabilities as between an outsider and creditors of a company. 112 Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 provides further support for the conclusions to which I have come. That case held that the power of the Court to approve an arrangement under predecessors of s 411 did not authorise the companies involved in an amalgamation to transfer the contracts of employment of employees of the redundant company to the new operating company; i.e. "… no employee is an asset in the employer's balance sheet to be bought and sold": Minister for Employment and Workplace Relations v Gribbles Radiology Pty Ltd (2005) 222 CLR 194 at 214 [48] per Gleeson CJ, Hayne, Callinan and Heydon JJ. Lord Atkin said in Nokes [1940] AC at 1033: "Now it is beyond controversy that the Act of 1908, s. 151, sub-s. 2 (a ), in giving power to the liquidator to sell or transfer property did not give power to sell or transfer non-assignable property: and the same construction must be given to the powers given by the Act of 1929, s. 191, sub-s. 2. We should then have what appears to me to be the anomaly that while the liquidator's power to transfer property in a winding up is limited to assignable property, the Court's power in an amalgamation to transfer property extends to non-assignable property. I cannot think that this departure from observing the ordinary rights of property of third persons is even suggested, much less expressed in clear and unambiguous language. Indeed when I consider that the Court gets no power until it sanctions an arrangement made under s. 153, which must rest on agreement: and that there is plainly no right in the parties to agree to transfer what they have no right to transfer, and that such agreement can give no legal or equitable rights to anyone I am still further confirmed in my view." (emphases added) 113 The fundamental issue here is whether the property of creditors, separate and apart from their rights to sue or prove against a company, can be appropriated by a majority of other creditors for the benefit of them or third parties. In my opinion, Pt 5.3A does not contain either express words or unmistakable clarity of language to lead to such a draconian interference with the proprietary rights of creditors against third parties or other creditors of a company in administration. An undemanding test of a mere nexus between the proposed provision in a deed of company arrangement and the payment of Lehman Australia's creditors yields no legal criterion to justify the destruction of the plaintiffs' rights to sue insurers or other Lehman entities for their independent legal liabilities. 114 It would not be appropriate to read Pt 5.3A as providing that merely because a creditor of an insolvent company promised to provide significant funds on condition that it received a complete release, that creditor may have a significant individual liability it owed to fellow creditors discharged by a provision in a deed of company arrangement. And it is against principle that such a creditor can stipulate, for its own benefit, that another creditor give up its own proprietary rights against third parties, including other creditors or even insurers, who are not even creditors, but potential debtors of the insolvent company.

[43]

The status of a company subject to a deed of company arrangement 115 Finally, Pt 5.3A permits the creditors of a company to change or retain its status. These are the three outcomes under s 439C on which they may resolve. A person's status (including that of a company or corporation) is the basis upon which the person is able to engage in relationships with others. The status of insolvent administration (either in a winding up or bankruptcy) has attendant legal incidents for the person and his, her or its creditors, both past and present (i.e. those who become creditors after the insolvent administration begins). 116 Similarly, the status, and the legal incidents of the status, of a company under a deed of company arrangement is provided for in Pt 5.3A. Because a deed of company arrangement effects a change in the company's status, that in turn changes the company's relationship with its creditors. It would require clear words in Pt 5.3A to achieve a greater change, such as that demanded by the defendants' proposed construction, that could affect the rights of creditors of that company against persons other than the company itself. In Australian Securities Commission v Marlborough Gold Mines Ltd (1992) 177 CLR 485 at 497-498 Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ said of s 411 of the Corporations Law: "The provisions of the Law dealing with change of status and the consequences of change of status are such as to leave no room for an interpretation of, or an implication in, the Law that such a change of status from a limited company to a no liability company could be achieved by means of a procedure not specifically directed by the Law to that end. And it is inconceivable that such a change of status could basically be achieved by the simple expedient of passing a special resolution without an insistence on any requirement for the protection of past members and creditors." They continued (Marlborough Gold 177 CLR at 502): "Whatever the basis for the United Kingdom decisions which sanctioned such an arrangement involving an alteration of rights, the interpretation given to the predecessors of s 411 provides no justification for regarding the section as constituting authority for approving an arrangement containing a provision which is inconsistent with the express or implied provisions of the Law." 117 It follows that the defendants' construction is at odds with the literal meaning of s 444D(1) and does not find any support elsewhere in Pt 5.3A. There was no power for the creditors of Lehman Australia to make resolutions under Pt 5.3A for a deed of company arrangement to bind non-consenting creditors in their relations with outsiders, including other creditors separate and apart from what each will receive from the company in discharge of the company's debt to the non-consenting creditor. 118 For these reasons I am of opinion that each of questions, 2, 4 and 6 should be answered in the negative.

[44]

Questions 7 and 8 119 The plaintiffs argued that the resolution authorising the preparation of the deed was not one for the purposes of s 439C, but rather was made for the extraneous purpose of depriving the plaintiffs and other non-consenting creditors of their proprietary rights. They contended that it should be declared void under s 445G(2). Lehman Australia argued that the whole deed should not be declared void. It contended that the plaintiffs had yet to prove that any of the invalid clauses would have had any impact on them. Lehman Asia argued that the deed of company arrangement was a "package deal" and should be upheld. Lehman Brothers argued that the deed contained all the provisions specified in s 444A and therefore met the requirements of the Act even if it also included invalid clauses. 120 The deed of company arrangement, as executed, contained the three impugned sets of provisions (in cll 7.1, 9.1 and 11) that overreached the authority of the creditors in Pt 5.3A of the Act to resolve for the company to execute it. Thus, cll 7.1, 9.1 and 11 purported to affect the rights of the plaintiffs, and other non-consenting creditors, invalidly (since Pt 5.3A did not authorise them or make those provisions binding and those creditors did not agree to them). 121 The inclusion of those provisions in the deed of company arrangement was an integral part of the proposal put to the creditors. On its ordinary and material meaning, the deed provided that the Lehman entities subordinated their claims to be creditors so as to achieve, among other things, the benefit of the invalid provisions. However, s 445G provides that the Court may declare a deed of company arrangement, or one or more of its provisions to be void or valid. The power is enlivened here because the plaintiffs alleged there to be doubt whether the deed was entered into in accordance with Pt 5.3A or complied with Pt 5.3A because of the invalidity of cll 7.1, 9.1 and 11 in the respects identified in these reasons (see s 445G(1)). Relevantly, s 445G provides: "(2) On an application, the Court may make an order declaring the deed, or a provision of it, to be void or not to be void, as the case requires, on the ground specified in the application or some other ground. (3) On an application, the Court may declare the deed, or a provision of it, to be valid, despite a contravention of a provision of this Part, if the Court is satisfied that: (a) the provision was substantially complied with; and (b) no injustice will result for anyone bound by the deed if the contravention is disregarded. (4) Where the Court declares a provision of a deed of company arrangement to be void, the Court may by order vary the deed, but only with the consent of the deed's administrator. 122 The administrators prepared an instrument in accordance with the requirements of s 444A(3) that set out the terms of the deed of company arrangement on which the creditors had resolved at the meeting pursuant to ss 439A and 439C(a). The deed could not bind creditors and third parties or outsiders by force of s 444D(1) or any other provision of Pt 5.3A in respect of their relationships between themselves and apart from the company (Lehman Australia). As I have explained above, in order for the deed to create the obligations, rights and duties of creditors (such as the plaintiffs) and third parties or outsiders (such as insurers liable to creditors under statute in respect of conduct of Lehman Australia or a Lehman entity) as a matter of contract or covenant, the creditors (and if necessary the third parties or outsiders) had to bind themselves to carry out those matters by agreement or deed. A deed of company arrangement could not create those relationships unless a complementary consensual agreement or deed existed that bound the creditors and, to the extent they had to perform obligations, third parties or outsiders to comply with the terms of the deed of company arrangement. The omission of such a complementary agreement or deed rendered cll 7.1, 9.1 and 11 void, or ineffectual, at least to the extent that they affected relationships outside that of Lehman Australia as debtor and the persons who were its creditors in their capacity as creditors. 123 The deed was not entered into in accordance with and did not comply with Pt 5.3A because, at the time it was executed, a number of its substantive provisions could not be implemented. Those provisions were integral to the overall proposal put to the creditors, and, to adopt Lehman Asia's argument, were a part of the "package deal". The package included the requirements that the deed administrators conduct all insurance claims to the exclusion of the rights of any creditor, such as the plaintiffs, to pursue any personal remedy under provisions such as s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (incl 7.1), the moratorium on proceedings against Lehman Australia and the other Lehman entities (in cl 9.1) and the releases of Lehman Australia and the Lehman entities (in cl 11.5). Those clauses would have been valid had they been limited to Lehman Australia's own entitlement to pursue its insurance claims, a moratorium protecting only Lehman Australia or releases of Lehman Australia's debts owed to its creditors. But, that limited scope was not the intention of the creditors' resolution under s 439C(a). The deed departs too far from compliance with Pt 5.3A, because it included the sweeping reach of the invalid provisions. It is, or should be declared to be, void. Any piecemeal amendment, by severing one or more of the invalid clauses, would give the deed a fundamentally different operation to what was intended when the resolution authorising it was passed. 124 In addition, no order could be made under s 445G(3) validating the invalid clauses because of the absence of substantial compliance with Pt 5.3A. The usurpation of the private rights of creditors to sue or seek remedies against each other and third parties including insurers, is so obviously significant that the injustice of an order validating those clauses cannot be gainsaid. The benefits of those clauses to the Lehman entities and third parties were a vital part of the creditors' resolution that generated the deed of company arrangement. And, the obverse of those benefits were the very detriments of the creditors whose rights were purportedly denied them by the invalid clauses, cf Commissioner of Taxation v Comcorp Australia Ltd (1996) 70 FCR 356 at 395D-396G per Carr J, Lockhart J agreeing at 358C. I am not satisfied that no injustice would result from the plaintiffs being denied their rights to pursue the remedies available to them against other persons that the invalid clauses seek to negate. No order under s 445G(3) could or should be made to save the deed. 125 Since preparing these reasons, I have had the benefit of reading each of Stone J's and Perram J's reasons. I agree with both of their reasons as a further basis for my conclusion on the constructions of clauses 9.1 and 11.5. I also agree with Stone J's reasons on the construction of s 444D. In addition, I agree with Perram J's reasons on the issues of the expression "deed of company arrangement" in s 445G and of the scope of s 447A in relation to the present deed of company arrangement. 126 It follows that the deed should not be given effect as a deed of company arrangement for the purposes of Pt 5.3A but, rather, it should be found to be void and of no effect pursuant to s 445G(2). Questions 7.1 and 7.2 should be answered "yes: it is a deed of company arrangement to which ss 445G and 447A may apply" and "yes" respectively. 127 In the course of the hearing the plaintiffs suggested amending question 8 to include negative answers to questions 2, 4 and 6. None of the other parties opposed this and I consider the proposed amendment to be appropriate. (I have included this amendment in the form of the questions in [49] above.) Since I would answer questions 2, 4 and 6 in the negative, it follows that the answer to question 8, in respect of those questions is also in the negative. I certify that the preceding eight-two (82) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

[47]

PERRAM J 128 The questions which arise in this case are: first, whether a deed of company arrangement to which the first defendant ("Lehman Australia") is subject either purports to prevent the plaintiffs, who are creditors, from suing other members of the Lehman group (or their insurers) during the period of the deed administration or to require the plaintiffs to release those parties from such claims on the deed's coming to an end; secondly, assuming it purports to do either of those things, whether a deed of company arrangement can, in fact, validly so operate. 129 The deed has the following basic features: (a) a class of litigation creditors is identified as the clients of Lehman Australia who acquired collateralised debt obligations ("CDOs") from it; (b) a class of creditors known as the Lehman entity creditors is identified as those non-Australian members of the Lehman group who have claims against Lehman Australia; (c) remaining creditors are identified as general creditors; (d) the deed administrators are to establish a fund into which the proceeds of all of Lehman Australia's realised assets are to be paid. This is called the litigation fund; (e) the deed administrators are then to pay the creditors of Lehman Australia out of that fund in the following priority (leaving aside administrative matters and priority creditors): (i) the first $43.2 million to the litigation creditors; (ii) the next $9 million to the general creditors; (iii) the balance to the Lehman entity creditors and others; (f) upon payment of the final dividend to the litigation creditors their claims against Lehman Australia, any other Lehman entity or any claim against any insurer thereof is released; (g) the deed administrators are given the authority to conduct any claim against an insurer and the amounts recovered are to be paid to the litigation fund; (h) during the period that the deed is in force there is a moratorium on any claims being made against Lehman Australia or against any other Lehman entity or any insurer. 130 The relevant effects of the deed are: first during the life of the deed whilst the deed administrators are getting in funds there is a moratorium on claims by the litigation creditors against Lehman Australia or any Lehman entity (or their insurers); secondly, the Lehman entity creditors subordinate their claims against Lehman Australia to the claims of the litigation creditors to the extent of $43.2 million; and, thirdly, on payment of the final dividend, the litigation creditors release their claims against all Lehman entity creditors and any other Lehman entity (and any of their insurers).

[48]

Construction 131 The plaintiffs, who are municipal councils that bought CDOs from, or through, Lehman Australia submit that the deed neither releases their claims as litigation creditors nor provides for a moratorium on those claims whilst the deed is in force. This submission depends, first, on Clause 11.5 of the deed which provides: On payment in full of the Litigation Creditors' Final Dividend, all Claims by Litigation Creditors against the Company or a Lehman Entity and all Insurance Claims except those that arise out of the Preserved Contractual Rights are, forever released, discharged and extinguished. 132 The expression "Claim" is defined to mean a claim only against Lehman Australia. On its face, therefore the expression "Claims … against a Lehman entity" is internally inconsistent. The plaintiffs submit that the contradiction should be resolved by reading "Claims" as referring only to claims against Lehman Australia. However, that leaves the words "against a Lehman entity" with no work to do. A more likely construction is that "Claims" refers both to claims against Lehman Australia and also to claims against other Lehman entities. That view derives some support from the definition of "Insurance Claims" which applies to policies providing cover to Lehman entities generally and not just Lehman Australia. 133 This reading of the word "Claims" is available because of the need to resolve the internal inconsistency in cl 11.5: Fitzgerald v Masters (1956) 95 CLR 420 at 426-427. As the reasoning above shows that inconsistency may, in fact, be resolved merely by a consideration of the terms of the deed itself: cf. Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99 at 109-110. The present availability of that principle of construction has been confirmed both in the case of schemes of arrangement (Re Co-ownership Land Development Pty Ltd (1987) 11 ACLR 527 at 532-533) and in the case of deeds of company arrangement (Reed Constructions Australia Ltd v DM Fabrications Pty Ltd (2007) 25 ACLC 1463 at 1466). Accordingly, "Claims" should be construed as meaning any claim on a Lehman Entity. The plaintiffs' argument about the proper construction of the release clause should, therefore, be rejected. 134 The moratorium clause contained in cl 9.1 is afflicted with the same inconsistency in that it uses the word "Claim" in relation to suits which are not against Lehman Australia. It is to be resolved in the same way.

[49]

Power 135 The principal issue is whether provisions of the kind contained in cll 9.1 and 11.5 can validly be included in a deed of company arrangement. Section 444D(1) of the Corporations Act 2001 (Cth) ("the Act") has the effect that a deed of company arrangement binds all the creditors of a company "so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i)". It is plain that "claims" in that context means, at least, those claims which would be provable against the company on a winding up: Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24 at 34; Lam Soon Australia Pty Ltd (administrator appointed) v Molit (No 55) Pty Ltd (1996) 70 FCR 34 at 39. Mr Coles QC, who appeared with Mr Kulevski for Lehman Australia, submitted that "claims" included claims made by creditors against third parties. That submission is not formally curtailed by Brash Holdings or Lam Soon which only involved claims against companies subject to a deed. However, it sits uncomfortably with those decisions and also with the reference in s 444D(1) to s 444A(4)(i), which provision deals only with claims which are "admissible" under the deed, an expression not naturally apt to describe claims by creditors against third parties. 136 Further, if the claims encompassed by s 444D(1) included any claim whatsoever against a third party by a creditor then there need be no nexus between the claim made and the affairs of the company subject to the deed. Since the object of Part 5.3A of the Act is to provide for the administration of the business, property and affairs of insolvent companies (s 435A) such a construction would be surprising. In that circumstance, this broad construction of "claims" should be rejected. 137 Lehman Holdings submitted that s 444D(1) was a provision which did but fix a time by reference to which the admission of claims could be judged. It was not to be read, so viewed, as containing prescriptions about the content of a deed of company arrangement; more so when the outer bounds of Part 5.3A were to be determined, as beneficial legislation, in a broad fashion. Further, the explanatory memorandum accompanying the introduction of Part 5.3A showed that Parliament intended that it "would not limit the scope for a company and its creditors to reach an arrangement suitable to all parties". Since it was known at the time that Part 5.3A was introduced that a scheme of arrangement under Part 5.1 could be approved which provided for the release of claims against third parties, it followed that Part 5.3A should be construed the same way. 138 Both of these arguments should be rejected. Section 444D(1) is not just a provision which fixes a time. No doubt it does that but, more significantly, it is s 444D(1) which makes the deed binding and achieves what contractual arrangements between a majority of creditors cannot. Further, it operates to identify the subject matter of the deed as claims which are provable in the company's winding up. To discount, therefore, the significance of the appearance of the word "claims" in s 444D(1) on the basis that it serves only to fix a time is to ignore its other, rather more substantial, functions. 139 The second argument has itself two steps. First, it was known in 1992 that a creditor's non-voluntary release of a claim against a third party could validly be part of a scheme approved under Part 5.1 of the then Corporations Law; secondly, since the Parliament knew that and intended, on the insertion of Part 5.3A in 1992, to create a regime combining the features of schemes of arrangement and windings-up, the arrangements referred to in Part 5.3A should be construed so as to permit third party releases. 140 I am unable to accept either of these arguments. So far as I can see by 1992 there were five decisions touching upon the question at hand. These were: Isles v Daily Mail Newspaper Ltd (1912) 14 CLR 193 in which Isaacs J (at 204), in an obiter dictum, indicated that dissenting creditors could not be brought into enforceable arrangements with third parties; Bridges v Hershon [1968] 3 NSWR 47 in which Asprey JA (at 55) eschewed deciding the issue at all; Re Buildmat (Australia) Pty Limited & the Companies Act (1981) 5 ACLR 689 in which Needham J held, as part of the ratio decidendi, that a scheme of arrangement in respect of a company which was a tenant could not effectively provide for a release by the lessor-creditor of claims against persons jointly liable with the tenant (at 692); Re Glendale Land Development Ltd (in liq) (1982) 7 ACLR 171 in which McLelland J (at 173-174) expressed the view, on adjourning an application for scheme approval, that such an approval could not have the effect, by itself, of bringing a creditor into a binding relationship with a third party - to achieve that end contractual documentation between the creditor and a third party had to be in place prior to the scheme's approval; and, finally, another decision called Re Glendale Land Development Ltd (in liq) [1982] 2 NSWLR 563 in which McLelland J (at 567) repeated his earlier view. 141 The state of the law in 1992 was, therefore, that there was one case, Re Buildmat, whose ratio decidendi established that a scheme of arrangement could not achieve a third party release; two cases - both called Re Glendale - that contained considered obiter dicta to a similar effect; one decision of no particular importance - Bridges v Hershon - which expressly did not decide the question; and some obiter dicta of Isaacs J in Isles capable of being read as being against the proposition that third parties could be part of a scheme. In those circumstances, I cannot accept that the state of the law in 1992 was such that Parliament must have known that third party releases were permissible under a scheme of arrangement. On the contrary, so far as I can see, anyone considering the question in 1992 would have arrived at the opposite conclusion on the authorities as they then stood. 142 It is true that two recent decisions of this Court - Re Opes Prime Stockbroking Ltd (2009) 258 ALR 362 and the appeal from that decision, Re Fowler v Lindholm; Opes Prime Stockbroking Ltd [2009] FCAFC 125 - have concluded that a third party release may be approved as part of a scheme of arrangement under Part 5.1. Since the question for present purposes is whether that proposition was established in 1992, there is no need for me to express a view about the correctness of those decisions, save to the extent that they impact on my interpretation of the five cases to which I have referred. 143 So far as I can see, the Full Court did not refer to the holding in Re Buildmat that a third party release was not effective, although it did refer to the case for another proposition ([61]). It dealt with the first decision in Re Glendale and Isles in a similar manner ([69], [60] and [65]) that is, as authority for presently unrelated propositions. At first instance, Finkelstein J declined to follow Re Buildmat (at [37] - [38]) on the basis that Needham J had misunderstood the holding in Bridges v Hershon. This was so, so his Honour reasoned, because Bridges actually upheld a third party arrangement [38]. My reading of Bridges is to the contrary - Asprey JA explicitly left the question open but nevertheless treated the scheme as valid because it took the form of an order of a superior court of record which had not been set aside. There is no reference to either Glendale decision. 144 In those circumstances, I can see nothing in either decision which throws any doubt on the proposition that in 1992 a third party release could not be approved under a scheme of arrangement; indeed, Finkelstein J's reasoning acknowledges as much in declining to follow Re Buildmat. 145 I reject the second half of this argument too. Even if it were known in 1992 that a scheme of arrangement could be used to achieve a third party release I do not think that would especially assist in discerning the meaning to be given to Part 5.3A. The relevant inquiry is to discern what Parliament intends by the language it has used: CTM v The Queen (2008) 247 ALR 1 at 48 [203] per Heydon J and the cases there collected. The language of Part 5.3A is not couched, as the language of Part 5.1 is, in terms of "arrangements" or "compromises". Indeed, the word "arrangement" appears only in Part 5.3A in the expression "deed of company arrangement". As the High Court explained in MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636 at 644 [13], that expression is merely an allusion to earlier forms of arrangement made on the insolvency of individuals by a "deed of arrangement" which , historically, did not necessarily need to be made by deed. That led the High Court to conclude that a deed of company arrangement need not be embodied in a deed; it leads me only to conclude that the word "arrangement" is probably not an allusion to an arrangement under Part 5.1. In any event, the absence of any further use of the word "arrangement" is Part 5.3A suggests that what Parliament intended could be achieved by a deed of company arrangement is likely to be found in the substantive terms of Part 5.3A and not in the name to the instrument. 146 The question then becomes one of the proper construction of Part 5.3A, more particularly, the narrow textual issue about the breadth of the words "so far as concerns claims" in s 444D(1). The plaintiffs submit that those words mean that the subject matter of the deed is limited to dealing with the claims that creditors have against the company. Lehman Asia and Lehman Holdings submit that they only require the deed to "relate to" those claims. 147 The expression "so far as concerns" is capable of bearing both meanings and is, therefore, ambiguous. That ambiguity is to be resolved by an examination of the text of Part 5.3A and the context in which it is found. 148 Understandably all parties pointed to various provisions of Part 5.3A to support their position. The plaintiffs submitted that ss 444H and 444J would be otiose if a deed could provide for a release of a third party. However, this need not be so. Section 444H does not deal with the position of third parties and s 444J merely ensures that a guarantor is not released just because a principal debtor subject to a deed of company arrangement is released from a debt. 149 On the other hand, the defendants submitted that s 445D(2)(c), which permits "any other interested person" to apply to the Court to set aside a deed of company arrangement, was superfluous if it was not possible to include provisions in a deed which affected third parties. That submission assumes, however, that the class of interested persons is limited to third parties. In fact, the expression has a broader meaning and extends to any person whose material rights or economic interests are, or may be, affected by a deed: Allatech v Construction Management Group Pty Ltd (2002) 41 ACSR 587 at 591. As the facts of Allatech itself show those words are capable of applying to persons who are not third parties and who have had a benefit conferred upon them by a deed. So too, little illumination about the meaning of s 444D(1) is gleaned by knowing that s 445D permits the Court, on application, to terminate the deed in circumstances of unfair prejudice. 150 Naturally, all parties relied upon s 435A, which sets out the objects of Part 5.3A. There are two such objects - maximising the chance of the company continuing in existence; failing that, getting a better return for creditors and members. However, those two objects are said by s 435A to be the ways in which Part 5.3A provides "for the business, property and affairs of an insolvent company". The defendants emphasised that the affairs of a company might well involve the relations between the creditors and third parties; the plaintiffs that they did not. At a high level of abstraction, minds might legitimately differ on that issue. 151 However, at the level of abstraction which is the text of Part 5.3A, the latter submission derives more support than the former from the explicit reference to the property of the insolvent company in s 435A (rather than the property of others). It is also buttressed by the observation that although the non-voluntary adjustment of vested property rights is a general feature of insolvency legislation, that adjustment usually takes place in the debtor-creditor relationship itself. Part 5.3A provides for a detailed reworking of that relationship but is silent on the position of third parties. The absence of that detail and the implicit and concomitant interference with vested property rights that would occur if third party releases were available is some indication that Parliament did not mean, by the language of s 444D, to permit such a provision. In those circumstances, Part 5.3A should not be interpreted as permitting third party releases.

[50]

Consequences 152 Against the prospect that this Court might arrive at the conclusions which I have reached on the meaning and effectiveness of the deed, Lehman Holdings has sought relief which would have the effect of validating the deed so far as is necessary or, alternatively, inserting into the deed clauses permitting the deed administrators to execute releases on behalf of the litigation creditors. 153 The plaintiffs contend that the powers by which those results might be achieved - ss 447A and 445G - cannot apply unless there is first a valid deed of company arrangement. They submit that there is no such deed because the deed in question is wholly invalid. 154 I do not think that it is really open to doubt that the establishment of the litigation fund, on the one hand, and the moratorium and releases, on the other, are inextricably interconnected. Since the latter are invalid it must follow that the former is too. With those provisions excised from the deed it no longer operates, if it operates at all, in a manner resembling its former self. Neither the creditors nor the company could have understood themselves to be putting in place such a stunted instrument. It follows that the deed is invalid. Putting the matter more formally, crucial provisions in the deed are invalid and they are inseverable from its balance. There are, no doubt, elements of the deed which, viewed in isolation, appear to be supportable. However, once it is accepted that they are inextricably bound up with invalid provisions, they fail too - not because of want of power; rather, because they no longer embody that which was intended by their authors. I do not think, however, that the plaintiffs' submission that this means that there is no deed of company arrangement at all should be embraced. It is clear that s 445G may be utilised in the case of a deed which is wholly void. So much flows from the wording of s 445G(1) and (2): (1) Where there is doubt, on a specific ground, whether a deed of company arrangement was entered into in accordance with this Part or complies with this Part, the administrator of the deed, a member or creditor of the company, or ASIC, may apply to the Court for an order under this section. (2) On an application, the Court may make an order declaring the deed, or a provision of it, to be void or not to be void, as the case requires, on the ground specified in the application or some other ground. 155 There are, no doubt, limits to the extent of invalidity contemplated by this provision. Those limits are demarcated, I venture to suggest, by the requirement imposed by subsection (1) that there be a "doubt" about a deed's compliance with the Act. Thus, although some alien instrument having no connexion with Part 5.3A whatever could, theoretically, be described as an invalid deed of company arrangement, there could never be a "doubt" as to its compliance with the Act and it would fall outside s 445G. In this case, a "doubt" exists about whether this deed was entered into in accordance with Part 5.3A. It follows that it is a deed of company arrangement for the purposes of s 445G(1). 156 Given the broadly remedial nature of s 447A it is difficult to see why the deed is not also a deed of company arrangement upon which the ministrations of that provision, if otherwise available, might be brought to bear. 157 I do not think, however, that either of those provisions is in fact available to be used in the present case in the manner which Lehman Holdings desires. Section 445G cannot apply to permit validation of the clauses in question because of its wording. Section 445G(3) provides: (3) On an application, the Court may declare the deed, or a provision of it, to be valid, despite a contravention of a provision of this Part, if the Court is satisfied that: (a) the provision was substantially complied with; and (b) no injustice will result for anyone bound by the deed if the contravention is disregarded. 158 The difficulty with the present deed is not that it has failed to comply with some provision of Part 5.3A; it is just that it is simply not authorised by Part 5.3A at all. Section 447D does not prohibit a deed of company arrangement from containing a third party release; rather, it provides that such a deed is only binding on creditors so far as it concerns their claims on the company. No provision of Part 5.3A has been infringed by this deed which the dispensing power in s 445G(3) could be used to relieve. 159 Nor do I think that a safe haven can be found in s 447A whose first subsection provides that the Court "may make such orders as it thinks appropriate about how this part is to operate in relation to a particular company". It was held in Australasian Memory Pty Limited v Brien (2000) 200 CLR 270 at 280 [20] that this power was wide but not "entirely without limit". It may reasonably be inferred that the power is unconfined except to the extent of any limitations imposed by the subject matter, scope and purpose of the Act: Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 40; Macquarie University Union Ltd (in prov liq) v Venues at Macquarie Pty Ltd [2007] FCA 721 at [16] per Rares J. 160 It follows from my prior conclusion that Part 5.3A does not contemplate regulation of the relationship between creditors and third parties that such a subject matter is beyond the scope of Part 5.3A. Consequently, s 447A cannot be used in the way suggested by Lehman Holdings. Some cases have considered that the limitation which exists on s 447A is only that there be a nexus with Part 5.3A: Re New Tel Ltd (in liq) [2004] FCA 1154 at [7]-[14]; Honest Remark Pty Ltd v Allstate Explorations NL (2006) 234 ALR 765 at [65]-[66]. I am not certain that that approach is any different in substance but, to the extent that it is, I prefer the approach flowing from Peko-Wallsend. 161 It remains to note three matters. First, Lehman Holdings submitted that the questions posed by Rares J should not be answered in view of its claims under s 447A and s 445G. Since I have concluded that this Court has no power to accede to those claims I do not think that the submission is a sound one. Secondly, Lehman Australia submitted that the questions should not be answered in the absence of evidence that the plaintiffs had a real claim. I do not think that that submission should be accepted. The plaintiffs are, unquestionably, litigation creditors within the meaning of the deed; that is sufficient. Finally, I agree with Rares J that question eight should be amended in the way he has foreshadowed.

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