Commonwealth of Australia v Ermayne Pty Limited [1995] FCA 1203 [Note: This is a draft judgment]

What was before the Registrar and what is before me, is the question of the sufficiency or insufficiency of the material disseminated by Mr Frier to the

creditors. To explain that it is necessary to have some regard to the

legislation. Section 439A relates to the obligation on the part of the administrator to convene a meeting of creditors and to inform creditors. Subsection 1 states that the administrator of a company under administration must convene a meeting of the company's creditors within the convening period, as that term is defined in subsection 5 or within the period as extended under subsection 6 of section 439A. Section 439A(3)

states that: The administrator must and I emphasise the mandatory nature of this obligation:

Must convene the meeting by (a) giving written notice of the meeting to as many of the company's creditors as reasonably practicable, and (b) by advertising in the manner and within the time referred to

It is subsection 4 which is dominating these proceedings. That subsections says that the notice given to a creditor under the preceding subsection, must

• and again I emphasise the mandatory nature of the task - be accompanied by first a copy of a report of the administrator about the company's business, property affairs and financial circumstances. Secondly, a copy of a statement setting out the administrator's opinion about each of the

following matters: (1) whether it would be in the creditors interests for the

company to execute a deed of arrangement; (2) whether it would be in the

creditors interests for the administration to end; (3) whether it would be in the creditors interests for the company to be would up and the

administrator is required to state his or her reasons for those opinions.

Finally, the notice convening the meeting has to be accompanied by a copy of a statement setting out details of the proposed deed where in those circumstanced a deed of company arrangement is proposed. At the heart of the dispute is the argument that the statement did not sufficiently set out the administrator's opinion about each of the three matters that I have identified. It is common ground that a document entitled: Administrator's Report Re Proposed Deed of Company Arrangement, accompanied the

That was a nine page document dated 26 July 1995 signed by Mr Frier in his capacity as the administrator. He commenced with a summary of the corporate structure of the company followed by a summary of the company's business activities, with a report as to the present assets and liabilities of the company. Then under the heading: Administrator's

The purpose of the meeting of creditors is for the creditors to decide the future of the company. The three choices available to creditors

are: (1) accept the proposed deed of company arrangement, or: (2)

vote that the administration ends, or: (3) proceed to have the

company would up. The alternatives are discussed below.

There is then a short section under the heading: Deed of Company Arrangement, a short entry under the heading: Deed of Administration, and then a very extensive discussion under the heading: Liquidation, where the administrator dealt with the subject of unfair preferences and recoveries for losses resulting from insolvent trading. Then under the

heading: Interest of Creditors, the administrator proceeds to say this:

AS the administrator, Iam required to give my opinion as to which option is in the best interests of creditors. In this particular case I am not at present in a position to form an opinion because of the unknown factor of the preference recoveries and which, if any creditors, would indemnify the liquidator in such proceedings. Creditors, when making their decision, should consider the following

Then there was a section under the heading: Liquidation, followed by a section under the heading of: Deed of Company Arrangement, with this

Creditors need to consider the effect of a liquidation on their own

position and ultimately it is up to each individual creditor to decide

which option is most likely to achieve their own objective.

As to the contents of the administrator's report, the Deputy Registrar

having summarised it, as I have summarised it, concluded:

In my view Mr Frier has provided an opinion in the terms of section 439A, subsection 4, paragraph (b). He has given his opinion on how the interests of creditors are likely to be met in the case of liquidation and in the case of entering into a proposed deed. He has been very brief, discussing the alternative of returning the company to the control of the "directors. This is arguably a shortcoming but in my view creditors reading his report would readily understand that that alternative was unlikely to be in their interests because of the company's insolvency. Mr Frier has not recommended which of the alternatives is in the best interests of the creditors. He explains that this is because he cannot give a precise prediction of the outcome of a liquidation. He has provided reasons why that is so and in my view he has provided the assessment that is required pursuant to section 439A, subsection 4, paragraph (b) for the creditors to understand how their interests would be met by each

I have come to the conclusion, dominated by the decision of the Full Court

in a bankruptcy decision of Burlock v Commissioner of Taxation, (1994)

49 FCR 522, that the Deputy Registrar has fallen into error. I have come

to this conclusion for the following reasons. There is some appeal in the submission advanced by Mr Camatta that this meeting was properly convened in that subsection 3 of section 439A referred to the act of convening by the giving of a written notice. The administrator's report and statement is an adjunct to that notice by virtue of the provisions of

It might be argued that there had been due compliance with subsection 3 because, as I have said, that provision, refers to the administrator convening

Giving written notice of the meeting to as many of the company's

The administrator had, in fact, given such written notice within the time required by the subsection. His failure, so the argument would proceed, was not a failure to convene per se, it was a failure, if indeed there was a failure, to have the notice convening the meeting accompanied by the

statement that is referred to in paragraph (b) of subsection 439A(4). On

reflection, I think that that would create an artificial situation. The better, the more practical approach to the legislation is to have the act of convening represented by the totality of the notice, the report, the

statement, and where appropriate, the details of the proposed deed, so that

if one of those documents is missing there has been no act of convening.

This means that the question that must be addressed and decided can be postulated in these terms. Did the written material that was distributed to creditors amount to or contain a statement that satisfied paragraph 439A(4)(b)? Unaided by authority, one is interested by the argument that a Statutory mandate calling for the expression of an opinion, might well be Satisfied by the author expressing reasonably that he cannot express an opinion. One would be excited by the prospect of avoiding confrontation that one must express an opinion positively in terms of the affirmative or

As I have said, I regard the decision of the Full Court in Burlock as depriving me of any opportunity to explore such an interpretation. That case dealt with the provisions of the Bankruptcy Act. It was not a case dealing with the Corporations Law, but in my opinion it is of such

persuasive authority that I am compelled to follow it.

Section 189A of the Bankruptcy Act contains provisions which are similar in their tenor to the Corporations Law in that the section of the Bankruptcy Act required a trustee to prepare a report in relation to a debtor's affairs. Subsection (3) of section 189A required the report to state whether or not in the trustee's opinion, it would be in the best interests of the debtor's

creditors to deal under part 10 of the act with the debtor's affairs. As to

the relevant report, the trial judge is quoted by the Full Court as saying:

There can be no question that the trustee did not state whether or not in his opinion ...(reads)... in my opinion the trustee's report

Now, that specific passage was subsequently approved by the Full Court at

It is clear from the tenor of the judgment that his Honour regarded the absence from the report ...(reads)... he was clearly justified in

In this case, I well understand the circumstances confronting Mr Freer. A reading of his report shows a complex history involving the affairs of this company in its latter days and one can well understand why he found himself unable to express the opinion to which the statute referred, but the remedy that was available to him was a simple remedy because under subsection (6) of section 439A he merely had to apply to this court for an extension of time within which to convene the relevant meeting and the information that is contained in his report would have - if contained in an affidavit in support of such an application - overwhelmingly persuaded the

His predicament was unfortunately one of his own making in failing to

utilise the right to come to the court for an enabling order. Added to that, Mr Freer, in my opinion, misunderstood the exact nature of his obligations when in his report he referred to his obligation to express his opinion as to which of the alternatives was in the best interests of the company. He is not required by the statute to choose and express an opinion as to which of the three options is best suited to the creditors. His obligation is to state his reasons for his opinions, whether each and every one of the three alternatives would be in the interests of the creditors, and as I say, his

It is hardly likely to happen in the world of reality, but it is possible that an administrator of a company might find himself able to say that, for differing reasons, it would be in the interests of the creditors to execute a Deed of Company arrangement, but that for other and different reasons it might be in the interests of the creditors for the administration to end or for the company to be wound up. His reasons would then be available to the

creditors who would be entitled to make the final decision.

In my opinion, I must intervene in this matter, and there should be orders in terms that the decision of the Deputy Registrar given on 3 August 1995 be set aside. Upon that basis, and having regard to the fact that, in my

opinion, the meeting was not convened within the convening period, there

should then be a declaration that the administration of the company ended

at the conclusion of 27 July 1995 which I calculate to be the convening

I will return now to counsel to consider what other consequential orders should be made, including questions of costs, and whether or not there is

before me an application for the appointment of a provisional liquidator. RECORDED : NOT TRANSCRIBED

In delivering my ex tempore reasons I overlooked mentioning the fact that to the extent to which I might have discretionary powers, I declined to use them. Mr Camatta relied on section 1322 of the Corporations Law, and in addition, section 447A of the Corporations Law. As to section 1322, it is only available, in my opinion, to cure a procedural defect and Burlock's decision, which I regard as binding on me, makes it abundantly clear that the nature of this mistake was not a procedural defect. Section 447A gives a wider power, but in my opinion, it would not be appropriate in light of Burlock's decision to utilise that power. I apologise for having overlooked