Commonwealth of Australia v Rocklea Spinning Mills Pty Ltd

Federal Court of Australia|2006-09-08|Before: Gyles J

REASONS FOR JUDGMENT 1 This is one of three cases, heard together, which raise the same question for determination - whether certain funds form assets of a company in liquidation for distribution in the liquidation of that company or whether those funds constitute an asset held pursuant to a terminated deed of company arrangement for the benefit of deed creditors. This case concerns Estore Pty Limited (in liquidation).

Facts 2 I adopt in substance the summary by counsel for the plaintiffs of the material facts appearing from the evidence. 3 On 3 October 2001, Mr Purchas and Mr Dean-Willcocks were appointed as administrators of Estore pursuant to s 436A of the Corporations Act 2001 (Cth) (the Act). 4 On 8 November 2001, a Deed of Company Arrangement (the DOCA) was executed pursuant to a resolution of the creditors in accordance with s 439C(a) of the Act at the meeting convened under s 439A of the Act . 5 The Administration Fund under the DOCA was constituted by cl 5 of the DOCA which provided for Estore to pay certain funds to the Administrators at certain times. Pursuant to cl 5.3 of the DOCA, the Retained Cash in the administration account as at the date of execution of the DOCA also formed part of the Administration Fund. The DOCA provided for the fixed sum of $334 367.00 to be paid to the participating creditors (with a likely dividend of 16 cents in the dollar). 6 Clause 5.7(a) of the DOCA provided that: 'The Administrators shall hold the Administration Fund for the benefit of the Administrators and for those creditors who become Participating Creditors in accordance with the terms of this Deed of Company Arrangement.' Pursuant to cl 5.7(b) of the DOCA the monies paid by Estore to the administrators was not refundable. 7 On 8 November 2001, Estore executed a fixed and floating charge which is registered over the assets of the company to secure its obligations pursuant to the DOCA. 8 The administrators received the sum of $289 471.25 by way of contribution from Estore in partial compliance with the DOCA. 9 The administrators did not make any payments by way of dividend to Participating Creditors under the DOCA. 10 On 9 April 2003, the creditors passed a resolution at a meeting convened pursuant to s 445F of the Act that the DOCA be terminated and Estore be wound up. The administrators were appointed as liquidators. 11 The current balance of the Administration Fund is the sum of $84 813.00. The likely dividend to participating deed creditors, if the Administration Fund is distributed to them on the terms set out in the DOCA, is estimated at approximately 4.08 cents in the dollar. In this event, if the balance of the liquidation fund is then distributed to ordinary unsecured creditors (including the shortfall on Deed creditors' claims) the anticipated dividend to ordinary creditors is estimated at approximately 8.15 cents in the dollar. If the Administration Fund is included as an asset available for distribution to all creditors of Estore, the anticipated dividend to ordinary creditors is approximately 10.35 cents in the dollar.

Relief sought 12 The substantive relief sought is as follows: (1) Directions pursuant to s 447D(2) and/or s 511 of the Act on the application and distribution of the Administration Fund referred to in [26] of the affidavit of Ian James Purchas pursuant to the Deed of Company Arrangement entered into by the defendant dated 8 November 2001. (2) A declaration that, pursuant to s 447D(2) and/or s 511(2) of the Act, that the Administration Fund is to be distributed to the Participating Creditors on the terms set out in the Deed of Company Arrangement entered into by the defendant dated 8 November 2001. (3) Alternatively, a declaration, pursuant to s 447D(2) and/or s 511(2) of the Act, that the Administration Fund is available for distribution as part of the property of the defendant in the due course of the winding up of the defendant in accordance with the relevant provisions of Pt 5.6 of the Act. 13 Notice of the proceeding has been given to the interested creditors and none appears to oppose the grant of relief. However, there are no other parties to the proceedings. In particular, there are no parties representing the different interests involved. There is no contradictor. In my opinion, the proceeding is not constituted appropriately for the making of a declaration of right. The limits of the exercise of that jurisdiction in circumstances such as the present have been explained in Mentha v GE Capital Limited (1997) 154 ALR 565 at 571-575 (cf Gidley Re Aliance Motor Body Pty Ltd (2006) 150 FCR 345 at 347; Shepard v Sports Mondial of Australia Pty Ltd (in liq) (2005) 53 ACSR 746, [2005] NSWSC 432 at [18]-[19]). However, those authorities establish that it is appropriate that the liquidators be given directions pursuant to s 511 of the Act as to the manner in which they can act in relation to the Administration Fund.

Decision 14 Counsel for the plaintiffs has pointed out that there is an apparent division of opinion in the authorities upon the criticalquestion. The decisions of Austin J in Dean-Willcocks v ACG Engineering Pty Ltd (in liq) (2003) 45 ACSR 290; (2003) 21 ACLC 1226; [2003] NSWSC 353 and Campbell J in Sports Mondial favour the conclusion that the fund is held on trust for the deed creditors. After those decisions, Finkelstein J, in Commonwealth of Australia v Rocklea Spinning Mills Pty Ltd (2005) 145 FCR 220, drew attention to the possibility of an inconsistency between them and the earlier decision of Davies J in Federal Commissioner of Taxation v All Suburbs Car Repairs Pty Ltd (1994) 14 ACSR 753; (1994) 94 ATC 4712; (1994) 29 ATR 329. Davies J held that payments to the administrator were payments to him in his capacity as the agent of the company and consequently the sums received were the property of that company. 15 Barrett J needed to consider the differences in the reasoning in those authorities in Lombe v Wagga Leagues Club Ltd (2006) 56 ACSR 387; (2006) 24 ACLC 298; [2006] NSWSC 3 at [53]-[77]. In circumstances which I cannot distinguish in substance from the present facts, Barrett J in a careful and reasoned decision applied the reasoning of Davies J. It is appropriate to follow the decision of Barrett J unless I am satisfied that it is clearly wrong. Consistency of decision in relation to the Act is desirable. As I am not satisfied that the decision of Barrett J is clearly wrong, I propose to follow it and give directions accordingly. 16 It is unnecessary for me to independently consider the alternative ground of the decision in Lombe, namely, the effect of termination of the deed of company arrangement. It was held that immediately after termination of the deed of company arrangement, the fund in question was the property of the Club no longer affected by any provision of that deed. It was, accordingly, applicable by the liquidator in the due course of winding up of the Club. 17 The application is properly brought by the plaintiffs as liquidators. They should have their costs out of the assets of the company as an expense of the winding up but on the basis that this proceeding has been heard together with two others. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.

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