11 It also seemed to me at least seriously arguable that such a sale was beyond the authority and capacity of the deed administrator, since clause 5.1 imposes limitations on the administrator's powers of sale, and that the purchaser would be on notice of any such want of authority - since it is plain on the face of the contract, that the company was subject to a company arrangement, so that the purchaser would be on notice of the contents of the deed of company arrangement and the restrictions it places on the administrator's powers:
27 I conclude, therefore, that the plaintiff has made out a seriously arguable case that the sale, or proposed completion of the sale, would be an act prejudicial to the interests of some or all of the company's members, and/or unauthorised and beyond authority of the deed administrator, of which lack of authority the purchaser had notice. On either of those bases, it is at least conceivable that the court might ultimately avoid the contract or at least permanently restrain the administrator from completing it. If that were to leave the company liable under the contract in circumstances where it had been entered into by the administrator outside and beyond the scope of his proper authority it would be possible to grant a remedy which would indemnify the company from the consequences. None of this is to suggest that such would necessarily, or even probably, be the outcome; but it is an answer to the suggestion that granting the relief sought would be futile.
12 The deed administrator proposes to convene a meeting of creditors under Corporations Act, s 445F, to consider alternative resolutions. The first would be one to vary the DoCA, in substance by deleting the requirement for member approval for a sale of the core property, and permitting the Deed Administrator to cause the Club to enter into and complete a new contract of sale with G & J Drivas on substantially the same terms as the existing contract, after consensual rescission of the existing contract. The alternative resolution would be to terminate the DoCA and place the Club into liquidation. Ms Correa having intimated that this course would be inappropriate in the light of the interlocutory injunction, the deed administrator seeks directions pursuant to s 447D to the effect that he be permitted to take the course proposed. Ms Correa appeared by counsel, by leave, without becoming a party, to oppose the application for directions.
13 Section 447D is as follows:
(1) [Directions as to functions and powers] The administrator of a company under administration, or of a deed of company arrangement, may apply to the Court for directions about a matter arising in connection with the performance or exercise of any of the administrator's functions and powers.
(2) [Directions as to operation or effect of deed] The administrator of a deed of company arrangement may apply to the Court for directions about a matter arising in connection with the operation of, or giving effect to, the deed.
14 Section 447D provides for what is analogous to judicial advice to an administrator or deed administrator. It is apt for clarifying and resolving doubts as to the extent of the administrator's powers or functions or the propriety or reasonableness of the manner in which it is proposed that they might be exercised, but something more must be in issue than the making of a business or commercial decision [Re Ansett Australia Ltd (No 3) (2002) 40 ACSR 433, [65]]. As with applications for judicial advice under Trustee Act, s 63, the procedure is inapt for the resolution of controversial questions of legal right [cf Re Gilchrist (1867) 6 SCR (NSW) Eq 74; Re Union Trustee Co of Australia Ltd [1936] QWN 6; Re Sinnamon [1940] QWN 41; Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, 440; Humphries (as administrator of Hazelton Air Charter Pty Ltd v Mentha (2002) 41 ACSR 472; Australian Pipeline Ltd [2006] NSWSC 1316].
15 Ms Correa submits that the advice sought should not be given, because (a) termination of the DoCA is not authorised in the circumstances, and (b) the proposed variation ought not properly be the subject of directions.
Conditions for a termination resolution are not satisfied
16 Section 445F(1)(a) empowers a deed administrator to convene a meeting of creditors at any time. Under s 445C(b), a DoCA terminates when the company's creditors pass a resolution at an s 445F meeting terminating the Deed. However, by reason of s 445CA, the creditors can pass a resolution under s 445C(b) only if there has been a breach of the DoCA which has not been rectified before the resolution is passed.
17 No breach of the DoCA such as to fulfil the requirement of s 445CA has been identified. The deed administrator argues that that requirement need not be satisfied in the case of a resolution contemplated by clause 13.1(2) of the DoCA, and that if the members refuse to approve a sale of the core property the creditors may resolve, pursuant to cl 13.1(2), to terminate the DoCA, whereupon it will be terminated not pursuant to s 445C(b), but pursuant to s 445C(c), which provides that a DoCA terminates if the deed specifies circumstances in which it is to terminate and those circumstances exist.
18 In my view this argument is not sustainable. Clause 13.1 does not specify circumstances in which the DoCA shall terminate. Nor does it even specify circumstance in which creditors may resolve to terminate the DoCA. At the highest, it specifies circumstances in which the deed administrator may convene a meeting of creditors to consider a resolution under s 445C(b) - not a resolution generally to terminate the Deed, but a resolution specifically under s 445C(b). And, because of s 445CA, a resolution under s 445C(b) can be passed only if there is a continuing breach.
19 Moreover, I am unpersuaded that the conditions precedent to a proper decision by the deed administrator to convene a meeting under cl 13.1 are satisfied, even putting aside the question of a breach. In my view, the situation has not yet been reached where a deed administrator, acting honestly and reasonably, would conclude that it is no longer practicable to implement the administration of the DoCA in accordance with its current terms.
20 First and foremost, investigation of alternative sale possibilities has not been exhausted, and there remains sufficient equity that the interests of creditors will not be jeopardised by taking some further time to explore those possibilities, of which the SRG proposal is plainly one. The deed administrator argues that the DoCA makes no provision for any alternative sale. This apparently involves a view that, the expressions of interest process referred to in clause 5.3 and 5.4 having been exhausted, only a sale to the purchaser selected as a result can proceed, at least without a further expressions of interest process - although the deed administrator's position seemed somewhat flexible in this respect. In any event, I do not accept that the deed administrator is limited to purchasers from whom expressions of interest were elicited during that process and period. Clause 4 creates a fund of Available Property to satisfy creditors' claims. Clause 5 imposes some limitations on the sale process. The requirement to seek expressions of interest during a specified period is, at best, directory, in order to expedite, but not to limit, the process. It does not mean that if no acceptable expression of interest is elicited during that period, a sale cannot subsequently take place. Nor does it mean that if expressions of interest are elicited during that period, a later expression of interest must be disregarded. The expressions of interest process was not a formal competitive tender process, and there is no obligation on the deed administrator to accept the highest, or any, offer that emanates from an expression of interest during the specified period.
21 Secondly, the DoCA contemplates that some weight will be given to the views and wishes of members in respect of a sale of the Core Property. The deed administrator has expressed the view that the Drivas offer is superior, and that the present alternative proposed by members (a preliminary offer by Sydney Realty Group) does not in the circumstances warrant serious consideration. In circumstances where the DoCA contemplated the continuation of the Club, if possible in the premises, and confers certain rights of veto on the members, it is not apparent why the deed administrator's view that the Drivas offer is superior should be regarded as decisive, nor why the circumstance that an offeror may have a connection with the membership (as it is suggested the SRG offer has) should attract suspicion. The members' right of veto is a powerful indication that it was intended that they would have some say in the sale process. In those circumstances, while the deed administrator's expressed preference for a certain sale to Drivas rather than the possibility of an alternative sale is commercially understandable, it does not give sufficient consideration to the significance of the members' rights under this particular DoCA. It is important to note that the members do not oppose a sale per se; in accordance with the right of veto given them by the DoCA in respect of a sale of the Core Property, they have not consented to a particular sale; but they have proposed an alternative sale, which the deed administrator has shown little inclination to pursue. The deed administrator's role is not merely to serve the interests of the creditors, but to implement and give effect to the DoCA, which in this case reflects at least to some extent the interests of members as well as of creditors. Where the members have, in respect of one proposed sale, exercised a right of veto that the DoCA explicitly gives them, while proposing an alternative, it is difficult to see how that can justify a conclusion that the DoCA is no longer capable of implementation.
22 That is all the more so where, for reasons explained in my judgment on the interlocutory injunction application [Correa v The Spanish Club Ltd, [27]], there may be a powerful personal incentive for the deed administrator to adhere to the Drivas sale and not risk incurring the personal exposure to Drivas which might result if he were not to complete the Drivas contract. This circumstance on its own would make it inappropriate to inoculate the deed administrator with judicial advice in this respect.
23 In my view, the conditions for a termination resolution under s 445C(b) have not been met, and the deed administrator would not be justified in convening a meeting for the purpose of considering such a resolution.
It is inappropriate to give advice in respect of the proposed variation
24 Section 445A permits the creditors to vary the DoCA by resolution passed at such a s 445F meeting, so long as the variation is not materially different from that proposed in the notice of meeting. However, by s 445B, the Court can cancel any such variation. Moreover, the DoCA cannot be varied in any manner to which the deed administrator does not consent [Surber v Lean (2001) 36 ACSR 176]. The significance of this is that the creditors do not have an absolute and unfettered power of variation; they can vary the DoCA only with the deed administrator's concurrence. And, under s 447E, the Court may make such order as it thinks just where the Court is satisfied that the administrator of a deed of company arrangement has managed, or is managing, the company's business, property or affairs in a way that is prejudicial to the interests of some or all of the company's creditors or members; or has done an act, or made an omission, or proposes to do an act, or to make an omission, that is or would be prejudicial to such interests.
25 The proposed variation would involve a radical change to the balance of interests currently reflected in the DoCA between the members and the creditors, by removing the members' veto in respect of a sale of the Core Property. Where the members do not oppose a sale per se, but in accordance with the right of veto given them by the DoCA in respect of a sale of the Core Property have not consented to a particular sale, and have proposed an alternative sale which the deed administrator has shown little inclination to pursue, it is difficult to see justification for a radical variation of the DoCA such as to remove their right of veto, in the absence of circumstances such as would justify termination. It is at least arguable that such a variation might be cancelled under s 445B, or that the deed administrator's proposed concurrence in it might be held to be prejudicial to the interests of members within s 447E. Those possibilities, which should be examined if at all in ordinary adversarial litigation, ought not be pre-empted by judicial advice to the deed administrator.
Conclusion
26 In my view, the conditions which would justify a resolution under s 445C(b) are not satisfied, and convening a creditors' meeting to consider such a resolution would not be justified. A variation to remove the members' right of veto would be amenable to challenge under s 445B and s 447E, which ought not be pre-empted by judicial advice. This is not an appropriate case in which to give the judicial advice sought.
27 I order that the summons be dismissed.