Correa v Whittingham

Affidavit evidence

1. The application today is supported by substantial evidence, including an affidavit dated 22 December 2017 of Mr Geoffrey Davis, who is one of the proposed administrators of the Club. An affidavit dated 22 December 2017 of Mr Chandrakumar refers to communications with the Authority as to the proposed approval of an administrator under s 41 of the Registered Clubs Act, and to his having been informed that such approval could not be given until the Authority met again in February 2018. Following further enquiries made today, at my request, it appears that there is a suggestion that that process could be somewhat expedited, but still not completed before 19 January 2018. I should pause to note that it would be a most unfortunate state of affairs if a statute provides that a person is not capable of being appointed to act in the capacity of a voluntary administrator, in circumstances that a registered club is in a position of insolvency or likely insolvency, without the approval to act in that capacity by the Authority, but the Authority will not promptly take steps to determine whether to grant such approval. It is to be hoped that the Authority's position is not, in fact, that which was communicated to the Court in this application.
2. A further affidavit dated 1 January 2018 of Mr Cocker sets out the history of the earlier deed of company arrangement implemented by the Club. An affidavit dated 31 December 2017 of Mr Bowne, who is a director and president of the Club, refers to the circumstances in which Mr Bowne developed concerns as to the Club's financial position, following his appointment as a director in August 2017, sought further advice in that respect, and has since become aware of several outstanding debts owed by the Club. Those debts include amounts due to the Office of State Revenue and the Australian Taxation Office, as to which payment plans have existed but, it appears, have not been complied with, a substantial amount owed to Energy Australia and evidence of a claim filed in the Local Court against the Club for a debt arising from cleaning services. I am satisfied, from Mr Bowne's affidavit, that the directors may properly form an opinion that the Club is insolvent or is likely to become insolvent at some future time, for the purposes of s 436A of the Corporations Act, as applied by the National Co-operatives Law, so as to appoint voluntary administrators to the Club.

Application of s 41 of the Registered Clubs Act

1. A difficulty arises, however, in respect of the application of s 41 of the Registered Clubs Act, to which I have referred above. The effect of that section was considered by the Court of Appeal in Correa v Whittingham [2013] NSWCA 263, where the Court held that section is capable of invalidating the appointment of a voluntary administrator appointed under Pt 5.3A of the Corporations Act, which would otherwise have been validly made under the Corporations Act (here, as applied to the Club by the National Co-operatives Law), if the relevant appointment had not been approved by the Authority prior to the time at which it was made. In Correa v Whittingham above, the Court of Appeal held that the appointment of an administrator was invalid, where it had occurred prior to such approval being given by the Authority, and that that appointment was not capable of remaining in suspension pending such approval, and also held that an appointment of an administrator that was invalid, by reason of s 41 of the Registered Clubs Act, could not be validated under s 447A of the Corporations Act or otherwise.
2. The directors of the Club have anticipated that difficulty, as best they could in the relevant circumstances, by the terms of the relevant appointment of the administrators, at a meeting of directors of the Club held on 21 December 2017. The directors there resolved that, in their opinion, the Club was insolvent or was likely to become insolvent at some future time and further resolved that: "Subject to approval by the Independent Liquor and Gaming Authority or an order of the Supreme Court, the club appoint Geoffrey Davis and John Morgan of BCR Advisory as the joint and several voluntary administrators of the club pursuant to section 436A of the Corporations Act 2001."
3. That meeting, in effect, contemplated a resolution that was conditional upon either the relevant approval being given by the Authority or an order of the Court. The instrument of appointment of administrators dated 21 December 2017 may not have been wholly consistent with that approach, so far as it recorded a resolution passed on 21 December by which the Club "hereby appoints" the relevant administrators, and did not capture the element of conditionality that is reflected in the relevant resolution.
4. In circumstances that the Club's inquiries have indicated that, as I noted above, the relevant approval could not be granted by the Authority until later in January 2018, the Club's directors are concerned, not surprisingly, as to the fact that the Club may be incurring debts in its present position and seek to expedite the appointment of a voluntary administrator. In order to do so, they seek to have the Court make an order under s 41 of the Registered Clubs Act appointing the relevant voluntary administrators. That approach finds some support in the judgment of Robb J in Re Coffs Harbour Catholic Recreation and Sporting Club Ltd [2015] NSWSC 1088, where administrators had been appointed without the prior approval required by s 41 of the Registered Clubs Act. His Honour referred to the decision in Correa v Whittingham above, and recognised that, by reason of s 41 of the Registered Clubs Act as interpreted in that decision, the administrators would not have been validly appointed. However, his Honour considered that the Court could make an order appointing the administrators under s 41 of the Registered Clubs Act and observed (at [32]) that: "I can see no reason why the Court should not make the orders sought; on the contrary, I think there are pressing reasons for the Court to make those orders."
5. In this case, I would also be satisfied that, if the Court had jurisdiction to make the relevant order, it ought to do so on the merits, in order to allow the Club to appoint voluntary administrators where, but for s 41 of the Registered Clubs Act, that would plainly be an appropriate course. With the greatest of regret, however, I do not share Robb J's view that the Court has jurisdiction to make such an order. I am unable to take that view notwithstanding Mr Krochmalik has put all the arguments that may reasonably be available for such a view, and notwithstanding the fact that Robb J was persuaded to that view.
6. The difficulty with that view is, it seems to me, that ss 436A-436C of the Corporations Act (as applied to the Club by the National Co-operatives Law) indicate the circumstances in which a voluntary administrator may be appointed. The first, specified in s 436A, is that a company may by writing appoint the administrator if the directors have passed the relevant resolution. That section does not, in terms, confer a statutory function on the Court in respect of such an appointment. Section 436B, to which Mr Krochmalik refers, permits a liquidator to appoint an administrator, but there only where a meeting of a company's creditors has approved the appointment, or the appointment is made with the leave of the Court. It seems to me that section does not assist Mr Krochmalik because the relevant appointment is still there made by the liquidator, albeit that the creditors' resolution or the Court's leave is required to do so. A secured creditor may also appoint an administrator under s 436C of the Corporations Act. Unlike provisions that deal with the appointment of receivers or provisional liquidators, there is no express power for a court to make an appointment of a voluntary administrator.
7. It seems to me that s 41 of the Registered Clubs Act, even interpreted purposively as Mr Krochmalik contends, does not itself confer a freestanding power to make such an appointment on the Court. As Mr Krochmalik notes, the reference to the appointment of an "administrator" in that section would at least include the appointment of a voluntary administrator, as Correa v Whittingham above held, although it might extend more widely to persons who are administrators in other capacities. The references in that section to an administrator, a controller of property, an official manager, a receiver or manager, or member of a committee of management, or liquidator or special manager, are each to persons who may be appointed by reasons of powers contained in other statutes or other instruments. For example, as I noted above, a voluntary administrator may be appointed under ss 436A-436C of the Corporations Act; an administrator of another kind may be appointed under a Club's constitution or rules; a controller of property may be appointed under a security instrument; a receiver may be appointed under the Supreme Court Act 1970 (NSW) or under a security instrument; or a liquidator may be appointed under the Corporations Act. That section does not seem to me to confer parallel or freestanding power of appointment on the Court, such that a person who is not appointed under a power arising from another statute or instrument can be appointed by the Court under that section. It is, instead, a limit upon the circumstances in which such persons may be appointed to registered clubs under the power conferred by that other statute or instrument.
8. I am reinforced in that view by the fact that, if a voluntary administrator could be appointed under s 41 of the Registered Clubs Act, as distinct from under ss 436A-436C of the Corporations Act, then the other provisions of Pt 5.3A of the Act that refer to an "administrator" (defined in s 9 of the Corporations Act as a person appointed under Pt 5.3A) would not apply to that person. That would have the result that other provisions in that Part dealing with meetings of creditors or the entry into a deed of company arrangement which apply to an "administrator" appointed under Pt 5.3 of the Act would not apply to a person purportedly appointed by the Court to that role under s 41 of the Registered Clubs Act. Conversely, if the administrator is appointed under any of ss 436A - 436C of the Corporations Act, so as to be an "administrator" for the purposes of s 9 and Pt 5.3A of the Corporations Act, then it seems to me that he or she is not in fact appointed to act in that capacity by the Supreme Court, which has no power to make that appointment under those sections, for the purposes of s 41 of the Registered Clubs Act. All the Court would have done, even on Mr Krochmalik's analysis, would have been to give, in effect, an "approval" to the act of the Club in making that appointment.
9. It seems to me that neither Pt 5.3A of the Corporations Act nor s 41 of the Registered Clubs Act contemplate the third, intermediate, position for which Mr Krochmalik contends, by which a voluntary administrator could both be appointed by the Club for the purposes of s 436A of the Corporations Act and be appointed by the Court under s 41 of the Registered Clubs Act, because appointment by the Club and appointment by the Court are true alternatives.
10. I recognise that this is an unsatisfactory result, at least if the Authority does not promptly consider an application for its approval to allow the Club to make that appointment for itself. It is obviously undesirable that s 41 of the Registered Clubs Act have the result that directors of registered clubs that face financial difficulties cannot take responsible steps which would be available to directors of companies to address those difficulties. That difficulty could generally be avoided by the Authority reaching prompt decisions whether to approve such appointments where they are genuinely urgent, as will often be the case. That difficulty could be avoided in this case if, on review of this judgment, the Authority will act more promptly in determining whether to approve the persons proposed for appointment as voluntary administrators than it has to date indicated to the Plaintiffs. If that is not the case, then it is open to the Club's directors, although it is plainly not the most desirable of outcomes, to seek to have receivers appointed by the Court under the Supreme Court Act pending a later approval by the Authority of the persons proposed for appointment as voluntary administrators. A similar approach was adopted by Stevenson J in Re Coogee Sports Club Ltd [2016] NSWSC 817 and I would require little persuasion to appoint receivers in the relevant circumstances. The Court also has power to appoint a provisional liquidator, if a winding up application were brought, but I recognise that the Club's directors are seeking to avoid that result.
11. The only orders I will make at this point are to stand over the application to 2pm on Thursday 4 January 2018 and reserve the costs of the application.

Amendments 04 January 2018 - Correct typographical errors. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 April 2018