Cussen v Signature Resorts Pty Ltd [2003] NSWSC 1252 | Case summary

1 The first plaintiff, Mr Dean-Willcocks, is the provisional liquidator of each of seven companies. They are the second to eighth plaintiffs, collectively described as the "Yeshiva Properties companies". Those companies own land and buildings which are the site of educational institutions operated by separate companies, being Yeshiva College Limited and Yeshiva Jewish Day School Limited. 2 Mr Dean-Willcocks' appointment as liquidator provisionally in respect of each of the first six Yeshiva Properties companies derives from orders made by the court on 1 September 2003. The order appointing him as provisional liquidator of the seventh such company was made on 5 September 2003. 3 Mr Dean-Willcocks and his partner, Mr Malanos, were previously administrators of all seven Yeshiva Properties companies under Part 5.3A of the Corporations Act 2001 (Cth), having been appointed on 19 August 2003. Two days later, they were appointed administrators also of Yeshiva College Limited and Yeshiva Day School Limited. At that point, therefore, Mr Dean-Willcocks and Mr Malanos were administrators of all the companies involved in the ownership and operation of the educational institutions. The Part 5.3A administration of each of the Yeshiva Properties companies ended upon the appointment of a provisional liquidator: s.435C(3)(g). 4 When moves were made by a creditor of the Yeshiva Properties companies to obtain a winding up order and, in the first instance, the appointment of a provisional liquidator, Mr Dean-Willcocks was proposed as provisional liquidator, he being an official liquidator capable of acting in such an office, whereas Mr Malanos is a registered liquidator but not an official liquidator. The present position is that Mr Dean-Willcocks and Mr Malanos are in office as administrators of Yeshiva College Limited and Yeshiva Jewish Day School Limited, but Mr Dean-Willcocks alone is in office as the provisional liquidator of the seven Yeshiva Properties companies. 5 Presently before the court is an application by Mr Dean-Willcocks and the seven Yeshiva Properties companies which, if successful, will pave the way for Mr Dean-Willcocks and Mr Malanos to become again the administrators of those companies under a new Part 5.3A administration. 6 Before dealing with the substance of the application, it is necessary to consider some matters of statutory interpretation relevant to the aspect involving appointment of administrators. Under s.436B(1) of the Corporations Act, a provisional liquidator of a company is empowered to appoint an administrator of the company if he or she thinks that the company is insolvent or likely to become insolvent at some future time (Mr Dean-Willcocks has given evidence of matters that cause him to be of that opinion). Section 451A(1) makes it clear that s.436B(1) enables the appointment of two or more persons as administrators. By virtue of s.436B(2), a provisional liquidator may not appoint himself as administrator under s.463B(1) except with the leave of the court. It follows that if Mr Dean-Willcocks, as provisional liquidator, is to appoint himself as administrator, he must obtain that leave. His application includes a prayer for an order granting such leave. 7 If Mr Dean-Willcocks obtains leave under s.436B(1) and appoints himself administrator, he will not thereafter be able to appoint Mr Malanos as an additional administrator. This is because of s.436D which precludes an appointment of administrator under section 436B if the company is already under administration, as it will be if and when Mr Dean-Willcocks appoints himself as administrator. If follows if Mr Dean-Willcocks is to appoint both himself and Mr Malanos as administrators, he must do so while he is provisional liquidator and by exercising the s.436B(1) power. It is foreseen, however, that, so far as Mr Malanos is concerned, there is a difficulty arising from s.448C(1) headed "Disqualification of person connected with company". 8 Section 448C(1) says that, subject to other provisions of s.448C, certain persons must not, except with the leave of the court, seek or consent to be appointed, or act, as administrator of a company or of a deed of company arrangement. The precluded persons include a person who is an officer of the company otherwise than because of being an administrator of or liquidator of, or an administrator of a deed of company arrangement executed by, a body corporate related to the company (s.448C(1)(c)) and a person who is a partner of an officer of the company (s.448C(1)(g)) - Mr Malanos, as I have said, is a partner of Mr Dean-Willcocks. Section 448C(3) gives an extended meaning to "officer" for those purposes. Leaving to one side as irrelevant an exception based on a form of ASIC direction, "officer" includes, in relation to a company, a person who has, within the last two years, been an "officer" of the company, where "officer" last occurring clearly enough refers to "officer" in the sense of the s.9 definition of that term. 9 Section 9 defines "officer" in relation to a corporation (including, therefore, a company) in such a way as to catch an administrator of the corporation and a liquidator of the corporation. Whether liquidator here includes provisional liquidator is a matter for debate. Section 9 says that "liquidator" includes provisional liquidator but only in Chapter 7 which is for present purposes irrelevant. The scheme of s.472 as to appointment of provisional liquidators, while speaking of appointing "an official liquidator provisionally" and to "a liquidator appointed provisionally", does leave some room for a view that a provisional liquidator is within the general meaning of liquidator, although I hasten to say I express no concluded view on that point because it is unnecessary to do so. This is because Mr Malanos is caught by another aspect of s.448C(1). 10 The first basis on which Mr Malanos appears to be caught by s.448C(1) is simply that he was an administrator of each of the Yeshiva Properties companies within the last two years, having been appointed with Mr Dean-Willcocks on 19 August 2003 and having remained one of the two administrators until the administration that began on that date and ended upon the appointment of the provisional liquidator. Upon a literal reading, a combination of s.448C(1)(c) and s.448C(3) makes Mr Malanos ineligible to be appointed again as an administrator. It appears, however, that such a literal reading is incorrect - or, at least, that there are good reasons to reject it, relying indirectly on the "except so far as the contrary intention appears" specification in s.9. The literal reading was rejected by Young J in Cussen v Signature Resorts Pty Ltd (2000) 18 ACLC 341: "However, it seems to me that the plaintiffs have also proceeded on another false basis. The perceived problem is that under section 448C(3)(b) a person who has been an administrator of a company within the last two years is disqualified from being reappointed an administrator, even though he would not have been disqualified under s 448C(1)(b) or (c). That just cannot be so. The whole purpose of subsection 3, as is made clear in paragraph 633 of the explanatory memorandum to the bill, was to "catch persons who, though not in a disqualified category at the time of the proposed appointment, had been within certain key categories within the previous two years". Thus, the proper construction of subsection 3 is that it only applies to a person who would be in a proscribed category under subsection 1. A person who has been an administrator or liquidator is not in that category, unless they are owed $5,000 or more by way of costs." 11 This statement by Young J was explained by Finkelstein J in Wright v Mansell (2001) 39 ACSR 580: "This passages requires some elaboration. Young J does not explain how he was able to overcome the literal meaning of s 448C(1)(c). I think it is implicit that Young J was of opinion that one should not apply to s 448C so much of the definition of 'officer' as is contained in paragraphs (d) and (e). That part of the definition may be excluded if a 'contrary intention appears'. The 'contrary intention' may appear from what is said by Young J." 12 But even if, according to this analysis, one rejects the first basis on which Mr Malanos may be caught by s.448C(1), there remains a second basis, namely, that he is a partner of Mr Dean-Willcocks who, on the same analysis, was an officer within the last two years by reason of having been one of the two persons in office as administrators between 19 August 2003 and the imposition of provisional liquidation on 1 September 2003. The considerations which led to rejection of the literal interpretation when Mr Malanos' own status under s.448C(3) was under consideration for the purposes of s.448C(1)(c) do not seem to me to apply when one is considering the status of Mr Dean-Willcocks under that section in order to determine whether s.448C(1)(g) applies to his partner, Mr Malanos. I conclude that, by virtue of s.448C(1)(g), Mr Malanos may not be appointed administrator of any of the Yeshiva Properties companies in the absence of the leave of the court under s.448C(1). 13 Because Mr Dean-Willcocks, as provisional liquidator, wishes to appoint both himself and Mr Malanos as administrators, I approach the matter on the footing that the application is an application for both forms of leave together, that is leave under s.436B(2) in respect of Mr Dean-Willcocks and leave under s.448C(1) in respect of Mr Malanos. 14 The approach the court should take to an application for leave under s.436B(2) has been dealt with in several cases. The main question is whether the liquidator or provisional liquidator proposing to appoint himself as administrator is an appropriate person to be so appointed. The cases supporting that proposition are Re Depsun Pty Ltd (1994) 13 ACSR 644, Deputy Commissioner of Taxation v Foodcorp Pty Ltd (1994) 13 ACSR 796, Re Cobar Mines Pty Ltd (1998) 30 ACSR 125, John R Turk & Sons (Artarmon) Pty Ltd v Newmont Television Pty Ltd [1999] NSWSC 622 and Re Nardell Coal Corporation Pty Ltd (2003) 47 ACSR 122. On that basis, the suitability of Mr Dean-Willcocks to be administrator and, in due course, deed administrator, if applicable, is really the only matter to be addressed for the purposes of s.436B(2) at this point. His freedom from circumstances that might entail conflict of duty with duty or duty with interest is the principal factor to be taken into account. 15 When it comes to the kind of leave required under s.448C(1) in relation to Mr Malanos, the focus is clearly on issues of such conflict. The whole tenor of the section is to that effect and the central importance of conflict issues was emphasised by Lehane J in Re Chilia Properties Pty Ltd (1997) 23 ACSR 548, a decision approved by Austin J in Skafcorp Ltd v Jarol Pty Ltd (2002) 44 ACSR 138. 16 Against that background as to the issues relevant to the two leave applications, I turn to the evidence. The first meeting of creditors of each of the Yeshiva Properties companies under Part 5.3A took place on 21 August 2003. Provisional liquidation intervened before the due date for the second meeting. On 13 November 2003, Mr Dean-Willcocks, as provisional liquidator, submitted a report to the creditors of the Yeshiva Properties companies covering, among other things, assets and liabilities and investigations he had undertaken. The report was comprehensive. It was sent to all known creditors and to ASIC. A report by the administrators of Yeshiva College Limited and Yeshiva Jewish Day School Limited was forwarded to creditors of those companies on about 14 November 2003. 17 The second meeting of creditors in the Part 5.3A administration of each of the latter companies took place on 24 November 2003. At each such meeting, creditors resolved that a deed of company arrangement be executed with a view to effective re-establishment of each company. One element of the re-establishment is renewed and continuing access to the site of the school and college, with the site in acceptable ownership. As provisional liquidators of the Yeshiva Properties companies, Mr Dean-Willcocks has had substantial negotiations with almost all known creditors. 18 On 14 December 2003, a deed (referred to as "deed of settlement") was executed among a number of interested parties. That deed paves the way for a great number of matters in dispute to be resolved. It envisages purchase of the college and school site by a new entity, subject to certain preconditions, including execution of a deed of company arrangement by each of the Yeshiva Properties companies, if Mr Dean-Willcocks and Mr Malanos take office as administrators of those companies under Part 5.3A. 19 The key features of each proposed deed of company arrangement are summarised in the form of proposed resolution of creditors forming part of the deed of settlement. Mr Dean-Willcocks deposes to a belief or expectation that that resolution will be passed if a new Part 5.3A administration is imposed in relation to each Yeshiva Properties company. He summarises the advantages of the deed of settlement and the proposed deeds of company arrangement in paragraph 26 of his affidavit: "The advantages of the Deed of Settlement and ultimately the DOCA are: (a) the resolution of all current court proceedings with each proceeding to be dismissed, with no order as to costs; (b) substantial creditors releasing parts of their claims against Yeshiva Properties which substantially reduces the liabilities of the Yeshiva Companies; (c) all non related creditors of the Yeshiva Companies and unsecured creditors of the Yeshiva companies (aside from those persons releasing their claims against the Yeshiva Companies) will be paid or satisfied in full (100c in the dollar). In a liquidation, I have estimated that the return to unsecured creditors will be 81 cents in the dollar based upon various assumptions of which is that no moneys are paid to the subordinated debt of Nelvet estimated in the Provisional Liquidator's Report at $4,450,269.00 (page 12 of the provisional Liquidator's Report); (d) the Yeshiva College will be conducted by entities not associated with the present directors of the Yeshiva Companies and Rabbi Pinchus Feldman will not take part in the future of the Yeshiva College Companies and he has also agreed to a restraint as set out in the Deed of Settlement; (e) the Dover Heights property will be transferred to Newco, in consideration of, amongst other things: (i) assuming certain obligations of the Yeshiva Companies to Nelvet Pty Limited and Lubavitch Mazal Pty Limited (clause 3(3)(a) and 3(3)(b) respectively); (ii) payment to Nicholas Malanos and myself of the amount required to pay or satisfy all unsecured creditors of the Yeshiva Companies (clause 3(3)(e) of the Deed of Settlement); which ensures the payment or satisfaction of all of the claims of the unsecured creditors in full (except those creditors who are releasing part or all of their claims against the Yeshiva Properties) and certain substantial creditors are, in effect, consenting to the novation of certain obligations from the Yeshiva Companies to 'Newco'; (f) the transfer of the Dover Heights property should allow the Jewish schools to remain open and not cease due to the sale of the Dover Heights Property." 20 Mr Dean-Willcocks' evidence makes it clear that, if the deed of company arrangement proposal in respect of each of the Yeshiva Properties companies can be implemented, there will be advantages to the unsecured creditors of those companies who, it is estimated, will be paid in full rather than achieving a return of perhaps 81 cents in the dollar in a winding up. There will also be advantages of a wider kind by way of much enhanced possibilities of avoiding closure of the college and the school. 21 Mr Dean-Willcocks and Mr Malanos have obviously played key roles in bringing matters to their present promising state. It is to my mind desirable not only that Part 5.3A administration be re-imposed on the Yeshiva Properties companies so that the deed of company arrangement possibilities may be progressed but also that Mr Dean-Willcocks and Mr Malanos should be the administrators. The circumstances of uncertainty and conflict that existed when Austin J considered the application for appointment of a provisional liquidator (see Lubavitch Mazal Pty Ltd v Yeshiva Properties No.1 Pty Ltd (2003) 47 ACSR 197) have been very substantially resolved, so that matters now appear capable of being re-established on a firm footing for the future, provided that expected decisions of creditors and other participants are forthcoming. 22 Returning to the questions posed by ss.436B(2) and 438C(1), there is, in my view, a strong case for Mr Dean-Willcocks and Mr Malanos to be regarded as appropriate persons to be administrators of the Yeshiva Properties companies. The kind of conflict or potential conflict that might indicate otherwise focuses on incompatible allegiances or interests. There is no suggestion that anything of that kind intrudes here. Indeed, each of the proposed administrators has filed an affidavit testifying to the absence of such matters. In addition, and as Lehane J observed in Chilia Properties above: "… it is well established that in the absence of any real, as opposed to theoretical, conflict of interest it is generally desirable that the external administration of a group of companies should be placed in the hands of one administrator." 23 Leave under both s.436B(2) and s.448C(1) should be given so that Mr Dean-Willcocks may make the dual appointment of himself and Mr Malanos under s.436B(1). 24 The second part of the present application may be dealt with briefly. As I have said, the first meeting of creditors called for by Part 5.3A in the administration of each of the Yeshiva Properties companies took place on 21 August 2003 before the administration was overtaken by provisional liquidation. In those circumstances, an order is sought under s.447A that has the effect of dispensing with the first meeting in any new administration and abridging time for the holding of the second meeting in any such administration. The wealth of material that has been received by creditors from the provisional liquidator and the extensive consultation with creditors deposed to in Mr Dean-Willcocks' affidavit mean that, in any new administration, creditors will start from a position of substantial knowledge. 25 Orders of the kind sought in relation to the meeting were made in Re Cobar Mines Pty Ltd (above), John R Turk & Sons (Artarmon) Pty Ltd v Newmont Television Pty Ltd (above) and Re Nardell Coal Corporation Pty Ltd (above). On the basis discussed in those cases, the orders should also be made here. 26 The orders of the court are: 1. Order that leave be granted as follows: (a) leave under s.436B(2) of the Corporations Act for the first plaintiff to appoint himself as administrator of each of the second to eighth plaintiffs and an administrator of any deed of company arrangement executed by any of the second to eighth plaintiffs; (b) leave under s.448C(1) of the Corporations Act for Nicholas Malanos to seek and consent to be appointed, and to act as, an administrator of each of the second to eighth plaintiffs and an administrator of any deed of company arrangement executed by any of the second to eighth plaintiffs. 2. Order pursuant to s.447A of the Corporations Act that the operation of Part 5.3A of the Corporations Act as it affects any administration of the second to eighth plaintiffs of which the first plaintiff and Nicholas Malanos become administrators be altered as follows: (a) that the first meeting of creditors in the administration of any of the second to eighth plaintiffs under s.436E of the Corporations Act be dispensed with; (b) notwithstanding s.439A(2), the administrators may convene the meeting under s.439A of the Corporations Act (which would ordinarily be the second meeting) during the convening period, at the earliest convenient date, as long as the period of notice stipulated in s.439A(3) of the Corporations Act is complied with. 3. Order that the costs of this application be paid out of the assets of the second to eighth plaintiffs. 4. Orders maybe be taken out forthwith. **********

Cussen v Signature Resorts Pty Ltd

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