David Lambourne Yacht Rigging v Perry Catamarans

REASONS FOR JUDGMENT 1 I have before me an application for an order pursuant to s 459A of the Corporations Act 2001 (Cth) ('the Act') that the respondent Perry Catamarans Pty Ltd (Receivers and Managers Appointed) be wound up in insolvency. The application is made pursuant to s 459P by a creditor of the respondent. The creditor relies upon the presumption of insolvency by operation of s 459C(2) of the Act arising out of the appointment of receivers and managers to the respondent by the secured creditors, Farallon Capital Pty Ltd ('Farallon') and Perry Holdings Australia Pty Ltd ('Perry Holdings'), pursuant to fixed and floating charges granted by the respondent company on 28 October 2004 and registered with the Australian and Securities Investment Commission ('ASIC') on 19 November 2004. 2 On 16 June 2006, the respondent pursuant to s 436A of the Act appointed Mr Peter Geroff and Mr Gregory Maloney of Ferrier Hodgson, as administrators of the company consequent upon the sole director of the company, Mr Gregory James Nunn, resolving that the company is insolvent. 3 Accordingly, it is common ground that the respondent company is insolvent. 4 I also have before me an application pursuant to s 440A(2) of the Act filed on 3 July 2006 by parties described as Farallon Capital Pty Ltd and Perry Catamarans Pty Ltd, to adjourn the hearing of the application for a winding‑up order so as to enable the creditors of the respondent company to consider a proposal for a Deed of Company Arrangement at a meeting of creditors convened for Wednesday, 12 July 2006. The application is not made by the Administrators of the company. Section 437A of the Act places the control of the company's business, property and affairs, while the company is under administration, in the Administrators and by s 437C(1) no person other than the Administrator can perform or exercise a function or power as an officer of the company. Although the application recites Perry Catamarans Pty Ltd as an applicant, the company once under administration has no standing to apply. Mr Lee of Counsel who appeared for the applicants for the adjournment announced an appearance on behalf of Farallon and Perry Holdings Australia Pty Ltd. I will proceed on the assumption that the applicants for the adjournment are the two secured creditors. Farallon and Perry Holdings propose to provide $300,000.00 to Deed Administrators within seven days of the execution of a Deed of Company Arrangement to enable subject to the terms of the deed the unsecured creditors to receive in an accelerated way, a dividend which would exceed the dividend unsecured creditors might expect to receive upon a winding‑up. 5 The circumstances are a little unusual in that the application is made by the two secured creditors. However, on 4 July 2006, the Administrators provided a report pursuant to s 439A(4) of the Act in relation to the business of the respondent, its property, affairs and financial circumstances. The Administrators are required by s 439A(4)(b) to set out a statement of the Administrator's opinion addressing whether it would be in the creditors' interests for the company to execute a deed of company arrangement; whether it would be in the creditors' interests for the administration to end; or whether it would be in the creditors' interests for the company to be wound-up. The statement must set out the reasons for the opinion expressed in the statement. The opinion of the Administrators is that the Deed of Company Arrangement proposed by the two secured creditors is likely to provide a better return to creditors than the distribution likely to be made in the event of a winding‑up. 6 The application for the winding‑up order is pressed vigorously by the applicant creditor and is supported by affidavits from nine other creditors. The applicant is owed an amount of $176,240.13 and the total value of the claims of those creditors who have sworn affidavits in support of the winding‑up order constitute $461,485.68. The administrators assess the total value of external (non‑related) claims by unsecured creditors as $1,437,815.00. The two secured creditors resist the winding‑up order and have also assembled affidavits from creditors (seven in all) in support of the application for the adjournment. The combined value of those creditors supporting an adjournment of the application for the winding-up order constitute $245,475.88. 7 The question of course is not whether a pre‑meeting alignment of support or resistance might result in a preponderance of support for one view or the other. The question is whether, on the material filed in support of the application for the adjournment of the hearing of the application for the winding‑up order, the court is satisfied that 'it is in the interests of the company's creditors for the company to continue under administration rather than be wound up' (s 440A(2)). That section is framed in directory terms in the sense that the court 'is to adjourn the hearing of an application for an order to wind up a company' if the company is under administration and the court is satisfied, that is, affirmatively satisfied, that it is in the interests of the company's creditors to continue the administration in all the circumstances. 8 In Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456, McPherson JA (with whom Davies and Pincus JJA agreed) observed at 457: 'The question of whether an administration should continue, rather than that there be a winding‑up, is obviously closely related to the further question of whether the creditors could hope to get more by way of payment of their debts from one form of process or administration than from the other. In order to satisfy the court of the matter referred to in s 440A(2) of the Corporations Law, one would expect that there would have to be some persuasive evidence to enable it to be seen that there were assets which, if realised under one form of administration rather than the other, would produce a larger dividend, or at least an accelerated dividend for the creditors.' [emphasis added] 9 That formulation of the approach to s 440A(2) has provided the jurisprudential foundation for the continuing assessment of the requirements of the section. (See TCS Management Pty Ltd v CTTI Solutions Pty Ltd [2001] NSWSC 830 per Hamilton J; Deputy Commissioner of Taxation v Yates Security Services Pty Ltd (1997) 26 ACSR 629 per Santow J; Waste Recycling and Processing Services of NSW v Local Government Recycling Co-Operative (1999) 32 ACSR 194 per Santow J). In TCS Management, Hamilton J at [15] embraced the observation of Young J in Deputy Commissioner of Taxation v Choice Design Homes Pty Ltd [1999] NSWSC 589 at [18] that, 'There must be a sufficient possibility, as distinct from mere optimistic speculation, that such a deferment for the envisaged time is in the interests of creditors'.[emphasis added] That view is consistent with the remarks of Santow J in Deputy Commissioner of Taxation v First Netcom Pty Ltd (2000) 35 ACSR 615 at [8] and [9], in these terms: '8. The authorities on s 440A(2) require, in my view, more than a mere speculative possibility of a higher return to creditors if a winding‑up application was to be adjourned, here in favour of the prospect of the Deed of Company Arrangement. … 9. In my view, there must be a real prospect of benefit from the adjournment. But it is too simplistic to say that that prospect must necessarily be, at this point, a comfortable satisfaction that a Deed of Company Arrangement will yield a greater amount than winding‑up. Of course, in some cases that may already be safely apparent whilst in others the company is so evidently a basket case that further delay of the inevitable would simply add to costs; see, for example, Yates v Deputy Commissioner of Taxation.' [emphasis added] 10 Although, with respect, I would not embrace the particular descriptive phrase adopted by his Honour, it is clear that the respondent company here is hopelessly insolvent. 11 In this case, the question is not whether the company might continue under administration so that assets of the company might be realised in one form of administration rather than another which would produce a larger or accelerated dividend for the creditors. The question is whether the proposal by the two secured creditors to promptly establish a fund to be administered under the terms of the Deed is one which is likely to more favourably serve the interests of the company's creditors as compared with the affect upon those interests derivative of a winding‑up. 12 Apart from the issue of a comparison of the likely dividend as between the implementation of the proposed Deed of Company Arrangement and the likely distribution in a winding‑up, the immediate question is whether it is in the interests of the company's creditors for the company to continue under administration so that the creditors might consider for the themselves at the meeting on 12 July 2006 where their interest lie, the competing proposals, the contextual financial circumstances in which their particular claims arose and the circumstances in which the proposal of the two secured creditors has emerged. 13 At the meeting convened by the Administrators under s 439A, the creditors may pursuant to s 439C, resolve: (a) that the company execute a deed of company arrangement specified in the resolution (even if it differs from the proposed deed (if any) details of which accompanied the notice of meeting); or (b) that the administration should end; or (c) that the company be wound-up. 14 The background circumstances are these. 15 The respondent company was incorporated on 7 September 2004. The company traded from premises at Coomera in Queensland and operated a luxury catamaran boat building business. The original business was carried on by Perry Catamarans Australia Pty Ltd. That business was acquired by Farallon through two subsidiaries, Perry Holdings and the respondent company. Perry Holdings was incorporated to purchase the intellectual property and business assets from the operator. The respondent company was incorporated to purchase the trading assets and carry on the boat building business. 16 Mr Gregory Nunn is the sole director and secretary of the respondent company; the director and secretary of Perry Holdings which wholly owns the respondent; a director and secretary of Farallon; and the holder of the two issued shares in Farallon. Farallon holds 800 of the 1,000 issued shares in Perry Holdings. 17 The administrators in their report dated 4 July 2006 examined the trading performance of the respondent company in the conduct of the boat building business. In the period from acquisition in September 2004 to 30 June 2005, the respondent incurred a gross loss of $779,124.00 and a net loss (after expenses) of $3,085,282.00. In the period from 1 July 2005 to 24 April 2006, the company, although recording in its books of account, a gross profit of $1,563,653.00, suffered a further net loss (after expenses) of $2,851,548.00. On 24 April 2006, the company elected to appoint receivers and managers. In the period to 30 June 2005, current liabilities exceeded current assets by $640,703.00 and in the period to 24 April 2006 the working capital deficiency was $1,780,766.00. 18 On 28 June 2006, Mr Nunn provided the Administrators with a Statement of Assets and Liabilities as at 16 June 2006. Mr Nunn's estimate of the recoverable value of assets (ERV) was $1,947,948.00. Total priority creditors amounted to $7,259,368.00 (that is, employee entitlements and the claims of secured creditors). The value of estimated unsecured creditors was $1,260,454.00. The Administrators have subsequently assessed the value of unsecured unrelated creditors as $1,437,815.00. On 30 June, the receivers and managers paid priority employee entitlements of $395,000.00. 19 The trading activity of the company from the very commencement of operations was entirely dependent upon financial support from Perry Holdings. In the period 20 September 2004 to 21 April 2006, draw‑downs were made each month by the respondent company in the total amount of $5,757,900.00. In addition, Perry Holdings did not seek payment of interest charges on debt nor payment of equipment rental charges totalling $419,824.00. Farallon, discharged a bank bill with the ANZ Banking Group Ltd totalling $1,000,000.00 on 21 April 2006. The total amount secured under the two charges in favour of Farallon and Perry Holdings amount to $6,937,873.00. After realisation of assets, the shortfall will be approximately $5,000,000.00. In a winding‑up of the respondent company, Farallon and Perry Holdings would prove for the amount of the shortfall. There is also a further related party claim for $35,997.00. 20 The point that is made by those supporting the application for the making of a winding‑up order and opposing the application for the adjournment is this. The operation of the respondent company has been in the hands of Mr Nunn from the very outset. Mr Nunn is also the director and secretary of Perry Holdings and the director and secretary of Farallon. It would have been obvious to Mr Nunn, it is said, that the trading performance of the respondent company was such that very substantial losses were being incurred throughout the entire period. It would also have been obvious to Mr Nunn based upon the trading performance of the company in the conduct of the boat building business that there was no serious prospect that the company would be able to pay, upon demand or otherwise, the amount of the advances by Perry Holdings or the accommodation provided to the company by Farallon discharging the bank bill to the ANZ Bank. The payment of debts due to unsecured creditors as and when they fell due was entirely a matter within the determination of Mr Nunn as and when he chose to make funds available to the company by entities he controlled pursuant to fixed and floating charges granted in favour of those entities. Notwithstanding the intimate understanding by Mr Nunn of the trading and financial performance of the company, Mr Nunn allowed the applicant creditor to supply goods in late March 2006 and in April 2006 to the total value of $176,240.13 in circumstances where Mr Nunn must have known that the company had no capacity to pay that amount from its own resources and no capacity to repay any advances by the secured creditor should Mr Nunn have a conversation with himself and elect to advance further monies from the mortgagee to the mortgagor company. Other creditors in support of the winding‑up application also criticise the acceptance of goods and services by Mr Nunn on behalf of the respondent company in circumstances where, it is said, it must have been clear to Mr Nunn that the company had no capacity to pay the legitimate claims of third party creditors and no capacity to repay advances from Perry Holdings. In the result, unsecured creditors to the value of $1.4 million have not had their claims paid. 21 The Administrators in their report express the view that it can not be said that the company was insolvent until the moment in time on 22 April 2006 when the secured creditors made an election not to continue to support the company. That view rests upon the assessment by the administrators of the observations of their Honours, Giles, Hodgson and McColl JJA in Lewis (as liq) of Doran Constructions Pty Ltd (in liq) and Anor v Doran & Ors [2005] NSWCA 243. In particular, in determining whether a company is solvent for the purposes of s 95A of the Act, regard must be had to the commercial or practical realities of inter‑group financing. At [109] their Honours said: 'Particularly when the limiting words [from its own resources] are no longer part of a test, there is no compelling reason to exclude from consideration funds which can be gained from borrowings secured on assets of third parties, or even unsecured borrowings. If the company can borrow without security, it will have funds to pay its debts as they fall due and will be solvent …' 22 However, their Honours also noted an important proviso in these terms: '… provided of course that the borrowing is on deferred payment terms or otherwise such that the lender itself is not a creditor whose debt can not be repaid as and when it becomes due and payable. It comes down to a question of fact, in which the key concept is ability to pay the company's debts as and when they become due and payable'. 23 In considering the question of whether the relevant transactions under consideration in Lewis v Doran (supra) were insolvent transactions their Honours noted (per Giles JA (with whom Hodgson and McColl JJA agreed)) at 113, 'Importantly, I do not think it was suggested that the funds made available apparently repayable on demand, were to be regarded as immediately repayable so that holdings itself (the lender) was a creditor whose debt could not be repaid as and when it was due and payable'. 24 The Administrators take the view that because the respondent company had access to funds from Perry Holdings and Farallon, and continued to enjoy that access until 22 April 2006 when support was withdrawn, the respondent company became insolvent only on 22 April 2006. Accordingly, when the respondent company incurred an obligation to pay creditors for the value of goods supplied, it did not do so in circumstances of insolvency and, more particularly, it did not do so in circumstances which would give rise to a claim against either Mr Nunn or Perry Holdings or Farallon under the Act. Accordingly, such a claim is not, properly considered, an asset which might be recovered in a winding‑up. Alternatively, the pursuit of such a claim would require a liquidator to conduct an oral examination of a number of individuals including Mr Nunn, senior management of the respondent company, senior staff (including the CFO) of Perry Holdings and Farallon and other stakeholders of Perry Holdings and Farallon. Since the insolvency arose only on 22 April 2006, only those debts incurred after that date would be the subject of such a claim. 25 The fixed and floating charges secure monies payable upon an 'event of default' should the mortgagee elect to make demand for the immediate repayment of the secured money or exercise other rights and powers conferred by the security. A proof of debt has been lodged in the administration for the full amount of the secured debt of $6,937,873.00 although the shortfall will be approximately $5M. Although it may well be true that at the moment in time that debts to unrelated third parties were incurred, no demand had been made and therefore the secured monies were not then immediately due and payable, there is a reasonable basis for inferring that when a number of the debts to unsecured creditors were incurred (particularly in March and April 2006 but also earlier) Mr Nunn must have known that a demand he might choose to make wearing his Perry Holdings' hat could never be satisfied by the respondent company. 26 Although it is not a part of the current application to consider the strength or otherwise of any possible claim that might subsist against Mr Nunn, Perry Holdings or Farallon, preliminary assessments of those matters have influenced the assessment by the Administrators of whether it is in the interests of the creditors to adjourn the winding‑up application and enable the creditors to consider the proposed Deed of Company Arrangement at the meeting on 12 July. In supporting the notion that the proposed distribution under the Deed exceeds the estimated return upon a winding‑up of the company, the Administrators made this comparison. If legal proceedings are taken to establish a claim for recovery of the full amount of the value of the claims of unsecured creditors ($1.4M) incurred in contended insolvent circumstances and a liquidator recovers the legal costs of pursuing that claim, the total revenue available for distribution in a winding-up would be $1.5M. The Administrators assess that the costs of deriving that revenue would involve a number of items of expenditure including $50,000.00 general administration charges; liquidator's costs $50,000.00; legal and counsel's fees $100,000.00; litigation costs (liquidator's remuneration - $100,000.00 and legal and counsel's fees $200,000.00); - total - $500,000.00. The net estimated proceeds available for distribution to provable creditors therefore constitutes $1M. The value of unrelated unsecured creditors is $1.4M. The value of related party unsecured claims is $5,035,997.00. The total estimate of unsecured creditors is therefore valued at $6,435,997.00. The amount available for distribution is $1M. The dividend upon distribution would therefore be 15.5 cents in the dollar. The Administrators assess this distribution as the best case scenario in a winding-up. 27 Such an assessment involves acceptance of the notion that the creditors would fund litigation to recover those amounts incurred by the company in insolvent circumstances and that the full amount would be actually recovered. A second scenario assumes that the creditors would not fund legal proceedings but an insurer would be identified and arrangements struck so as to provide funding based upon a premium being paid to a litigation insurer. That assessment results in a potential dividend upon a winding-up of 6.8 cents in the dollar on the assumption that the full amount of the contended insolvent transactions would be recovered. A third scenario postulates a worst case scenario where a liquidator fails to establish a right of recovery. The distribution would then be nil. 28 Under the Deed of Company Arrangement, the proposal involves the payment of $300,000.00 to the Deed Administrators. The Administrators assess the costs of administering the deed at $50,000.00. The amount available for distribution to unsecured creditors would then be $250,000.00. Under the deed, neither Perry Holdings nor Farallon nor the third related creditor, Computer One Software Pty Ltd, would participate in any distribution. In that case the fund distributed amongst the unrelated unsecured creditors would result in a dividend of 17.9 cents in the dollar. 29 Accordingly, it is said that a dividend under the deed will be greater than the most favourable outcome in a liquidation and the deed fund would become available promptly and available for distribution quickly. Thus, the proposal under the deed is said to be more favourable to the unsecured creditors and represents an accelerated outcome. 30 The Administrators have expressed a number of views about the prospects of establishing a claim against Mr Nunn, Perry Holdings or Farallon. The Administrators make these observations in their report of 4 July 2006. First, the probability is that the company only became insolvent on 22 April 2006 (cl 6.3.2). Secondly, only $300,000.00 of purchase orders were accepted in the period 1 to 24 April 2006 and $70,000.00 in the period 13 to 24 April 2006 (cl 6.3.2). Thirdly, the claim against Mr Nunn would be unsuccessful (cl 6.3.3). Fourthly, the likely recovery from an insolvent trading action against Perry Holdings or Farallon would be nil (cl 6.3.4). Fifthly, the preliminary investigation into the company's affairs does not reveal any unfair preference payments (cl 6.4.1) nor any transactions of an uncommercial nature (cl 6.4.2) nor any unfair loans (cl 6.4.3). Sixthly, the Administrators say their investigations do not reveal any evidence of falsification of books (cl 6.5.2), any false or misleading statements (cl 6.5.3) or any evidence of any false information (cl 6.5.4). 31 Whilst it is of course true that in assessing the solvency of the company for the purposes of s 95 of the Act regard must be had to the 'commercial realities' of inter‑group financing and the extent to which a company within the group may have acted as 'a banker' to another member within the group, it remains important to recognise that the inability to repay an inter‑group debt when it becomes due and payable is a circumstance, in the context of the trading activity of the debtor entity, that is likely to be emergent well before any demand is made. A director charged with the governance of a trading entity incurring debts to unrelated creditors and who is also a director of an inter-group mortgagee lender will actively understand the implications of the burden of the debt assumed by the trading group member notwithstanding that a demand might be made well after the progressive assumption of significant debt. If it is apparent that both the mortgagor and security holder particularly by force of the role of a sole director or a common director who is the guiding mind of both entities, know the trading performance of the trading entity and the capacity of that trader to service a demand from the mortgagee once made, 'commercial realities' might suggest that in plotting a point of insolvency on the continuum in the affairs of a company, insolvency might arise when it is clear that by reason of the assumption of the debt it has become impossible in a practical sense to repay that debt when it falls due. That this respondent company proceeded on the footing that the debt would be repayable upon demand is clear from the election to lodge a proof of debt in the administration for the amount of the security and seek a dividend in respect of the net shortfall of $5M. 32 These questions are examined not for the purpose of expressing a view about the ultimate merits of such a matter but to test the proposition influential in the opinion formed by the Administrators that in the circumstances of the relationship between Mr Nunn and the three entities (the respondent company, Perry Holdings and Farallon) insolvency only arose on 22 April 2006 when the secured creditors elected to withdraw support, that is to say, when Mr Nunn decided that in his capacity as a director of Perry Holdings and Farallon, he would not continue cause the secured creditors to continue to support the respondent company of which he was the sole director and guiding mind. 33 It seems to me that there is an element of sophistry (although not deliberately so) in the Administrators saying that insolvency only arose on 22 April when the security holders through Mr Nunn withdrew financial support from the trading entity controlled by Mr Nunn leaving $1.4M of unsecured creditors unpaid. 34 It seems to me that there is an arguable prospect that the claims of a number of the unsecured creditors were incurred in circumstances of insolvency and it may be that there are prospects worthy of investigation as to whether causes of action might subsist against Mr Nunn or Perry Holdings. Nevertheless, such claims would have to be established and the process of establishing those claims would need to be funded. As to Perry Holdings and Farallon, the Administrators say that in any event those entities would be entitled to set off against any claim established against either of them, any amounts payable to them by the respondent company. 35 In making the comparative calculation, the Administrators have assumed the recovery by a liquidator of the full amount of the debts incurred in insolvent circumstances. The Administrators have correctly identified that the pursuit of any claim is likely to be resisted and significant costs will be incurred. There can be no guarantee that a claim will result in the recovery of the full amount of the value of the transactions claimed to have been incurred in insolvent circumstances. It seems to me that a foundation for the best case scenario in the event of a liquidation, on the assumptions contained in the Administrators report, at 15.5 cents is open. I recognise that the report of the Administrators is preliminary and the assessment does not emanate from a comprehensive analysis of the affairs of the company. Plainly enough, the secured creditors for the purposes of the Deed of Company Arrangement, have formulated a proposal which will provide an amount of money which, after expenses, will result in a dividend slightly greater than what might be thought to be the best result in a liquidation. 36 By way of further illustrative comparison, if the full amount of the claims of unsecured creditors which might be susceptible of action, was paid without the necessity of incurring the identified expenses of public examination and litigation, an amount of $1.4M (less $50,000.00 administration fees) would be available for distribution ($1.35M) amongst the total estimated unsecured creditor claims of $6,435,997.00 resulting in a dividend of 20.97 cents. A fund of $343,580.00 would be required to produce an amount of $293,580.00 for distribution under a deed to provide unsecured creditors with a distribution of 20.97 cents. 37 The applicant creditor seeking the winding‑up order together with a number of supporting creditors press for a winding‑up order on the basis, at least in part, of concerns that Mr Nunn allowed and in some cases pressed for the supply of goods in circumstances where, they say, he must have known that there was no prospect of those claims being paid or, alternatively, the possibility of payment was merely at the election or whim of Mr Nunn. The applicant says that the powers of a liquidator are expansive and the Act provides the necessary machinery to enable a liquidator to properly investigate whether there are matters which ought to be pursued which may result in a greater distribution to the creditors than that proposed under the Deed of Company Arrangement. The applicant for the adjournment says that the distribution under the deed is real, greater than the best case scenario in a winding‑up on the present evidence and will produce a fund available for distribution quickly. Moreover, to the extent that contraventions of s 588G(2) have occurred, ASIC has standing under s 1317J to apply for a declaration of contravention, a pecuniary penalty order or a compensation order under ss 1317E, 1317G and 1317H, in addition to the remedial provisions of s 588G. 38 It seems to me that the evidence reflected in the report of the Administrators provides at least a basis for concluding that the Deed of Company Arrangement provides a possibility of a greater and accelerated dividend to creditors than would be the case in a winding‑up on a best case assessment assuming for the moment that claims made by a liquidator were resisted, significant costs were incurred, a judgment for the full amount for the claim of $1.4M was awarded and the amount of any judgment was actually recovered. A significantly different outcome would emerge if the relevant claim was only partially successful or, obviously enough, if the claim failed. I accept the proposition that ASIC remains in a position to assess and determine as it sees appropriate whether circumstances suggest that conduct has occurred which would give rise to contraventions of or offences against the Act. 39 The respondent to the adjournment (the applicant for the winding‑up order) relies upon a further observation of McPherson JA in Creevey v DCT (supra) at 457 to the effect that an adjournment would ordinarily not be granted where there is no, or practically no evidence, that the company has any assets. That is true in circumstances where there is no prospect of realising any asset which might then feature in a potential distribution to unsecured creditors. The failure of the company and its wasting of assets does not of itself provide a basis for necessarily making a winding‑up order if a party is prepared to establish a fund on terms which would enable a distribution to be made to creditors when none would arise or when a dividend in a winding‑up would be likely to be less than a distribution under a proposed Deed; would be dependent upon litigation; and would be deferred. 40 The respondents to the adjournment further rely upon the observations of Gyles J in Deputy Commissioner of Taxation v K J Consulting Pty Ltd [2005] FCA 1827. The factors that Gyles J suggests are influential against adjourning an application for a winding‑up order are these. Firstly, the fact that the company is not trading; secondly, the undoubted insolvency of the company; thirdly, the composition and attitude of the creditors; and fourthly the recognition that a liquidator has more ability to follow potential breaches of the law than administrators. All of these factors are said to be made out in the present case and suggest strongly that the application for the winding‑up order ought not to be adjourned. 41 It seems to me that each of these matters must contextually be considered against the background of whether there is, on the present material, a real prospect of a better outcome under the Deed than in a winding‑up or, if the measure of the dividend is similar, whether the dividend can be achieved more quickly under the Deed. Although it seems to me that the circumstances of the relationship between the three entities and the role of Mr Nunn in each of them gives rise to a basis for suggesting that as a practical reality, a circumstance of insolvency may well have arisen earlier than the administrators contend for, there is no doubt that Perry Holdings and Farallon provided loan monies and financial accommodation of substance and that in a winding‑up those related party transactions would rank for distribution. If an assumption is made that the full amount of the unrelated, unsecured creditor claims ($1.4M) might be recovered from Mr Nunn or from Perry Holdings or Farallon under s 588V (and assuming no set‑off operates), the dividend will be 15.5 cents. Since the dividend under the deed is likely to be 17.9 cents without contest or the need to establish causes of action, the assessment by the administrators is more than 'a mere speculative possibility of a higher return'. 42 The opponents of the adjournment also say that the proposal to establish a deed fund of $300,000.00 should be viewed with scepticism because there is no obvious commercial purpose for establishing the fund and an inference should be drawn that the fund is proposed for the purpose of foreclosing any analysis or scrutiny of the conduct of Mr Nunn, Perry Holdings and Farallon. 43 The elements of the proposed Deed are these: (a) Perry Holdings and Farallon will pay to the Deed Administrators $300,000.00 within seven days of the execution of the Deed. The monies will be deposited to the trust account of the lawyers of Perry Holdings and Farallon prior to the second creditors' meeting and the lawyers will hold an irrevocable authority to pay the Deed Administrators the fund within seven days of the resolution of the creditors to approve the proposal. (b) All employee entitlements will be paid in full from the assets secured by the floating charge. Should those entitlements not be discharged prior to the second creditors' meeting, the Receivers and Managers will become a party to the Deed for that purpose. (c) Neither Perry Holdings nor Farallon will participate in any dividend paid under the Deed however both entities otherwise retain their rights against the respondent company. (d) Computer One Software Pty Ltd, a related entity, will not participate in a distribution under the Deed. (e) All other creditors will be entitled to participate in full and final satisfaction of any claims against the company. (f) The Deed Administrators will first pay from the Deed fund, the costs and expenses of administering the Deed. (g) Upon payment of the $300,000.00, the respondent company will be released from all claims by participating unsecured creditors. 44 Accordingly, the deed, in terms, has the effect of compromising any claim of a participating creditor against the company and releasing the company from all claims by participating unsecured creditors. To that extent, upon the events contemplated by the deed occurring, participating unsecured creditors will receive satisfaction of their claims as creditors by acceptance of the dividend upon distribution of the deed fund. The deed contemplates that the company will secure its release from all claims upon payment of the deed fund to the deed administrators by Perry Holdings and Farallon although the distribution may not take place for some time after that. 45 There are however other considerations which seem to me to be important. Section 588G addresses the statutory circumstances in which a director has a duty to prevent insolvent trading. Section 588G(2) addresses the failure on the part of a director to prevent a company from incurring a debt in the circumstances of the application of the section (s 588G(1)). Section 588J contemplates that on an application for a civil penalty order against a person in relation to a contravention of s 588G(2) the court may order such a person to pay the company compensation equal to the amount of the relevant loss. The company liquidator may intervene in such an application (588J(2)). Section 588M(3) contemplates that a 'creditor may as provided in Subdivision B but not otherwise, recover from the director as a debt due to the creditor, an amount equal to the amount of the loss or damage'. Subdivision B deals with proceedings by a creditor. Section 588R(1) provides that 'a creditor of a company that is being wound-up may, with the written consent of the company's liquidator, begin proceedings under s 588M in relation to the incurring by the company of a debt that is owed to the creditor'. Section 588S provides that a creditor in respect of a company being wound-up may give the company's liquidator a written notice stating that the creditor intends to take proceedings under s 588M and ask 'the liquidator to give the creditor, within three months after receiving the notice, a written consent to the creditor beginning the proceedings; or a written statement of the reasons why the liquidator thinks that proceedings under section 588M in relation to the incurring of that debt should not be begun.' (s 588S(b)(i)and(ii)). The creditor, pursuant to s 588T(2) may begin proceedings if at the end of three months after the liquidator has received the notice, the liquidator has not consented and an application is made to the court for leave to commence the proceedings. Section 588U prevents a creditor of a company that is being wound-up from commencing proceedings under s 588M if the company's liquidator has made an application in respect of matters contemplated by s 588FF in relation to the debt (that is, orders in relation to voidable transactions) or the company's liquidator has begun proceedings under s 588M or has intervened in an application for a civil penalty order for the purposes of s 588G(2). 46 The consequence of these provisions is that a creditor enjoys certain rights and entitlements under the Act (in the events contemplated by the provisions) which can only be asserted in circumstances of a liquidation. The creditors entitlement to exercise rights contemplated by Subdivision B of Division 4 of Pt 5.7B would be lost in the absence of a winding-up order. 47 The possibility that one or more creditors in the circumstances of this case might be able to establish those elements which would enliven a right of recovery against a director as a debt due to the creditor of the amount of the debt incurred by the respondent company in circumstances of a contended insolvent transaction, raises the question of whether within the group of creditors of the company whose interests must be considered for the purposes of s 440A(2), there are differential interests. There may be creditors, for example, whose debt was incurred in circumstances which gave rise to no basis for the assertion of rights specific to them. On the other hand there may be creditors whose debts were incurred in circumstances which have given rise to wider rights under the Act specific to them. Moreover, the company's creditors include claims to the value of $5M out of total unsecured creditor claims of $6,435,997.00 by parties related to the respondent company (that is, those parties promoting the deed of company arrangement and seeking to adjourn the application for a winding-up order). The question therefore is whether in making an assessment of the extent of the court's satisfaction that 'it is in the interests of the company's creditors for the company to continue under administration rather than be wound-up', the cohort of creditor claims must exhibit some degree of unity of interest. If that cohort of claims reflects or arguably reflects differential interests, it would be important for the applicant for the adjournment to establish that it is in the interests of each group of creditors exhibiting a particular interest that the company continue under administration. In the consideration of applications for the convening of meetings in connection with schemes of arrangement, it was the practice to conduct separate meetings of those groups of creditors with relevantly differential interests. Under s 440A(2) the question is simply whether it is in the interests of the company's creditors to continue the administration. If the effect of the meeting is to approve a deed of company arrangement which will extinguish the claims of creditors, release the respondent company and prevent a liquidation which would in turn foreclose any opportunity for a relevant creditor to consider and if thought fit, invoke the processes contemplated by Subdivision B of Division 4 of Pt 5.7B, I remain unpersuaded that the evidence demonstrates that such a result is in the interests of the relevant creditors of the company. As a result, it has not been demonstrated that it is in the interests of the creditors to continue the administration of the company. 48 If a creditor, in exercising rights under the Act is able to demonstrate a basis upon which the amount of the debt payable to that creditor by the respondent company might be recoverable against a director as a debt due to the creditor and that possibility is foreclosed, that creditor (or those creditors) would be entitled to recover the full amount of the value of the insolvent transaction and not simply either 15.5 cents, 6.8 cents, nil cents or 17.9 cents. 49 In TCS Management Pty Ltd v CTTI Solutions Pty Ltd (supra) Hamilton J ultimately concluded [18] that the onus on the applicant for an adjournment of the winding-up application is one of establishing 'a good case that there will be a greater or more accelerated return from the course proposed' under the deed of company arrangement. It seems to me that the quality of the case made out must be one which demonstrates that the interests of all creditors are accommodated to a greater degree or with greater acceleration than they would otherwise be in the course of a winding-up. 50 Notwithstanding the assessment of the three scenarios contained in the report of the Administrators and an acceptance of the basis for those scenarios, I cannot be satisfied that it is in the interests of all creditors that the application for a winding-up order be adjourned. 51 Accordingly, I would dismiss the application for adjournment and make a winding-up order. I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.