Dean-Willcocks v GSA Formwork

Judgment 1HIS HONOUR : Yesterday I heard an ex parte application by the plaintiff, who is the deed administrator of Telemedcare Pty Ltd (Subject to Deed of Company Arrangement) and Telemedcare Holdings Pty Ltd (Subject to a Deed of Company Arrangement) ("Holdings") for an order that a deed of company arrangement entered into on 10 August 2010 be terminated, that the company be wound up, that he be appointed liquidator of the company and for certain other relief. I made orders, including the following: " 2. Order that the Deed of Company Arrangement entered into on 10 August 2010 between Telemedcare Holdings Pty Ltd (Administrator Appointed) ACN 105 293 936 ('the Company'), the plaintiff (Mr Adam Shepard), and Stirling Products Limited, be terminated. 3. Declare that pursuant to s 446B(1) of the Corporations Act and Reg 5.3A.07(1)(a) of the Corporations Regulations that the Company is taken to have passed a special resolution under s 491 that the Company be wound up voluntarily. 4. Order that the plaintiff, Mr Adam Shepard, be appointed liquidator of the Company. ... 6. Direct the plaintiff to take all reasonable steps to notify the creditors of the Company that the meeting of creditors convened to be held on 3 August 2011 is not to take place. " 2These are my reasons. 3Holdings is the holding company of two subsidiaries, Telemedcare Pty Ltd ("Telemedcare") and Medcare IP Pty Ltd ("Medcare IP"). Holdings does not trade and has negligible assets except its shares in the subsidiaries. 4The applicants carry on a business of providing remote health care equipment. 5On 24 June 2010 the directors of Holdings and Telemedcare resolved to appoint the plaintiff, Mr Adam Shepard, voluntary administrator of each company. 6On 29 July 2010 the creditors of each company resolved that the company execute a deed of company arrangement. 7On 10 August 2010 the deeds of company arrangement were executed between Holdings, Mr Shephard and Stirling Products Pty Limited ("Stirling") and between Telemedcare, Mr Shepard and Stirling. The effect of the deeds of company arrangement was that Stirling was to make contributions to separate deed funds established under each deed, and to pay priority creditors of Telemedcare. In return it was to be issued with shares in Holdings that would give it control of Holdings. 8The conduct of the affairs of Holdings and Telemedcare was returned to the control of the directors. Stirling was to appoint a majority of the boards. 9Stirling made payments pursuant to the deeds but in March 2011 it defaulted in making monthly payments under the Telemedcare deed of company arrangement. It also defaulted in making payments due under the deed of company arrangement with Holdings. 10On 22 June 2011 Stirling advised Mr Shepard that it was unable to continue to support any further funding for the operations of Telemedcare. 11Pursuant to s 445F of the Corporations Act 2001 (Cth), Mr Shepard convened meetings of creditors of Holdings and of Telemedcare and considered resolutions to vary or terminate the deeds of company arrangement or have the terms of those deeds enforced. 12On 30 June 2011 the creditors of Telemedcare resolved to extend the time for the making of outstanding payments under the deed of company arrangement with Telemedcare and resolved that such payments could be made by a third party. 13The meeting of creditors of Holdings was adjourned to 14 July 2011. On that day it was further adjourned to 3 August 2011. 14After the control of both Telemedcare and Holdings returned to the directors, both companies incurred substantial post-administration debts. Mr Shepard deposed that since the commencement of administration, Holdings incurred debts of approximately $2.5 million to Stirling, who was funding the operations of the group. Holdings then advanced this money to Telemedcare to pay wages and trading operations of the business. 15Holdings owes approximately $3.7 million to deferred creditors who do not participate under and are not bound by the deed of company arrangement. Both Holdings and Telemedcare are insolvent. Mr Shepard deposed that the liabilities of Holdings exceeds its assets by approximately $5.5 million. 16A third party, a Spanish company known as Grupo Neat, subsequently expressed interest in acquiring the business of the subsidiaries. 17On 30 June 2011 Mr Shepard was appointed for the second time as voluntary administrator of Telemedcare. Grupo Neat provided him with funding and expenses of $65,000 per week while it has conducted a due diligence investigation. It has proposed a new deed of company arrangement for Telemedcare, which Mr Shephard has recommended to creditors. A meeting of creditors of Telemedcare has been convened pursuant to s 439A of the Corporations Act for 4 August 2011 to consider that proposal. 18It is a condition of the proposed second deed of company arrangement between Telemedcare and Grupo Neat that Holdings transfer all of its shares in Telemedcare and in Medcare IP to Grupo Neat or its nominee. 19Matters came to a head last week. On 25 July 2011 voluntary administrators were appointed to Stirling. This triggered the resignation of two of the three directors of Holdings. The final director of Holdings has advised Mr Shepard that he will not take further action as a director of Holdings as he is a representative of Stirling which is in administration. 20The plaintiff's discussion with creditors at Telemedcare lead him to believe it is likely that they will approve the new proposed deed of company arrangement with Grupo Neat. For that to be capable of being implemented and to guard against Grupo Neat's withdrawal from the proposal, Mr Shepard wishes to be in the position where he can be sure that he could transfer the shares owned by Holdings in the subsidiaries if the proposed deed of company arrangement is approved. 21As matters presently stand, Mr Shepard does not control the administration of the affairs of Holdings. Responsibility for the management of that company passed back to the company's board on 10 August 2010, but there is no longer an operating board. 22The creditors of Holdings could resolve at the meeting convened to be held on 3 August 2010 with the deed of company arrangement between Holdings and Stirling to be terminated and that Holdings be wound up (ss 445F and 446A). There is no guarantee the creditors would take that course. 23Mr Rosenblatt, solicitor, who appeared for the plaintiff on this application referred to clause 10.6(a) of the deed of company arrangement between Holdings and Stirling. It provides that during the Arrangement Period creditors shall not take or concur in the taking of any steps to wind up the corporation. The Arrangement Period has not expired. In my view this clause does not fetter the right of creditors to vote in favour of a resolution to terminate the deed and to wind up the company (see clause 12.2). 24Nevertheless, some creditors might consider that it would be in their interests that the company not be wound up. Some might consider it in their interests that the deed of company arrangement not be terminated. If the deed of company arrangement were not terminated but were enforced, the creditors of the company whose debts were incurred before the appointment of the plaintiff as administrator (other than deferred creditors) would be entitled to prove against the deed fund. The post administration creditors and deferred creditors would not. 25As the company is insolvent, the company would presumably be wound up in due course on the application of a creditor, but post administration creditors and deferred creditors could be prejudiced. 26It is possible that creditors might vote in favour of terminating the deed but not winding up the company, leaving the management of the company in the control of the directors, although there is presently no governing board. If that were to occur, it is inevitable that the company would later be wound up in insolvency. 27The matter is urgent. If the proposed sale to Grupo Neat falls over, as it could well do if Mr Shepard is not in a position to transfer shares in the subsidiaries to Grupo Neat, then Grupo Neat would cease funding the operations of the business of Telemedcare. Its business would cease and the employment of Telemedcare employees would be terminated. If the proposed deed of company arrangement with Telemedcare proceeds, Grupo Neat will pay $1.3 million for the shares in Telemedcare and $500,000 for the shares in Medcare IP. It seems that the funds will be paid to the subsidiaries. 28The plaintiff deposes that out of the net sale proceedings Telemedcare will be able to pay approximately $190,000 to Holdings and Medcare IP will be able to pay approximately $475,000 to Holdings in reduction of intercompany loan balances. 29There have been no other offers for the business. 30The deed of company arrangement between Holdings and Stirling should be terminated. Stirling has not been able to comply with the conditions of the deed. Moreover, Holdings has no current governance. It is clear that if creditors entitled to vote at the adjourned meeting of creditors of Holdings did not resolve to terminate the deed of company arrangement or did not resolve that the company be wound up, then an order would be made under s 445D terminating the deed. 31That would be so because there has been a material contravention of the deed by Stirling, because the deed cannot now be given effect to, and because not to do so would unfairly prejudice the interests of post administration creditors. 32It is also clear that if the creditors did not resolve that the company be wound up, that a later application would be made for the company to be wound up in insolvency and it would inevitably be wound up in insolvency. 33In the exceptional circumstances of this case I accept the submission made by Mr Rosenblatt for the plaintiff that the commercial interests of creditors of the company and of Telemedcare necessitated that there be certainty that if the proposed deed of company arrangement now proposed between Telemedcare and Grupo Neat is approved at the meeting of creditors of Telemedcare convened to be held on 4 August 2011, Holdings would be in a position to transfer the shares in the subsidiaries to Grupo Neat. 34I considered it an extraordinary step to make the orders I did on an ex parte application but that is not without precedent. ( Dean-Willcocks v GSA Formwork [1999] NSWSC 166 at [19], [20] and [22]). 35It was for these reasons that I made the order pursuant to s 445D that Holdings' deed of company arrangement be terminated. 36Mr Shepard had sought in his originating process an order that the company be wound up. It was unnecessary to consider whether he had standing to seek such an order, because the consequence of the making of the order under s 445D that the deed of company arrangement be terminated was that the company was taken to have passed a special resolution for its winding up ( Corporations Act , s 446B and Corporations Regulation, Reg 5.3A.07(1)(a)). I made a declaration to that effect. 37There remained a question as to the identity of the liquidator. In In the matter of Jick Holdings [2009] NSWSC 574; (2009) 72 ACSR 387 I observed (at [28]) that after the amendment made to the Corporations Act and Corporations Regulations on 31 December 2007, neither the Act nor the Regulation specified who is taken to have been appointed as liquidator in cases to which s 446B applies. So far as I was able to ascertain in the time available, that position has not been clarified. I considered that s 447A provided the power to order that the plaintiff, being the deed administrator prior to its termination, be appointed liquidator. 38Section 532(2)(b) and (c)(i) would preclude the plaintiff from seeking to be appointed as liquidator of the company, both because he is a creditor of the company (apparently for more than $5,000) and a deed administrator who is an officer of the company. 39However, in the circumstances of this case, leave should be given nunc pro tunc to the plaintiff for him to seek to be appointed as liquidator. As he has been appointed liquidator by order of the Court, it necessarily follows that he should have leave to act as such. 40I therefore make the following additional order: 41I give leave pursuant to s 532(2) of the Corporations Act , nunc pro tunc to the plaintiff to seek to be appointed as liquidator of the company and to act as liquidator. 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: 09 August 2011