Dean-Willcocks v Powerline GES

COUNSEL : Mr R.I. Bellamy - Plaintiffs ex parte SOLICITORS : Kemp Strang - Plaintiffs ex parte CATCHWORDS : CORPORATIONS - voluntary administration - need to adjourn second meeting beyond last date allowed by s.439B - whether s.447A empowers court to extend time limit - factors relevant to extension LEGISLATION CITED : Corporations Act 2001 (Cth) Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24 Re Brashs Pty Ltd (1994) 15 ACSR 477 CASES CITED : Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607 Re Double V Marketing Pty Ltd (1995) 16 ACSR 498 Re LOCM Pty Ltd (1997) 79 FCR 35 MYT Engineering Pty Ltd v Mulcon Pty Ltd (1997) 25 ACSR 78 Re Taylor (1995) 16 ACSR 774 DECISION : Order permitting adjournment of meeting

IN THE SUPREME COURT REVISED OF NEW SOUTH WALES EQUITY DIVISION

BARRETT J THURSDAY, 7 FEBRUARY 2002 DEAN-WILLCOCKS AND PURCHAS, ADMINISTRATORS OF POWERLINE CES PTY LTD v POWERLINE GES PTY LTD (JOINT ADMINISTRATORS APPOINTED)

1 The plaintiffs are the joint administrators of the defendant. They have, by leave, filed in court today an originating process in which they seek what is effectively an order extending the period for completing the second meeting of creditors of the defendant required by Pt 5.3A of the Corporations Act 2001 (Cth) and an order that they have leave to dispose of certain assets of the company, together with orders ancillary to the latter. 2 I heard today the application for the order extending time. The need for that application has arisen in circumstances where the meeting has already commenced, having first assembled on 12 December 2001 and having been adjourned on several subsequent occasions, most recently to tomorrow, 8 February 2002. Adjournment of such a meeting is permitted by s.439B(2) subject to a stipulation that the meeting "cannot be adjourned" to a day that is more than 60 days after the first day on which the meeting is held. In the present case, there can be no adjournment consistently with that provision beyond 8 February 2002.

3 The Act contains a specific provision empowering the court to extend the "convening period" of a meeting such as this: see s.439A(6). The absence of any similar provision dealing expressly with extension of the limit upon adjournment imposed by s.439B(2) is, in the submission of Mr Bellamy of counsel who appeared for the plaintiffs, not something which should concern the court. He says that the jurisdiction created by s.447A(1) is sufficiently broad and flexible to enable the court to extend the s.439B(2) limit. Section 447A(1) says, quite simply: "The Court may make such order as it thinks appropriate about how this Part [ie, Part 5.3A] is to operate in relation to a particular company." 4 I accept Mr Bellamy's submissions. As he pointed out, Young J held in Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607 that s.447A(1) is able to do the work required of it by the applicant in this case. Having reviewed the purpose of the various time limits relevant to the second meeting of creditors called for by Part 5.3A, including the explanatory note to the Bill by which the insolvency reforms which commenced in 1993 were effected, his Honour said: "Although the flavour from this material is that there is to be a short moratorium, and that the interim administration, before the creditors make the appropriate resolution, is not to be indefinite, there is also the flavour that whilst the court is to keep on the sideline as much as possible, it is to be involved in a supervisory capacity, it is to be involved to ensure that secured creditors are not prejudice and, indeed, is to be involved and to use its powers to tailor-make a procedure for each company, so that the spirit and objects of the Part will be implemented." On this basis, s.447A(1) was seen as conferring jurisdiction to extend the s.439B(2) time limit. Young J's decision, as it applied to the particular case of that limit, was followed in both Re Taylor (1995) 16 ACSR 774 (Brownie J) and Re Double V Marketing Pty Ltd (1995) 16 ACSR 498 (Lindgren J). 5 In Re LOCM Pty Ltd (1997) 79 FCR 35, Goldberg J expressed "considerable reservations" about the conclusion reached by Young J in Cawthorn about the scope of s.447A(1) in the particular context. His Honour was troubled by the existence of the specific power created by s.439A(6) to extend the "convening period" and the absence of any corresponding specific power to extend the s.439B(2) limit. In the end, however, Goldberg J concluded that resort could be had to s.447A(1) as a source of jurisdiction to order an extension of the latter kind. He was particularly influenced by observations of Hayne J in Re Brashs Pty Ltd (1994) 15 ACSR 477 and of the Victorian Court of Appeal in Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24. In the former, Hayne J said: "It is not possible to conclude whether the legislature intends that some provisions in Pt 5.3A is to have mandatory and universal application without first construing the part as a whole, including s.447A. Thus just as I do not consider that it is legitimate to conclude from the presence in the law of provisions that specify circumstances in which administrations may be brought to an end prematurely, that s.447A(1) is not intended to permit the making of orders of termination in circumstances other than those identified in the particular sections, so too in the case of s.450E I do not consider that it is possible to conclude that that section is intended to have universal and mandatory application without having first made the a priori assumption that s.447A has nothing to say in such cases. In my view the language used in s.447A makes plain that such an assumption is not warranted." 6 The scope and effect of s.447A(1) have now, of course, been the subject of authoritative consideration by the High Court in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270. The following passage in the joint judgment of Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ seems to me quite clearly to indicate, by necessary implication, the availability of that section to support the making of the order now sought: "Section 447A is an integral part of the legislative scheme provided for by Pt 5.3A. In its terms, it enables the making of orders which alter the way in which 'this Part is to operate in relation to a particular company'. That is, it permits the making of orders which would alter how s.439A is to apply. It is not right to seek to characterise s.447A as some general source of power to which resort cannot be had because to do so would 'circumvent' the statutory limitations upon the exercise of the power that is given by s.439A(6) to extend the convening period. So to characterise s.447A is to give to all of the other provisions of Pt 5.3A a fixed and unchanging operation in relation to all companies. Yet the evident legislative intention of s.447A is to permit alterations to the way in which Pt 5.3A is to operate." 7 I note that the question whether the comprehensive operation of s.447A(1) thus confirmed is sufficiently broad to allow the court to make orders with retrospective effect (or in such a way as to displace or modify the effect of a provision which has already operated upon or in relation to the particular company) does not arise in this case. The s.439B(2) time limit which it is sought to extend has not yet expired. There is therefore no need here to consider issues of this kind on which there was some difference of opinion in the Court of Appeal in MYT Engineering Pty Ltd v Mulcon Pty Ltd (1997) 25 ACSR 78 and which are the subject of comment at para 26 of the joint judgment in Australasian Memory v Brien. 8 I turn now to the substance of the extension application. In the absence of the extension now sought, the administration will come to an end tomorrow when the second meeting of creditors, being incapable of being further adjourned because any such adjournment is ruled out by s.439B(2), concludes without any s.439C resolution having been passed. This is the effect of s.435C(1)(e). The administrators will then be unable to pursue further certain potentially beneficial initiatives they have in train.

9 Those initiatives involve sale of the assets of the company and, indeed, it is for that purpose that the second order and the ancillary orders in the originating process, although not pursued today, will be sought on a subsequent occasion, assuming that the extension with which I am now dealing is granted. 10 The assets in question are subject to two charges. I need not go into the detail of them, except to say that the sale proposal which has been propounded and which has been substantially advanced will involve proceeds of sale sufficient to pay out the first chargee and to pay part of the indebtedness secured by the second charge, being indebtedness to holders of a series of convertible notes who number more than 30. Moreover, the co-ordinator, if I may so describe it, of the convertible note holders (which is also the holder of the second charge for their benefit) is the potential purchaser of the assets. The maturing sale proposal has involved extensive negotiation with the party to which I have just referred and significant discussion and contact with the holders of the notes. 11 If the administration were to come to an end tomorrow, liquidation or receivership would follow virtually as a matter of course and it would become necessary for a liquidator or a receiver to tread the same kind of path as the administrators have already taken. There are thus good commercial grounds, Mr Bellamy submits, for allowing the administrators further time in which to fully formulate the proposal for sale so that it can be placed before the meeting of creditors for consideration, without losing the benefit of all the work that has been done to date. That, to my mind, is an entirely sensible approach and justifies an extension of the s.439B(2) time limit, provided that the extension is of reasonable length, bearing in mind the moratorium that administration involves and the consequent need for rights not to be left in limbo for longer than is sensibly necessary. 12 I have been informed that, as one would expect, the persons interested in the second charge, being the holders of the convertible notes, will be served with the process seeking orders allowing sale of the assets of the company subject to the charge held for that benefit. I have been asked to make an order abridging the time for service, noting that some of the note holders are outside the State and that service under the Service and Execution of Process Act 1992 (Cth) will be necessary. 13 Two alternative timetables were outlined to me. One involves a shorter time for consideration by the persons served in the interests of keeping short the extension of the s.439B(2) time limit. Under this timetable, the extension would be to 11 March 2002. The other, which involves a longer time for consideration by the persons served, will have the necessary corollary of an extension of the meeting's time limit beyond 11 March 2002, probably by something of the order of a further month. 14 The evidence shows that the holders of the convertible notes and their coordinator have been made fully aware of the issues concerning the proposed sale of the assets. There is also evidence that such holders have, in large measure, expressed general concurrence in what is proposed. Furthermore, I think I am entitled to draw some inference that, given the nature of the particular investment, holders of convertible notes are likely to be reasonably sophisticated and informed people able to make commercial decisions relatively promptly. I am, therefore, prepared to make orders which give effect to the shorter of the two timetables. 15 The orders and directions I make are, accordingly, as follows: 1. Order that the second meeting of the defendant's creditors, which has already been convened, may be adjourned to a day that is more than 60 days after the first day on which it was held, that is to say, it may be adjourned to 11 March 2002.

2. Abridge time for service of the originating process filed in court today and of the supporting affidavit or affidavits to 5pm on 12 February 2002.

3. Direct that the balance of the originating process be returnable at 10 am on 18 February 2002 in the Corporations List.

4. Order that the costs of today be paid out of the assets of the company. 16 The abridgement of time for service extends also for the purposes of s.17(1)(b) of the Service and Execution of Process Act.

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