Doolan, in the matter of MIH Company Pty Ltd (in liq) v MIH Company Pty Ltd

Federal Court of Australia|2020-07-15|Before: McKerracher J

Pursuant to s 482(1) of the Corporations Act 2001 (Cth) the winding up of the first plaintiff is terminated.
Notice of these orders be lodged with the Australian Securities and Investments Commission under s 482(5) of the Corporations Act 2001 (Cth) within 14 days of the making of these orders. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

INTRODUCTION 1 By originating process dated 26 February 2020, the plaintiffs sought the following relief: 1. An order pursuant to s 436B(2) of the Corporations Act 2001 (Cth) (Act) that leave be granted for the Second Plaintiffs to appoint themselves as voluntary administrators of C.A.R.E. Employment & Training Services Pty Ltd (in liquidation) ACN 106 294 080 (First Plaintiff). 2. An order pursuant to s 436B(2) of the Act that leave be granted for the Second Plaintiffs to be appointed as administrators of any deed of company arrangement entered into by the First Plaintiff. 3. An order under s 447A(1) of the Act, that the operation of Pt 5.3A as it affects any administration of the First Plaintiff of which the Second Plaintiffs become administrators in exercise of the leave granted by order (1) be altered as follows: a. the first meeting of creditors in the administration under s 436E be dispensed with; and b. notwithstanding s 439A(2), the second meeting of creditors in the administration under s 439A(1) be convened at any time during the convening period or within 5 business days after the end of the convening period. 4. An order under s 444GA of the Act that leave be granted for any administrators appointed under order 2 to transfer shares in the First Plaintiff on the terms specified in the deed of company arrangement. 5. An order under s 482(1) of the Act that the winding up of the First Plaintiff be stayed indefinitely or terminated. 6. An order that costs of these proceedings be an expense of the Second Plaintiffs in the liquidation of the First Plaintiff. and such further or other orders as the Court considers just or necessary 2 On 19 March 2020, orders 1, 2, 3 and 6 of the orders sought in the originating process in these proceedings were made: C.A.R.E. Employment & Training Services Pty Ltd, in the matter of C.A.R.E. Employment & Training Services Pty Ltd [2020] FCA 374. 3 In that decision I explained that the second plaintiffs were then the liquidators of the first plaintiff, C.A.R.E. Employment & Training Services Pty Ltd. They sought to be appointed as administrators of the first plaintiff and to dispense with the ordinary first meeting of creditors in its administration. 4 The application was supported by an affidavit sworn on 24 February 2020 by one of the liquidators, Mr Jeremy Nipps. Mr Nipps explained: 7. As set out in the second report to creditors, a dividend is not expected to be declared to any class of creditor, but this is contingent upon the potential realisation of the First Plaintiffs New South Wales Employee Collective Agreement and Victorian Employee Collective Agreement (Employee Collective Agreements). Annexed… This position remains accurate as at the date of this affidavit. 8. Mr Wight and I have been liaising with Mr Paul Simmons, sole director of PSG Security Pty Ltd (Proponent), an interested party in relation to the prospective acquisition of the Employee Collective Agreements, since around July 2019. Some years ago, Mr Simmons was a director of the First Plaintiff. However, he has not been a director of the First Plaintiff since 1 March 2005 and is not to my knowledge related to the current sole director and sole shareholder of the First Plaintiff. The Proponent has indicated it is likely to be prepared to enter into the transaction described in paragraph 9 below for the effective acquisition of the Employee Collective Agreements. The Proponent has already advanced $84,150.91 to my firm's trust account to cover some of the likely costs incurred in respect of this application. 9. Due to the nature of the Employee Collective Agreements, the First Plaintiff's interest in them is not able to be sold and assigned in the ordinary sense. Instead, for the Proponent to undertake an effective acquisition of the assets, a deed of company arrangement would need to be entered into, which provided for the payment of funds (possibly into a creditors' trust, unless a deed of company arrangements can be effectuated quickly), extinguishment of the liabilities of the First Plaintiff in the ordinary course, and the transfer of shareholding in the First Plaintiff under s 444GA of the Corporations Act 2001 (Cth) (Act) (the Transaction). 10. On 1 November 2019 I submitted a report on company activities and property. Annexed ... 11. Based on my investigations and inquiries the Transaction, if it eventuates, will provide a better return to the First Plaintiff's creditors than continuing with the winding up process as it will guarantee 5 cents in the dollar to the First Plaintiff's unsecured creditors. 12. A meeting of the First Plaintiff's creditors has not been convened as no resolutions were required. However, I have written to the known creditors of the First Plaintiff to provide notice of these proceedings and seek any views from creditors in respect of them. Annexed ... On 24 February 2020, Ms Molly Nash, an accountant at my firm, confirmed to me and I believe that Ms Sabrina Trehern of the Office of State Revenue indicated to Ms Nash that the WA Commissioner of State Revenue would have no objections with the Transaction. As at the date of swearing this affidavit, I have not had any response from the Commonwealth Commissioner. 13. The Proponent has agreed to fund Mr Wight and I in these proceedings. Annexed ... I do not believe that the funding will compromise the liquidators' independence or impartiality. Dispensing with first creditors' meeting 14. As at the date of swearing this affidavit, the First Plaintiff has two creditors, being the Commonwealth Commissioner for Taxation for the amount of $1,518.90 and the WA Commissioner of State Revenue for the amount of $181,499.32. Annexed ... 15. I estimate that the cost of convening a first creditors' meeting for the administration of the First Plaintiff would be $5,000. 16. Based on my inquiries, the First Plaintiff's creditors in the voluntary administration would remain substantially the same as those who lodged proofs of debt in the liquidation. That is in part because I consider that the relation back day to be calculated under section 91 of the Act. 5 The second plaintiffs sought orders pursuant to s 436B(2) of the Corporations Act 2001 (Cth) that: (1) Leave be granted for the second plaintiffs to appoint themselves as voluntary administrators of the first plaintiff; and (2) Leave be granted for the second plaintiffs to be appointed as administrators of any deed of company arrangement entered into by the first plaintiff. 6 Section 436B of the Act provides: 436B Liquidator may appoint administrator (1) A liquidator or provisional liquidator of a company may by writing appoint an administrator of the company if he or she thinks that the company is insolvent, or is likely to become insolvent at some future time. (2) A liquidator or provisional liquidator of a company must not appoint any of the following persons under subsection (1): (a) himself or herself; (b) if he or she is a partner of a partnership - a partner or employee of the partnership; (c) if he or she is an employee - his or her employer; (d) if he or she is an employer - his or her employee; (e) if he or she is a director, secretary, employee or senior manager of a corporation - a director, secretary, employee or senior manager of the corporation; unless: (f) at a meeting of the company's creditors, the company's creditors pass a resolution approving the appointment; or (g) the appointment is made with the leave of the Court. 7 After consideration of the case law I made the orders sought. 8 The plaintiffs now seek order 5 of the originating process, that is, an order under s 482(1) of the Act that the winding up of the first plaintiff be stayed indefinitely or terminated. 9 The plaintiffs no longer seek order 4 of the originating process for the reasons set out below.

LEGAL PRINCIPLES FOR TERMINATION OF A WINDING UP APPLICATION 10 The principles to be applied on an application under s 482(1) of the Act were summarised in Re Warbler Pty Ltd (1982) 6 ACLR 526 (at 533 and the cases cited therein) as follows: (a) the grant of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay; (b) there must be service of notice of the application for a stay on all creditors and contributories, and proof of this; (c) the nature and extent of the creditors must be shown, and whether or not all debts have been or will be discharged; (d) the attitude of creditors, contributories, and the liquidator is a relevant consideration; (e) the current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding up is sought; (f) if there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given; (g) the general background and circumstances which led to the winding up order should be explained; and (h) the nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to 'commercial morality' or the 'public interest'. 11 In Doolan, in the matter of MIH Company Pty Ltd (in liq) v MIH Company Pty Ltd (in liq) [2015] FCA 1130, Edelman J cited with approval (at [9]) the factors summarised in Re Warbler and said (at [10]): The most significant of all of these factors is usually the question of solvency of the company: see, for instance, In the matter of Glass Recycling Pty Ltd [2014] NSWSC 439 [18] (Brereton J). This is usually because where the winding up was on the grounds of insolvency, it will be necessary for the company to demonstrate that it is solvent in order to show that the state of affairs that required the company to be wound up no longer exists. Hence, an order terminating the winding up will usually be made if all creditors are paid out, the liquidators' costs and expenses are covered, and the members agree to terminate the winding up: see In the matter of Glass Recycling Pty Ltd [18]; Apostolou v VA Corporation of Australia Pty Ltd [2010] FCA 64; (2010) 77 ACSR 84, 96 [58] (Finkelstein J); Re Kitchen Dimensions Pty Ltd (in liq) [2012] VSC 280 [25] (Judd J).

REASONS WHY THE WINDING UP OF THE FIRST PLAINTIFF SHOULD BE TERMINATED

Position of creditors and ASIC 12 In the administrators' report to creditors dated 28 April 2020, the administrators advised the creditors that at the meeting of creditors on 6 May 2020, they will have an opportunity to resolve that: (a) the first plaintiff execute a deed of company arrangement (DOCA); or (b) the administration should end; or (c) the first plaintiff be wound up. 13 As deposed by Mr Nipps in his second affidavit sworn on 12 June 2020, at the meeting of creditors held on 6 May 2020, he tabled the draft DOCA before the creditors. Under cl 3.1 of the draft DOCA, completion is conditional upon receipt by the deed administrators of a court order terminating the winding up of the first plaintiff. 14 The creditors voted that the first plaintiff would execute the DOCA. In doing so, the creditors gave consent to terminate the winding up of the first plaintiff. 15 The Australian Securities and Investments Commission (ASIC) was given notice on 4 March of the orders sought in the originating process and, on 16 June 2020, specific notice was given of the application to terminate the winding up of the first plaintiff. ASIC has not sought to be heard or otherwise objected to the application. I can see no reason why it would do so. 16 Mr Nipps has given evidence in his second affidavit that he is satisfied that: (a) the known creditors of the first plaintiff will not be prejudiced by terminating the winding up; and (b) the unknown creditors of the first plaintiff (if any) will not be prejudiced by terminating the winding up.

Solvency of the first plaintiff 17 Under cl 4.1.1 of the DOCA, all claims against the first plaintiff will be extinguished upon effectuation of the DOCA. Accordingly, Mr Nipps has given evidence that he is satisfied that the first plaintiff will be solvent at the date of effectuation of the DOCA. 18 Mr Nipps has given evidence that the only matter outside the control of the second plaintiffs (in their capacities as deed administrators of the first plaintiff) which is required for the effectuation of the DOCA is satisfaction of the condition that the winding up be terminated by this Court. That is, the payments required of the proponent to the DOCA have been made and there is sufficient cash on hand to pay the dividend necessary to achieve effectuation.

ORDER 4 NO LONGER SOUGHT 19 As noted, order 4 was sought in the following terms: An order under s 444GA of the Act that leave be granted for any administrators appointed under order 2 to transfer shares in the First Plaintiff on the terms specified in the deed of company arrangement. 20 Section 444GA of the Act allows the transfer of a share in a company, here the first plaintiff with either consent of the shareholder or an order of the Court. Order 4 of the originating process sought an order under s 444GA(1)(b) of the Act, that leave be granted to transfer shares in the first plaintiff on the terms specified in the DOCA. 21 On 21 March 2020, the second plaintiffs obtained written consent from the shareholder to transfer his shares in the first plaintiff on the terms specified in the DOCA, pursuant to s 444GA(1)(a) of the Act. Therefore, it is no longer necessary for the plaintiffs to seek order 4 of the originating process.

CONCLUSION 22 For the reasons set out above, order 5 of the plaintiffs' originating process will be made in the terms sought. The plaintiffs also provided a minute of proposed orders on 17 June 2020 which included, in addition to order 5 of the originating process, an order that notice of the orders be lodged with ASIC within 14 days. That order will also be made. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher .

Corporations Act 2001(Cth)ss 444GA, 444GA(1)(a), 444GA(1)(b), 482(1), 482(5)

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