Expile Pty Limited v Jabb's Excavations Pty Ltd & Anor - [2004] NSWSC 284 - NSWSC 2004 case summary — Zoe

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Expile Pty Limited v Jabb's Excavations Pty Ltd & Anor

[2004] NSWSC 284

Supreme Court of NSW|2004-04-13|Before: Palmer J, Campbell J, Barrett J, Mr P

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Court

Supreme Court of NSW

Decision date

2004-04-13

Before

Palmer J, Campbell J, Barrett J, Mr P

Source

Original judgment source is linked above.

Judgment (69 paragraphs)

[1]

CITATION : Expile Pty Limited v Jabb's Excavations Pty Ltd & Anor [2004] NSWSC 284 HEARING DATE(S) : 1 to 4 March, 2004 JUDGMENT DATE : 13 April 2004 JURISDICTION: Equity Division JUDGMENT OF : Palmer J DECISION : Deed of company arrangement terminated; order made for winding up of First Defendant.

[2]

CATCHWORDS : CORPORATIONS - DEED OF COMPANY ARRANGEMENT - Plaintiff applied for winding up of defendant - defendant failed to prove solvency - before judgment delivered company appointed administrators - costs order made in favour of plaintiff - deed of company arrangement then executed - whether costs order was a debt or claim bound by deed - DEED OF COMPANY ARRANGEMENT - TERMINATION - Successful applicant for winding up would lose priority for repayment of legal costs if deed of company arrangement allowed to stand - whether deed should be terminated - PROOF OF DEBT - ADMISSION - Means whereby creditors are admitted to vote at creditors' meetings discussed - WORDS AND PHRASES - "contingent claim", "future claim" discussed. Companies (NSW) Code - s.315(b) LEGISLATION CITED : Corporations Act 2001 (Cth) - s.439A, s.439C, s.440A, s.444A, s.444D(1), s.444E(2), s.445D, s.445G, s.447E, s.459, s.466, s.553(1), s.556(1), s.1321 Income Tax Assessment Act 1936 (Cth) - s.221P - Brash Holdings Ltd (Administrator Appointed) v Katile Pty Ltd [1996] 1 VR 24 - Crigglestone Coal Company, In re [1906] 2 Ch 327 - Data Homes Pty Ltd (in liq), Re [1972] 2 NSWLR 22 - Deputy Commissioner of Taxation v. Portinex Pty Ltd (2000) 34 ACSR 391 - Emanuele v Australian Securities Commission (1995) 63 FCR 54 - Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWSC 699 - FAI Workers' Compensation (NSW) Ltd v Philkor Builders Pty Ltd (1996) 20 ASCR 592 - FAI Workers' Compensation (NSW) v Philkor Builders Pty Ltd (No 2) (1996) 21 ACSR 532 CASES CITED : - Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (Administrator Appointed) (1996) 19 ACSR 160 - Pasminco Ltd (Administrators Appointed), Re; McCluskey v Pasminco Ltd (2002) 41 ACSR 256 - Selim v McGrath (2003) 47 ACSR 537 - Sessions Video Distributors Pty Ltd, Re (1993) 10 ACSR 421 - Silbermann v One.Tel Ltd (In liq) (2002) 167 FLR 274 - Taxation, Deputy Commissioner of v Winterburn Trading Pty Ltd (1993) 27 ATR 189 - Taxation, Federal Commissioner of v All Suburbs Car Repairs Pty Ltd (1994) 14 ACSR 753 - Taxation, Federal Commissioner of v B & G Plant Hire Pty Ltd (1994) 52 FCR 257 - Tony Michael Mechanical Pty Ltd (under administration), Re [2003] QSC 141 - V & M Diagnostic Services Pty Ltd, Re (1985) 9 ACLR 663 Expile Pty Limited - Plaintiff PARTIES : Jabb's Excavations Pty Ltd - First Defendant Peter Ngan - Second Defendant FILE NUMBER(S) : SC 1887/02 COUNSEL : S.D. Epstein SC - Plaintiff R.G. Forster SC and D.A. Allen - Defendants SOLICITORS : Baron & Associates - Plaintiff Middletons - Defendants

[4]

2 The history of the proceedings between the parties is complex. The following account is largely taken from a judgment delivered in these proceedings by Campbell J on 24 July 2003: Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWSC 699. 3 On 14 February 2002, Expile filed an application to wind up Jabb's founded upon failure to comply with a statutory demand. At the hearing of the application, Jabb's undertook to prove its solvency. 4 On 27 February 2003, Barrett J dismissed the winding up application on the ground that Jabb's had proved its solvency. Expile appealed. The appeal was heard on 29 May 2003 and judgment was reserved. Doubtless as a result of discussion between the Bench and Counsel during the appeal, Jabb's formed the view that the appeal was likely to be allowed. 5 On 7 June 2003 the Second Defendant, Mr P. Ngan, was appointed as administrator of Jabb's. A first meeting of creditors pursuant to s.439A Corporations Act was held on 13 June 2003 at which it was explained that Expile's appeal to the Court of Appeal was likely to be successful and that Mr Ngan had been appointed administrator to ensure the best outcome for the company's creditors. 6 On 24 June 2003, the Court of Appeal, as expected, allowed Expile's appeal, holding that Jabb's had not proved its solvency. Before that judgment was delivered the Court had been informed that an administrator had been appointed to Jabb's. Accordingly, in allowing the appeal the Court did not immediately make an order winding up Jabb's pursuant to Expile's winding up application. Rather, it allowed Jabb's the opportunity to make an application under s.440A(2) Corporations Act for an order that the winding up application be adjourned on the ground that it was in the interests of the creditors for Jabb's to continue under administration rather than be wound up. The Court of Appeal, therefore, ordered that the appeal be allowed, the orders made by Barrett J be set aside, and that "the Appellant's costs, both at trial and on appeal, be paid out of the assets of [Jabb's] " . The proceedings were listed for mention before Santow JA on 27 June 2003. 7 An adjournment of the winding up application was granted until 14 July 2003 to allow a second meeting of creditors to be held on 4 July. That creditors' meeting resolved, over the dissent of Expile, to adjourn the meeting further to 8 August. 8 When the winding up application came before the Court on 14 July, it was stood over for argument and heard by Campbell J on 18 and 24 July 2003. At the conclusion of argument, his Honour delivered an ex tempore judgment in which he adjourned the winding up application to 15 August 2003 to allow the meeting of creditors called on 8 August to take place. In the course of that judgment, Campbell J made some observations which are pertinent to the determination of the issues now before the Court and I shall return to the judgment in due course. 9 On 8 August 2003, the creditors at the adjourned meeting resolved pursuant to s.439C Corporations Act that Jabb's execute a deed of company arrangement ("the Deed"). The Deed was executed by Jabb's and Mr Ngan on the same day. Its relevant provisions are as follows.

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(d) Claims must have arisen on or before the Admission Date if they are to be admissible under the Deed." 10 Jabb's has complied with the obligations referred to in Clause 11(b). 11 -Shortly after conclusion of the creditors' meeting, Expile stated its intention to apply to set aside the Deed. On 15 August 2003, consent orders were made for the filing of a Statement of Claim by Expile. Expile filed its Statement of Claim on 29 August 2003. That Statement of Claim was amended twice, the second amendment being contained in a Further Amended Statement of Claim filed by leave in Court when the proceedings came on for hearing before me on 1 March 2004. 12 The amendment allowed in the Further Amended Statement of Claim was an allegation that, in breach of Clause 3(a) of the Deed, Jabb's had failed to pay to the administrator within six months after expiration of the Deed (i.e. by 8 February 2004) sufficient money to enable the administrator to pay to creditors the dividend provided by the Deed. 13 Mr Forster SC, who appeared with Mr D. Allen for the Defendants, conceded that no money at all had been paid to the administrator in accordance with Clause 3(a) of the Deed but he sought to take two positions by way of confession and avoidance. 14 First, Mr Forster said, Clause 3(a) on its proper construction did not require any payment to be made to the administrator unless and until a demand had been made by the administrator, and no demand had been made. Second, he wished to be given the opportunity of adducing evidence to explain why payment had not been made and how the directors of Jabb's proposed to find the money to make the payment. I allowed the amendment in the Further Amended Statement of Claim on the basis that I would protect Mr Forster's clients from prejudice occasioned by the lateness of the amendment. 15 Mr Forster said that at some time during the time set aside for the trial, i.e. from 1 March to 4 March, he would seek to file affidavits explaining his clients' position. Later in the proceedings, he stated that it would not be necessary to file such affidavits because, according to his instructions, the directors of Jabb's would pay into a solicitor's trust account the sum of $200,000 to be held for the purposes of the Deed. 16 I directed that the trial of the proceedings should continue on the assumption that the payment proposed by Jabb's would be made prior to the conclusion of submissions. In fact, payment was not made until the very last moment on 4 March and then it was said that cheques had been provided to the Defendants' solicitors but the funds could not yet be cleared. In those circumstances, I said that I would not give judgment until two business days had elapsed to enable the cheques to be cleared. The following day an affidavit was filed by the Defendants' solicitors confirming that the cheques had been cleared. 17 In my opinion, Jabb's failure to pay the fund required by Clause 3(a) of the Deed by 8 February 2004 was a breach of that clause. I do not agree with the construction of Clause 3(a) urged by Mr Forster. In my view, the clause means that Jabb's must make the payment within the six months period unless the administrator demands otherwise. No such demand was made. Had the breach of Clause 3(a) not been cured at the very last moment, I would, without hesitation, have terminated the Deed under s.445D(1)(d).

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18 Until the last day of the hearing both Expile and Jabb's were proceeding on the understanding that the Deed bound Expile both in respect of its original debt, the subject of its statutory demand, and in respect of its claim arising from the costs order in its favour made by the Court of Appeal in the winding up proceedings on 24 June 2003. At the creditors' meeting held on 8 August 2003, Expile sought to lodge a Proof of Debt for its costs in the proceedings, although at that stage the costs had not been assessed. Mr Ngan rejected the Proof of Debt for want of particularity. Expile's major complaint in the proceedings before me was that the Proof of Debt had been wrongly rejected and that the Deed wrongly failed to provide for the payment of its costs in the winding up proceedings in the priority which those costs would have received under s.556(1)(b) Corporations Act if the company had been wound up by the Court. 19 However, in the course of his oral submissions on the last day of the trial, Mr Epstein SC, who appears for Expile, conceded that Expile's claim for the costs of the winding up proceedings and the appeal had been correctly rejected by Mr Ngan, not for want of particularity, but because as a matter of law the claim could not be admissible to proof for the purposes of the Deed. This was because the claim arose when the costs order was made on 24 June 2003, after the commencement of the administration on 7 June 2003. It followed, Mr Epstein said, that the claim for costs was not a claim within s.444D(1) Corporations Act and could not be subject to the Deed. 20 Mr Epstein made this concession contrary to the way in which Expile had pleaded its case, contrary to the position which he had taken in his opening and without prior notice in his final outline of submissions. Mr Forster SC was taken somewhat by surprise. He was inclined to accept the concession without having had a proper opportunity to consider its correctness and its consequences. In these circumstances, I do not think it right that I should act on the basis that the concession is correctly made; I should examine the proposition for myself. 21 Section 444D(1) provides: "A deed of company arrangement binds all creditors of the company, so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i)."

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(2) The liquidator must, unless the Court orders otherwise, reimburse the applicant out of the property of the company the taxed costs incurred by the applicant in any such proceedings." 27 In FAI Workers' Compensation (NSW) Ltd v Philkor Builders Pty Ltd ((1996) 20 ASCR 592) the plaintiff filed a Summons for the winding up of the defendant. On the return date of the Summons, and shortly before the matter came on for hearing, the defendant's directors resolved to appoint administrators. The winding up Summons was adjourned to permit a meeting of creditors to be held. Later, a majority of creditors resolved that a deed of company arrangement be executed. The deed gave no priority to the plaintiff for its costs of the winding up Summons. The plaintiff and the defendant subsequently appeared on the return of the Summons before the Registrar, who ordered that the Summons be dismissed and that the defendant pay the plaintiff's costs in priority to the administrator's costs as provided in the deed of company arrangement. On appeal, the defendant contended that the Registrar had no power to make the order as to priority of the costs in the administration. 28 Young J (as he then was) held that the costs order, having been made after the relevant date specified in the deed of company arrangement, was not subject to the Deed as it was not a "claim arising" within the meaning of s.444D(1) of the Corporations Law , which was then in force. Dealing with the submission that, as at the relevant date, the costs claim was a "contingent debt", his Honour said at 20 ACSR 597: "Although [Counsel] argued that the claim for costs would be a contingent debt, I cannot see how this could be so. A contingent debt is a claim under an existing obligation pursuant to which the Company may become subject on the happening of some future event or at some future date: Re William Hockley Ltd [1962] 1 WLR 555, 558; Community Development Pty Ltd v Engwirda Construction Co (1969) 120 CLR 455, 459; [1970] ALR 173 and see Re International Harvester Creditor Corp (Aust) Ltd (1983) 7 ACLR 415. As under s 466 there is a personal obligation to bear one's own costs of a winding up petition until the winding up order is made and then a statutory right to get costs which commences as at that day, it does not appear to me that a claim for costs before the order is made can be classed as a contingent debt." 29 In Re Pasminco Ltd (Administrators Appointed); McCluskey v Pasminco Ltd (2002) 41 ACSR 256, personal injury claims had been commenced against the company by its employees but had not been determined by the time administrators were appointed. For the purpose of preparing a deed of company arrangement, the administrators sought directions from the Court as to whether payment by the company of the legal costs of the claimants, as ordered by a Court or agreed by way of compromise, would have priority under the deed of company arrangement. 30 Goldberg J, after referring to CA s.444D(1), the decision in Brash (supra) and CA s.553(1), held at 267 that employees and their dependents who had claims against the company arising out of workplace events which occurred prior to the commencement of the administration would have a "present claim sounding in damages for the amount of the injury compensation claimed, and a contingent claim for the legal costs and expenses incurred in pursuing that injury compensation up to the date of the commencement of the administration. They will not have a claim under the deed for the legal costs and expenses incurred after the commencement of the administration" . 31 At p.267, paras 39ff, his Honour said: "However, the claim for the legal costs and expenses incurred before the date of the commencement of the administration will be a contingent claim. It will be contingent because the liability to pay legal costs and expenses incurred in prosecuting that claim for injury compensation, which depends upon the administrator giving leave to commence or continue the proceedings and the making of a court order, or an agreement, for the payment of those legal costs and expenses in due course. [sic]

[34]

Although the liability to pay costs arising out of a court order arises separately from the liability to pay injury compensation, the costs order is an incident of the claim for injury compensation. It follows that any claim for legal costs and expenses incurred in prosecuting a claim for injury compensation prior to the date of the commencement of the administration is admissible to proof as a contingent claim because of its association and connection with the primary claim for injury compensation, even though there has not been any costs order obtained, or agreement reached, for the payment of those legal costs and expenses prior to the commencement of the administration." 32 It might be thought that, although founded upon the same line of authority, the conclusions of Young J and Goldberg J differ as to whether a claim for legal costs is, prior to the making of a costs order, a contingent claim for the purposes of a proof in a winding up or under a deed of company arrangement. 33 In my opinion, for the purposes of considering whether claims for costs of litigation fall within s.444D(1) CA one must distinguish between a claim against a company to wind it up in insolvency and a claim against it for damages or other relief against wrongdoing. In the latter case, if the company has committed a wrong prior to the commencement of the winding up or the deed of company arrangement then in the eyes of the law it has already incurred a liability, although a Court would have to adjudicate the case to establish that liability. Thus, s.553(1) admits to proof in a winding up a claim for damages arising from a wrong committed by the company prior to the commencement of the winding up. If the company denies liability for that wrong so that it puts the claimant to the cost of establishing his or her case, the company will normally have to pay the successful claimant's assessed costs. However, I think it is stretching somewhat the accepted concept of a contingent liability to say that, from the moment that the company puts the ultimately successful claimant to proof of his or her case, the company is under an existing obligation to pay the claimant's legal costs. While the "association and connection" between the claimant's substantive claim and the costs of establishing that claim certainly exist, as Goldberg J said in Pasminco , the substantive claim depends upon the existence of a legal right while the award of costs is always in the discretion of the Court, even though the way in which the discretion will be exercised will be fairly predictable in most cases. 34 It is not necessary for the purposes of this case to explore further the nature of a costs claim against a company arising incidentally to a claim for damages or other relief against wrongdoing. It is sufficient to say that the nature of the right sought to be invoked by a plaintiff bringing such a claim is of an entirely different character from the nature of the right sought to be invoked in an application to wind up for insolvency. The former type of claim depends upon the company's wrongdoing; the latter type of claim depends upon the company's financial status. A company which becomes insolvent does not, by that circumstance alone, commit a legal wrong against anyone. 35 That an application to wind up in insolvency is in a category different from all other claims against a company is expressly recognised by s.466(1) and (2) and s.556(1)(b), the combined effect of which is that the company's obligation to pay the costs of an application seeking to wind it up in insolvency does not exist unless and until a winding up order is made; however once the order is made, the applicant's costs are to be reimbursed in priority to all other claims against the company save for the costs of getting in its assets and carrying on its business. Accordingly, even if it could be said that a claim against a company based on wrongdoing gives rise simultaneously to a contingent claim for the costs of proving the claim, s.466(1) CA renders that proposition inapplicable to a claim for winding up in insolvency. 36 For these reasons, I would distinguish the decision in Pasminco for the purposes of the present case and I would follow the decision of Young J in Philkor . 37 Finally, I do not think that as at 7 June 2003 Expile can be said to have had a "future claim" for its costs. A future claim is distinguishable from a contingent claim in that, while both are founded on an obligation existing as at the commencement of the winding up or the deed of company arrangement, a future claim will arise at some time thereafter while a contingent claim may arise. A typical example of a future claim is a claim for rent which will become due in the future under a lease which is in existence at the commencement of the winding up: see Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (Administrator Appointed) (1996) 19 ACSR 160, at 167ff; cf. Silbermann v One.Tel Ltd (In liq) (2002) 167 FLR 274, at 279. For the reasons which I have given in relation to "contingent claim", as at 7 June 2003 the possibility that a winding up order would be made in the future and that s.466 would have the effect of making Jabb's liable to Expile for its costs of that application did not give rise to a future claim within the meaning of s.553(1). 38 It follows that I am satisfied that Mr Epstein rightly conceded that Expile's claim for costs in the winding up and in the appeal was not provable under the Deed.

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44 I am satisfied that the Deed should be terminated under s.445D(1)(g) because its invocation of the provisions of Part 5.3A operates to deprive Expile of the priority in respect of its costs of the winding up application which it would otherwise have received under s.466(2) and s.556(1)(b): in my opinion, it is contrary to the policy of the Corporations Act to permit a deed of company arrangement to operate in that way. Further, if the Deed stands there is no way in which Expile can retain priority for its costs. Other creditors of Jabb's will benefit by the destruction of Expile's statutory right. For this reason, the continuation of the Deed is oppressive and unfairly prejudicial to Expile as a creditor, within the meaning of s.445D(1)(f)(i). My reasons are as follows. 45 The authorities discussed below establish, in my opinion, that where a creditor would have a particular priority under the Corporations Act or other legislation if a company were to be wound up in insolvency, the Court, as a general rule, does not approve or permit any other regime of distribution of the company's assets which would disturb that priority. Essentially, this is so because the legislature has indicated, in the statutory priorities for distribution in a winding up, which claims should be preferred where there is insufficient for all creditors to be satisfied. 46 In Re V & M Diagnostic Services Pty Ltd (1985) 9 ACLR 663, a company sought approval for a scheme of arrangement under s.315(b) of the Companies (NSW) Code . A debt owing to the Commissioner for Payroll Tax would have had priority under s.441 of the Code if the company had been wound up but the scheme of arrangement treated the debt pari passu with other unsecured debts. Cohen J approved the scheme only upon the basis that it would be amended to provide for the retention of the Commissioner's priority. His Honour said at 668: "Should the court, when asked to approve an arrangement with the creditors of an insolvent company which takes the place of a winding up, require as a condition of that approval that the policy of priorities be applied in the same way as it would in that winding up? My view is that in general the court should so require. There may well be cases where that requirement need not be made, and it would be a fetter on the court's discretion to suggest that this should be an invariable rule.

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The principle which has been established by statute, has been intended for situations where, in simple terms, there is not enough to go around for everyone who is entitled. Some are to be preferred to others. There seems little basis to alter that principle because the distribution of whatever is available is to be made by a manager or administrator under a scheme rather than by a liquidator under a winding up." 47 This passage was expressly adopted and followed in Re Sessions Video Distributors Pty Ltd (1993) 10 ACSR 421, at 426, a case in which a scheme of arrangement sought to displace the priority on winding up of the Deputy Commissioner of Taxation under s.221P Income Tax Assessment Act 1936 (Cth). V & M Diagnostic Services and Re Sessions Video were followed by Brownie J in Deputy Commissioner of Taxation v Winterburn Trading Pty Ltd (1993) 27 ATR 189, in which his Honour refused to approve an extension of time for the execution of a deed of arrangement which did not give the Commissioner the same priority as he would have had under s.221P Income Tax Assessment Act if the company had been wound up. 48 In Federal Commissioner of Taxation v B & G Plant Hire Pty Ltd (1994) 52 FCR 257, a company had entered into a deed of company arrangement under Part 5.3A Corporations Law (now Part 5.3A Corporations Act ). The Deed did not give to the Commissioner the priority which he had under s.221P Income Tax Assessment Act . Gummow J held that the provisions of Part 5.3A did not derogate from the priority which the Commissioner had under s.221P. As the administrators would be bound to distribute the assets, not in accordance with the priority specified in the Deed, but in accordance with the priority given by s.221P, his Honour considered that the Deed should be terminated under s.445D(1)(g) lest its continuation produce deception or confusion. This reasoning was adopted and followed by Davies J in Federal Commissioner of Taxation v All Suburbs Car Repairs Pty Ltd (1994) 14 ACSR 753 at 757ff. 49 In FAI Workers' Compensation (NSW) v Philkor Builders Pty Ltd (No 2) (1996) 21 ACSR 532, a further hearing of the case referred to in paragraph 27, Young J was presented with the position that no variation to the deed of company arrangement would be made so as to give priority to the creditor who had made the winding up application and had obtained a costs order in its favour. His Honour had held that the costs order was not a debt provable under the deed of company arrangement. His Honour said at 534: "Thus there is now an order for costs against the company which is not borne by the creditors in administration. Commercially, this probably means that a fresh summons to wind the company up will be lodged by the respondent. Thus, unless the persons who financially bailed out the company for the deed to take effect put in further monies, or someone else does so, the company may well have to be wound up. I have no regrets about this possible outcome because it must be made quite clear that it is not an available option to companies to put their creditors through the large expense of taking winding up proceedings, and then at the last moment, entering into administration without making any provision for the costs of the winding up proceedings." 50 In Coventry Auto Parts Pty Ltd v Tony Michael Mechanical Pty Ltd (under administration) [2003] QSC 141, a creditor had filed an application to wind up the company in insolvency. Shortly before the application came on for hearing, the creditor's debt was paid but another creditor was substituted and the application was adjourned. Early on the day of the adjourned hearing the company appointed administrators and the winding up application was further adjourned. A creditors' meeting resolved that a deed of company arrangement be executed but when the winding up application next came before the Court the deed had not yet been executed. The draft deed did not provide priority for the substituted creditor's costs of the winding up application and the creditor sought an order under CA s.447A or s.447E that the deed, when executed, must make such provision. 51 It was clear that a costs order would be made in favour of the substituted creditor under s.467 if the winding up application were dismissed consequent upon a deed of company arrangement being entered into. However, the costs order would be made subsequent to the commencement of the administration and, therefore, after the commencement date of the deed. Following the decision in Philkor , Fryberg J held (at para 10) that the costs order would not be provable under the deed of company arrangement and would not be caught by s.444D(1) or s.444E. However, his Honour held that the Court had power under s.447A to order that the deed to be entered into must specify that the costs order which he proposed to make in favour of the substituted creditor upon dismissal of the winding up application be paid in priority to all other creditors' claims. 52 These decisions demonstrate that the Courts do not permit deeds of company arrangement to be used as a means of frustrating the priority given by s.556(1)(b) to costs of a winding up application. Whether this was the actual intention of Jabb's in appointing an administrator and proposing a deed of company arrangement when it became clear that Expile's appeal would succeed does not matter - the course of action which Jabb's took has had the effect of denying to Expile priority under s.556(1)(b) in any winding up of the company. 53 The Court always retains a discretion under s.445D(1) whether or not to terminate a deed of company arrangement even if it is satisfied of any of the matters referred to in paragraphs (a) to (g). The discretion is a wide one and the factors which weigh in its exercise include the interests of the creditors as a whole and the public interest: Emanuele v Australian Securities Commission (1995) 63 FCR 54, at 69C; Deputy Commissioner of Taxation v. Portinex Pty Ltd (2000) 34 ACSR 391, at 414. In the present case, none of the considerations advanced by Mr Forster have led me to conclude that the discretion should be exercised against making a termination order. I shall briefly state my reasons. 54 Both parties accept that if the Deed is terminated, it follows that Jabb's will be wound up. Mr Forster says that if the Deed is terminated the creditors will receive about three cents in the dollar in a liquidation, but if it is allowed to stand all creditors, including Expile in respect of its original debt, will get twenty cents in the dollar and Expile can still take proceedings to recover its costs order. 55 If in a winding up Expile is paid most of its costs in accordance with s.556(1)(b) and, in common with other creditors, receives little if any distribution in respect of its pari passu ranking debt then that is a consequence that flows from the statutory priority conferred by s.556(1)(b) and the exercise by Expile of its right to pursue its claim for a winding up order after Jabb's had failed to make out a defence of solvency. 56 That the costs of the successful applicant for the winding up of a company are given second priority under s.556(1)(b) in the insolvent administration reflects a well established policy of the law that it is in the public interest that insolvent companies be wound up rather than be permitted to trade: see e.g. Re Data Homes Pty Ltd (in liq) [1972] 2 NSWLR 22, at 26. Consistently with that policy, creditors are to be encouraged, rather than discouraged, to undertake the financial burden of proceedings to wind up a company which is insolvent by the consideration that in the winding up the costs of their application will receive high priority for payment. That is not regarded as unfair to other creditors because the applicant creditor is seen as seeking the winding up order, not for his or her exclusive benefit, but for the benefit of the class of creditors of which he or she is a member: In re Crigglestone Coal Company [1906] 2 Ch 327, at 331-2. It is right, therefore, that those who benefit from the financial risk undertaken by one of their number cede priority to the risk-taker for its costs of the risk-taking. 57 The inducement to risk-taking for the general good of creditors held out by s.556(1)(b) is not lightly to be taken away or weakened. As a general rule, therefore, creditors should not be heard to say that a deed of company arrangement should stand simply because its effect will be to deprive a successful applicant for winding up of its costs priority, thereby giving them more than they would receive in a liquidation. 58 For this reason, I do not think that the first consideration urged by Mr Forster should carry determinative weight in the exercise of discretion. 59 Further, and just as importantly in the present case, there is no way of knowing that in a winding up of Jabb's, creditors will receive no more than the three cents in the dollar which Mr Ngan estimated in his report to creditors dated 30 July 2003. Jabb's has been trading under the control of its directors since the commencement of the Deed. There is no evidence as to its present overall financial position. Some evidence from a major creditor, ESANDA, suggests that by and large Jabb's is paying its debts as they fall due, although it has a credit rating indicating that it is "fairly likely to default" . It may be that if the company is wound up, there will be more available for creditors than was available eight months ago - one does not know but it should not be presumed that if the winding up order is now made the position of creditors generally will be worse than it was in August last year. 60 Next, if there are financial resources available to pay Expile's costs order either within Jabb's or from persons associated with it, as Mr Forster suggests, it is unfortunate that they have not already been made available to cure the problem which this case has thrown up. The problem was highlighted by Campbell J in the judgment to which I have referred in paragraph 2. In that judgment, delivered on 24 July 2003, his Honour allowed a further adjournment of the winding up application under s.440A in order to enable Jabb's creditors to consider a proposed Deed. His Honour drew attention to the fact that the proposed deed of company arrangement did not give Expile priority for the costs of the winding up application. His Honour said: "There is provision whereby the court can terminate a deed of company arrangement if it is oppressive or unfairly prejudicial to or unfairly discriminatory against one or more creditors, or if the deed should be terminated for some other reason: s 445D(1)(f) and (g). It may be that there would be grounds for terminating a deed which did not retain for Expile the priority it would have had if there had been a winding up by the court. When I say 'may be', I am not intending to express a view, merely to recognise a possible argument.

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At present the creditors are in a situation where there would be the uncertainty posed by the existence of this argument, if there were to be a deed of company arrangement which did not give Expile the priority it would have had under s 556(1)(b) had the company been wound up. In this way the situation concerning the costs of the litigation is something which, while it clearly most directly concerns Expile, also has an effect on the other creditors. At present the creditors have not received any recommendations from the administrator about the appropriate way of dealing with this source of possible uncertainty." 61 Jabb's was, therefore, on notice that there was a risk that the Deed would be terminated if it did not give Expile priority for its costs of the winding up. The remarks of Campbell J were drawn to the attention of creditors in Mr Ngan's report dated 30 July 2003. Mr Ngan advised that the effect of granting priority under the proposed Deed for Expile's legal costs would mean that the proposed dividend to unsecured creditors might be reduced to approximately twelve cents in the dollar. Mr Ngan said: "I consider the granting of such priority to ultimately be determined by those propounding the Deed of Company Arrangement, that is the Company's directors, and the general body of creditors in general meeting convened pursuant to Section 439A of the Corporations Act." 62 Doubtless, everyone at that time thought that the costs order would be subject to the Deed; no one was conscious of the point which Mr Epstein raised on the last day of the trial and of its consequence, that is, that if the Deed were allowed to stand, Expile's costs order would be a debt which could found a second application to wind up Jabb's but would have no priority under s.556(1)(b) in that winding up. 63 Nevertheless, the fact remains that Jabb's could have made provision in the Deed for Expile's costs, as was done in Coventry Auto Parts , so that Expile's prospective rights under s.556(1)(b) would have been satisfied and the present problem would not have arisen. It chose not to do so; it cannot be heard to complain if the consequences are not as it hoped. 64 I should say in conclusion on this issue that I am not persuaded that allowing the Deed to stand would necessarily have been inconsistent with the costs order made by the Court of Appeal, i.e., that Expile's costs be paid out of Jabb's assets. The Court of Appeal did not say that the costs had to be paid out of any fund provided for the purpose of a deed of company arrangement or in any particular order of priority. In any event, as the costs order could not give rise to a debt provable under the Deed, the only means of payment was out of Jabb's assets. If the Deed were allowed to stand, Jabb's would continue trading and, presumably, would have assets either to meet a statutory demand for the costs order or else to go towards satisfaction of the debt on a winding up. 65 Although I have concluded that the Deed should be terminated, for the sake of completeness I will deal briefly with the other major complaints made by Expile about the Deed as they involve findings of fact.

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66 Expile says that Mr Ngan's two reports to creditors pursuant to s.439A(4)(a) dated 25 June 2003 and 30 July 2003 omitted information which can reasonably be expected to have been material to the creditors in deciding to approve the Deed, so that the Deed should be terminated under s.445D(1)(c). Expile says that the report should have provided "comprehensive information as to the possibility of the existence of voidable transactions" . 67 In his report dated 25 June 2003 ("the First Report") Mr Ngan gave a brief explanation of the powers of a liquidator under Part 5.7B Corporations Act to recover for the benefit of creditors property which was the subject of transactions which are void as against the liquidator. A fuller explanation of voidable transactions and their consequences is given in the report of 30 July 2003 ("the Second Report"). Mr Epstein says that a full explanation of the legal principles applicable to the prosecution and defence of alleged voidable transactions should have been given. I do not agree. 68 It may safely be assumed that most creditors of a small scale excavation business such as Jabb's carried on would neither understand nor appreciate a dissertation on the law of voidable transactions. They would want to know simply whether or not it was likely, in the administrator's opinion, that a liquidator could recover more for distribution to creditors than if a deed of company arrangement were executed. 69 The First Report states at p.13 that Mr Ngan has investigated the existence of voidable transactions. It then gives a brief description of unfair preferences and continues: "My initial investigations of the Company's records, based on the limited books and records available, do not reveal any unfair preference transactions. Further investigation into possible voidable transactions will continue once all the books and records are received." 70 Next, the First Report refers to "Uncommercial Transactions and Voidable Transactions" and says: "As I am not in possession of all the records of the Company I cannot fully advise creditors as to those transactions. At present my investigations indicates there are no transaction which are prima facie an uncommercial transaction or voidable transaction. Further investigation into possible uncommercial transactions and voidable transactions will be made once the balance of the Company's books and records are received." 71 In the Second Report Mr Ngan advises that he has received additional books and records of Jabb's but concludes that they may not be fully reliable. As to "Unfair Preferences" , Mr Ngan says: "My further investigations of the Company's records, based on the additional books and records available since my last report to creditors, do not reveal any unfair preference transactions either for the six months prior to 14 March 2002 or for the six months prior to 6 June 2003. I have investigated possible insolvent transactions from both relation-back days assuming that the Company may have been insolvent at that time."

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77 Expile's Further Amended Statement of Claim alleges, in essence, that Mr Ngan made no independent enquiries to verify the indebtedness of persons claiming to be creditors before admitting them to vote at the creditors' meetings convened to consider the Deed; rather, Expile alleges, Mr Ngan relied upon photocopy invoices and statements provided to him by the directors. In the course of the trial, the complaint focussed on a numbers of creditors identified in a schedule to the Statement of Claim. 78 In the course of cross examining Mr Ngan and in his submissions, Mr Epstein endeavoured to suggest that such enquiries as were made by Mr Ngan were not adequate or were not reasonable. There also seemed to be a suggestion that some of the creditors admitted to vote were not creditors at all. Mr Forster correctly pointed out that failure to make adequate or reasonable enquiries and the admission to vote of persons who were not in fact creditors had not been pleaded by Expile. He submitted that no departure from the pleadings should be allowed. Mr Epstein did not seek leave to amend the Further Amended Statement of Claim. I will, accordingly, deal with the issues as to Mr Ngan's enquiries as they arise on the pleadings. 79 In his affidavit of 2 March 2004, Mr Ngan gave evidence of the enquiries which he had made and the investigations into the company's records which he had conducted in order to ascertain the identity of creditors and the quantum of their claims. In the first instance, he received a list of creditors from Jabb's office manager. From that list, his staff prepared a list of potential creditors, which formed part of the first circular sent to all creditors appearing on the list. Further information was provided by Jabb's office manager as to secured creditors and employee creditors. Mr Ngan attended the offices of Jabb's on at least six occasions. He examined the company's files to establish whether the amounts indicated on the creditors' list were supported by invoices and dockets. Certain of the company's files were produced at the hearing on a Notice to Produce issued by Expile. Their contents supported the claims of the relevant creditors. 80 It is not necessary to recount all of the evidence in Mr Ngan's affidavit of 2 March 2004 as to the steps which he took to ascertain the creditors and the amount owed to them. It is enough to say that I accept that evidence without reservation. In my opinion, the allegation that Mr Ngan made no enquiries to vouch the creditors of the company is without foundation in fact. 81 Expile complains that Mr Ngan relied upon information supplied to him by the company's directors and officers. I do not find that circumstance to be a legitimate matter of complaint. Mr Ngan could not reasonably have been required to ignore information about the company's affairs provided by those best able to give it to him. There is no evidence which could reasonably lead to the conclusion that Mr Ngan accepted on blind trust whatever he was told by Jabb's officers and did not bring an independent mind to his investigations.

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(3) A decision by the chairperson to admit or reject a proof of debt or claim for the purposes of voting may be appealed against to the Court within 14 days after the decision." 85 Expile's contention that the supporting creditors were invalidly permitted to vote at the creditors' meeting on 8 August 2003 depends on the proposition that Regulation 5.6.26(1), in combination with Regulation 5.6.23(1), produces the result that no creditor may vote at a creditors' meeting unless he or she has lodged with the chairperson particulars of the debt or claim or a formal proof, in accordance with Regulation 5.6.23(1)(b) and the chairperson has admitted the proof in accordance with Regulation 5.6.26(1). I do not think that this construction of the Regulations is correct. 86 There are two portals through which creditors may enter to vote at creditors' meetings convened under Part 5.3A. The first is that provided by Regulation 5.6.23(1)(a), i.e., the claim or debt has been admitted wholly or in part by the liquidator or administrator. The second portal is that provided by Regulation 5.6.23(1)(b), i.e., particulars or proofs of the claims have been lodged with the chairperson or a person nominated in the notice convening the meeting and admitted under Regulation 5.6.26(1). The two portals are true alternatives, as is made plain by the conjunction "or" . 87 Entry through the first portal will normally, but not necessarily, have been granted by the liquidator or administrator prior to the holding of the creditors' meeting. Entry through the second portal will usually be granted in the process of holding the meeting and it will be granted by the chairperson of the meeting, who will not necessarily be the liquidator or administrator since, under Regulation 5.6.17(1), a liquidator or administrator may nominate another person to chair the meeting. 88 Regulation 5.6.26(1) is concerned with empowering the chairperson of the meeting, who may not be the liquidator or the administrator, to admit or reject proofs which seek to enter through the second portal. It is not concerned with empowering entry through the first portal because that entry is granted by the liquidator or administrator who has the requisite power under Regulation 5.6.23(1)(a). 89 Regulation 5.6.26(2) is concerned only with the chairperson's power to grant qualified entry through the second portal. It is not concerned with entry through the first portal because proofs or claims admitted through the first portal will already have been admitted without qualification by the liquidator or administrator. 90 Likewise, Regulation 5.6.26(3) is concerned only with an appeal from a chairperson's decision as to entry through the second portal. A decision concerning entry through the first portal made by a liquidator or administrator is subject to appeal under s.447E(1)(b) or under s.1321. 91 In his affidavit of 2 March 2004, Mr Ngan describes the steps which he took as administrator to satisfy himself from the books and records of Jabb's, from various invoices and statements received from the creditors, and from his own enquiries, as to the debts of persons or companies claiming to be creditors. He says that as at 8 August 2003, the date of the creditors' meeting, he was satisfied that the creditors shown on the list of creditors prepared under his supervision were creditors for the purpose of voting, with the exception of one purported creditor, Lads Constructions. Mr Ngan says that he admitted those debts as administrator in accordance with Regulation 5.6.23(1)(a). That evidence was not seriously challenged in cross examination and I accept it without reservation. 92 As to the debt of $100,000 claimed by Kairouz Constructions Pty Ltd, Mr Ngan describes the enquiries which he made at paragraphs 43 to 49 of his affidavit. He says that he decided to admit the debt as being one owed to Kairouz Constructions rather than to Lads Constructions. I accept that evidence. 93 It is clear that the decisions made by Mr Ngan to admit creditors to vote at the creditors' meeting were made as a result of the enquiries which he had carried out as administrator, and were made by him as administrator under Regulation 5.6.23(1)(a), not as chairperson of the creditors' meeting under Regulation 5.6.23(1)(b). The sole exception was his decision as chairman of the meeting to admit Expile only in respect of the amount claimed in its statutory demand. That decision was the result of discussion with Expile's representatives at the meeting and was announced, and recorded in the minutes of the meeting, as a determination of the chairman. 94 In my view, the admissions of creditors to vote of which Expile complains were valid. The admissions were not made through the second portal provided by Regulation 5.6.23(1)(b), so that no particulars or proofs of debt had to be provided to Mr Ngan as chairman of the meeting, even though many of the creditors did provide proofs. Rather, the admissions were made through the first portal provided by Regulation 5.6.23(1)(a) and they were the result of the enquiries made by Mr Ngan as administrator. 95 I need deal only briefly with the last submission of Expile, that is, that the debts of the supporting creditors were not, in fact, admitted to vote because the administrator did not orally or in writing announce that he had admitted them. 96 In my opinion, whether or not a proof of debt has been admitted to vote, either under Regulation 5.6.23(1)(a) or (b) is a question of fact. Proof of that fact is not confined to the production of a document in any particular form or to the oral recitation by the administrator or liquidator of some formula of words. The fact of admission of creditors to vote will often be proved by a combination of documents and actions, for example, the recording by the administrator or liquidator of the identities of creditors and the amounts which they claim coupled with the counting of votes at the meeting by such creditors, either upon a show of hands or pursuant to a poll. In the present case, the fact of admission of creditors' claims to vote at the meeting is proved in that way. 97 For these reasons, were the Deed not to be terminated for the reasons previously stated, I would have refused the relief sought in paragraphs 7 and 8 of the prayers for relief in Expile's Amended Statement of Claim.