Glenfyne International Holding Limited v Glenfyne Farms International AU Pty Ltd

The Chairperson advised that as a result was not reached on a poll he may use his power as Chairperson to exercise a casting vote. The Chairperson advised that the ARITA Code of Professional Practice recommended that a Chairperson should proceed to exercise the casting vote to resolve the deadlock, unless there is some good reason to refrain from doing so. The Chairperson exercised his casting vote against the resolution and advised that the resolution did not pass. The Chairperson explained his reasons for exercising the casting vote against the resolution as; • The third party unrelated creditors, being Strategic Wealth Management Pty Ltd and Crilly Lawyers Pty Ltd have both voted against the resolution; and • Neither Kam Wai Tai nor Glenfyne International Holding Limited have lodged a proof of debt in the Administration of the Company. They have advised through their lawyer that they are not in a position to complete formal proofs of debt as they do not have sufficient visibility as to how the funds they contributed were applied. I have admitted them for voting purposes for the amounts recorded in the RATA [Report As To Affairs] but from their own advisor they are uncertain how much they are owed, in the circumstances I cannot be certain of the amounts owed."

1. It may be noted at this point, as was also indicated at [3] above, that the reason why Mr Gladman, as the person presiding at the meeting of creditors, had a casting vote is to be found in s 75-115 of the IPR, of which sub-sections (1)-(3) relevantly provide: "When a resolution is passed at a meeting of creditors after a poll is demanded (1) A resolution is passed at a meeting of creditors of a company if: (a) a majority of the creditors voting (whether in person, by proxy or by attorney) vote in favour of the resolution; and (b) a majority in value of the creditors voting (whether in person, by proxy or by attorney) vote in favour of the resolution. (2) A resolution is not passed at a meeting of creditors of a company if: (a) a majority of the creditors voting (whether in person, by proxy or by attorney) vote against the resolution; and (b) a majority in value of the creditors voting (whether in person, by proxy or by attorney) vote against the resolution. (3) Subject to subsection (7), if no result is reached under subsection (1) or (2) and the resolution does not relate to the remuneration or the removal of the external administrator of the company: (a) the person presiding at the meeting may exercise a casting vote in favour of the resolution, in which case the resolution is passed; or (b) the person presiding at the meeting may exercise a casting vote against the resolution, in which case the resolution is not passed; or (c) if the person presiding at the meeting does not exercise a casting vote, the resolution is not passed." Sub-section (7) had no relevance in the present case.
2. The consequence of the Resolution not having been passed, and the Company having been placed into liquidation, was that Mr Gladman was taken to have been appointed as liquidator at the end of the meeting: s 499(2A)(b) of the Corporations Act.
3. As noted at [5] above, about six weeks after the second creditors' meeting, the two sets of proceedings from which these appeals have been brought were commenced. The primary judge noted that, on 11 January 2019, Mr and Mrs Flynn's solicitor wrote to Mr Tai's solicitor proposing to resolve the proceedings by appointing an independent liquidator to ensure that there was no perceived or actual bias.
4. On 21 January 2019, however, this proposal was rejected by Mr Tai's solicitor on his behalf.

The primary judgment

1. The primary judge began her analysis by setting out s 75-43 of the Insolvency Practice Schedule, which was identified in the originating process as the source of the Court's power to make the order sought. Sub-sections (1)-(4) relevantly provide: "Proposed creditors' resolution not passed because of casting vote - Court's powers Application of this section (1) This section applies if: (a) a resolution is not passed at a meeting of creditors of a company under external administration; and (b) the resolution is not passed because the person presiding at the meeting exercises a casting vote, or refuses or fails to exercise such a vote. Application to the Court … (3) A person … may apply to the Court for an order under subsection (4), but only if: (a) the person voted for the proposed resolution in some capacity (even if the person voted against the proposed resolution in another capacity); or (b) a person voted for the proposed resolution on the first-mentioned person's behalf. Court may make orders (4) On application under subsection (2) or (3), the Court may: (a) order that the proposed resolution is taken to have been passed at the meeting; and (b) if it does so--make such further orders, and give such directions, as it thinks fit." (emphasis added).
2. At [39] of her reasons, the primary judge observed that, before making an order under s 75-43 of the Insolvency Practice Schedule, the requirements of subs (1) and (3) must be satisfied. Her Honour then made reference to s 75-115 of the IPR, setting out sub-sections (1) and (2) (which have already been reproduced at [38] above) and sub-section (5), which is in the following terms: "If no result is reached under subsection (1) or (2) and the resolution relates to the removal of the external administrator of the company: (a) the external administrator may exercise a casting vote in favour of the resolution, in which case the resolution is passed; or (b) if paragraph (a) does not apply - the resolution is not passed." (emphasis added).
3. The primary judge then said (at [40]) that: "It can be seen from the above that the administrator may exercise a casting vote in favour of the resolution removing him or her, or abstain from voting, but is not entitled to exercise a casting vote against the resolution. As such, Mr Gladman was not entitled to exercise a casting vote against the resolution proposed by Mr Tai and the resolution simply was not passed. Consequently, the application which is before the Court, relying on section 75-43 of the Insolvency Practice Schedule (Corporations), is ill-founded as sub-section (1)(b) is not satisfied." (emphasis in original).
4. Importantly for present purposes, her Honour indicated (at [41]) that she would not have been minded to grant the relief sought in any event. Her reasons for not doing so were outlined at [42]-[48] as follows: "First, Mr Tai is concerned that Mr Gladman did not send the notice of his appointment to Mr Tai in Hong Kong by means other than post, or to his Australian solicitors. Mr Gladman cannot be blamed for this, it seems to me, as he simply acted on the basis of inadequate information he was given by Mr Flynn. Second, Mr Tai criticises Mr Gladman's report to creditors as apparently showing a serious lack of critical analysis. I do not think Mr Tai's criticisms are a fair assessment of Mr Gladman's report, which seems to have identified each of the transactions about which Mr Tai is concerned and expressed an intention to investigate them. Third, Mr Tai considered Mr Gladman's reasons for exercising his casting vote to be unreasonable and to show a lack of judgement in circumstances where Mr Gladman was aware that Mr Crilly and Mr Moustacas were holding themselves as creditors in order to advance the position of their client, Mr Flynn. As I have already said, Mr Crilly and Mr Moustacas were not obliged to sell their debts to Mr Tai, nor can criticism be made of Mr Gladman as a consequence of their refusal to do so. Fourth, unlike Iris Diversified Property and Brisconnections Management Company Ltd v Burness [2009] FCA 626; (2009) 72 ACSR 233, none of the creditors are "truly independent". Both profess an interest in investigating the affairs of the company. Fifth, Mr Tai says that it may be necessary for the liquidator to investigate Mr Moustacas, including at a public examination. Mr Tai does not consider it appropriate for any such investigation to be carried out by a liquidator who obtained the liquidation role by way of referral from Mr Moustacas. Whilst I doubt that Mr Gladman is so faint-hearted, he is on notice that Mr Tai expects Mr Gladman to fully discharge his obligations as a liquidator. Sixth, and probably most significant, Mr Tai does not have confidence in Mr Gladman and wants Mr Flynn's conduct to be investigated by a person other than Mr Gladman, who was appointed by Mr Flynn. Mr Tai has offered to provide $40,000 of initial funding for such investigations, if and only if the liquidators are replaced. The availability of funding for the liquidator is a relevant, but not determinative, consideration. It has to be balanced against the work which has already been done by the current liquidator. As Black J said in In the matter of ACN 151 726 224 Pty Ltd (in liq) previously Ridley Capital Holdings Pty Ltd [2016] NSWSC 1801 at [44]: '… It also does not follow that, even if the Court might be prepared to appoint a special-purpose liquidator, because of the view as to funding taken by a particular creditor, whether reasonably or unreasonably, it should remove an existing liquidator simply because a particular creditor, for whatever reason, will not fund work by that liquidator.' The amount of funding offered does not seem to me to do any more than enable the new liquidators to effectively replicate the work of the current liquidator, but probably not materially advance the liquidation overall. Those funds, it seems to me, would be better directed to funding the current liquidator to advance the work already commenced. Mr Gladman appears to me to be ready, willing and able to undertake the necessary investigations and has already conducted preliminary work to enable him to do so in a cost-effective manner."
5. The primary judge also referred to the appellants' alternative argument for the appointment of their preferred liquidators, namely pursuant to s 90-15 of the Insolvency Practice Schedule, sub-section (1) of which simply provides that the "Court may make such orders as it thinks fit in relation to the external administration of a company". Her Honour noted that sub-section (4) of s 90-15 sets out certain matters that may be taken into account before making such an order and concluded, at [52], that: "These considerations, albeit not exclusive, suggest that there should be some failure on the part of the liquidator to attend to their duties before an order is made under section 90-15. This is confirmed by subsection (5), which empowers the Court to make orders that an external administrator be personally liable for the costs of an application for such an order and, in subsection (6), the power to order that an external administrator is personally liable to make good losses caused to the company. However, I note that Black J did not approach section 90-15 as so confined in In the matter of Manband Pty Limited (in liquidation) (subject to Deed of Company Arrangement) [2018] NSWSC 1282, where his Honour made an order under section 90-15 to terminate a member's voluntary winding up."
6. The primary judge declined to make an order under s 90-15 of the Insolvency Practice Schedule, although to what extent this was because of the construction of the section that her Honour appeared to favour, coupled with an absence of any failure on the part of Mr Gladman in the performance of his duties as administrator, was not completely clear. It must be assumed that her Honour's decision was influenced by the construction she placed on s 90-15. As shall be seen, that construction is the subject of the second ground of appeal.

Appellant's submissions

1. Three grounds of appeal were pressed in argument.
2. The first ground was that: "The primary judge incorrectly found that section 75-115 of the Insolvency Practice Rules (Corporations) 2016 prevented the Second Respondent from exercising his casting vote against the resolution the subject of the proceedings (the Resolution), and that in such circumstances the Court's had no power to make an order in relation to the Resolution pursuant to section 75-43 of the Insolvency Practice Schedule (Corporations) in Schedule 2 of the Corporations Act 2001 (Cth)."
3. In my opinion, this ground should succeed.
4. The error in her Honour's conclusion is contained in [40] of the judgment, reproduced at [44] above. In that paragraph, her Honour stated that whilst s 75-115(5) of the IPR authorised a vote in favour of a resolution, it did not authorise an external administrator to vote against a resolution, such that the unsuccessful resolution could not be said to have failed within the meaning of s 75-43(1)(b) of the Insolvency Practice Schedule because the external administrator (as "the person presiding at the meeting" in question) exercised a casting vote against it. Her Honour found that s 75-115(5) of the IPR did not in fact allow such a vote to be cast, with the consequence that s 75-43(4) of the Insolvency Practice Schedule could not be engaged.
5. With respect to her Honour, the difficulty with this argument was that its premise, namely that s 75-115(5) precludes an external administrator voting against a resolution, only applies to resolutions relating to "the removal of the external administrator of a company." The rationale for that restriction is self-evident, but the key point is that the resolution in question and in respect of which the Appellants sought relief was not of that character; rather, it was for the appointment of joint liquidators. Such a resolution was not for the removal of an external administrator.
6. This conclusion is confirmed by the terms of s 435C of the Corporations Act, which establish when the administration of a company begins and, most relevantly for present purposes, ends. Sections 435C(1)(b) and 435C(2)(c) provide that the administration of a company ends, relevantly in this case, on the passage of a resolution of the company's creditors under s 439C(c) that the company be wound up. This resolution was the first of the two resolutions passed at the second creditors' meeting. The effect was that, after the first resolution was passed and before the Resolution was put, the administration of the company had ended. Thus, the unsuccessful Resolution could not have been a resolution which "relate[d] to the removal of the external administrator of the company" within the meaning of s 75-115(5) of the IPR, because the administrator was, by the time it was put, functus officio.
7. Indeed, s 75-115(5) presupposes the existence in office of an administrator. It is important here to observe that the terms of that sub-section are not merely the converse of those in subs (3). Sub-section (3) empowers the "person presiding at the meeting" to exercise a casting vote where the resolution does not relate, relevantly, to the removal of the external administrator of the company. Sub-section (5) takes away the power to exercise a casting vote against such a resolution from the external administrator only. As has been seen, by the time the Resolution was put, Mr Gladman had a casting vote in his ongoing capacity as the person presiding at the meeting, but was no longer the external administrator.
8. The primary judge's, with respect, erroneous conclusion that s 75-115(5) applied in turn had the consequence that her Honour did not have regard to the terms of s 75-115(3) set out at [38] above. It was open to Mr Gladman to have cast his vote as he did, namely against the resolution, pursuant to s 75-115(3)(b), and the fact that he did so in the way that he did engaged s 75-43 of the Insolvency Practice Schedule because the casting vote was the cause of the Resolution not being passed. That is the consequence dictated by s 75-115(3)(b).
9. The premise of the primary judge's reasoning being, with respect, flawed, it did not follow that the application before the Court based on s 75-43 was "ill founded" cf. [40] of her Honour's judgment.
10. The Court was empowered under s 75-43(4)(a) to order that the Resolution be taken to have been passed, because s 75-43(1)(b) was satisfied.
11. The second ground of appeal related to what the primary judge said in relation to the Court's power under s 90-15(1) of the Insolvency Practice Schedule to make "such orders as it thinks fit in relation to the external administration of a company". Her Honour's relevant findings in this regard have been set out at [46] above.
12. Although this ground is strictly unnecessary to decide in view of my conclusion as to the first ground, insofar as the primary judge held at [52] of her judgment that s 90-15 requires some failure on the part of an external administrator to attend to his or her duties in order for the power contained in that sub-section to be engaged, I disagree (although it is no doubt the case that where there has been such a fault or failing, there may be a stronger case for the exercise of the power which s 90-15 vests in the court).
13. In their written submissions, the Appellants referred to Borg v de Vries (Trustee), in the matter of the Bankrupt Estate of David Morton Bertram [2018] FCA 2116 at [24] where White J said: "In contrast with the former s 179(1) [of the Bankruptcy Act 1966 (Cth)], s 90‑15 [of the Insolvency Practice Schedule] does not require a two stage consideration. An applicant seeking the removal of a trustee does not have to establish proper grounds for an inquiry. The power to remove and replace is not made subject to conditions such as proof of error, misfeasance, negligence or other poor conduct by a trustee." (emphasis in original). See also In the matter of Manband Pty Limited (in liquidation) (subject to Deed of Company Arrangement) [2018] NSWSC 1282 which suggests no limitation constrains the broad power given by s 90-15.
14. This construction of s 90-15 is consistent with what was said in Owners of the Ship "Shin Kobe Maru" v Empire Shipping Company Inc (1994) 181 CLR 404 at 421; [1994] HCA 54, namely that "[i]t is quite inappropriate to read provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words". See also FAI General Insurance Co Ltd v Southern Cross Exploration N.L. (1988) 165 CLR 268 at 283-284, 290; [1988] HCA 13; Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 185, 202-203, 205; [1992] HCA 28.

Re-exercise of discretion

1. As I have noted at [45] above, although the primary judge took the view that the occasion for the exercise of her discretion did not arise because s 75-43 of the Insolvency Practice Schedule was not engaged, she nevertheless expressed the view that she "would not have been minded to grant the relief sought."
2. Whilst it is true that her Honour gave some six reasons for her provisional view (see at [45] above), the expression that she "would not have been minded to grant the relief sought" suggests to me that what her Honour was doing fell short of a fully considered and contingent exercise of discretion. No criticism of her Honour should be made in that regard, given that such a consideration was unnecessary in light of her other findings but it follows, in my opinion, that it was not incumbent on the Appellants to establish error on the part of the primary judge in relation to that aspect of her decision cf. Wade v Burns (1966) 115 CLR 537 at 555; [1966] HCA 35.
3. The salient point, for present purposes, is that given the conclusions I have reached with regard to both s 75-43 and s 90-15 of the Insolvency Practice Schedule, it falls to this Court to consider whether or not the Court should order, pursuant to s 75-43(4)(a), that the resolution put on behalf of Glenfyne International at the second creditors' meeting should be "taken to have been passed".
4. The principles governing a review of the casting vote of a presiding member have been considered in a large number of cases. Some of these were collected by Gordon J in Brisconnections Management Company Limited, In the matter of Thames Blund Holdings Pty Ltd (In Liquidation) [2009] FCA 626; (2009) 72 ACSR 233 at [9] in relation to predecessor provisions of s 75-43(4). In that decision, at [6], her Honour usefully reproduced s 21.7.4 of the IPA Code of Professional Practice for Insolvency Practitioners which sets out a number of relevant matters for consideration when exercising a casting vote. At [12] of her decision, Gordon J observed that: "The exercise of the casting vote is most appropriate in circumstances where a creditor with a majority in value (such as the [A]pplicant) has such an overwhelming interest that it is inappropriate to allow a majority in number who do not have the same monetary interest to carry the day. As the case law and the Code makes abundantly clear, there is no presumption in favour of the majority in value. However, where there is large disproportion between the values of the debts of the numerical minority and the numerical majority (as is the position here) it must be a factor to be taken into account."
5. In an earlier decision, Cresvale Far East Ltd (In Liq) v Cresvale Securities Ltd [2001] NSWSC 89; (2001) 37 ACSR 394 at [111]-[113], Austin J made the following observations in relation to the review by a Court of the exercise of a insolvency practitioner's casting vote. His Honour said: "In my opinion, the Court's power under s 600B, to set aside or vary a resolution passed because of the exercise of the casting vote, permits it to review the administrator's reasons for the exercise of the casting vote. The Court need not confine itself to the question whether the administrator has acted honestly as chairman, because it is given a specific statutory power to hear an application to set aside or vary the resolution. As Santow J said in Re Martco Engineering, the Court does not automatically accept the (honest) exercise of the casting vote as an appropriate one. The Court's attitude will 'depend on factors such as whether the administrator has properly exercised the casting vote in the interests of creditors as a whole, such as in circumstances where the vote or votes which prevent one of the two conditions being fulfilled [approved by numerical majority and by value of debts] would represent an outcome unfair to the remaining creditors if not reversed by a casting vote' (at 489). Re Coaleen Pty Ltd (1999) 30 ACSR 200 shows that it is relevant to take into account, as factors, matters such as: • opposition to the proposal by the major creditor, especially when there is a large disproportion between the major debt and other debts; • support of the proposal by the directors where the proposal will deliver some advantage to them; • misleading information in the administrator's report; and • whether creditors who voted in favour of the deed will be prejudiced if the Court sets aside the resolution. Additionally, the Court may be influenced by whether the administrator has made adequate investigations before deciding on the use of the casting vote. Failure by the administrator to carry out sufficient investigations into taxation and other matters, before exercising the casting vote, led Derrington J to set aside a deed of company arrangement under s 447A, in Re Bartlett Research Securities Pty Ltd (1994) 12 ACSR 707. His Honour did not refer to s 600B, but his decision was applied by Moynihan J, in the context of s 600B, in Re Coaleen Pty Ltd."
6. It was also submitted and, in my opinion, correctly so, that: 1. when ascertaining the interests of creditors, it is their interests as creditors that are to be primarily considered, with the views of those who are voting for foreign purposes unrelated to their desire to maximise recovery of their debts to be given reduced regard: Deputy Commissioner of Taxation v Alternative Business Solutions (Aust) Pty Ltd [2006] FCA 400 at [9]; 2. when it comes to deciding who should be the liquidator of a company, the views of those with a vested interest in minimising investigations, such as those involved in or benefiting from transactions likely to be impugned, should be discounted: Haulotte Australia Pty Ltd v All Area Rentals Pty Ltd [2012] FCA 615; (2012) 90 ACSR 177 at [39]; and 3. a director should not to be permitted, through control of a bloc of related creditors, to override the wishes of other creditors in order to minimise scrutiny of their conduct: In the matter of Sales Express Pty Ltd (Administrators Appointed) [2014] NSWSC 460 at [27]-[28].
7. In light of these principles, it was submitted by Mr Rayment, who appeared on behalf of the Appellants, that: 1. the only reason that the Resolution did not pass outright (that is, without requiring any casting vote) was the votes of Mr Moustacas and Mr Crilly, both of whom were closely associated with Mr Flynn, being his professional advisors; 2. both of those creditors were owed minimal sums, and thus had limited financial interests in Glenfyne International's insolvency; 3. given this, and in circumstances where Mr Moustacas and Mr Crilly had both refused payment of their modest debts in full by Mr Tai prior to the meeting (see [35]-[36] above), the only rational inference available was that they were not acting out of a desire to maximise their returns in the insolvency, but for some ulterior purpose, such as to protect the interests of their client, Mr Flynn, and to assist him in blocking passage of the Resolution to appoint liquidators other than Mr Gladman who, unlike him, had no prior relationship with Mr Moustacas or Strategic Wealth Management, who had recommended Mr Gladman's appointment.
8. In this regard, Mr Rayment also referred to the fact that Mr Moustacas had been the Company's accountant during the time when the journal entry referred to at [29] above was made, and about which the primary judge had observed Mr Tai to be "rightly concerned": see [31] above. The submission was that these entries may have raised questions about Mr Moustacas' role in the Company's affairs and that, as any such questions would fall for investigation by the liquidator, it was inappropriate that the liquidator be somebody who had an association (albeit professional) with Mr Moustacas as a result of previous referrals.
9. Pausing there, in my opinion, and without suggesting anything untoward on the part of Mr Moustacas or Mr Gladman, it is tolerably clear that the various matters referred to by Mr Rayment relating to the adjustment of accounts and the reimbursement of business expenses of the partnership would, prima facie, call for the investigation of a liquidator. That investigation may produce perfectly clear explanations as to each of the transactions referred to but, that having been said, I agree with the submission that it would obviously be preferable if those investigations were not carried out by somebody who had a professional history or association with Mr Moustacas.
10. Whilst these considerations are relevant to the question of whether or not there should be a liquidator other than Mr Gladman (who, as has been seen, only became liquidator following the failure of the Resolution at the second creditors' meeting), they are not positive reasons for the appointment of the particular joint liquidators as preferred by Mr Tai and his associated companies. In that context, it is relevant to recall that, as noted at [40] above, on 11 January 2019, Mr and Mrs Flynn's solicitor wrote to Mr Tai's solicitor proposing to resolve the proceedings by appointing an independent liquidator to ensure that there was no perceived or actual bias, but that offer was later rejected.
11. In one sense, that offer presented a sensible solution to the impasse that had developed. Mr Tai and his interests, however, were not bound to accept that offer (at the possible risk of costs). They were entitled to pursue their legal rights and to have the Court consider whether the Resolution they had urged at the second creditors' meeting should be taken to have been passed.
12. In my opinion, it should be so taken to have been passed. The most compelling reason for this conclusion is that, had the Resolution not been opposed by Crilly Lawyers and Strategic Wealth Management, both of which were minor creditors evidently acting contrary to their own interests qua creditors, having rejected the offer to be paid out in respect of their respective debts, the Resolution would have passed without the need for any casting vote. Mr Tai's interests were plainly the most substantial creditors of the Company and the subject matter of the potential investigations would only, if they produced any recovery, be likely to reinforce that position.
13. For the foregoing reasons, in proceedings 2019/96083, I would make the following orders:
14. Allow the appeal.
15. Set aside the orders of the primary judge in proceedings 2018/357721.
16. Order that the resolution proposed at the meeting of creditors of Glenfyne Farms International AU Pty Ltd on 9 October 2018 that Jason Lloyd Porter and Fabian Kane Micheletto be appointed as joint and several liquidators of Glenfyne Farms International AU Pty Ltd be taken to have been passed at the meeting.
17. No order as to costs.
18. In proceedings 2019/96084, I would make the following orders:
19. Allow the appeal.
20. Set aside order 2 made on 8 March 2019 in proceedings 2018/357706 and in lieu thereof, order that pursuant to s 472(1) of the Corporations Act 2001 (Cth) Jason Lloyd Porter and Fabian Kane Micheletto be appointed as joint and several liquidators of GI Commercial Pty Ltd (in liq).
21. No order as to costs.
22. MACFARLAN JA: I agree with Bell P.

Amendments 03 June 2020 - Amendment made to [65], third line, reference to Brisconnections Management Company Limited, In the matter of Thames Blund Holdings Pty Ltd (In Liquidation) [2009] FCA 626 at [11] changed to at [9]. 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: 03 June 2020