Gould v Companies Auditors and Liquidators Disciplinary Board

Background 1 I published reasons for judgment in this proceeding on 12 May 2009: see Gould v Companies Auditors and Liquidators Disciplinary Board [2009] FCA 475 (Earlier Reasons). I will take the Earlier Reasons as read and will use the abbreviated forms of reference that I used in them. 2 At [372]-[375] of the Earlier Reasons I invited submissions as to the issue whether the questions raised were questions of law and as to costs. 3 The parties do not seek to argue that the questions considered in the Earlier Reasons were other than questions of law. I am content to proceed accordingly. However, they say that there is an aspect of Contention 2.11 that remains unresolved. ASIC's Notice of Contention in so far as it related to Contention 2.11 was addressed at [318]-[319], [335]-[342] and [356]-[363] of the Earlier Reasons. 4 Question (2) in ASIC's Notice of Contention was set out at [318] of the Earlier Reasons. Apparently it was framed by reference to the terms in which the Tribunal had expressed itself. As a result, the Earlier Reasons, in so far as they addressed Question 2, have left unresolved a certain question touching Contention 2.11 that divides the parties. The parties join in asking me to resolve that question. Initially, however, they differed as to the mechanism and as to the result. 5 Mr Gould initially submitted that a further question of law in the following terms should now be posed and answered: [w]hether on a proper construction of the DCA [the Trinbay DOCA] a decision by the Administrator to abandon all legal proceedings and conclude the administration meant that it was no longer practicable to implement the Deed within the meaning of clause 3 of the prescribed provisions? Mr Gould contended that this question should be answered "No". 6 ASIC initially submitted that the preferable course was not that a new question be posed and answered, but that the Court provide supplementary reasons for rejecting certain submissions made by Mr Gould. ASIC submitted, however, that if there was a "need to answer a further question", that question should be in a form different from that proposed by Mr Gould. 7 It is not the role of the Court to provide an advisory opinion. Initially ASIC did not seek to amend its Notice of Contention. Mr Gould did not seek to amend either his Further Amended Supplementary Notice of Appeal in the Appeal Proceeding or his Amended Application in the Review Proceeding. 8 I caused the proceedings to be relisted on 5 August 2009. Following discussion, the parties have joined in asking the Court to answer the following additional question: [i]n the absence of any declaration of a final dividend or any decision one way or the other to declare a final dividend, whether an unchanged decision by the Administrator to abandon all legal proceedings and conclude the administration meant that it was no longer practicable to implement the Deed within the meaning of clause 3 of the prescribed provisions? With some misgiving as to whether this is a question of law, I have decided to answer the question. With leave, ASIC has now filed an Amended Notice of Contention incorporating the question set out above as Question 2A and a corresponding ground 2A reading as follows: The ground is set out in the Second Respondent's undated written submissions Comprising 24 paragraphs headed "ASIC Submissions re: Contention 2.11".

Consideration 9 Question 2A requires me to construe cl 3 of the prescribed provisions in relation to certain hypothetical facts. In order to show the utility of an answer to Question 2A, I will first refer to the background. 10 Section 445C of the Law provided that a DOCA terminated when the first of the following events occurred: (a) the Court makes under section 445D an order terminating the deed; or (b) the company's creditors pass a resolution terminating the deed at a meeting that was convened under section 445F by a notice setting out the proposed resolution; or (c) if the deed specifies circumstance es in which it is to terminate - those circumstances exist; … (Section 445C of the Act is currently in the same terms as s 445C of the Law except for the addition of "(d) the administrator of the deed executes a notice of termination of the deed in accordance with section 445FA.") None of these events occurred. 11 The Trinbay DOCA did specify circumstances in which that DOCA was to terminate. Clause 18.1 of that DOCA provided that it should terminate on the "Termination Date". That expression was defined in cl 1.1 of the DOCA to be the date on which the first of three possible events occurred. Those three events reflected paras (a), (b) and (c) of s 445C set out above. In substance, they were: the making of an order by the Court under s 445D; the passing of a resolution by the creditors terminating the DOCA at a meeting of creditors convened under s 445F; and the day 30 days after the making of a Final Distribution by the DOCA administrator. The expression "Final Distribution" was defined in cl 1.1 of the DOCA, when read with cl 9.1, to be the first and final payment of a dividend to the creditors who were admitted to proof under cl 12 of the DOCA, out of the property described in cl 9.1 remaining after payment of the costs of the administration. 12 As at 2 April 2003, Mr Gould was of the opinion that the DOCA administration had "concluded". On that date he wrote to the ATO as follows: I was appointed Administrator of Trinbay Pty Limited on 10 October 2000. As no litigation funding could be achieved to litigate against parties responsible for the demise of the company, there is no prospect of recovery of any funds. Accordingly, would you please update all your records to note that no further returns will be lodged by Trinbay Pty Limited (Administrator Appointed) as the administration has now been concluded and it is likely that the company will be struck off. 13 According to his evidence before the AAT, upon going through the Trinbay files some two or three days after writing that letter, Mr Gould noted "that there was in substance no money to be handed back to creditors at that time for a final distribution" because the funds available to him had been "exhausted on prior legal issues and other issues and costs" and "[t]he remaining fund would not have covered [his] outstanding fees". 14 In my opinion, upon the proper construction of the Trinbay DOCA there could not be a first and final dividend payment by Mr Gould to the Participating Creditors without an actual payment of money by him to them. Mr Gould appears to have shared this view when (on 6 February 2008) he made the statements set out in the preceding paragraph in his written statement of evidence in the proceeding before the AAT, although later in that written statement of evidence he referred to a possibility of "a final distribution (of nil)". 15 Two cases relied on by Mr Gould are distinguishable. They are Barclay Mowlem v Tesrol Walsh Bay[2004] NSWSC 1232and Commissioner of Taxation v Ryan (1998) 82 FCR 345 (Ryan). Neither concerned a payment of a final dividend to creditors. Mr Gould's submissions did not refer to the decision of the High Court on appeal in Ryan which, if anything, is unfavourable to his argument (see Commissioner of Taxation of the Commonwealth of Australia v Ryan (2000) 201 CLR 109). The intention to be found in the Trinbay DOCA is that in the absence of an actual payment, it would be a matter for the creditors, or for the Court upon application by a person referred to in s 445D(2), whether the DOCA was to terminate. 16 But even if, as Mr Gould contends, there could be a first and final dividend payment by him to creditors of "nil", as at 2 April 2003 that had not occurred, and there was no suggestion in Mr Gould's evidence before the AAT that it was ever going to occur. On any reckoning, there would have to be a communication from Mr Gould to creditors if there was to be a dividend payment of "nil" by him to them. 17 Clause 3 of the prescribed provisions was set out at [315], and the relevant parts of it repeated at [336], of the Earlier Reasons. Clause 3 distinguishes between continuing to carry on Trinbay's business and implementing the DOCA. The former is a reference to Trinbay's business prior to execution of the DOCA. 18 On the evidence before the AAT, the business of Trinbay was the staging of theatrical productions. Mr Gould accepted that it was not practicable to carry on that business for lack of funds available to Trinbay. Mr Gould had not been "carrying on the business" of Trinbay by considering the prospects of litigation or pursuing litigation funders. In doing so he had been attempting to implement the DOCA (see the next paragraph). 19 On the proper construction of the DOCA, implementation of the DOCA required the defence of legal proceedings brought against Trinbay and Musical Entertainment AG (MEAG) in proceeding number 2192 of 2000 in the Supreme Court of New South Wales by Kerry Jewel and Elyse Jewel, and the pursuit of a cross-claim against them, and, as well, the institution of legal proceedings against Peter Rodgers for breach of fiduciary duty to Trinbay and/or MEAG as a result of his failure to account for moneys received by him from MEAG "for the First Production of Pan" (see cll 3.1-3.7 of the Trinbay DOCA). Pursuit of these matters constituted the purpose of the DOCA. I do not accept a submission made by Mr Gould that terminating the DOCA would be implementing it for the purposes of cl 3 of the prescribed provisions. 20 The terms of Mr Gould's letter dated 2 April 2003 to the ATO (set out at [12] above) show that Mr Gould had determined that it was no longer practicable to implement the DOCA for lack of litigation funding. 21 As at 2 April 2003, the date of Mr Gould's letter to the ATO, there had been no payment of a Final Distribution or decision to pay a Final Distribution. On the contrary, there was a determination by Mr Gould, recorded in that letter, that the DOCA administration had concluded and that it was likely that Trinbay would be struck off. 22 This meant that as at that date Mr Gould had determined that it was no longer practicable either to carry on Trinbay's business or to implement the DOCA within the meaning of cl 3 of the prescribed provisions. Accordingly, on 2 April 2003 the obligation to summon a meeting of creditors provided for in cl 3 of the prescribed provisions for the purpose of their passing a resolution under s 445C(b) of the Law was enlivened.

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Judgment (12 paragraphs)

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