Grocon Constructors Pty Ltd v Kimberley Securities Ltd

Judgment (ex tempore) 1HIS HONOUR: By an amended originating process dated 3 February 2014, the plaintiff Selkirk Pastoral Company Pty Ltd claims an order pursuant to (Cth) Corporations Act 2001, s 600A(2)(a), setting aside a resolution of creditors of 15 January 2014 that the first defendant Connections Total Fitness for the Family Pty Ltd (Administrator Appointed) enter into a deed of company arrangement; alternatively, an order pursuant to Corporations Act, s 445D, that any such deed of company arrangement be terminated; and an order pursuant to s 600A(2)(d) or s 447A that the first defendant be wound up and a liquidator appointed. 2The plaintiff is the proprietor of premises from which the first defendant operated a gym business under a lease from the plaintiff. On 15 May 2013, the plaintiff's director Mr Ovenden, and Mr Sheehy on behalf of the first defendant, signed a document (which does not appear to have been stamped) but is said by the first defendant to constitute an agreement by the plaintiff to purchase the first defendant's business. Subsequently, in about June 2013, the first defendant instituted proceedings in this Court for specific performance of that alleged agreement, and/or damages for its breach. Those proceedings are currently listed for hearing for three days in early March 2014. In those proceedings, Meehans Solicitors acted, and continue to act, for the first defendant. 3At about the time when those proceedings were commenced, Meehans also referred the first defendant (and its director Mr Sheehy) to the second defendant Mr Cvitanovic, a registered company liquidator, for advice concerning the company's financial position. No further steps were taken in that respect at that time, but in or about October 2013 the company was served with a s 459E creditors statutory demand by the Australian Taxation Office and, on or about 4 October 2013, the company resolved that it was or was likely to become insolvent and appointed Mr Cvitanovic administrator pursuant to Corporations Act, s 436A. The company ceased to trade at the date of the administrator's appointment, and there is no suggestion that it will resume trading. 4The first meeting of creditors was held on 16 October 2013, when Mr Cvitanovic's appointment as administrator was confirmed. A first report to creditors was distributed on 31 October 2013. 5The second meeting of creditors was convened, to be held on 15 January 2014. The s 439A report to creditors, dated 6 January 2014, contained the following relevant material. As to assets, it identified $96,586 cash at bank held in Meehans' trust account. Those moneys were moneys received in respect of the business the subject of the dispute in the other proceedings, and were being held in trust pending the outcome of those proceedings. As to debtors, it was said that there was a claim of $1,159,949 against Selkirk. Other assets were of no significance. 6As to liabilities, the report identified total unsecured creditors of $1,249,067. That comprised employee claims by related persons of $300,544, partly secured creditors of $381,799, and unsecured creditors of $566,724, which in turn comprised the ATO $84,721, trade and other creditors $250,474, and related parties $231,529. There was a deficiency of funds of $1,210,881. 7The administrator opined that the failure of the company was attributable to trading losses and over-capitalised set-up costs. The report contained the usual information about voidable transactions and insolvent claims. The administrator expressed the opinion that the directors may be liable for damages for insolvent trading, and assessed those damages as up to $395,596 or, if related parties did not claim in the liquidation, $267,657. 8However, the administrator also expressed the view that the directors may have no financial capacity to meet an insolvent trading claim. In respect of Mr Sheehy, the report referred to an affidavit sworn by him on 12 September 2013 to the effect that he does not have sufficient funds to pay the company's debts that he has personally guaranteed, which was less than the insolvent trading damages claim. However, the administrator identified that Mr Sheehy and his wife were joint owners of their residence at Belimbla Park, subject to a registered mortgage and a caveat. 9The report then set out the following: 10.1 Deed of Company Arrangement (DOCA) The Directors of the Company have provided a proposal for a DOCA as follows: 1. All of the proceeds from the litigation recovery action (set out in section 6.2) against the Landlord is available for the costs of the Administration, employee entitlements and unsecured creditors. ii. Meehans Solicitors legal costs incurred prior to the date of Voluntary Administration 4 October 2013 and further costs incurred, and to be incurred in the future are paid in priority to the Administration expenses, employee priority entitlements and unsecured creditors from the proceeds of the Litigation. iii. The Administrator's expenses and remuneration, together with the Deed Administrator's expenses and remuneration will be paid ahead of priority employee entitlements and unsecured creditors. iv. Employee entitlements will have priority ahead of unsecured creditor claims as set out in section 556 of the Corporations Act. In other words the priority provisions in the Corporations Act for employee entitlements are preserved under the DOCA. v. Partly secured creditors, being creditors who hold security over assets of the Company, as set out in section 7.2 are entitled to lodge a claim for their gross debt to rank as an unsecured creditor. In other words they can lodge a claim for their debt without deducting the estimated value of their security or deducting actual proceeds received. vi. All unsecured creditors, which includes the Directors, Shareholders of the Company and their related entitles and related persons, and partly secured creditors will rank equally for a distribution from the proceeds of the litigation after the expenses of the Administration, and employee entitlements have been paid in full. vii. Control of the company will not revert to the Directors, namely David Wright and Peter Sheehy. viii. The Deed Administrator will continue the Company's litigation against the landlord and instruct Meehans Solicitors as set out in section 6.2 of this Report. The Administrator is of the opinion that creditors should resolve at the upcoming adjourned meeting of creditors to accept the Proposed DOCA for the following reasons; i. Employee Priority claims may be paid in full and creditors may receive a slightly higher return under the DOCA compared to placing the company into Liquidation as set out in sections 8 and 11 and Annexure "C" of this Report. ii. The administration costs are reduced and limited, due to the company not being placed into Liquidation, thereby reducing the Liquidator's remuneration as set out in Annexure "C" of this Report. iii. The Administrator's investigations to date and as set out in this Report, reveals that the Company has no significant assets and there may be no funds recovered from voidable transactions and insolvent trading as set out in section 9.4, if the Company was placed into Liquidation. iv. The only asset available for the benefit of employees and creditors is the successful outcome of the litigation set out in section 6.2 of this report, which the Directors are committed to, and have provided funding as set out in section 9.4.2 of this Report, and the litigation cannot be settled unless the Deed Administrator consents, which protects the interest of creditors under the DOCA. v. Should the Company be placed into liquidation, this may jeopardise the continuation of the litigation proceedings set out in section 6.2 for the following reasons: ● The Court may require the Liquidator to provide further security for the Landlord's legal costs, in the event that the Court orders in favour of the landlord, as based on the contents of this Report, the Liquidator has not identified any Company assets available for security of costs. ● Meehans Solicitors may discontinue to act for the Company, and call upon the funding provided by the Directors set out in section 9.4.2 of this Report to pay their costs, thereby leaving the Liquidator with no funding to continue the litigation. ● Creditors should be aware that Meehans Solicitors will only continue to act if their costs incurred prior to the date of Voluntary Administration, 4 October 2013 and costs incurred after that date are paid in priority to employee entitlements and unsecured creditors, from the proceeds of the litigation recovery action. 10.2 Administration to End Creditors may resolve that the Administration of the Company should end and that control of the Company should be handed back to the Directors. The Company would be placed in a similar position to that existing prior to my appointment as Administrator. The Administrator is of the opinion it would not be in the creditors' interests for the Administration to end for the reasons set out in section 10.1 above. 10.3 Liquidation It is the Administrator's recommendation for creditors to not resolve to place the Company into Liquidation for the reasons set out in section 10.1 above. 10Thus it will be seen that the administrator recommended that creditors should resolve to accept the proposed DOCA. 11Although the report states that the directors of the company provided a proposal for a DOCA, it emerged in evidence that it was in fact the administrator who formulated the proposal, such matters having been left to him by the directors. The administrator expressed the view that, based on known assets to be realised - namely the successful outcome of the litigation against Selkirk - and the estimated costs of the administration, it was estimated that priority employee claims may be paid in full, and that unsecured creditors might receive 66 cents in the dollar under the proposed DOCA, against 64 cents in the dollar from a liquidation. 12The meeting of creditors was held on 15 January 2014 at 11.30am at the administrator's office at Albion Park. In attendance in person were the administrator, Mr Wade Thomas on behalf of Selkirk, and the administrator's assistant Ms Crystal Wright. 13The administrator was in receipt of a number of proxies, most of them from related party creditors, and all of them directing the administrator to vote in favour of the DOCA. When a resolution to require the company to enter into the DOCA was proposed, the administrator cast all proxies, except arguably that from Meehans Solicitors, in favour of the resolution. Mr Wade, on behalf of Selkirk, voted against the resolution. In those circumstances, the resolution was declared carried. Other than Selkirk, only one unrelated creditor had provided a proxy, namely Phil's Accounting for $550. 14Pursuant to Corporations Act, s 444B(2), the company was then required to execute the DOCA within 15 business days, or such further period as the Court might allow. Those 15 days would have expired on 6 February 2014 but on that day, when these proceedings were part-heard, I made an order extending time to 14 February 2014. 15Corporations Act, s 600A, provides as follows: (1) Subsection (2) applies where, on the application of a creditor of a company or Part 5.1 body, the Court is satisfied: (a) that a proposed resolution has been voted on at: (i) in the case of a company--a meeting of creditors of the company held: (A) under Part 5.3A or a deed of company arrangement executed by the company; or (B) in connection with winding up the company; or (ii) in the case of a Part 5.1 body--a meeting of creditors, or of a class of creditors, of the body held under Part 5.1; and (b) that, if the vote or votes that a particular related creditor, or particular related creditors, of the company or body cast on the proposed resolution had been disregarded for the purposes of determining whether or not the proposed resolution was passed, the proposed resolution: (i) if it was in fact passed--would not have been passed; or (ii) if in fact it was not passed--would have been passed; or the question would have had to be decided on a casting vote; and (c) that the passing of the proposed resolution, or the failure to pass it, as the case requires: (i) is contrary to the interests of the creditors as a whole or of that class of creditors as a whole, as the case may be; or (ii) has prejudiced, or is reasonably likely to prejudice, the interests of the creditors who voted against the proposed resolution, or for it, as the case may be, to an extent that is unreasonable having regard to: (A) the benefits resulting to the related creditor, or to some or all of the related creditors, from the resolution, or from the failure to pass the proposed resolution, as the case may be; and (B) the nature of the relationship between the related creditor and the company or body, or of the respective relationships between the related creditors and the company or body; and (C) any other relevant matter. (2) The Court may make one or more of the following: (a) if the proposed resolution was passed--an order setting aside the resolution; (b) an order that the proposed resolution be considered and voted on at a meeting of the creditors of the company or body, or of that class of creditors, as the case may be, convened and held as specified in the order; (c) an order directing that the related creditor is not, or such of the related creditors as the order specifies are not, entitled to vote on: (i) the proposed resolution; or (ii) a resolution to amend or vary the proposed resolution; (d) such other orders as the Court thinks necessary. (3) In this section: "related creditor" , in relation to a company or Part 5.1 body, in relation to a vote, means a person who, when the vote was cast, was a related entity, and a creditor, of the company or body. 16It is not in doubt that the resolution that the company enter into a deed of company arrangement was within s 600A(1)(a). It is necessary then to consider subparagraph (b). In this case, it is accepted that a substantial number of the votes cast at the creditors meeting were cast by related creditors. When the related creditors are excluded, then the only creditors that remained were Phil's Accounting for $550, Meehans Solicitors for $147,397, and Selkirk (which had been admitted for voting purposes at $10,594). 17If Meehans Solicitors' proxy was exercised, then there were two votes in favour of the motion totalling $148,000 approximately in value and one (Selkirk) against, totalling $10,500 in value. If Meehans' proxy was not exercised, then there was one vote in each direction, with the value being against the motion. 18There was controversy as to whether the Meehans' proxy had been exercised. It is necessary therefore to decide whether or not it was exercised, and the consequences if it was not. 19Meehans had given the administrator a directed proxy, that is to say one that directed the administrator to vote in favour of the resolution for a DOCA. Corporations Regulation 5.6.30 provides that an instrument appointing a proxy may specify the manner in which the proxy is to vote on a particular resolution and the proxy is not entitled to vote on the resolution, except as specified in the instrument. 20Chronologically, the first piece of evidence relevant to this issue is a note made by Mr Thomas contemporaneously while he was present at the meeting as follows: SC Adjudicate based on our own proof of debt lodged last time Admitted as per pg 12 re whilst he considers Administrator Crystal Wright & myself Same creditors + Selkirk - Quorum present Resolution - Proxy from Meehans - Connections Mediation not sure Nothing in SC RTC Committed to action regardless of Resolution of DOCA - moved by Connections - Second with Peter Sheehy - Not Meehans - interest to rank ahead of unsecured 21Relevant features of this include, first the reference to the first resolution, including "Proxy from Meehans - Connections", and, secondly, following the reference to the "Resolution of DOCA", the words, "Not Meehans - interest to rank ahead of unsecured." 22Next, after the meeting Mr Thomas telephoned his principal, Mr Lloyd, and provided a report on the events at the meeting. In that report he did not mention anything about the Meehans' proxy. However, on returning to his office that afternoon, he sent an email to his client, relevantly recording, The administrator specifically noted that Meehans abstained from voting, as they had a personal interest in that resolution (as they are claiming for their costs to be paid in priority to the usual priority, as set out in the Corporations Act). 23Next, the minutes of the meeting were prepared by Ms Wright. Relevantly, she recorded at the commencement of the minutes a resolution reconvening the meeting in the following terms. Reconvening of meeting Daniel Cvitanovic, the Administrator of the company opened the meeting. The following resolution was put; "That the proposed meeting which was adjourned on 8 November 2011 be reconvened on 15 January 2013 at 11.30am at the office of DCW Insolvency Management, Suit 1, 151 Tongarra Road, Albion Park, New South Wales" It was moved by: Meehans Solicitors Proxy in favour of: Daniel I Cvitanovic Seconded by: Connections Health Clubs of Australia Pty Limited Proxy in favour of: Daniel I Cvitanovic The motion was declared carried on voices. 24In respect of the Deed of Company Arrangement, she recorded the following: It was moved by: Connections Health Clubs of Australia Pty Limited Proxy in favour of: Daniel I Cvitanovic (Specific Proxy) Seconded by: Peter Sheehy Proxy in favour of: Daniel I Cvitanovic (Specific Proxy) "That pursuant to Section 439C of the Corporations Act 2001, the company be required to execute a Deed of Company Arrangement under Part 5.3A of the Corporations Act 2001 in the same form as the proposal statement set out in the Report to Creditors dated 6 January 2014." The motion was declared carried on voices. It was noted that Selkirk Pastoral Co pty Limited voted against the resolution. The Chairperson abstained from exercising the proxy from Meehans Solicitors due to their self interest. 25She presented those minutes to Mr Cvitanovic, who signed them - he says, without reading them - and then lodged them with ASIC. Mr Thomas obtained them two or three days after 15 January. 26When the matter came before the Court on or about 4 February, it was asserted that the minutes contained an error in that respect. Ms Wright swore an affidavit on 4 February 2014, in which she gave the following version of what happened. 12. Following that, Mr Cvitanovic moved onto the topic of the proposed Deed of Company Arrangement. I have a recollection of what Mr Cvitanovic said: "I hold a specific proxy from Meehans Lawyers to vote in favour of the proposed DOCA." "Meehans have a self interst in voting for the DOCA as if the Company enters into the DOCA, Meehans' status as unsecured creditor would change to a priority creditor. That is in return for them continuing to act for the Company in its litigation. Please note that Crystal." "I don't think I should use Meehan's proxy to move the motion." 13. I do not recall the word "abstain" being spoken by Mr Cvitanoic in regards to the Meehans' proxy. 27She said that she had reread the minutes on 4 February. 17. I have reread the minutes of 15 January 2014 today. I do not believe that all that is written in them actually occurred, in particular I refer to the following paragraphs. 18. On page one of the minutes it is stated that there was a resolution put regarding adjournment. I do not recall any such resolution passed that day, I only recall a discussion by Cvitanovic about the meeting having already been adjourned, as I set out in paragraph 9 above. 19. On page three of the minutes it is stated: "The Chairperson abstained from exercising the proxy from Meehans Solicitors due to their self interest." These actual words were not in fact said. I wrote these words to try to summarise what Mr Cvitanovic said as set out in paragraph 12 above. I used a form of words that I had used before in other meetings when Mr Cvitanovic abstained from exercising a general proxy. I did not stop to think about the specific nature of Meehans' proxy. I got confused when Mr Cvitanovic instructed me to note Meehans "self interest". 20. I have read the conversation attributed to Mr Cvitanovic in Mr Thomas' affidavit sworn on 31 January 2014 at paragraph 12. My recollection of that conversation is different: I recall Mr Cvitanovic saying what I set out in paragraph 12 above. 28Mr Cvitanovic also swore an affidavit on 31 January, in which he gave the following version. 5. There was discussion at the meeting. A conversation was had in words to the following effect: I said: "I have a specific proxy from Meehans Solicitors directing me to vote in favour of the DOCA. They have a self interest in voting in favour of the DOCA and if the resolution is carried, then their status would be raised from an unsecured creditor to a priority creditor. I think I should disclose this. In return for that, Meehans have told me they are prepared to continue to act for the Company in tis litigation against your client. I can't abstain from voting in accordance with the specific proxy even though I consider there is self interest. This should be recorded in the minutes." 8. Later at the meeting there was a conversation in words to the following effect: I said: "As proxy for Connections Health Clubs of Australia Pty Ltd I move the meeting on the motion that pursuant to section 439C of the Corporations Act 2001, the company be required to execute a Deed of Company Arrangement under Part 5.3A of the Corporations Act 2001 in the same form as the proposed statement set out in the Report to Creditors dated 6 January 2014. As proxy for Peter Sheehy I second the motion. All in favour? On behalf of all the other creditors for whom I hold a proxy I say "aye". All against?" Wade said: "Selkirk votes against the motion." I said: "As chairman I declare the motion carried on the voices. I note Selkirk Pastoral Co. Pty Ltd voted against the resolution." 29The significant matters in resolving this factual issue appear to me to be as follows. First, although Ms Wright in her affidavit says that she does not recall there being a resolution regarding adjournment, but only a discussion about the meeting having already been adjourned, the coincidence of the record in Mr Thomas' file note of "Resolution - proxy from Meehans - Connections" with what is set out at the commencement of the minutes under the heading "Reconvening of Meeting", is striking, particularly in the identity of the proxies relied on in both records. It seems to me that while Ms Wright might not now recall it, there plainly was a resolution which was moved in reliance on proxies by Meehans and Connections Health Clubs. 30Secondly, Mr Thomas' email, sent at about 3.30pm on the afternoon of the meeting, only hours after it had taken place, and before there was any dispute as to whether the proxy had been exercised or not, is telling, both from the perspective of the absence of relevant dispute at that time, and its specific reference to the notion that Meehans "abstained from voting". It is very contemporaneous, when the matter must have been fresh in his memory, and at a time where there was no reason for Mr Thomas to be advancing that particular view. 31Thirdly, the minutes themselves, as prepared by Ms Wright, show all the indicia of having been carefully and regularly prepared. The coincidence of the words recorded by her: "The chairperson abstained from exercising the proxy from Meehans solicitors due to their self interest" with those written by Mr Thomas, "The administrator specifically noted that Meehans abstained from voting because they had a personal interest" is very striking, given that they come from two different people in two different offices, effectively on different sides of the record with different perspectives. 32Fourthly, I do not think that the revised version proffered by Ms Wright in paragraph 12 of her affidavit, as set out above, really makes sense. There is no apparent reason why Mr Cvitanovic would have to justify at the meeting not using Meehans' proxy to move the motion, if he was going to vote it in any event. He did not have any particular difficulty in using, without justification, the proxies of two related creditors to move the motion. 33Fifthly and finally, although it had not initially seemed to be the case - indeed in the course of her cross-examination Ms Wright when asked, "Were either of those errors errors which Mr Cvitanovic pointed out to you at any point before you swore this affidavit?" answered "No" - by the end of her cross-examination, when questioned about whether she was really saying that she had suddenly realised, without mention from Mr Cvitanovic or anyone else, that she had wrongly recorded an abstention, she said, "I went through the minutes, and the proxies are on our file, and we file the minutes and in our file follow all the proxies behind it, and that's when I realised that a specific proxy from Meehans was there. That's when I went to Daniel and said, 'I think I have done the minutes wrong. Meehans was a specific proxy.'" Mr Cvitanovic apparently replied, "Yes, that's correct. We should have exercised it because it is a specific proxy". She reinforced: "I must have written the minutes down wrong, because you told me that Meehans had a self interest". 34This evidence, it seems to me, casts a completely different light on Ms Wright's position. It became apparent that her affidavit was a reconstruction, based on a deduction she made from having subsequently realised that the Meehans proxy was a specific proxy, and the statement attributed to Mr Cvitanovic, "We should have exercised it because it was a specific proxy" tends to confirm that it was not in fact exercised. 35It is true, as Mr Marshall fairly points out, that there was no substantive challenge to Mr Cvitanovic's own version of the meeting as deposed to in his affidavit and set out above. On the other hand, it might also be said that Mr Cvitanovic was not asked to deny the version that Ms Wright had given in cross-examination, before Mr Cvitanovic gave evidence. Ultimately, the preponderance of the evidence is so strongly in favour of the view that the proxy was not exercised that, notwithstanding the absence of direct challenge to Mr Cvitanovic in that respect, I conclude that it was not exercised at the meeting. 36The effect of s 600A(1)(b) is that the Court must decide whether the resolution would have been passed or would not have been passed, or would have had to have been decided on a casting vote, if the votes that particular related creditors cast had been disregarded. 37The defendant's submissions have drawn attention to some debate in the authorities as to the approach to be taken under this provision, particularly as to whether one may conduct a hypothetical poll where one was not conducted. On the one hand, in Kantfield v Plastamatic (1994) 14 ACSR 687, Hayne J, when a Judge of the Supreme Court of Victoria, proceeded on the basis that if no poll was in fact demanded in relation to a proposed resolution passed "on the voices" with the support of a related creditor, then for the purpose of determining whether s 600A(1)(b) was fulfilled, one simply excluded the vote of the related person from those actually cast on the voices, without considering whether a poll would, in that eventuality, have been demanded or the result of such a poll. 38On the other hand, in MG Oysters Supplies Pty v Nonchalant Pty Limited (Administrator Appointed) (1995) 19 ACSR 27, McLelland CJ in Eq, took the opposing view and said that Hayne J's "limited interpretation although textually available is not required by the terms of the section and furthermore is contrary to its evident policy and could have capricious and unjust consequences". See also QBI Corporation Pty Limited v Plantation Rise Pty Limited (2010) 77 ACSR 573; [2010] QSC 102. 39I do not think I need to resolve this controversy for present purposes. What s 600A(1) relevantly does is to require the votes of the related creditors to be disregarded, and to ask in that context whether the proposed resolution would still have been passed. It does not require one to contemplate a hypothetical meeting, but the actual meeting, albeit disregarding certain votes. In particular, it does not authorise one to assume that votes were cast which were in fact not cast. 40Although regulation 5.6.30, referred to above, mandates a proxy to vote in accordance with a directed proxy, nonetheless if the proxy does not so vote, that does not mean that one can pretend that the votes were cast. As, in fact, the Meehan's proxy was not exercised at the meeting (albeit incorrectly so), if the votes of the related creditors are disregarded that leaves the result as Phil's Accounting voting in favour of the motion for $550, and Selkirk against the motion for $10,594. The matter would have had to be decided on a casting vote. Section 600A(1)(b) is satisfied. 41That then leads to consideration under subsection (c), of whether the passing of the proposed resolution was contrary to the interests of creditors as a whole, or prejudicial to the interests of the creditors who opposed it - relevantly Selkirk - to an extent that was unreasonable having regard to the benefits to the related creditors, the nature of their relationship with the company, and any other relevant matter. These tests are not dissimilar in concept to those referred to in s 445D(1) for termination of a deed - namely subparagraph (f), that the deed was oppressive or unfairly prejudicial to or unfairly discriminatory against one or more creditors of the company, or contrary to the interests of the creditors of the company as a whole. 42In my view, s 445D is not available in these proceedings, because there is no basis for making an order terminating a deed when that deed has not been executed [Petrochemical Industries Limited (In Liquidation) v Dempster Nominees Pty Limited (1994) 15 ACSR 468]. However, the similarity between s 445D(1)(f) and s 600A(1)(c) means that what is prejudicial to an unreasonable extent under the latter is likely also to be unfairly prejudicial or unfairly discriminatory under the former. Moreover, if one were to conclude that the deed, if executed, would be liable to be terminated under s 445D, that could be very relevant to what consequential orders should be made under s 600(2). 43Whether a deed of company arrangement is oppressive or unfairly prejudicial or discriminatory is determined primarily by reference to the general principles underlying Part 5.3A, including, first, the creditor's right to be paid or to have the company wound up or to have the company administered by an administrator in a way that will see creditors paid from the company's property [Re Bartlett Researched Securities Pty Limited (1994) 12 ACSR 707, 710; Hagenvale Pty Limited v Depela Pty Limited (1995) 17 ACSR 139; 151; Molit (Number 55) Pty Limited v Lam Soon Australia Pty Limited (Administrator Appointed) (1996) 19 ACSR 160; Winterton Constructions Pty Limited v MA Coleman Joinery Co Pty Limited (1996) 20 ACSR 671; Sydney Land Corporation Pty Limited v Kalon (1997) 26 ACSR 427; affirmed (1998) 26 ACSR 593; Fleet Broadband Holdings v Paradox Digital Pty Limited (2005) 228 ALR 598]. In Sydney Land Corporation v Kalon, Young J put it in these terms (at 430): Accordingly when one is looking at what is oppressive or unfairly prejudicial under section 445D, one looks at it in the background of the general right of a creditor to be paid or to wind the company up or to have the company administered by the administrator under the deed in a way which keeps the company's business going and will see the creditor paid something out of the property of the company. If a scheme and a deed deviates from that, then a creditor is more easily able to say that it's operating oppressively than otherwise. 44Relevant considerations include a comparison between the return to creditors under the deed and that likely on a winding up, and comparative prejudice suffered by differing groups of creditors. The differential treatment of creditors does not necessarily equate to unfair discrimination or prejudice [see Re Bartlett Research Securities Pty Limited at 710 and Hagenvale v Depela]. But while a deed of company arrangement may discriminate between creditors or class of creditors, it nevertheless ought to deal fairly with the interests of creditors of an insolvent company and its validity depends on its being reached fairly in the interests of creditors [see Joseph Khoury and Sons v Zambena Pty Limited (1999), 217 ALR 527; [1999] NSWCA 482, [105]]. 45A case that bears some similarities with the present, although by no means on all fours with it, is Young v Sherman [2002] NSWCA 281; (2002) 170 FLR 86. The respondent Mr Sherman was the administrator of a company Agriculture.com Pty Limited, which had been formed as a procurement agent for agricultural products. The company contracted with a partnership called Andersens/Accenture to develop an electronic infrastructure for the business. Negotiations between the company and Accenture broke down, and the directors resolved that the company was likely to become insolvent at some further time and appointed Mr Sherman administrator. At a meeting of creditors, it emerged that a debt claimed by Accenture was larger than any other debt of the company, but the administrator proposed that there be a deed of company arrangement, a term of which was that a premium of 10 cents in the dollar be paid to creditors if the litigation against Accenture was successful. There was a split result on a poll, and the administrator used his casting vote as chair to support the resolution (and also to defeat a second resolution that a new administrator be appointed). 46Accenture instituted proceedings for termination of the deed under s 445D. It failed before Austin J, but succeeded on appeal to the Court of Appeal, which held that the deed must be terminated as the provision for payment of a premium was unconscionable, contrary to public policy and unable to be explained by the evidence, otherwise than as an inducement to creditors to support the arrangement. Sheller JA said that the premium was a gratuity to which none of the creditors were otherwise entitled in law, whether or not the company was wound up. Hodgson JA said that the premium affected creditors unequally, had no substantive justification and was an improper inducement. Davies AJA said that the company's business was finished, that it was not shown that a better return for members and creditors would result from the scheme than from an immediate winding up, and that in those circumstances the scheme was discriminatory against and oppressive to the appellants, and lacked the essential character of fairness and equality that such schemes should have. 47It is worth bearing in mind that the objects of administration under Corporations Act, Part 5.3A, are to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of a company (or as much as possible of its business) continuing in existence, or if it is not possible for the company or its business to continue, results in a better return for the company's creditors and members than would result from an immediate winding up. In the present case, the company's business is at an end, so the first object is unattainable. That means that the focus is necessarily on whether the administration would result in a better return for the company's creditors and members than an immediate winding up. 48The deed of company arrangement proposed in this case makes available for creditors the proceeds of litigation which, if successful, would be available for them in any event. It provides no benefit for creditors in this respect over liquidation. It does provide benefits for one particular creditor, namely the solicitors Meehans, who it elevates from the status of unsecured creditor for $147,000 to that of priority creditor for that amount - being their pre-administration costs of acting in the proceedings against Selkirk. 49It was suggested that the costs of administration would be less than those of liquidation. I am unconvinced that that is so. 50In short, I can see no benefit for creditors generally in the deed of company arrangement, although there is a clear benefit for Meehans. So far as prejudice to Selkirk is concerned, in respect of its debt it is entitled to prove in the administration as it would have been in the liquidation, so there is no material difference or prejudice in that respect. It is exposed to a claim by the administrator in the landlord proceedings, as it would similarly be exposed in the case of liquidation. There is no material difference or prejudice in that respect. However, like the other unsecured creditors, its position under the deed of company arrangement would be subordinated to that of Meehans, a disadvantage it would not suffer in liquidation and, like the other unsecured creditors, the possibility of any recovery from an insolvent trading claim, or for that matter a voidable claim, is completely foreclosed. 51So far as the subordination to Meehans' priority is concerned, it might be contended that there was desirability in persuading Meehans to continue to act, particularly given the proximity of the final hearing; but there is no evidence that they would not have continued to act had they not been given priority, in respect of their pre-administration costs, over the other unsecured creditors. There is no evidence that they would not have acted otherwise. Indeed, it seems that this benefit for Meehans was conceived and proposed by the administrator, without request from anyone, but in favour of the solicitors who had acted for the company and were now acting for him as administrator, and who had referred the matter to him in the first place. 52The subordination to Meehans is the most significant element of prejudice that has been identified. But to that is to be added the fact that any prospect of recovery from insolvent trading and other potential liquidator's claims is foreclosed by the deed of company arrangement. It may be that, due to the directors' financial position, those claims are of limited value; and it may be that the costs of pursuing them approach or even exceed what can be recovered. But the financial analysis that has been put before the Court to support that conclusion takes the most pessimistic possible view of the outcome. Essentially, what has been foregone is any prospect of recovering anything on those accounts. 53In short, the deed provides considerable benefits for the directors, in foreclosing any prospect of insolvent trading claims against them; it provides considerable benefits for Meehans; it provides no benefits for creditors generally; and it imposes some detriment on creditors generally, by subordinating their position to that of Meehans and by foreclosing the possibility of recovery from insolvent trading claims. 54Those considerations lead me to the conclusion that the deed would be unfairly prejudicial and that, accordingly, the resolution that it be entered into was unreasonably prejudicial, for the purposes of s 600A(1)(c). 55Section 600A(2) provides that the Court may make a range of orders in those circumstances. The first order, which should be made under subparagraph (a), is that the resolution be set aside. It is unnecessary in this case to proceed to set aside the deed, because the deed has not been executed. As it seems to me, however, that the deed would have, for the reasons I have given, been prejudicial in a substantive sense, there is no utility in ordering that it be resubmitted to a meeting of creditors, or making any other of the orders referred to in subparagraphs (b) and (c), as the result would be that ultimately it would be liable to be terminated under s 445D(1)(f). 56In Grocon Constructors Pty Ltd v Kimberley Securities Ltd (2009) 72 ACSR 305, Barrett J, as his Honour then was, concluded that a resolution should be set aside and - in that case, because the deed had already been executed - that the deed should be terminated by order pursuant to s 600A(2)(d). His Honour then said: [108] Finally, there is the question of the regime under which Kimberley should proceed from this point. With the deed of company arrangement out of the picture, there are only two possibilities. The first is that Kimberley be administered and managed by its board of directors in the usual way, free from any form of external administration. In their further supplementary report to creditors dated 20 March 2009, however, the administrators made it perfectly plain that they did not recommend that course. They said in unequivocal terms: It is not our opinion that the Administration should end (in the sense of returning control of the company to the directors) as the company is insolvent. [109] In the light of this conclusion of the administrators (which is not called into question in any way by the evidence before me), I am of the opinion that the only sensible and satisfactory outcome is the second of the possibilities to which I have referred. Kimberley should be wound up. That is the proper and appropriate measure in relation to an insolvent company. Section 600A(2)(d) will support a winding up order. So too will s 447A: Deputy Cmr of Taxation v Woodings (1995) 16 ACSR 266; Re Paradise Constructors Pty Ltd [2004] VSC 92 ; (2004) 8 VR 171. There is discussion at [303] and following of the judgment in Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235 ; (2005) 226 ALR 510 about matters that require attention in relation to the making of a winding up order in circumstances of this general kind. I shall stand the proceedings over for a short time so that those matters can be addressed and liquidators' consents to act can be brought in. 57The probable effect of setting aside the resolution is that the administration comes to an end, as no resolution of the type referred to in s 439C would have been passed within the time required. The automatic effect of setting aside a deed, had one been executed, would be that the company would be deemed to have gone into a creditors voluntary winding up. However, the deed not having been executed, that does not apply in this case. 58It is clear from the directors' resolution to appoint an administrator and from the administrator's report to creditors that the company is insolvent. There is no reason to suppose that administration can produce a superior overall result for creditors to a winding up. In those circumstances, as in Grocon, it seems to me that the proper course is that the company be wound up by the Court. 59A question arises as to who should be appointed liquidator in those circumstances. The plaintiff has tendered consents of two liquidators. The defendant proposes that Mr Cvitanovic should become the liquidator. 60As I have said, the ordinary result of setting aside a deed of company arrangement, had one been executed, would be that there would be a deemed creditors voluntary winding up with Mr Cvitanovic as liquidator. There are likely to be savings to the administration in Mr Cvitanovic continuing as liquidator, whereas there will be at least some element of duplication if he is replaced. The prejudice that I have identified will be cured by proceeding by way of liquidation as opposed to by way of administration. The mere desire to have a different liquidator in those circumstances is insufficient to justify that course, particularly given the proximity of the hearing of the landlord claim. 61The Court orders that: (1)Pursuant to Corporations Act, s 600A(2)(a), the resolution of the meeting of creditors on 15 January 2014 that the company execute a deed of company arrangement be set aside. (2)The First Defendant Connections Total Fitness for the Family Pty Ltd (Administrator Appointed) be wound up. (3)Daniel Cvitanovic be appointed liquidator of the first defendant. (4)The plaintiff's costs be paid out of the assets of the company in liquidation.