Hoath v Comcen Pty Ltd

CATCHWORDS : CORPORATIONS - voluntary administration - deed of company arrangement - applications for order terminating or setting aside deed and order setting aside resolution of creditors - plaintiff was not creditor when resolution passed, deed executed as applications initiated - whether standing achieved by taking subsequent assignment of part of a creditor's debt

Corporations Act 2001 (Cth), ss.445D, 445G LEGISLATION CITED : Supreme Court Rules, Part 13 rule 5 Supreme Court (Corporations) Rules 1999, rule 2.2(1)

Hoath v Comcen Pty Ltd [2004] NSWSC 682 CASES CITED : Perak Pioneer Ltd v Petroliam Nasional Bhd [1986] AC 849 Re Paris Skating Rink Company (1877) LR 5 ChD 959

(1) Mark Hoath - First Plaintiff Mortgage.com.au Pty Ltd - Second Plaintiff Comcen Pty Ltd - First Defendant Scott Darren Pascoe - Second Defendant PARTIES : Laim Bal - Third Defendant (2) Mark Hoath - Plaintiff Comcen Pty Ltd - First Defendant Scott Darren Pascoe - Second Defendant

Mr M. Hoath in person COUNSEL : Mr J.T. Johnson - First and Third Defendants Mr M.S. Tierney - Second Defendant

Mr M. Hoath in person SOLICITORS : Watson Mangioni - First and Third Defendants Gordon & Johnstone - Second Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

1756/03 - MARK HOATH & ANOR v COMCEN PTY LIMITED & 2 ORS 3626/03 - MARK HOATH v COMCEN PTY LIMITED & ANOR JUDGMENT 1 In proceedings 1756/03, Mr Hoath and a company associated with him (Mortgage.com.au Pty Ltd) seek relief under ss.445D and 445G of the Corporations Act 2001 (Cth) in relation to a deed of company arrangement executed by Comcen Pty Ltd on 6 December 2002. The order sought is an order under s.445D terminating the deed or an order under s.445G setting it aside. In proceedings 3626/03, Mr Hoath alone seeks an order under s.600A setting aside the resolution of creditors of Comcen Pty Ltd that that company execute the deed of company arrangement. 2 By separate interlocutory process filed in each proceeding on 16 September 2004, application is made for an order under Part 13 rule 5 of the Supreme Court Rules that the statement of claim be dismissed or an order under Part 15 rule 26 that it be struck out. The applicants for this relief in proceedings 1756/03 are Comcen Pty Ltd and Mr Bal who is a defendant in that proceeding. In 3626/03, the applicant is Comcen Pty Ltd alone. I heard the two interlocutory processes together on 27 April 2005. 3 The contention of Comcen Pty Ltd is quite simple, namely, that the respective plaintiffs lack, and have always lacked, standing to bring an application under each of ss.445D, 445G and 600A. So far as relevant for present purposes, standing comes from being a creditor of the company (s.445D(2)(a), s.445G(1), s.600A(1)) - or, for the purposes of s.445D only, being within the description "any other interested person" (s.445D(2)(c)). Neither of the plaintiffs seeks to assert any status or standing otherwise than as a creditor of Comcen. I approach the summary dismissal and strike-out applications accordingly. 4 It is necessary, at this point, to refer to proceedings determined by Nicholas J on 5 August 2004: Hoath v Comcen Pty Ltd [2004] NSWSC 682. In those proceedings, the present respondents, Mr Hoath and Mortgage.com.au Pty Ltd, appealed to the court against a decision of Mr Pascoe, the administrator under the deed of company arrangement, rejecting proofs of debt lodged by those persons for the purposes of the deed. Mr Hoath's claim was a claim to be owed money by Comcen for services rendered. After considering the evidence before him, Nicholas J said of that claim (at [19]): "In my opinion Hoath has altogether failed to prove that the company is liable to him for his claim. I find that, from the outset and consistent with his proposal, there was no agreement pursuant to which Hoath was personally liable to the company for the provision of services or was personally entitled to claim remuneration for them."

Mr Hoath's appeal against the deed administrator's rejection of his proof of debt was itself rejected. 5 The claim sought to be proved by Mortgage.com.au Pty Ltd under the deed of company arrangement was, in essence, a composite claim for damages under the Trade Practices Act 1974 (Cth) and for breach of bailment or conversion, as well as for an account of profits. The composite claim related to use of a domain name, intellectual property and computer hardware. Nicholas J found that Mortgage.com.au Pty Ltd had not been the owner of the domain name, the intellectual property or the computer hardware at any relevant time and that the asserted liability of Comcen for damages to that company had not been established. 6 These findings are sufficient to warrant grant of the relief Comcen now seeks under the interlocutory processes, unless some additional factor can be seen to be at work and to justify the view that each plaintiffs somehow have standing as a "creditor" contemplated by the relevant provision. 7 On the hearing of the interlocutory processes, Mr Hoath appeared unrepresented. There was no formal appearance for Mortgage.com.au Pty Ltd but it was accepted that Mr Hoath spoke for it. He did not seek to point to any additional factor of the kind to which I have referred, so far Mortgage.com.au Pty Ltd is concerned. There was therefore no resistance to the application affecting Mortgage.com.au Pty Ltd. As to his own position, however, Mr Hoath relied on a document which, in his submission, caused him to attain the status of creditor of Comcen on and from 4 August 2004, the day immediately before that on which Nicholas J delivered judgment. 8 The document of 4 August 2004 is in the following terms: "Agreement between MARK ADAM HOATH And Classic Electrical Service Pty Ltd (ACN 058 486 454) 4th August 2004 1. Classical Electrical Service Pty Ltd is an unsecured creditor to Comcen Pty Ltd with approximately $3700 in debt ('the Debt'). 2. Mark Adam Hoath has offered $20 consideration to purchase for $3000 worth of the Debt. 3. On receipt of $20 from Mark Adam Hoath, Classical Electrical Services Pty ltd will accept the offer of Mark Adam Hoath. 4. This transfer will be effective immediately that Mark Adam Hoath transfers consideration to the Bank Account of Classical Electrical Services Pty Ltd." 9 Mr Hoath deposed in an affidavit of 13 September 2004 (to which the document is annexed as annexure A): "2. On 4th August 2004, I signed a contract with a Creditor of Comcen Pty Ltd, Classical Electrical Services Pty ltd for the purchase of $3000 of its debt and voting rights in the administration of Comcen Pty ltd. Attached hereto and marked with the letter 'A' is a copy of the Contract between Mark Adam Hoath and Classical Electrical Services Pty Ltd dated 4 August 2004. 3. On 4th August 2004, I paid the consideration for this contract. Attached hereto and marked with the letter 'B' is a copy of my Bank Statement showing a transfer of $20 on the 4th August 2004. 4. On 5th August 2004, I notified the Legal Agents for Comcen Pty Ltd and Scott Darren Pascoe of this transfer and handed them photocopies of the contract." 10 The applicants do not dispute that Classic Electrical Service Pty Ltd is, and has at all material times been, a creditor of Comcen in the sum of $3,729.00. It has proved under the deed of company arrangement accordingly and its proof has been admitted. But the applicants say, first, that the document of 4 August 2004 was not effective to cause Mr Hoath to become a creditor of Comcen and, second, that, if it was effective to make him a creditor, his status as a creditor arose too late to be the source of standing for the purposes of the pre-existing applications based on ss.445D, 445G and 600A. 11 It is convenient to consider the second matter first. Section 445D(2) says that an order terminating a deed of company arrangement "may be made on the application of" a creditor. Section 445G(1) says that a creditor "may apply to the court for an order under this section". Section 600A empowers the court to make an order "where, on the application of a creditor … of the company", it is satisfied as to specified matters. 12 As it applies to each of these cases, rule 2.2(1) of the Supreme Court (Corporations) Rules 1999 says: "Unless these Rules otherwise provide, a person must make an application required or permitted by the Corporations Act to be made to the Court … by filing an originating process …"

It follows that a person filing an originating process embodying an application for an order under s.445D, s.445G or 600A must be a creditor when the filing is made. As the decision of Nicholas J has established, Mr Hoath did not have the status of creditor of Comcen at that time. What, then, was the effect of his afterwards becoming a creditor of Comcen through the assignment from Classic (assuming that he did), so far as maintaining the application supposedly initiated by the originating process previously filed? 13 There is no equivalent, in any of these statutory contexts, of s.465B applying to an application for a winding up order. That section allows the court to substitute for the original applicant "a person or persons who might otherwise have so applied for the company to be wound up". In the absence of this provision the original applicant would be the only person capable of pursuing the application and if, by the time it came to be heard, he or she was no longer a creditor, the application would be dismissed. 14 The matter of trafficking in pending winding up applications (and the debts underlying them) was first considered in Re Paris Skating Rink Company (1877) LR 5 ChD 959. As was explained more than a century later in Perak Pioneer Ltd v Petroliam Nasional Bhd [1986] AC 849, the true ground of objection to such a transaction in the Paris Skating Rink case was that the assignee had taken an assignment of the petitioner's debt for an ulterior motive during the pendency of the proceedings. The assignee was a minority shareholder in circumstances where the majority sought to resist the winding up. He took the assignment to put himself in a stronger position to force liquidation. That was the ulterior motive. The Privy Council, in Perak Pioneer, described as accurate a contemporary comment in the Solicitor's Journal that the underlying principle was that "a petition founded on a debt purchased pendente lite for the very purpose of acquiring the right to petition is not sustainable". 15 In the present case, each originating process can now be seen to have been filed by a person without standing to make the relevant application. Each was, at the time of filing, liable to be dismissed or struck out because doomed to failure. Each was, in the sense, an abuse of process. It makes no difference, in my opinion, that Mr Hoath may later have become a creditor and thereby acquired the standing that he should have had to ground his applications in the first place. This is because of the class or group of creditors that each provision clearly has in contemplation. 16 Sections 445D, 445G and 600A, unlike the provisions allowing any creditor at any time to seek winding up, are concerned with creditors in a particular context and for particular purposes. Sections 445D and 445G enable a creditor to seek the intervention of the court in a way that causes a deed of company arrangement to become inoperative. Section 600A, as it applies in relation to a deed of company arrangement, enables a creditor to seek the intervention of the court to vary the outcome of a resolution of creditors where, among other things, it has produced a particular type of adverse effect upon the interests of "the creditors as a whole", "that class of creditors as a whole" or "the creditors who voted against the proposed resolution". 17 The effect and operation of a deed of company arrangement, as it relates to the company's creditors, are as specified in s.444D. By s.444D(1) (which operates subject to qualifications and exceptions in ss.444D(2) and 444D(3)), such a deed "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). Creditors having claims satisfying that temporal specification are thus affected by the deed, as are the respective claims satisfying that temporal specification. One of those temporal requirements, it seems to me, is that the person concerned had, at the time the deed of company arrangement became binding, a claim that had arisen on or before the relevantly specified day. The effect of the statutory provisions is that creditors within that class are, in respect of those claims, entitled to the benefits and subject to the detriments created by the deed. 18 In the case of s.600A and its focus on the interests of creditors, it is in my view plain that the section is concerned with persons who were creditors when the resolution was passed. The section is concerned with circumstances pertaining at and in relation to the meeting and the passing of the resolution and thus has in contemplation the creditor constituency as it existed at that time. 19 Because he had no relevant debt or claim when the resolution was passed and the deed was executed, Mr Hoath was never within the class of creditors contemplated by any of these sections. Any status as creditor that may have accrued to him by reason of the document of 4 August 2004 cannot be regarded as somehow having "fed" or retrospectively validated his applications invalidly and improperly brought by means of the originating processes filed by him in the two proceedings. He was not, at inception, and has not become, a member of the class capable of pursuing an application to the court under any of the sections in question. His applications are therefore an abuse of process. 20 This makes it unnecessary to come to any conclusion on the effectiveness of the purported assignment of debt in favour of Mr Hoath. The result I have stated applies even if it was effective to make him, on and from 4 August 2004, a "creditor" of Comcen in respect of part of the debt of Classic Electrical Service Pty Ltd upon which the deed of company arrangement had already operated. 21 In both proceedings 1756/03 and 3626/03, there will be an order that the statement of claim be dismissed pursuant to Part 13 rule 5 of the Supreme Court Rules. **********

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