In proceedings 2014/89694, Mr David Ingram and Mr David Ross as administrators of Bestcare Foods Ltd (Subject to Deed of Company Arrangement) ("Company") sought directions under s 447D of the Corporations Act 2001 (Cth) that they would be justified in paying interest on the claims of participants under the deed of company arrangement ("DOCA") . I delivered judgment in respect of that application on 23 May 2014 ([2014] NSWSC 645). In proceedings 2014/107805 the Company in turn sought orders under s 447A of the Corporations Act that the administration of the Company was to end forthwith or, alternatively, within a specified period and consequential orders.
In the matter of Bestcare Foods Ltd (subject to a Deed of Company Arrangement) [2014] NSWSC 1899 | Case summary | Zoe
On 18 June 2014, the parties reached agreement, recorded in short minutes of order, which were in turn made by me on 25 June 2014, which gave effect to various aspects of the termination of the DOCA and associated steps which they sought to have undertaken. Those orders were made under ss 445D(1)(g) and 447A of the Corporations Act. They were not, therefore, merely consent orders by the parties, but were the exercise of a statutory jurisdiction by the Court for reasons that I set out in my judgment delivered on 25 June 2014. I there recorded that I was satisfied that the basis of termination of the DOCA under s 445D(1)(g) of the Corporations Act was established where there was no utility with it continuing, it purposes having been served, and that there was benefit to the parties in an orderly termination of the DOCA in a manner contemplated by the orders they sought. I indicated that I was also satisfied that orders should be made terminating the DOCA under s 447A of the Corporations Act and those orders were again orders made in the exercise of a statutory jurisdiction, on their merits, albeit with the parties' consent.
I accordingly made orders in proceedings 2014/107805 on 25 June 2014 that, subject to compliance with an order specifying that certain steps be taken, the DOCA entered into on 10 March 2005 (I interpolate, nearly ten years ago) be terminated on a date three months and seven days after the date of the orders. Further orders were made, by consent, providing a regime for any application for review of the remuneration of the administrators' and deed administrators. Those orders provided that the Company was, in effect, free to make such an application for review of the administrators and deed administrators' remuneration within three months of the orders, until 25 September 2014.
Mr Goldring, a contributory, in turn filed an originating process seeking review of the administrators' and deed administrators' remuneration on 11 September 2014, within that period, and on 1 October 2014, the deed administrators filed a motion seeking to amend the first order made on 25 June 2014 to extend the date for termination of the DOCA to a date to be determined by the Court.
By order made on 1 October 2014, by consent, I made an order varying the first order made on 25 June to extend the date of termination of the DOCA to 16 October 2014 and setting down Mr Goldring's application for review of the administrators' and deed administrators' remuneration on 15 October 2014. On that date, I heard that application and, by consent, further extended the date of termination of the DOCA to 28 November 2014. I delivered judgment in that application on 19 November 2014 ([2014] NSWSC 1630), and held that a portion of the deed administrators' fees, comprising an amount approved at a meeting on 3 March 2011, subject to certain conditions, should be referred to the registrar for review. I made that order on a narrow basis set out in my judgment.
The matter was relisted on 27 November 2014 to deal with the remaining issues, including any application for further extension of the DOCA and as to costs. I do not understand it to be necessary to deal with the question of costs at this point, since the Plaintiffs no longer press for an order for costs at this point, but accept that order should be deferred until after the outcome of any review by the registrar is known, so far as that may be relevant to whether the result of this application can ultimately be characterised as a successful result on their part.
The position as to costs, and generally, has been further complicated by an application now made by the deed administrators, under r 36.16(3A) of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), to recall my judgment dated 19 November 2014 or alternatively grant leave to the deed administrators to reopen their case and to rely on additional evidence. That application has been listed for next Monday 1 December 2014.
The parties have not, however, been able to reach agreement as to any further extension of the DOCA even until that time and it is, therefore, necessary for me to determine whether my orders made on 15 October 2014 should be varied further to extend the date for termination of the DOCA, since otherwise it will expire today by reason of those orders.
The deed administrators, by written submissions, supported the extension of the DOCA, until further order, although their oral submissions also touched the possibility of an extension until after the further application they have filed in respect of my judgment is heard next Monday. Mr Goldring opposed any further extension. While the deed administrators were not explicit as to how long their proposed wider extension, until further order, should operate, it appears that it intended to operate for a considerable period, since it is justified, inter alia, by the possibility of an appeal from my decision by Mr Goldring. That possibility had initially been removed, it appeared, by an indication in Mr Goldring's submissions that he did not intend to appeal my judgment. However, it is by no means clear that indication will bind him, if that judgment is further varied or recalled in the manner the deed administrators now seek.
The deed administrators submit that the DOCA should be further extended, by reason of provisions of the DOCA which allow them rights of indemnity against the deed fund for their remuneration and expenses, up to the termination of the DOCA, and a lien over the deed fund. I will assume the DOCA contains such provisions, although it was not tendered in evidence before me in respect of this particular application. They submit that the DOCA would extend subject to any order of the Court to the contrary under s 449E of the Corporations Act, to the remuneration, fees, expenses and charges incurred during the currency of the DOCA and point to the possibility of two further pieces of litigation, namely, the review of the deed administrators' remuneration and any appeal from my judgment.
I have referred to the position in respect of a possible appeal above, and I should also recognise that it is, of course, possible that the deed administrators would also appeal from my judgment. The deed administrators point out, obviously enough, that the termination of the DOCA would bring the appointment of the deed administrators to an end and that any right of indemnity attaching to that appointment would, therefore, be lost. It is not necessary to express a view as to that latter submission, to the extent that any question of any equitable rights of the deed administrators may or may not be dependent upon the continuance of the DOCA. Neither party made submissions as to that matter before me.
Mr Goldring responds that the DOCA should be terminated because the matters contemplated by the orders made on 25 June 2014, in accordance with the short minutes agreed between the parties on 18 June 2014, have occurred, and all that remains to be completed is the review of the deed administrators' remuneration and compliance with order 5(b) that contemplates, within seven days of the termination of the DOCA, that the deed administrators should pay the Company the amount standing to the credit to the deed administrators' account. I note that position is in turn qualified by an undertaking offered by Mr Goldring in the course of oral submissions yesterday.
Mr Goldring points out that it is common ground, and has been previously noted in orders made by the Court, that the Company has been solvent since 27 December 2013. In submissions, Mr Goldring also undertook not to appeal from the Court's decision, so as to remove any risk to the administrators and deed administrators that they might be required to incur further costs in respect of such an appeal. However, I proceed on the basis that Mr Goldring will not necessarily be bound by that position, if my decision is set aside or varied as the administrators seek.
Mr Goldring initially offered to secure the costs of the administrators and deed administrators of the review of their remuneration by a bank guarantee of $100,000 and, in oral submissions, Mr Laughton, who appeared for him, made a further offer to secure the administrators' and deed administrators' position in respect of a larger amount of funds presently held by them. That offer was not accepted by the deed administrators. I will, however, proceed on the basis that it remains open.
Mr Martin, who appears for the deed administrators, in turn submits that the replacement of the deed administrators' indemnity by security would not operate as a variation of the terms of the DOCA and would be inconsistent with them and would require the deed administrators to disgorge the deed fund and surrender their first ranging lien over it. The first two of those propositions are obvious consequences of the termination of the DOCA, but do not provide any basis for assuming that leaving the DOCA in place is preferable to allowing the orders to which the deed administrators previously consented to take effect. To say that a consequence follows from a particular course is not to say that the consequence should not be permitted to follow. The third proposition requires qualification by reference to the undertaking which Mr Goldring has indicated would be provided. Mr Martin then submits that security may not be broad enough to cover all eventualities or may be insufficient in quantum. That submission again assumes, sub silentio, that the only relevant interest is the protection of the deed administrators and that the deed administrators are entitled to perfect protection.
Mr Martin then submits that the deed administrators should not be required to fund the costs of a review application "from their own pocket" in the light of the indemnity under the DOCA. That submission seems to me to beg the question why the deed administrators should not be held to the consent order to which they had agreed and, subject to the result of the application to vary or set aside the judgment, left to fund any review application which resulted, where that was a consequence which was implicit in those consent orders.
In the result, it seems to me that any further order deferring the termination of the DOCA, which is not made by consent, needs to be assessed in the context of the fact that orders were made by consent for the termination of the DOCA in June 2014, and I then exercised a statutory jurisdiction under s 445D and s 447A of the Corporations Act to make orders for that termination, in a judgment setting out the reasons why that course was consistent with the purposes of Pt 5.3A of the Corporations Act.
Mr Martin submits that the deed administrators had liberty to apply, as they plainly did, but the ability to bring an application does not remove the need to indicate why that application should succeed, having regard to the purposes of the Corporations Act, to which the earlier judgment referred. The deed administrators have pointed to no change since the position in June 2014, other than Mr Goldring having exercised the right that the orders made by consent provided him, to bring an application for review of the deed administrators' remuneration. Those orders seem to me to have reflected a compromise between the parties and conferred benefits on the deed administrators, including approval for payment of certain remuneration, although expressly subject to Mr Goldring's right of review, on terms that the DOCA be terminated. It is not obvious why the deed administrators should now be permitted to retain those benefits but avoid the corresponding benefit obtained by the Company of termination of the DOCA.
In any event, it is common ground, noted by a previous order of the Court, that the Company is solvent and has been so for a considerable time. The deed administration has continued for nearly ten years, and that is not a reason why it should continue longer. I do not find the proposition that a solvent company should remain in administration for the indeterminate future so as to preserve the deed administrators' indemnity, where they had previously consented to termination of the DOCA and obtained benefits from doing so, to be persuasive. That would, no doubt, be in the deed administrators' interests but it does not seem to be in the interests of the Company or its members or consistent with the purposes of Pt 5.3A of the Corporations Act, which includes the return of solvent companies to the mainstream of commercial life in an appropriate case.
I should add, for completeness, that I have not neglected the possibility that the DOCA should be extended for a short period, pending the determination of the deed administrators' application to recall my judgment under UCPR r 36.16(3A). However, it seems to me that application ultimately has no impact on the question of termination of the DOCA. If the application succeeds, then there would be less reason to extend the DOCA, because the deed administrators would no longer be exposed to the costs of the review application. If it fails, there has been no change to the position as it existed in June 2014, subject to the fact that the potential application for review by Mr Goldring has been become an actual application. It seem to me that, in practice, the limited further evidence that the deed administrators seek to lead is also unlikely to require a full re-hearing of the proceedings, so as to expose the parties to substantial costs in respect of the application.
I have also not neglected the fact that Mr Goldring's present indication that he will not appeal the judgment may well not bind him if the judgment is now varied by reason of the deed administrators' application, particularly if that occurs on the basis of the new evidence which the deed administrators now seek to lead. However, it does not seem to me that the purposes of Pt 5.3A of the Corporations Act would be served by a prolonging of the administration of a solvent company, potentially for a significant period, while any appeal is determined. For that reason, even taking the prospect of an appeal into account, it does not seem to me that there is now reason further to extend the DOCA, or to interfere in any way with the orders already made, which will have the result, if not interfered with, that the DOCA will terminate today.
I noted above that Mr Goldring, by his counsel, made an offer of a further undertaking to protect the administrators' and deed administrators' position in respect of the funds held by them in the course of oral submissions yesterday and, although that offer was not accepted by them, I would proceed on the basis that it remained in place. I will, therefore, stand the matter down briefly to allow the parties an opportunity to reduce that undertaking to writing, so that I may note that undertaking in a formal order of the Court.
[BRIEF ADJOURNMENT]
On 25 June 2014, I noted an agreement of the parties that, within seven days of the date of termination of the DOCA, any amount standing in credit in the deed administrator's account would be returned to the Company. That was not a court order, but simply a note of an agreement which the parties have reached. I have referred in my earlier judgment to an undertaking offered by Mr Goldring, in the course of submissions before me, and I have now been provided with a written version of that undertaking, which provides that the amount presently standing to the credit of the DOCA fund may be retained by the deed administrators, subject of course, to the detailed terms of that undertaking. I note that that undertaking is intended to qualify the obligation which would otherwise arise from the agreement between the parties which was recorded in paragraph 5(b) of my orders made on 25 June 2014, and that matter has been common ground between the deed administrators and Mr Goldring, by their legal representatives, in submissions before me.
Accordingly, I will note the undertaking of Mr Michael Anthony Goldring in the form initialled by me and placed in the file.
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Decision last updated: 03 February 2015