In the matter of Gulf Energy Ltd [2019] NSWSC 1637

Supreme Court of NSW|2019-11-18|Before: Ward CJ

Judgment

HER HONOUR: This is an application, by originating process filed 1 November 2019 pursuant to s 447C of the Corporations Act 2001 (Cth) (the Act) for a declaration concerning the validity of the appointment of administrators to the plaintiff company. That declaration is sought pursuant to s 447C(2) and s 1322(4)(a) of the Act. In the alternative, an order is sought pursuant to s 447A of the Act, that Part 5.3A of the Act is to operate in relation to Gulf Energy Limited (Gulf Energy) as if each of Bruce Gleeson and Daniel Robert Soire was validly appointed as joint administrators of Gulf Energy by resolution of the board of directors of Gulf Energy Limited on 21 October 2019 pursuant to s 436A of the Act. An order is sought that the first and second plaintiffs' costs in the originating process be costs in the administration of Gulf Energy.
In support of the application, the applicants have read an affidavit sworn 30 October 2019 by Wolfgang Siegfried Fischer, one of the two current directors of Gulf Energy, and an affidavit sworn 7 November 2019 of Daniel Robert Soire, who is a registered liquidator and one of the joint and several voluntary administrators of Gulf Energy with his fellow principal, Mr Gleeson.
The application was bought by the applicants seeking urgent relief. The urgency of the application is not immediately apparent on the affidavits filed for the applicants, other than that the position is that the current joint and several voluntary administrators are concerned that there may be a doubt as to the validity of their appointment and, in circumstances where it is anticipated that a proposal will be put for a deed of company arrangement and where there is a major asset of the company worth some $10 million in the form of a petroleum exploration tenement, the concern on the part of the administrators, as I understand it, is to have clarified the validity of their appointment as administrators.

Background

By way of background I note from Mr Soire's affidavit that he and Mr Gleeson were appointed as joint and several voluntary administrators of Gulf Energy on 21 October 2019 by resolution of the company's board of directors. Mr Soire has deposed (at [5] of his affidavit) that the current board of directors is constituted by two members, being Scott Riley and Wolfgang Siegfried Fischer.
Clause 3.1 of the company's constitution requires the board of directors to have at least three members. However, cl 3.11 of the company's constitution states that if the board of directors has less than three members the board of director may (only) act in "emergencies".
Mr Soire has deposed to his process of receiving and reviewing books and records of the company to investigate its financial affairs, since his appointment, and has referred in his affidavit to the circumstances leading up to the voluntary administration, including the indebtedness on the part of the company to Seabird Exploration Asia Pacific Pte Ltd (Seabird) in an amount of approximately AUD $6.346 million in relation to seismic survey data services undertaken by that company.
Mr Soire has deposed that, based on his review of the 208 financial year statement and preliminary investigations of the company's financial affairs, he is of the view that the company was insolvent from at least the date of his appointment. His reasons for that conclusion are that: at the time of his appointment the company's auditors provided a qualified report for the year ended 30 June 2018 and had raised concerns regarding the ability of the company to continue as a going concern and it may not be able to realise its assets and discharge its liabilities for the normal course of business; the company was required to pay the Seabird liability; the company was required to pay a sum of $625,000 plus interest owed to a Mr Charles Alexander; the company possibly had other outstanding liabilities due and payable; and that the company's major asset is the petroleum exploration tenement to which I have earlier referred (and which is said not to be readily convertible to cash).
Mr Soire has deposed (at [22] of his affidavit) that, given the financial position of the company, he is of the view that the two members of the board of directors were entitled to act to place the company into voluntary administration under cl 3.11(c) of the company's constitution, but seeks, as I have adverted to already, an order from the Court to validate the appointment of the joint and several voluntary administrators for reasons that: first, he wishes to resolve the validity of the appointment before he takes any further steps in the voluntary administration; and, second, he anticipates receiving at least one proposal for a deed of company arrangement and would like to insure that there are no concerns regarding the validity of actions undertaken by him operating as voluntary administrator. He has also deposed to his activities and investigation as an administrator of the company.
Mr Fischer in his affidavit sworn 30 October 2019 has deposed to the fact that Gulf Energy has two directors and has deposed to the position under the 2018 and 2019 financial records of the company. He has further deposed (at [15]; [18]) to a meeting of the directors of Gulf Energy on 21 October 2019 and to the fact that he and his fellow director formed the view that Gulf Energy was likely to become insolvent. He has set out (at [19]) the reasons for that view.
Mr Fischer has deposed (at [21]) to his understanding that there are parties that have expressed interest in putting forward a deed of company arrangement for the continued operation of the business or the acquisition of the permit, and (at [22]) to the fact that he is not aware of any creditors that are challenging the appointment of the administrators.

Determination

Section 201A(2) of the Act relevantly requires that a public company must have at least three directors, not counting alternate directors, and that at least two directors must ordinarily reside in Australia. It is clear that that requirement has not been satisfied in the present case. I have already referred to Gulf Energy's constitution which requires a minimum of three directors but which makes provision for the directors to act even if their number falls below the minimum number fixed for certain purposes including in emergencies.
The doubt as to the efficacy of the resolution on 21 October 2019 pursuant to which the first and second plaintiffs were appointed as voluntary administrators of Gulf Energy arises because of the fact that there are only two directors of the company. The possibility that, notwithstanding the fact that there were only two directors of the company at the time, this is a valid resolution arises because of the exception contained in cl 3.11 of the constitution for a lesser number of directors to act for certain purposes including emergencies.
I have been taken to the decision of Brereton J, as his Honour then was, in In the matter of DH International Pty Limited (Administrators Appointed) ACN 143 461 849 [2013] NSWSC 1120, in which his Honour concluded that the appointment in that case of administrators was not invalid by reason of the fact that the resolution on which the appointment was purportedly made was not a valid resolution of the board of directors as the relevant plaintiff. One of the reasons for his Honour's view that the appointment was not invalid by reason of the Act was that, while the constitution stipulated a minimum number of two directors, it recognised that continuing directors might act even if the number fell below the minimum number fixed in accordance with the constitution for certain limited purposes including emergencies and his Honour considered that the appointment of a voluntary administrator in circumstances of insolvency met that requirement (see at [15] of his Honour's reasons).
I was also taken to the decision of Hammerschlag J in In the matter of Creative Memories Australia Pty Ltd (Administrators Appointed) [2013] NSWSC 652. There, the company at first had three directors (two resident in the United States of America and one local) but the local director had resigned and the two remaining non-resident directors determined that the company was insolvent and unable to pay its debts as and when they fell due; and passed a resolution appointing the applicants as administrators. His Honour was "far from convinced" that the resolution was ineffective or invalid, but said that if it was this was clearly a case where any doubt could properly be dispelled by the making of an order under s 447A(1) of the Act.
In the present case, the submission put for the applicants is that it could be concluded that the appointment of voluntary administrators in the company in the present circumstances was in an emergency, such that the appointment of the voluntary administrators would not be invalid, but that if there were to be a doubt then in order to remove any doubt it would be appropriate to exercise the power under either one or both of s 447A of the Act and s 1322 of the Act.
Section 447A of the Act states: (1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company. (2) For example, if the Court is satisfied that the administration of a company should end: (a) because the company is solvent; or (b) because provisions of this Part are being abused; or (c) for some other reason; the Court may order under subsection (1) that the administration is to end. (3) An order may be made subject to conditions. (4) An order may be made on the application of: (a) the company; or (b) a creditor of the company; or (c) in the case of a company under administration - the administrator of the company; or (d) in the case of a company that has executed a deed of company arrangement - the deed's administrator; or (e) ASIC; or (f) any other interested person.
Further, s 1322(4) of the Act states: (4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; (b) an order directing the rectification of any register kept by ASIC under this Act; (c) an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a); (d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding; and may make such consequential or ancillary orders as the Court thinks fit.
In Hayes v Doran (No 2) [2012] WASC 486, relevant principles in relation to the exercise of the power conferred by s 447A to cure defects in administrator appointments were considered (from [263]ff): Subsection 447A(1) of the Act empowers the court to make such order as it thinks appropriate about how Part 5.3A of the Act is to operate in relation to a particular company. The discretion the court has under s 447A(1) is wide. There is nothing on the face of the subsection that suggests that it should be read down: Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 [17], [20]. The reference in the provision to 'this Part' (ie Part 5.3A) is not a reference to the Part as a whole but is to be understood as a reference to each of the provisions within it: Australasian Memory at [18]. It is clear from the examples given in s 447A(2) that the orders that may be made by the court under s 447A go beyond a curial determination of what is the effect of existing provisions of Part 5.3A on a particular company and assumes that under s 447A(1) the court may alter the operation of other provisions of the Part. The orders contemplated are orders that alter how a particular provision within Part 5.3A is to operate in relation to a particular company, not how it does operate: Australasian Memory at [18]. The power of the court under s 447A(1) to make an order about how Part 5.3A 'is to operate' in relation to a particular company does not preclude the making of an order with future effect, but in respect of past matters or events: Australasian Memory at [26]. This includes making an order that Part 5.3A of the Act is to operate in relation to the company as if the original administrators had been validly appointed: Re Wintech Group Ltd [2011] VSC 273 at [9]. Section 447A permits the court to make orders to cure defects or to remedy the consequences of some departure from the scheme set out in Part 5.3A: Australasian Memory at [17]. There are numerous instances where courts have invoked the section to cure the defective or invalid appointment of an administrator: Re Australian Art Investment Pty Ltd [2012] VSC 18 at [5] per Davies J citing Calabretta v Redpen Developments Pty Ltd (in liq) (2010) 183 FCR 47, 53 [36] and other decisions. Courts have made orders pursuant to s 447A with respect to the operation of Part 5.3A where an administrator has not been validly appointed under s 436A because the purported appointment was made: (a) after the death of the sole director of the company on the basis of documents of appointment previously executed: Re Pasdonnay Pty Ltd (ACN 009 131 622) (admins apptd); McDonald (2005) 53 ACSR 717; (b) by the apparent sole director of the company at a time when he was an undischarged bankrupt and therefore had ceased to be a director; (c) by de facto directors of the company who were determined by the court not to be directors for the purposes of s 436A; Xie v Crisp (2011) 248 FLR 265; (d) by the sole director of the company when the company's constitution fixed the minimum number of directors as two and, accordingly, the sole director could not pass a resolution under s 436A: Re Australian Art Investment Pty Ltd. It is clear that the court has power to alter how s 436C is to operate in relation to a company by ordering that Part 5.3A is to operate as though the purported (but invalid) appointment of the administrator pursuant to that section was valid: National Australia Bank Ltd v Horne (2011) 253 FLR 205 at [33]. In National Australia Bank v Horne, s 436C did not engage because the charge relied upon was not over the whole, or substantially the whole, of the company's property. Section 447A was also invoked in Re Wintech Group Ltd to cure a defective appointment under s 436C of the Act in circumstances where the charge was granted to a group of chargees collectively, not jointly and severally, and therefore it was not open to one of the chargees alone to appoint the administrator. An invalidly appointed administrator who has acted on the basis of the purported appointment has standing to make an application for an order under s 447A(1) because they are an 'interested person' within the meaning of s 447A(4)(f): Re Pasdonnay Pty Ltd at [17]. The broad discretion conferred by s 447A(1) is to be exercised having regard to all of the circumstances of the case that have been brought to the court's attention by the applicant for relief and by those who have an interest in the matter and who may be affected by the granting of that relief: Calabretta v Redpen Developments at [37]. One relevant consideration is whether the purposes of Part 5.3A would be best served by the making of an order: Re Pasdonnay Pty Ltd at [20]. The apparent purpose and object of Part 5.3A is to provide a constructive approach to corporate insolvency by focussing on the possibility of saving a business (as distinct from the company itself) and preserving employment prospects: see the discussion in Re RiverCity Motorway Pty Ltd v Madden [No 3] (2012) FCR 360 at [42] - [44]. Another consideration is whether substantial injustice would be caused by effectively validating an otherwise invalid appointment: Calabretta v Redpen Developments at [37]. The focus of the court when making an order under s 447A is the position of the company at the time of making the order and what is best for the company in the future: Re Australian Art Investment at [6].
I refer also to the decision of Black J in Dolores Correa and The Spanish Club Limited (subject to Deed of Company Arrangement) v Kenneth Michael Whittingham (No 3) [2012] NSWSC 526 (Dolores Correa), where his Honour considered those principles. His Honour noted, in particular, that it was relevant to the exercise of the discretion to validate an appointment under s 447A of the Act that the Club was insolvent or very likely to become insolvent when the appointment was made (see at [83]). His Honour noted (at [96]): The Court's power to make such an order is available even in cases where s 447A of the Corporations Act is available and that section extends to validating past conduct: Deputy Commissioner of Taxation v Portinex above at [42]. In Sutherland (as liquidator of Sydney Appliances Pty Ltd (in liq)) v Robert Bosch (Australia) Pty Ltd [2000] NSWSC 32; (2000) 33 ACSR 680, Santow J indicated that he would have cured a lack of quorum of a board meeting which purported to appoint an administrator by making remedial orders under s 447A or s 1322(4) of the Corporations Act had it been necessary to do so. In Re Wood Parsons (in liq) above at [52]-[53], Austin J noted that the appointment of an administrator could be validated under s 1322(4) in cases where an order under s 447A was available, and that similar considerations would arise under the two provisions. I am satisfied that the prerequisites to an order under s 1322(4) are satisfied. A resolution to appoint an administrator is of a procedural character, because it authorises the taking of a procedural step, namely an administrator's appointment, and the word "procedural" does not connote triviality: Deputy Commissioner of Taxation v Portinex above at [53]. I am also satisfied that it is just and equitable that the order be made for the reasons set out above and that provides an alternative basis for the making of that order.
His Honour also noted in that case that, before making an order under s 447A or s 1322 of the Act, the court must be satisfied that no substantial injustice has been or is likely to be caused to any person. In the present case, it is submitted that there will be no substantial injustice by the making of such an order.
It is further submitted that there is particular reason to validate an appointment of an administrator made by the directors of a company where the number is short of legislative and/or constitutional requirements, given the likely difficulty in persuading another person to become a director, or a company is expected to become insolvent (see Dolores Correa at [79]).
Reference was also made to the decision of Black J in In the matter of Lime Gourmet Pizza Bar (Charlestown) Pty Ltd (formerly under administration); Lime Gourmet Pizza Bar (Darby Street) Pty Ltd (formerly under administration) (in liq); Lime Gourmet Pizza Bar (Hamilton) Pty Ltd (formerly under administration) [2015] NSWSC 244 (at [21]-[22]) where his Honour summarised the principles concerning the necessity for a director's opinion as to insolvency to be held genuinely and in good faith: I should also address the legal principles applicable to the validity of an administrator's appointment, before turning to a closer review of the circumstances of the appointment in this case and the manner in which LGPB Charlestown and LGPB Hamilton put their case. Section 435A of the Corporations Act in turn sets out the purpose of Pt 5.3A of the Corporations Act, namely to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the 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 in existence, results in a better return for the company's creditors and members than would result from an immediate winding up of the company. An administrator can be appointed under s 436A of the Corporations Act if the board, relevantly Mrs Moshos, held the specified belief that the Companies were insolvent or were likely to become insolvent in the future. Mr Mandoh submits, and I accept that, if a director's opinion as to insolvency is not held, or is not held genuinely or in good faith, a resolution passed by the directors to appoint an administrator under s 436A of the Corporations Act is invalid: Kazar v Duus above at 333 - 334; Londish v Sheahan - Re Valofo Pty Ltd [2010] NSWSC 337 at [27]. Mr Mandoh refers to the observation of Merkel J in Kazar v Duus above at 230 - 231 that it is implicit in the statutory requirement under s 436A of the Corporations Act that the relevant director's opinion as to the insolvency, or likely insolvency, of the company that the opinion be bona fide and genuinely formed. Statements of the directors' opinion are relevant to whether they have formed the requisite opinion but the court must approach that question objectively: Kazar v Duus above; Smolarek v McMaster as Administrator of Eznut Pty Ltd [2008] WASCA 234. Mr Mandoh also submits that it is not sufficient to support an administrator's appointment that directors are merely uncertain as to a company's solvency: Kazar v Duus above; Wagner v International Health Promotions (1994) 15 ACSR 419 at 421. Mr Mandoh also refers to the observation of Weinberg J in Downey v Crawford [2004] FCA 1264; (2004) 51 ACSR 182 at 218 that the question whether directors genuinely believed that a company was actually insolvent, or likely to become so at some future time, will depend largely upon whether they took adequate steps to satisfy themselves that the statutory requirements were met before resolving to appoint an administrator.
It is submitted in the present case that the opinion formed by Mr Fischer about the insolvency or likely insolvency of Gulf Energy was bona fide and genuinely formed and that, although there is no direct evidence before the court as to the state of mind of the second director (Mr Riley), his state of mind can be inferred from the minutes of the meeting of directors and his signature appearing on the instrument of appointment of administrators (see In the matter of Warwick Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd) [2015] NSWSC 937 at [77]).
The applicant submits that it is relevant to take into account that the administrators have taken steps consequent to their appointment; have, in particular, corresponded with creditors of Gulf Energy and convened the first meeting of creditors (see Mr Fischer's affidavit at [20]) and undertaken the matters deposed to by Mr Soire (at [25] of his affidavit). It is submitted that no-one is prejudiced by the decision of the directors to appoint administrators to Gulf Energy; that the company appears to be insolvent; and that the preferable outcome for creditors and members is administration with the eventual outcome determined after the administrators' investigation. The administrators have consented to their appointment and Mr Fischer is not aware of any creditor who has challenged their appointment.
Insofar as the objects of Part 5.3A of the Act are concerned, it is submitted that it would serve those objects for the Court to make an order curing any defect in the appointment of the first and second plaintiffs as voluntary administrators of Gulf Energy, having regard to the circumstances set out above.
As to the application for an order under s 1322(4) of the Act, it is submitted that the prerequisites to such an order are satisfied in the present case: that a resolution to appoint an administrator is of a procedural character because it authorises the taking of a procedural step (namely, an administrative appointment, see Dolores Correa at [96]) and that it is just and equitable in the present case that the order be made (for the reasons that have been put forward in the administrators' submissions and because no substantial injustice has been or is likely to be caused to any person).
In the circumstances, it is not necessary to reach a concluded view as to whether or not a declaration should be made as to the validity of the appointment of the joint and several administrators because the plaintiffs will be satisfied by an order made that will cure any doubt in that regard. Thus, I am satisfied that the relief sought in the alternative prayer 2 of the originating process should be granted.
For the above reasons, I make the following orders: 1. Order pursuant to s 447A of the Corporations Act 2001 (Cth) that Part 5.3A of the Corporations Act 2001 (Cth) is to operate in relation to Gulf Energy Limited as if each of Bruce Gleeson and Daniel Robert Soire was validly appointed as joint administrator of Gulf Energy Limited by resolution of the Board of Directors of Gulf Energy Limited on 21 October 2019 pursuant to s 436A of the Corporations Act 2001 (Cth). 2. Declare pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) that Mr Gleeson and Mr Soire's appointments as administrators of Gulf Energy Limited on 21 October 2019 and all acts, matters or things purporting to have been done or any proceedings purported to have been instituted or taken under the Corporations Act 2001 (Cth) in relation thereto pursuant to that appointment, are not invalid by reason reason of any contravention of a provision of the Corporations Act 2001 (Cth) or any provision of the Club's constitution. 3. Order that the first and second plaintiffs' costs of the originating process be costs in the administration of Gulf Energy Limited. 4. Order that these orders be entered forthwith.

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