In the matter of Le Meilleur Pty Ltd (subject to Deed of Company Arrangement); Le Meilleur Pty Ltd (subject to Deed of Company Arrangement) & Ors v Jin Heung Mutual Savings Bank Co Ltd & Anor

Judgment 1HER HONOUR : These proceedings were commenced by originating process filed on 2 February 2011. The plaintiffs seek relief in relation to the proposed sale of the Horizons Le Meilleur golf course and resort at Salamander Bay, Port Stephens. The first plaintiff (Le Meilleur) is the registered proprietor of the golf course and resort. The second and third plaintiffs are the persons appointed first as the voluntary administrators and then as deed administrators of Le Meilleur, which was placed in voluntary administration by resolution of its directors in late June 2010. A deed of company arrangement was executed by the deed administrators on 18 August 2010. The deed administrators have, since then, entered into contracts for the sale of both the golf course land and the business of Le Meilleur (i.e. the business operating the golf club at the course) to a third party (Brett Lawton Investments Pty Ltd as trustee for the Brett Lawton Super Fund), an entity associated with Mr Brett Lawton, the golf professional who is currently operating the golf course business under licence from the deed administrators. 2The first and second defendants (Jin Heung Mutual Savings Bank Co Ltd and NH Capital Co Ltd, respectively) are banks operating in South Korea. Each holds a registered mortgage over the golf course land (but no security over Le Meilleur itself or its business) to secure borrowings by Le Meilleur's Korean parent company (Le Meilleur Constructions Co Ltd, to which I will refer in these reasons simply as the Korean parent company in order to avoid confusion between the two "Le Meilleur" entities). 3There was no appearance by NH Capital at the hearing or during the course of the proceedings. On 31 March 2011, orders were made granting leave to the plaintiffs to proceed with their claims against NH Capital pursuant to Rule 11.4 of the Uniform Civil Procedure Rules 2005 (NSW). 4Neither Jin Heung nor NH Capital has provided the deed administrators with a discharge of its respective registered mortgage over the land (necessary to permit the sale of the golf course land to proceed). In this regard, it is noted by Counsel for the deed administrators (Mr Golledge) that, as neither defendant holds any security over the other assets of Le Meilleur, if the mortgagees were to be in a position to enforce their security they could sell only the golf course and not the business currently operated at the golf course. 5Broadly, what the plaintiffs seek to do in these proceedings is to compel Jin Heung to comply with the Deed of Company Arrangement dated 18 August 2010 which was executed following a creditors' vote taken at the second meeting of creditors held pursuant to s 439A of the Corporations Act 2001 (Cth) on 24 July 2010. (In the case of NH Capital there is no suggestion that it voted for the Deed of Company Arrangement at the Second Creditors' meeting.) 6In the alternative, an order is sought pursuant to s 442C(2)(c) of the Corporations Act (or in the exercise of the inherent power of the Court to direct a judicial sale of the property, if that inherent power survives or extends beyond that conferred by s 442C) granting the deed administrators leave to dispose of the property of Le Meilleur that is subject to the mortgages to the first and second defendants. 7It is submitted by Mr Golledge that Jin Heung agreed to the sale process and voted (by proxy) in favour of the Deed of Company Arrangement (knowing that by so doing it was consenting to the sale of the golf course land) and that it should not now be permitted to resile from that position where to do so would cause substantial prejudice to unsecured creditors, the deed administrators (who it is said have incurred substantial liabilities in relation to the administration and, in particular, the operation of the golf course up until Mr Lawton took over the operation of the course) and Mr Lawton (the purchaser of the land under the contract for sale). It is submitted by Mr Golledge that adequate arrangements have been made in the interests of the secured creditors (for the purposes of the pre-condition for relief under s 442C) because they will obtain from the sale all that they could expect to receive if they were to appoint a receiver pursuant to their security. (As will be seen, however, in the case of both mortgagees it is likely that they will receive little, if anything, out of the sale. That is certainly the case with NH Capital.) 8Jin Heung's position is that it is not bound by the terms of the Deed of Company Arrangement. First, it says that the Deed is not a deed of company arrangement within the meaning of s 444B(6) of the Corporations Act (on the basis that it is said to encompass a proposal different from that which was put to creditors in the material forwarded prior to the meeting and to which the resolution passed at the meeting, in its terms, refers). Second, and in the alternative, Jin Heung claims it is not a creditor who voted in favour (within the meaning of s 444D(2)) of the resolution pursuant to which the Deed of Company Arrangement was executed. Third, it is said that Jin Heung gave its proxy (for the meeting at which the resolution to enter into a deed of company arrangement was passed) in reliance upon misrepresentations made by or on behalf of the deed administrators and/or Le Meilleur and therefore that it should be relieved of the burden of the Deed of Company Arrangement. 9The submission by the deed administrators that Jin Heung has resiled from a consent given in relation to the sale of the golf course land is disputed. Reliance is placed on the evidence of two of Jin Heung's officers (Messrs Youngdae Ryu and Kwanghee Yoon) and that of a director of both Le Meilleur and the Korean parent company (Mr Jong Shin Kang) to the effect that the position of Jin Heung has always been that the land could not be sold without its consent. This is disputed by the deed administrators who maintain that consent was given, subject at most to the qualification that the sale be at a reasonable price (and here, it is said, that is the case). 10Reference is also made to the evidence of one of the accountants in the administrators' office, Ms Christine Park (with whom most of the contact between the deed administrators and the Le Meilleur entities had taken place), to the effect that, to her knowledge, "Mr Kang never wanted the Australian company to sell anything". (It is said that there was no change of position even by the Korean parent company, in relation to a sale at least until a separate settlement was reached by the Korean parent company with the deed administrators on 3 September 2010, to which I will refer in due course). 11It is submitted by Senior Counsel for Jin Heung (Mr Pritchard SC) that the true characterisation of the position is that Messrs Ryu and Yoon saw the administrators as little more than local agents who were in a position to survey the market for a possible sale subject to their consent . 12Mr Pritchard notes that if Jin Heung is bound by the Deed of Company Arrangement then the application under s 442C does not arise (though I interpose to note that it would still remain for consideration in the case of NH Capital), but goes on to submit that if Jin Heung is held not to be bound by the Deed of Company Arrangement then leave should not be given to permit the disposal of the secured property, on the basis that the Court cannot be satisfied, within the meaning of s 442C(3), that arrangements have been made adequately to protect the interests of Jin Heung as registered mortgagee. In that regard, reference is made to the uncertainty as to what amounts are claimed by the deed administrators in respect of their expenses and fees and as to how any claim for remuneration is to be allocated as between the proceeds of sale of the land and of the business (in effect, as between secured and unsecured creditors); as well as to the complaints made as to the reasonableness of the sale price obtained for the land. 13By an interlocutory process filed on 9 March 2011, Jin Heung has cross-claimed for declaratory relief reflecting the position for which it contends (namely, a declaration that the Deed of Company Arrangement dated 18 August 2010 is not a deed of company arrangement within the meaning of s 444B(6) of the Act or, in the alternative, a declaration that Jin Heung is not bound by the Deed of Company Arrangement); alternatively, for orders that the Deed of Company Arrangement deed be terminated or that there be a declaration that it is wholly void (or that certain provisions of the Deed of Company Arrangement are void) or an order that Part 5.3 A of the Act is to operate in relation to Le Meilleur in such a way that s 444D(2)(a) does not operate in respect of the Deed of Company Arrangement; and, again in the alternative, an order that the deed administrators be restrained from giving effect to the sale. 14At the conclusion of the hearing before me on 3 May 2011, I was informed that notice of the present application had not (as had previously been thought by the parties) been given to creditors of Le Meilleur. An adjournment of the proceedings was granted to permit such notification to be given (it being accepted that parties whose interests might be adversely affected should be given an opportunity to be heard as to the relief now sought by the deed administrators - Re Ansett Australia Ltd and Mentha [2001] FCA 1806; (2001) 115 FCR 376 at [383] - [384] per Goldberg J). 15Such notice was duly given, following which four creditors filed interlocutory processes in the proceedings. Those creditors are, in no particular order, the Office State Revenue (which is both a secured creditor in relation to outstanding land tax and an unsecured creditor in relation to outstanding payroll tax, and which did not attend the meeting or vote in relation to the resolution to enter into the Deed of Company Arrangement), Port Stephens Council (a secured creditor in relation to outstanding Council rates, which did vote in favour of the Deed of Company Arrangement), the local Horizons Community Association (which is a secured creditor in relation to outstanding strata plan levies and which voted in favour of the Deed of Company Arrangement) and Mr Greg Ramsey, an unsecured creditor (who maintains he has at all times been sceptical of any payment being made under the Deed of Company Arrangement). Other than Mr Ramsey, the intervening creditors support the sale of the land and golf course to Mr Lawton and the grant of the relief sought by the deed administrators. Mr Ramsey (the only unsecured creditor, other than the Office of State Revenue to the extent of its payroll debt claim, to make any submissions on this issue) does not. 16At the conclusion of the adjourned hearing, an application was made on behalf of the deed administrators to amend the originating process in order to seek relief (if that be necessary having regard to the determination of the other issues in the proceedings) in relation to a claimed equitable lien or charge over the golf course land to secure their expenses incurred in the administration of Le Meilleur (including costs incurred by them in the operation of the golf course). The late amendment of the originating process (prompted, it would seem, by an observation in closing submissions by Mr Pritchard on 3 May 2011 as to any such claim potentially being the subject of an Anshun estoppel) was opposed by Jin Heung. Issues 17The following issues arise for determination: (i) In relation to the Deed of Company Arrangement dated 18 August 2010: (a) whether it is a binding instrument within the meaning of s 444B(6) of the Corporations Act ; (b) whether Jin Heung is bound by it (which requires a determination of the issue as to whether it voted by proxy for the Deed of Company Arrangement and whether any such vote was valid as a matter of law); and (c) whether, if it is a binding instrument and Jin Heung is bound by it, the Deed of Company Arrangement or part thereof should be terminated or Jin Heung should be granted relief against the operation of some or all of its terms. (ii) Whether orders should be made under s 442C of the Corporations Act or otherwise, compelling the two mortgagees to deliver discharges of mortgage so as to allow the existing contracts for sale to be completed. (iii) Whether leave should be granted for the amendment of the plaintiffs' originating process in order to permit the deed administrators in these proceedings now to seek declaratory or other relief in relation to a claimed equitable charge over the golf course land. Summary 18Mr Golledge premised his clients' claim on the following factual propositions, that he invited me to find on the facts before me:

• that Jin Heung should be taken to have voted for the deed of company arrangement on 29 July 2010; (for the reasons set out below, even if Jin Heung's proxy responded affirmatively when the vote was called I do not accept that this was a valid vote on behalf of Jin Heung)
• that at the 15 July 2010 meeting between the officers of Jin Heung and the Korean parent company's director (Mr Kang), Jin Heung consented to the proposal that the golf course land would be sold by the administrators; (I accept that this is established by the evidence - although, critically, I consider that Mr Ryu gave that consent on the basis of an understanding that the administrators would consult with Jin Heung in relation to the sale and that Jin Heung would retain the ability to refuse to consent to any particular sale if it was not satisfied as to the reasonableness of the price at which the land was to be sold - at T 240, Mr Ryu explained what he understood by a reasonable price in that regard as one to which both the secured creditor and the administrators agreed.)
• that the present sale (to Mr Lawton) is at market value (and therefore not at an unreasonable price); (I agree that the present sale price falls within the market range for the golf course land; however, in considering whether the price could reasonably be seen by the first mortgagee, acting in good faith, as acceptable, account must in my view be taken not simply of where the sale price falls within the valuer's range but as to whether the administrators have explored fully the opportunity for a purchaser to be found at a higher price and as to the deductions proposed to be made from the sale price before any receipt by the first mortgagee of proceeds from the sale - in the circumstances I am not satisfied that the condition to which Mr Ryu was told Jin Heung's consent to the sale would be subject has been satisfied)
• that Jin Heung was aware from shortly after 15 July 2010 that the administrators were proposing to put the golf course property on the market and that it also knew that the creditors' meeting had approved that course and the administrators were going about the business of selling the golf course land; (I accept that from 15 July 2010, Jin Heung was on notice of the proposal that the administrators would begin to commence the process of finding a purchaser for the golf course land and that, from at least November 2010, it was aware that the administrators were taking steps to undertake that sale process - but I do not accept that Jin Heung was advised of the result of the 29 July 2010 creditors' meeting until receipt of the letter dated 30 July 2010 but posted on 2 August 2010 by the administrators' solicitors or that it was aware until November of the steps, or some of the steps, that had been taken in relation to the sale process). 19For his part, Mr Pritchard submits that central to Jin Heung's case is the proposition that the bank only agreed to a proposal whereby the administrators were effectively acting in the place of Le Meilleur in order to explore a possible sale and that it did so understanding that it would be consulted in relation to any actual sale that the administrators proposed to enter (with an ability to withhold consent at that stage). I consider that the evidence establishes broadly that this was Mr Ryu's understanding, although I do not accept that it should be inferred that the understanding was formed on the basis of representations made on behalf of, or as agent for, the deed administrators. 20Unfortunately, it seems to me that the parties are in their current position on the one hand because of a series of assumptions made by the deed administrators as to the position of the first mortgagee in relation to its rights (largely engendered by what it was told by the Korean parent company) without direct confirmation from Jin Heung as to its understanding of the position and its willingness to forego those rights and, on the other hand, because of the reliance placed by Jin Heung on representations made by the Korean parent company as to the manner in which its position would be protected (that do not accord with the way in which the deed administrators considered they were entitled to proceed). The unfortunate aspect of this is the impact of that situation on the interests of third parties - namely, the other creditors and (to a lesser extent as I consider that his is a case of a knowing assumption of commercial risk) the proposed purchaser of the golf course. 21For the reasons set out below, I am of the view that: (i)(a) the Deed of Company Arrangement is not a binding instrument within the meaning of s 444B(6) of the Corporations Act as it does not accord with the deed "proposal statement presented" to the meeting (i.e. the written proposal attached to the administrators' report) which was the subject of the resolution voted upon at the second creditors' meeting (notwithstanding that it broadly accords with the explanation of the effect of the deed proposal given by the deed administrator at the meeting) - the critical difference being whether the land was to be included in the proposed sale under the deed proposal. (b) in any event, Jin Heung is not bound by the Deed of Company Arrangement, since the manner in which a vote was taken at the meeting (whether on the voices, as the minutes record, or by a show of hands, as one of the Community Association members recalled) precludes a finding that the holder of its proxy validly voted that proxy in favour of the Deed of Company Arrangement; and (c) had I found both that the Deed was a binding instrument and that Jin Heung was bound by it (which on the findings above is not the case), I would have granted relief under s 445D or alternatively 445G of the Act to terminate the Deed on the basis that there was a material omission from the report forwarded to creditors' prior to the second meeting (as to what was to be the subject of the proposed sale and as to whether, or the basis on which, the first registered mortgagee was prepared to consent to a sale of the golf course land) or alternatively that there was sufficient doubt as to whether the Deed of Company Arrangement was entered into in accordance with the Act, so as to enliven a discretion to terminate the Deed (and that, in the circumstances, the discretionary considerations in favour of termination of the Deed outweighed those against its termination). I consider that the evidence establishes that Jin Heung agreed on 15 July 2010 to give its consent to the proposed sale of the golf course land, and signed a proxy form to enable a vote in favour of the then proposed deed of company arrangement, in reliance on misrepresentations made by Mr Kang to the effect that Jin Heung would retain a right not to consent to a sale at least if that sale was at what Jin Heung considered to be an unreasonably low price in all the circumstances. While I do not accept that such a misrepresentation was made as agent for, or on behalf of, the deed administrators, it does mean (having regard to the deed proposal as explained to the creditors at the second creditors' meeting) that Jin Heung gave its proxy on a mistaken apprehension of the true position and I consider that it should be relieved from the effect thereof. (ii) Had this second issue arisen, I would not have made orders under s 442C of the Corporations Act (or in the exercise of any inherent jurisdiction remaining in the Court), compelling Jin Heung to deliver a discharge of its mortgage so as to allow the existing contracts for sale to be completed, as I am not satisfied that arrangements have been made adequately to protect its position and I place weight, in this regard and in considering the exercise of any discretion had there been adequate protection for Jin Heung's position, on the sensitivity traditionally shown to the position of secured mortgagees. (NH Capital is, however, in a somewhat different position. I would have been inclined, had it been the only registered mortgagee not bound by the Deed, to have granted the relief sought under s 442C against it, as it seems clear that NH Capital will receive nothing in either event and it has not chosen to resist any such relief - nor is there anything to suggest that it was misled in the manner in which Jin Heung was misled as to the operation of the proposed deed.) (iii) I refuse the application for leave to amend the originating process at this stage of the proceedings. Background Facts 22As noted earlier, Le Meilleur is the registered proprietor of the Horizons golf course and resort, from which it has operated a golf course business since 2005. 23In January 2008, the Korean parent company obtained from Jin Heung a loan facility up to a maximum amount of AU$16,000,000 (that amount including the sum of 10,000,000,000 Korean Won, at the time equivalent to AU $11,875,779.35, advanced by the Korean parent company, together with interest due and payable under the facility). The loan agreement is dated 31 January 2008 and Le Meilleur is named therein as a co-borrower. 24Some weight was placed by Mr Golledge on the perceived lack of any direct benefit obtained by Le Meilleur out of the funds drawn down under the loan facility. Mr Kang, however, gave evidence that a sum of $6.5m was used to repay the $6.5m purchase price (T 150) and that the Korean parent company had provided funding of some AU$5m on improvements for the golf course (T 145) (although whether this cash came directly from the Jin Heung loan funds is not clear to me). 25The Jin Heung loan was secured, inter alia, by a personal guarantee from the chairman of the Korean parent company (Mr Kyung Tae Chung) and a first registered mortgage granted by the Korean parent company's wholly owned subsidiary (Le Meilleur) over the Horizons golf course and resort. (Indebtedness secured by the Jin Heung mortgage as at 28 July 2010 was in the order of $12.4 million and it is not suggested that this has been reduced.) 26Reliance is placed by Mr Golledge (as support for the proposition that the present arrangements should be regarded as adequate protection for the interests of Le Meilleur as secured creditor) on the fact that Jin Heung approved the initial loan application and made the loan advance to the Korean parent company after what is said to have been a very rudimentary due diligence process (insofar as it did not undertake any first-hand investigation of the golf course property, nor did it obtain any advice on Australian securities law, notwithstanding that this transaction constituted the first occasion when Jin Heung had advanced money on the basis of security over foreign based assets). The loan approval was based upon a valuation of the golf course that was by then already 10 years old and had not been updated. (Mr Ryu's explanation of this, however, was that the Australian company was not the borrower - it was only offering security - and that as far as the bank was concerned it was sufficient that it be satisfied that the Korean parent company was reasonably run, for it to accept the golf course land as part of the security for the loan - T 245.) 27In that regard, I am not persuaded that the test as to what amounts to adequate protection for the secured creditors' interests for the purposes of s 442C should necessarily be measured by reference to what those creditors may have considered adequate to protect their interests when the security first obtained (not least where, as is presently the case, it seems to be accepted that the secured creditor did not obtain any, or any detailed, legal advice as to its position as secured creditor at the time). A failure by the second creditor to act diligently in the protection of its own interests does not in my view mean that there is a lesser test of adequacy in relation to the protection required to be afforded to the secured creditor on the disposal of the property over which it holds security.

1. Entering into a Deed of Company Arrangement
2. Enter into sale of business. 55The minutes state that option 1 (explained on at least one version as allowing Le Meilleur to finalise the administration process should head office complete the sale of the Iraq investments and transfer funds to Le Meilleur) was agreed to be the most beneficial (based on the points listed in the minutes). Option 2 (the sale of business) was said to be not "a desired outcome as proposed company (to buy the business) has to transfer the sale consideration which is expected to [be] significant" (at CB 976 this was put as being "not viable as the head office does not have enough funds"). 56A separate item on the minutes was headed "Obtaining Proxy". The minutes record that it was agreed that obtaining a proxy from "Bank in Korea" was very important and that Mr Hyun should obtain the proxy from Jin Heung "as soon as possible". The minutes also recorded that "The power of attorney accords rights to make a number of decisions concerning the administration on behalf of the Savings Bank [Jin Heung]". (Mr Pritchard submits that there can be no doubt that Mr Whittingham appreciated the importance of securing the mortgagees' proxy at that stage.) 57Ms Park says that before those minutes were sent (under cover of her email of 1 July 2010), to Mr Kang she read and agreed with them - T 121. Mr Whittingham, however, disputed the accuracy of the minutes (T 29.50) in that he did not accept that he would have given the advice there attributed to him as to the resignation of directors and he also said that the discussion of the options available would not have been as set out in items 1 and 2 (T 30.3ff). 58Mr Whittingham accepted that the options there identified (and discussed at the meeting) were, first, a deed of company arrangement (involving negotiation with creditors to settle on a discount amount and a "possible" sale of business) and, secondly, a sale of business. However, Mr Whittingham insisted that the reference to "transfer the sale consideration" in the explanation of option 2 meant "the business and the land go together" - T 31.27 (though this is by no means what his lawyers were outlining to the petitioning creditors at that stage - there talking separately about the Business and the Land though not discounting the possibility of a sale of the "Business/Land" in the future). 59Mr Pritchard notes that Mr Whittingham insisted that the business and the land were intermixed (T 41) and that references to "the business" included the land itself (even though he knew by early/mid June that the company (Le Meilleur) had no charge over its assets and business and was otherwise unencumbered (T 32.34) and knew that he needed to obtain the mortgagees' consent to any sale of the land (T 32.45; T 33.23)). 60Remarkably, even by the time of the hearing, Mr Whittingham said he did not distinguish between the land and the business (T33.28) (though forced to concede that there was a conceptual or theoretical difference between the two) and was not prepared to accept that any of the proposals in relation to the sale of the business did not also include the sale of the land. 61As at this point, however, it seems that the proposal under consideration by PKF (or at least that being described by Blake Dawson to creditors) was simply a restructuring proposal with the possibility of a sale of the "Business/Land" at a later time once the business had recovered.

• 1 July 2010 62By email on 1 July 2010, with which the 25 June meeting minutes were sent, Ms Park summarised the then current situation for Mr Kang and Mr Hyun (CB 974). She emphasised that it was important to obtain a proxy from the bank, which was the largest creditor (noting that creditors might vote against PKF's appointment because of possible conflicts of interest arising from the fact that PKF had been the company's accounting firm). 63The email referred to a "liquidation process called Deed of company arrangement" by which the company could be "recovered" or could be liquidated and its assets disposed of through negotiations with its creditors. It referred to the sale of the business (again, with no specific reference to any sale of the land). Ms Park also expressed the view that the nomination of a receiver by the bank was not a "good option" as "this will pit PKF against another institution appointed by the bank which we are not sure will act in our favour" and noted that the PKF partner "Ken" to whom she had spoken numerous times had "promised to do his best on Le Meilleur's side".
• 5 July 2010 proposal 64The first specific proposal for a sale of the land, as such, was in a letter dated 5 July 2010 from Blake Dawson to Jin Heung addressed to a Korean address (a separate letter in the same terms being sent addressed to NH Capital again at a Korean address). The letter was copied to a lawyer in Korea (Mr Jong Hyun Park) and, via a post office box address, to Sojong Lawyers, the Sydney solicitors who had acted for the banks in connection with the registration of their mortgages over the golf course) (CB 997). Those letters were received by the Sydney solicitors (on about 8 July 2010) and sent on to the Korean lawyer for the banks. However, Jin Heung denies receipt of the 5 July 2010 letter at or about that time and says it had no knowledge of any proposal for a deed of company arrangement (or a sale of the business including the land) at that time. 65Relevantly, the proposal there put by the administrators (it being expressly noted that Jun Heung's security did not extend to all of the assets of the company but was limited to its registered real property mortgages and hence that the only entity that could sell both the land and the business together as a package was the administrators) was a proposal that the administrators " Take steps to sell the business operated by the Company on the mortgaged lands together with the mortgaged lands and consult regularly with the Bank regarding the sale "; admit the bank for the full amount of its secured debt; and pay the bank its secured debt from the proceeds of sale of the mortgaged lands, in priority to unsecured debts but subject to the ordinary costs and expenses of the sale. 66Mr Whittingham seemed to read this letter as support for his contention that "business" included land. He said that, because he did not need the bank's consent to sell the business, the request for consent meant that "the business must inherently include the land" T 35.21.) Although it is conceivable that consent being sought from the bank at that stage could have related to the concern that the bank not move to appoint a receiver (to which reference had been made by Mr Kang in his earlier emails and was seemingly a matter of concern at that time) and hence a letter referring to consent in relation to the sale of the business would not necessarily require a reference to the land to be read into the letter, I accept that the Deed of Consent there referred to related to the sale of the land. However, the terms of the 5 July letter themselves tell against Mr Whittingham's contention that business included land, since the letter itself clearly distinguishes in terms between the land and the business operated on the land. 67Mr Whittingham accepted that the 5 July letter was written on his instructions (T 34). The letter noted that a Deed of Consent would be prepared if the proposal was accepted and that this would contain the above terms "and preserve the rights of the Bank to deal with its security". The Deed of Consent, it was said, would also provide that the reasonable costs of the administrators would be taken from the proceeds of any sale of the mortgaged property before there was a return to the bank. 68The letter referred to approaches said to have been made to the administrators in relation to a sale of the business and the mortgaged lands and said that the administrators were "poised to commence sale discussions subject to the Bank's approval". It concluded with the statement that the writers would be pleased to meet with the representatives of the bank by telephone conference or in person with local representatives (though no steps seem to have been taken on the part of the deed administrators to facilitate this - at least at this stage). 69As noted earlier, Jin Heung denies receipt of this letter. There was (not surprisingly, therefore) no response to that proposal before the first meeting of creditors the following day (and, indeed, by 26 July 2010, when Blake Dawson emailed Sojong Lawyers prior to the second creditors' meeting, it was clear that there had been no response and they were then trying to find a means of contacting the bank). When asked about this, Mr Whittingham maintained that his solicitors had tried to telephone the bank and that he had caused them "continually [to] chase the bank either directly or through the solicitors" (T 36) but was unable to point to any such communications at that stage (a call for any such communications being later answered by reference to two email communications on 26 and 27 July 2010 respectively - CB 1450/1452, in the first of which Blake Dawson acknowledged the advice received that morning from Mr Kwon that he was not presently instructed on behalf of either of the Korean banks).

3. If the contract price that our administrator proceeds with is unreasonably low, you may refuse to discharge the mortgage and suffer no loss. Accordingly, we seek your cooperation and provide proxy to let us appoint an administrator and sell the property at a higher price which is better than realizing the property through the Tax Office's procedures 99Mr Pritchard relies on this letter as demonstrating what was said and relied upon by Jin Heung in signing the proxy (and notes that it is consistent with the evidence of the bank's Korean lawyer (Mr Park) as to what Mr Ryu told him had occurred - namely that Le Meilleur had appointed an administrator and had an arrangement not to infringe on Jin Heung's rights). 100Mr Golledge emphasises that the 15 July letter did not say that Jin Heung would have 'control' of the sale nor did it say that Jin Heung could object to any sale that the administrator achieved (rather, it referred to a contract price that is unreasonably low). Mr Golledge further submits that Jin Heung has not been able to point to any documentary evidence (nor is it admitted by either Mr Whittingham or Ms Park) that Mr Kang or the Jin Heung bank officers ever discussed with the deed administrators this proposed caveat over the sale (i.e. that the bank would have a right of veto whether or not that be one limited to the circumstances in which a sale was at an unreasonably low price). It is submitted that this was something put to the bank by Mr Kang entirely at his own initiative. (To the extent that this suggests that other advice may have been conveyed by Mr Kang at the administrators' initiative then this would seemingly be contrary to the administrators' primary position that Mr Kang was not their agent.) 101No little weight is placed on the 15 July meeting by Mr Golledge because it is said (in response to the submissions made for Jin Heung regarding the alleged ambiguity of the final deed proposal), that no submission as to the ambiguity of what was there being proposed can be sustained having regard to the conversations between Mr Kang and Jin Heung's officers in which it was put to Jin Heung that if the deed proposal was approved the property would be sold. (Mr Golledge accepts that there is evidence that suggests there might be some precondition attached to a sale but says there can be no suggestion that there was any misapprehension by Jin Heung that what the bank was being asked as at 15 July to authorise was the sale of the property by the deed administrators. I accept that is the case. However, the imposition of the condition is a critical factor in that regard.) 102Further, as at 15 July 2010, there was no formulated deed proposal (since Mr Whittingham was at that stage still impressing upon Ms Park the urgency of obtaining one). Therefore, to the extent that it is suggested that the bank officers were giving their support for a deed proposal, this must be understood as giving approval to the course of action as then explained by Mr Kang. Mr Golledge submits that Messrs Ryu and Yoon must have appreciated that they were consenting to an arrangement whereby the deed administrators would be able to sell the land even if the amount produced would not pay in full the secured debt, (subject only perhaps to the proviso that the bank could object if that sale was at an unreasonably low price). However, it is not clear that the bank officers appreciated that this was the case. Mr Golledge also notes that in giving that consent the bank officers took no advice from any person with knowledge or experience of Australian insolvency law. 103Mr Kang's position at the relevant times seems to have been one whereby he was seeking to preserve the ability of the Korean parent company to retain the golf course land. I think an inference is open to be drawn that (to some extent at least) he was doing so by presenting to the deed administrators on the one hand and Jin Heung on the other hand whatever he thought would assist in achieving that objective. 104Mr Kang says he was told by Ms Park (and this is consistent with the tenor of the email communications at the outset) that "if the bank got involved in the voluntary administration, once it become aware of it she won't be able to help us any more" (at T 160.22). He also said that "we were concerned about matter of getting bank approval because they were in middle of workout arrangement", something that may explain why Jin Heung was not approached by Mr Kang at an earlier stage (and may be the real explanation for the question as to whether it was possible for the bank to know about the process - i.e., Mr Kang might well have been attempting to find out how much or how little he could assume the bank would actually be told rather than seeking to facilitate full communication with the bank). 105Mr Kang claims that Ms Park told him that the administrator could not sell the golf course unless the bank consented and said that this was important to Le Meilleur. (Mr Golledge pointed to a lack of email communications in which any such issue was raised but the mode of advice in general seems to have been relatively informal and Mr Kang seems to have relied on the immediacy of telephone communication - on the basis that he could not always get an immediate response by email). 106Mr Kang also says that Ms Park told him prior to the second creditors' meeting that the bank's consent was "absolutely necessary" (T 164.31), something that accords with the importance attached by Mr Whittingham to such consent. 107Significantly, when Mr Kang was cross-examined as to what he had told the bank officers at the 15 July meeting, he prefaced his answer (similarly to the manner in which he prefaced the answers he later gave as to the manner in which he says that he misled the deed administrators at the time of the later proceedings to set aside the deed of company arrangement) with the words "It was complicated" - T 165.38. 108What he says he explained is what he had heard from Ms Park - namely that the administrator would sell the property and would be able to do so for a good or market price but that he added that if the bank did not like the sale price then the bank was entitled to refuse the sale. He was adamant that Ms Park had told him that the bank's approval was necessary (T 166.23). 109(I was left with the distinct impression that what was 'complicated' about the answer referred to above was that Mr Kang may well have understood that what was being contemplated by the administrators was a scenario whereby the bank's consent was not necessary but was at the same time assuring the bank that it had the ability to withhold consent to the sale - in other words telling each what he thought they wanted to hear. This was not put to Mr Kang and I make no such finding but the potential for such a scenario (which would be consistent with Mr Kang's admitted misleading conduct towards the deed administrators) to have been the operative scenario highlights the uncertainty surrounding what reliance the deed administrators, not party to the relevant conversations, could place on Mr Kang's account of the bank's position.) 110At T 237.27, Mr Ryu did not dispute that at or after the 15 July meeting he had agreed to consent to the appointment of the liquidator and to the sale of the property but he was adamant that the consent was subject to the condition that "we would be able to exercise out right to discharge the mortgage if we wanted or we could refuse it". 111At T 237.37, he said that it was "totally up to us whether to discharge or not regardless of price". That is not consistent with the 15 July letter (unless that is read as giving the bank the ability to determine in its absolute discretion whether a sale was reasonable or not). 112Mr Ryu accepted that at the 15 July meeting the bank's consent was sought to allow the sale of the golf course by the administrator (T 238.21) but says that his understanding was that it would be sold through the administrators "with discussions with the agreement" of the bank (T 238). He readily conceded that the bank could consent to the sale if the price was reasonable but maintained that the bank had every right to choose what to do (T 239) and that the bank would consider a price reasonable if both the mortgage holder and the bank was satisfied that the administrator had obtained the best price - T 240. He deposed that had he understood that the proxy was to start the process by which the administrator began to sell the property (but does not seem to have understood it as permitting a sale without the bank's consent) - T 240).

• 16 July 2010 deed proposal 113A deed proposal was prepared by PKF and forwarded by Ms Park to Mr Kang to sign by email on 16 July 2010 (in which email Ms Park repeated that there was a great difference between deciding liquidation at the creditors' meeting and receivership initiated by the bank, the latter being said not to be a good idea). The email (flagged as a 'red' category email) said that if Mr Kang could not send the $1 million or other fund that "I know it is difficult but I believe it is best to ask the bank to release the mortgage documents". 114The deed proposal as signed was attached to the report to creditors for the second creditors' meeting. The proposal (by letter dated 16 July 2010 (CB 1307) provided for contribution by the Korean parent company in amounts that accorded in substance with those appearing by way of the first proposal in Mr Whittingham's 9 July letter (the only change being that the figure of $2.9m had increased to $3,211,462 in the final proposal - the increase being in the six monthly payments now to be of AU$243,578.67 - an increase that Mr Whittingham attributed to hard negotiation on the administrators' part, although there was no evidence of negotiation as such in the documents). 115Relevantly, point 2 of the deed proposal was:

2. The administrators will sell the Company's business and up until completion of that sale, will also continue to trade the Company's business . (my emphasis) 116Point 3(c) referred to the $100,000 monthly capital expenditure "until completion of the sale of the business". Point 5 provided for unsecured creditors to receive 50 cents in the dollar out of the fund created from "the sale of the business in accordance with paragraph 2 of this letter" and the contributions by the Korean parent company in paragraph 3(a) (i.e. the $3.2m). The fees for the administrator (and payments to the priority creditors) as were the moneys for the unsecured creditors alike were to come out of the Fund (i.e., the fund comprised of the sale of the business and the contributions from the Korean parent company). 117Mr Whittingham accepted that there was no reference to the secured creditors in the final deed proposal of 16 July 2010 but suggested that the mortgagees' entitlement could be inferred from "the sale of the business outlined in point 2 of the proposed deed", which was "a separate fund". However, there was not provision for a separate fund as such. Mr Whittingham agreed that the distribution of funds was dealt with in point 5 of the deed (that fund being comprised both of the proceeds from "the sale of the business referred to in accordance with paragraph 2... and the contributions made by [the Korean parent company] in accordance with paragraph 3(a)"). Mr Whittingham was unable satisfactorily to explain the logic of the construction he sought to place on the proposal. If Mr Whittingham's construction is correct, the 16 July proposal provides no return whatsoever to the mortgagees. 118The administrator's report to creditors (CB 1267) of 20 July 2010 outlined the options to creditors and set out the terms of the deed proposal - again there was no reference in those terms to the sale of the land - simply to a sale of the business . The report recommended execution of the Deed of Company Arrangement. It noted that the deed "will allow the Company to trade in the short term (through funding from the Holding Company) and an orderly sale of the business and assets of the Company to be achieved." Similarly there was a statement that the deed provided for capital expenditure to be used for course improvements in an effort to improve the "realisable value of the business and assets of the Company" (the use of assets potentially convey a sale of the property). 119The only reference to the "property" as such in the explanation of the options to be considered at the meeting was that in a liquidation scenario it was said that the mortgagees could take formal recovery action over the property and therefore that any duly appointed liquidator might not be in a position to continue to trade. 120Mr Pritchard submits that the deed proposal ultimately put forward by the directors in Korea (which as noted above appears to have been prepared by PKF and forwarded to the Korean parent company) did not contemplate a sale of the golf course (and therefore was fundamentally different from the alternative proposal that Mr Whittingham had suggested in his 9 July options letter). I agree. (It was also fundamentally different from the initial 5 July proposal to the bank.) 121Having regard to the previous correspondence (and particularly the 9 July letter) the proposal put forward in the 16 July letter can only sensibly be seen as an amalgam of the initial funding proposal discussed at the first creditors' meeting with a sale of the business alone (i.e., not the alternative combined "DOCA and sale" scenario set out in the 9 July letter). That, indeed, seems to accord with the explanation give by Blake Dawson to the Queensland creditor's solicitors by letter dated 19 July 2010 (CB 1260), (an explanation to which some weight must be give since, as Mr Whittingham accepted, it was to be used to persuade the creditor, and in due course the court, to seek a stay of the winding up petition then on foot). 122Reference was made in the 19 July 2010 letter (a similar version of which was sent to the ATO on that date as well) to the continued funding of the company by the Korean parent company and contribution of significant funding for needed capital funding and infrastructure through the DOCA proposal and the sale of the business "as a going concern" (terms not readily applicable to a sale of land). 123Significantly, the letter noted that there had been negotiations with directors of the company and the parent and that there had been 2 options for terms to be included in a DOCA (those being the two options set out in the 9 July letter). (Pausing there, it is clear that as at 19 July 2010 there had been no negotiations in which Blake Dawson or the administrators had been involved with the mortgagees. Hence, insofar as the proposals referred to matters involving Jin Heung, the administrators can only have been relying on what they had gleaned through Ms Park and Mr Kang.) 124Blake Dawson noted that option 2 (of the 9 July letter) had proposed "a combined sale of the land and business through a DOCA proposal subject to the consent of the mortgagees" along particular lines (including empowering the administrators "to sell as a package both the Company's business and the land on which it conducts that business and up until the completion of that sale, will be empowered to continue to trade the Company's business". 125Contrasted with the proposal that was reported as being the outcome of the negotiations (section 4 of that letter), it is clear in my opinion that what the solicitors for the administrators understood was being proposed at that stage (i.e. under the 16 July deed proposal) was not a combined package of the business and land but a sale of the business alone. That is what they conveyed to the creditors then seeking to wind up the company. (Mr Whittingham was unable to explain the basis on which such a construction had been placed on the proposal by his lawyers or why it was that he had given instructions for the 19 July letters to be sent.) 126Mr Whittingham agreed that he had no doubt that his solicitors had enclosed with their letter of 19 July 2010 to the petitioning creditors his earlier letter of 9 July 2010 (T 187) and that they were there explaining his letter. He accepted that the two options put forward as at 9 July 2010, to which the letter 19 July 2010 referred, were the sale of the business and a combined sale of land and business. He also agreed that in the final proposal, as outlined at paragraph 4.1 of the letter of 19 July 2010, no distinction was drawn between the land and the business, and that paragraph 4.2 involved "a description of the business; not the land". Mr Whittingham agreed that he had approved the letter of 19 July 2010 and had authorised it being sent out but was not able to explain how it was that the characterisation of the proposal was as there set out. The most likely explanation in my view is that either the deed proposal was not intended to include the combined land and business package or (which may be more likely having regard to the attempts that had been made to procure the bank's agreement to a sale of the land) that in preparing the documents the draftsperson simply updated the earlier proposal (which did not include the sale of the land for the reasons earlier explored) and the deed administrators simply proceeded on a mistaken assumption that what was included in the deed proposal was the combined package.

• Communications leading up to the second creditors' meeting 127On 26 July 2010, as noted earlier, Blake Dawson communicated with Mr Kwon (of Sojong lawyers) seeking urgently to obtain contact details for the Korean solicitors who had acted for the Korean banks (Mr Kwon having confirmed over the telephone that day that he did not presently act for the banks). Mr Greenberg of Blake Dawson referred in that email to a deed of company arrangement intended to be put to the second creditors' meeting (and which was said to be highly dependent on the co-operation of the banks) but only attached a copy of the original 5 July letter. Mr Kwon's response was to ask for a copy of the Deed of Company Arrangement that had been drafted "and sent to the banks" in response to which, on 27 July 2010, Mr Greenberg sent a copy of the 16 July proposal received from the banks and the administrators' report. 128On 28 July 2010, Messrs Ryu and Yoon executed a proxy appointing Mr Hyun as Jin Heung's proxy for the purpose of attending the second creditors' meeting (CB 1486). Mr Golledge submits that by that document Mr Hyun was directed to vote in favour of the Deed of Company Arrangement proposal. It certainly directed the proxy to vote in favour of the resolution to execute a deed of company arrangement (though it did not identify the deed with any more particularity) and it directed the proxy to vote against all of the remuneration resolutions. 129Even before the meeting, Mr Kang was raising concerns as to the administrators' proposed remuneration (which he continued to do in increasingly emotive terms). 130The second creditors' meeting was to be held on 29 July 2010. It was Mr Whittingham's stated understanding that, by the time of the second creditors' meeting, Jin Heung had received notice of the meeting with the relevant explanatory material (including the final proposal). However, this understanding was apparently derived solely on the basis that, by then, a proxy had been received from Jin Heung and that Mr Whittingham had been told of a conversation between his solicitor (Mr David Greenberg) and a solicitor who had at an earlier stage acted for Jin Heung, Mr Harry Kwon. Mr Whittingham said that Mr Greenberg had told him that the "bank's solicitor had received the explanation". Presumably, this is a reference to the documentation forwarded to Mr Kwon on 27 July 2010 (he having indicated that he had contact details for the banks' Korean lawyers, but not acting for the banks at that stage). There was, however, nothing in writing from the bank and, in relation to any conversations between Mr Greenberg and Mr Kwon, Mr Pritchard submits that the unchallenged evidence of the latter (corroborated by the email from Mr Greenberg of 26 July 2010) was that he had said to Mr Greenberg words to the effect that "We are not presently instructed by either bank." 131In relation to the proxy given by Jin Heung, Mr Whittingham knew that Jin Heung was not in attendance at the second creditors' meeting other than by virtue of a proxy given to Mr Hyun. Mr Whittingham admitted that he "did not know the circumstances in relation to which ... the execution of that proxy was procured" and had taken no steps to find that out. Mr Pritchard submits that it follows from the above that Mr Whittingham was either acting under a misapprehension or was acting on incorrect information provided to him by his solicitors when he assumed that Jin Heung had received the final (16 July) proposal in advance of the second creditors' meeting.

1. Order that the originating process filed 2 February 2011 be dismissed.
2. Declare that the document executed by the plaintiffs "Deed of Company Arrangement" and dated 18 August 2010 is not a deed of company arrangement within the meaning of s 444B(6) and s 444D of the Corporations Act 2001 .
3. Declare that the failure of the company within the period specified in s 444B(2) to execute a deed of company arrangement in conformity with the resolution passed on 29 July 2010 had the effect pursuant to s 4446A(1)(b) of causing the company to enter into a creditors' winding up imposed by s 446A with Messrs Whittingham and Crowe-Maxwell as liquidators as and from 19 August 2010.
4. Declare that Jin Heung Savings Bank Co Limited did not validly exercise a vote by proxy in favour of the resolution to enter into the said deed of company arrangement on 29 July 2010. 458I will hear submissions from the parties as to the appropriate form of orders and any submissions as to costs at an appropriate time.

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DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 September 2011