Solicitors:
Henry Williams Lawyers (Plaintiff)
Pikes & Verekers Lawyers (Supporting Party)
File Number(s): 2019/135802
[2]
Background
By Originating Process filed on 1 May 2018, the Plaintiffs, Mr Elkerton and Mr Dean-Willcocks, in their capacity as joint liquidators of South Head & District Synagogue (Sydney) (in liq) (controllers appointed) ("Synagogue"), sought orders under s 436B and 447A of the Corporations Act 2001 (Cth). They foreshadowed also seeking at a future point an order under s 482 of the Corporations Act that the winding up of the Synagogue be terminated. They have rightly deferred seeking that order at this stage until further steps in respect of the winding up and a proposed associated administration are completed.
The application is supported by an affidavit dated 1 May 2019 of Mr Elkerton. Mr Elkerton refers to the circumstances in which he and Mr Dean-Willcocks were appointed as administrators of the Synagogue on 26 April 2017. He refers to the subsequent termination of the employment of the Rabbi who had previously served at the Synagogue, and to litigation which then arose as to the validity of that termination, including proceedings at first instance and in the Court of Appeal. The Court of Appeal ultimately upheld an appeal against a decision at first instance, holding that the liquidators did have power to terminate the Rabbi's employment in the relevant circumstances.
The Rabbi subsequently lodged a proof of debt in the liquidation of the Synagogue, which was allowed in part and rejected in part, and the Rabbi then commenced proceedings in this Court to challenge the determination of his proof of debt.
In the result, the Rabbi, the liquidators and secured creditors of the Synagogue subsequently entered a Deed of Release and Settlement ("Settlement Deed") which resolves a number of matters that were in issue between them. The Settlement Deed provides for certain releases, which are contingent on approval of a proposal for a deed of company arrangement ("DOCA proposal") by creditors of the Synagogue. If creditors approve the DOCA proposal, the Rabbi will accept a specified amount by way of redundancy entitlements following the termination of his employment, and will release other claims, including other claims advanced in the proof of debt, and not lodge any proof of debt in any deed of company arrangement ("DOCA") entered into pursuant to the DOCA proposal. The secured creditors, in turn, agree to pay a substantial sum, which they have now paid into the trust account of their solicitors, which will constitute the deed fund for the DOCA.
Mr Elkerton's evidence is that the effect of the implementation of the DOCA proposal is that all priority creditors (including employees and the Cantor of the Synagogue) other than the Rabbi will receive 100 cents in the dollar on their admitted claims under the DOCA. All unsecured creditors would also receive 100 cents in the dollar on their admitted claims. The Rabbi's claim arising from the termination of his employment would be admitted in the amount agreed under the Settlement Deed, subject to the specified conditions.
[3]
Leave under s 436B of the Corporations Act
With that background, the liquidators identified three matters which needed to be addressed in the application to this Court, in order to implement the DOCA proposal. The first is that the liquidators sought leave under s 436B(2) of the Corporations Act to appoint themselves as administrators of the Synagogue. Section 436B(1) of the Act permits a liquidator or a provisional liquidator of a company, by writing, to appoint an administrator of the company if he or she thinks that the company is insolvent or is likely to become insolvent at some future time. Section 436B(2) of the Act provides that the liquidator must not appoint himself or herself as administrator, other than, relevantly, with the leave of the Court. Mr Baird, who appears for the liquidators, draws attention to my brief summary of the scope of that section in Re Dungowan Manly Pty Ltd (in liq) [2018] NSWSC 1083 where I noted that such leave could be granted where there is no conflict of interest or duty affecting the liquidators that would be inconsistent with that appointment, and also noted that that section was not directed to the question whether a voluntary administrator should be appointed at all.
In this case, there are clear reasons for the appointment of a voluntary administrator, where that will allow implementation of the DOCA proposal but, putting aside that question, it is plain enough that there is no conflict of interest or duty affecting the liquidators, where their proposed appointment as voluntary administrators would facilitate the DOCA proposal and allow the steps to be taken that they seek to achieve. Mr Elkerton's evidence is that the liquidators have undertaken considerable work in the administration of the Synagogue, and he notes that the major creditors of the Synagogue, including the secured creditors and the Rabbi, have agreed to their being appointed as administrators. He notes that remaining unsecured creditors would receive 100 cents in the dollar on their claims under the DOCA; and that the appointment of the liquidators as administrators would avoid the need for a further administrator appointed to repeat work already done, and, I should add, to inform himself or herself of the issues that have led to the resolution implemented by the Settlement Deed. Mr Elkerton also makes clear that he does not consider that any conflict will arise if the Court were to grant leave.
Mr Baird in turn draws attention, in submissions, to the relevant authorities and to the factors to which Mr Elkerton refers in his affidavit as supporting such an appointment. Mr Baird rightly notes that the most important consideration for the grant of leave is independence, and it would ordinarily be appropriate for the Court to grant such leave, where considerable work has already been done, when there is no potential for conflict of interest. Mr Baird also points out that the test for leave is not a high one, and is directed to confirming that the liquidator, now to be appointed administrator, is independent in the relevant circumstances. I am satisfied that, in these circumstances, there is likely advantage, and in any event no conflict of interest or duty preventing, the appointment of the liquidators as administrators in the relevant circumstances. Accordingly, such leave should be granted.
[4]
Application under s 447A of the Act in respect of initial meeting of creditors
The second aspect of the application was brought under s 447A of the Corporations Act and related to whether an initial meeting of creditors under s 436E of the Act should be convened in the administration and to the convening period specified in s 439A(5)(b) of the Act. That provision in turn relates to the convening of the second meeting of creditors to decide a company's future in a voluntary administration. The liquidators seek orders dispensing with the need to convene an initial meeting of creditors, and abridging the time for a second meeting of creditors. Orders of that kind are commonly sought, as Mr Baird points out, where a liquidator has been given leave to appoint himself or herself as administrator. There is, as Mr Baird points out, little utility in convening an initial meeting of creditors under s 436E of the Act, where creditors will already be well-informed of matters in issue in the administration and where there is little practical likelihood of an attempt to appoint a different administrator in the circumstances, and where it is proposed that the second meeting of creditors, in any event, will be convened within an abridged period.
Mr Baird points to, and I need not rehearse, the extensive authorities which recognise the scope of orders that can be made under s 447A of the Act in order to promote the interests of the administration and under Pt 5.3A of the Act. I am satisfied that it is desirable that the costs of convening the first meeting of creditors be avoided, and that the orders sought should be made under s 447A of the Act in respect of both the first and second meetings of creditors.
[5]
Dispensing with meeting of eligible employees and non-inclusion of priority provision
Third, the administrators seek an order under s 447A of the Act to dispense with the need for a meeting of eligible employee creditors under s 444DA(2) of the Act, and also to dispense with any requirement to give notice of such a meeting. That order was sought under s 447A of the Act and went a little further than applications in other cases seeking to dispense with the meeting of eligible employee creditors.
This application raises issues of a kind that commonly arise in respect of applications under s 444DA of the Act. Section 444DA(1) of the Act provides that a DOCA must contain a provision to the effect that, for the purposes of the application by the administrator of the property of the company under his or her control under the DOCA, any eligible employee creditors will be entitled to a priority at least equal to what they would have been entitled if the property were applied in accordance with ss 556, 560 and 561 of the Act.
The DOCA proposal does not contain such a term, because it appears that it was thought that the treatment of the Rabbi may be inconsistent with those sections, so far as he is to be paid the amount contemplated by the Settlement Deed, but the releases given under that deed only take effect in the context of the DOCA being implemented. It may be that that was a conservative approach to the relevant section, since, on one view, what is to occur here does reflect the priorities specified in ss 556, 560 and 561, albeit that the amount of the Rabbi's claim is varied, in the course of the administration, by the agreement to which he is party. That is significant, for present purposes, not because it means that this application is in any sense unnecessary, but because it points to the absence of any substantive detriment to the Rabbi, so far as he is given priority, under the terms of the DOCA, for the amount which he agrees to accept under the Settlement Deed in compromise of the parties' respective claims.
Section 444DA(2) in turn provides that the rule requiring such a provision to be included in a DOCA does not apply, if eligible employee creditors pass a resolution agreeing to the non-inclusion of such a provision, or the Court makes an order under s 444DA(5) approving the non-inclusion of such a provision. Section 444DA(3) in turn requires the convening by the administrator of a meeting of eligible employee creditors, and s 444DA(5) provides that the Court may approve the non-inclusion of such a provision if it is satisfied that the non-inclusion would be likely to result in the same or a better outcome for eligible employees as a whole than would result from an immediate winding up of the company. As I noted above, the relief is here sought under s 447A rather than under s 444DA, so far as it seeks to dispense with the meeting of eligible employee creditors which has ordinarily been held in cases dealing with the application of s 444DA: see, for example, Re TLC Marketing Worldwide Pty Ltd (subject to a deed of company arrangement) [2018] NSWSC 454; Re Cooper and Oxley Builders Pty Ltd (admins apptd) [2018] WASC 161.
Mr Baird identifies, by reference to Mr Elkerton's affidavit, several of the relevant factors. Here, the outcome of the application of the DOCA is at least as good as, and on one view better than, the outcome of a liquidation. It is at least as good as that outcome, so far as it will provide for payment to eligible employees of 100 cents in the dollar, calculated in the case of the Rabbi by reference to the amount which he has agreed to accept under the Settlement Deed. It is arguably better than the outcome of a liquidation, first, because the evidence indicates that payment will be made more promptly, where it is made from a deed fund that is already funded by the secured creditors, rather than depending upon the sale of the Synagogue to fund such a payment and where, as an element of the Settlement Deed, the ongoing proceedings between the Rabbi and the Synagogue which otherwise might have delayed such a payment are resolved. Moreover, so far as some or all of the relevant participants have an interest in maintaining the operation of the Synagogue, which appears to be contemplated by the structure of the DOCA proposal, that is plainly more likely to be achieved by the implementation of the DOCA proposal than by a liquidation, where the property occupied by the Synagogue would have to be sold in order to fund a distribution of creditors.
In these circumstances, it seems to me that it can be said that the return under the DOCA proposal is the same or better than the likely outcome under a liquidation, where it is equivalent in financial terms; will allow payment more promptly (which is a relevant consideration to which Vaughan J referred in Re Cooper and Oxley Builders Pty Ltd above); where it reflects the likely wishes of some or all of the relevant employees (which is a matter to which I referred in Re TLC Marketing Worldwide Pty Ltd above); and so far as it maximises the prospect of the continued operation of the Synagogue and their continued employment with it.
Where these matters are satisfied, the Court has a discretion as to whether it ought to approve the non-inclusion of the priority provision, and I am satisfied that that discretion would be exercised, had the application been made under s 444DA of the Act, in the relevant circumstances. It seems to me that that order dispensing with the meeting of eligible employee creditors can properly be made here, given the small number of employee creditors involved, the fact that at least the Rabbi's attitude is known because he has entered the Settlement Deed and appears today, by his solicitor, and is supportive of the application, and where there is no practical likelihood in the circumstances that other employee creditors would say, for example, that they would prefer a delayed payment, or the sale of the Synagogue in order to implement their payment, than an earlier payment funded by the contribution to the deed fund to be established under the DOCA proposal.
For these reasons, I am satisfied that the purposes of Pt 5.3A of the Act will be promoted, in these perhaps unusual circumstances, by dispensing not only with the requirement for notice of the relevant meeting of employee creditors, but also dispensing with the holding of that meeting, for the reasons noted above.
[6]
Foreshadowed termination of winding up
Finally, as I noted above, it has been foreshadowed that an application to terminate the winding up will be made, when the various steps contemplated by the DOCA proposal have been implemented. For these reasons, the proceedings will be adjourned for a period, to allow that application to be made when those steps have been completed.
[7]
Orders
Accordingly, I make orders in accordance with the short minutes of order initialled by me and placed in the file.
[8]
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Decision last updated: 06 November 2019