Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 548 | Case summary

1 This is a contested application for the adjournment of a winding-up hearing. The Defendant company is in voluntary administration. There are two bases for the application. The first is under s 440A(2) of the Corporations Act 2001 (Cth). The second invokes the Court's inherent discretion to grant an adjournment of its process. 2 The Plaintiff is a creditor of the Defendant company. It seeks today to proceed with the hearing of its application to wind up the Defendant under s 459P of the Corporations Act on the ground of insolvency. The Plaintiff's application is supported by the Deputy Commissioner of Taxation, which is a substantial creditor. 3 The Plaintiff's Originating Process was filed on 22 April 2008. On the same day, the Defendant was placed into voluntary administration. The Administrators have set about investigating the Defendant's affairs. They have encountered considerable difficulty in doing so because the Defendant's books and records are in disarray and many cannot readily be located. To add to the difficulties, the company's former director and, apparently, its controller, Mr Sam Cassaniti, is now bankrupt, or said to be bankrupt, and is in gaol and the Administrators have only limited access to him for the purpose of seeking his assistance. 4 The Administrators held a meeting of the Defendant's creditors under s 439A of the Corporations Act on 1 May 2008. The Administrators' investigations were then at a preliminary stage and the meeting was adjourned to 28 May 2008. At the second meeting eight creditors attended in person or by proxy, including the Plaintiff and the Deputy Commissioner of Taxation. 5 The Administrators advised that on the previous day a Deed of Company Arrangement had been proposed by the Defendant's then current director whereby a fund of $200,000 would be made available for creditors. The obligation to pay into the fund was to be supported by a second-ranking security over certain real estate. However, the Administrators said that the Deed of Company Arrangement was still 'a work in progress' and that they wished to continue their investigations into the Defendant's assets and to negotiate to improve the terms of the Deed of Company Arrangement for the benefit of creditors. 6 A resolution was proposed whereby the meeting would be adjourned further for a period not exceeding forty-five business days in order to allow the Administrators more time to carry out their investigations and to make a final recommendation as to whether a Deed of Company Arrangement was in the best interests of creditors. That resolution was passed with the Plaintiff voting against it and the Deputy Commissioner of Taxation abstaining. 7 The Plaintiff seeks to proceed today with its winding-up application. The Administrators seek an adjournment of the hearing until the next creditors' meeting has been held, so that the creditors may consider the results of their attempts to investigate the Defendant's assets further and to negotiate more favourable terms for the creditors in the Deed of Company Arrangement. 8 The Plaintiff and the Deputy Commissioner of Taxation say that the Administrators have already had enough time to investigate the Defendant's affairs and to make a final recommendation as to the Deed of Company Arrangement. Further, they say, the Deed of Company Arrangement confers only illusory benefits on the creditors and would be terminated by the Court pursuant to s 445D of the Corporations Act even if it was approved by creditors under s 444A. 9 As to the first ground of opposition, the evidence tendered by the Administrators shows that they have made timely efforts to investigate the affairs of the Defendant and that the necessity for a second and indeed, for a third meeting of creditors has not been attributable to want of diligence on their part. The Administrators say, quite frankly, that they do not yet have enough information to enable them to say whether the creditors can do better under the Deed of Company Arrangement put forward only some days ago, rather than in a liquidation, although they presently think that a liquidation would result in a nil dividend to creditors while the Deed of Company Arrangement may possibly produce as much as twenty cents in the dollar. 10 The considerations which the Court takes into account in exercising its discretion under s 440A(2) whether to adjourn the hearing of an application to wind up the company in administration have been helpfully summarised in a number of decisions, particularly TCS Management Pty Ltd v CTTI Solutions Pty Ltd [2001] NSWSC 830 (per Hamilton J), Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd (admins apptd) (2003) 44 ACSR 377 (per Campbell J), SGB Raffia Pty Ltd v Gammacon Pty Ltd [2007] NSWSC 1511 (per McDougall J), and SGB Raffia Pty Ltd v Gammacon Pty Ltd (No 2) [2007] NSWSC 1510. 11 Those authorities establish that a clear case must be demonstrated that it is in the best interests of creditors for the administration to continue before the Court will adjourn a winding-up application in conformity with the directive in s 440A(2). The cases show that the mere possibility or hope of a better result for creditors under administration than in liquidation is not enough to justify an adjournment. If a company is insolvent and there is no realistic hope that it can be saved through an administration and Deed of Company Arrangement, then there are strong reasons why it should be wound up as soon as possible. One of those considerations is that the sooner that there is an investigation into matters such as whether there has been insolvent trading or dispositions of assets which may be avoided, the better it will be for creditors. 12 I take all of those considerations into account in the present case. It is fair to say that the Administrators concede that whether or not the creditors would do better under the proposed Deed of Company Arrangement than in a liquidation is at this stage almost in the realm of speculation. They themselves are not prepared to make a recommendation to creditors. In that circumstance I cannot find that the test for an adjournment under s.440A(2) has been met. 13 However, I think that this is one of those cases referred to by Hamilton J in TCS Management , where his Honour says: "Where there are advantages [in either liquidation or continuation of an administration] in general terms it may well be the proper course to give such adjournment as will allow the creditors themselves to vote upon the proposal and determine which course they prefer."

Although his Honour was there speaking in the context of an adjournment pursuant to s.440A(2), I think that his remarks apply also to the Court's inherent power to adjourn proceedings in the exercise of its control over its own process. 14 The Administrators say that they are willing, indeed anxious, to continue their investigations and that they have several proposals whereby the terms of the Deed of Company Arrangement could be improved and the benefits for creditors thereunder secured. It seems to me that they should be given the opportunity by the allowance of a further short time to see if those proposals can be brought to fruition. 15 The second meeting of creditors resolved that the next meeting of creditors should be held not later than forty-five business days thereafter. In the exercise of the Court's general discretion to grant adjournments, I propose to adjourn the winding up application, but only for a short time. 16 I have sought, through Mr George of Counsel, who appears for the Administrators, information as to whether an adjournment of two weeks would produce any useful result. I am informed that the Administrators, although pressed, will be prepared to make a recommendation as to the Deed of Company Arrangement to creditors by the expiry of two weeks. I think that the creditors ought to be allowed to consider that recommendation rather than the Defendant being placed in liquidation now with, possibly, the opportunity of the creditors receiving any benefit under the Deed of Company Arrangement being lost forever. The Plaintiff and the Deputy Commissioner have not been able to identify any particular prejudice which they will suffer if an adjournment is allowed for two weeks, which cannot be cured by an appropriate costs order. 17 Accordingly, in the exercise, not of the discretion conferred by s 440A(2) but rather in exercise of the Court's inherent discretion to control its own process, I propose to adjourn the hearing of the Plaintiff's winding-up application for a period of just over two weeks from today. 18 I will direct the Administrators to serve an affidavit by 4pm on 17 June 2008 setting out the results of their investigations into the viability and the desirability of a Deed of Company Arrangement and setting out the recommendation which they would propose to make to creditors if a third meeting of creditors is to be convened. 19 If the Administrators at that time are unable to say whether or not they would be prepared to recommend a Deed of Company Arrangement to the creditors, then I would think that it would be almost inevitable that any further application for an adjournment, whether it be made under s 440A or in invocation of the Court's inherent jurisdiction, would be refused. 20 If the Administrators are able to demonstrate a clear case as to why it would be in the best interests of creditors for the Deed of Company Arrangement to be placed before the creditors and approved, the Court may well grant a further adjournment to enable a meeting to take place in a very short space of time. It seems to me that this course will enable the Administrators fairly to place before the creditors, after a sufficient time for investigation, the options which are open to them in the most informative and helpful way for the creditors. 21 Accordingly, in exercise of the Court's inherent jurisdiction, I will stand the Plaintiff's application for the winding-up into the Corporations List on 23 June at 10am. I confirm the direction as to the serving of the Administrator's affidavits by 4pm on 17 June. 22 Costs of today will be reserved. - oOo -

Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd

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