Manny & ors v Sims & ors [2011] ACTSC 58

3. Mr Manny is a developer. By mid-2009 he had built up through companies and trusts under his control a substantial portfolio of commercial and residential real estate.

4. The plaintiffs are not legally represented in the proceedings. Mr Manny has, with the leave of the court where necessary, and without opposition by the defendants, appeared for all of the plaintiffs.

5. Mr Manny commenced the present proceedings by originating process filed on 23 March 2011. The orders sought in the originating process included setting aside the appointment of the receivers and the administrators, and removing them from those positions. Other consequential orders were also sought.

6. On 30 March 2011, Mr Manny filed an interlocutory process seeking removal of the administrators and receivers, or alternatively a stay of the administration and the receivership, and what he described as a removal or stay of foreclosures by the bank.

7. The matter came before me on Friday 1 April 2011. I was informed that the application was urgent, the administrators having called a meeting of creditors for Tuesday 5 April 2011, at which it would have been open to the creditors to wind the companies up. Accordingly I embarked on the hearing on 1 April 2011 and continued to hear it on Monday 4 April 2011. I reserved my decision and ordered that the creditors meeting be adjourned to a date to be fixed by the administrators, not before I had handed down my decision on the application.

8. On 22 June 2009 the bank delivered a letter of offer to the second, third and fourth plaintiffs described in the letter as the Jeff Manny Group. The letter offered what were described as facilities with dollar limits. The first plaintiff was offered a "tailored business facility" of $8.9m and an overdraft of $300,000.00. The third plaintiff was offered a tailored business facility of $1.3m. The fourth plaintiff was offered two tailored business facilities, one of $2.6m and the other of $908,000.00. The total of the facility limits was thus $14,008,000.00. The letter stated that the facilities were subject to annual review, the next review date being 18 September 2009. The offer was conditional upon the companies providing security. Each of the three companies was to give a first registered company charge (mortgage debenture) over all of its assets and undertaking. The liability of each company was to be personally guaranteed by Mr Manny. The bank was to take registered first mortgages over a number of identified properties in Canberra owned by the companies. There were to be cross-guarantees and indemnities between each of the three companies.

9. On 20 July 2009, the offer was accepted, Mr Manny signing as sole director on behalf of each of the three companies and in his personal capacity as guarantor.

10. It appears that the bank already held registered first mortgages over the various properties, the mortgages having been registered in January 2009, either to secure earlier borrowings or in anticipation of the subsequent arrangements. In relation to each property, the mortgage gave the bank the power to appoint receivers to take possession of and manage each property in the event of a default by the borrower. A default event was defined to include failure by the borrower to pay any part of the secured money on time.

11. Each party executed a mortgage debenture in the form of a fixed and floating charge over all of its assets, including trust assets. The debenture gave the bank the power at any time to appoint receivers of the charged property, on the happening of various events including failure by the company to pay any part of the secured money when it became due and payable. In each case the bank registered the charge with the Australian Securities and Investments Commission. The three companies each executed a guarantee in respect of the liability of both of the other companies to the bank. Mr Manny signed a personal guarantee in respect of the borrowings by each of the three companies.

12. A schedule to the letter of offer headed "Facilities Schedule" provided for the dates of termination of the facilities. Some of the facilities were expressed to terminate on 17 August 2009, and the rest of them on 17 October 2010.

13. During 2007 Mr Manny's wife commenced proceedings against him and the three companies (the present second, third and fourth plaintiffs) in the Family Court of Australia. At some point the bank was added as a party to those proceedings.

14. The proceeding in that court came before Faulks DCJ on a number of occasions during 2010 when his Honour made orders, including 21 May, 6 July and 13 July. Final orders were made on 13 July, with some corrections under the slip rule on the following day. his Honour determined the total value of the assets and liabilities of the parties, arriving at a net asset pool of some $4m. In broad terms, his Honour divided the pool as to 43% to Mr Manny and 57% to his wife. He made various specific orders and declarations, dealing with the sale of various properties should it become necessary. A detailed timetable for sale of identified properties was set out in his Honour's orders. His Honour restrained Mr Manny from borrowing further money from the bank, or doing anything which would increase the indebtedness of the Jeff Manny Group to the bank. His Honour's orders included:

16. Nothing contained in the preceding orders in relation to the sale of the properties precludes the ANZ Bank from exercising its powers pursuant to their current documentation between the ANZ Bank and the Jeff Manny Group to enforce their security in accordance with that documentation or to seek an accelerated sale of the properties upon termination of the current arrangements on 17 October 2010. It is noted, however, that subject only to the ANZ Bank's exercising those rights, the ANZ Bank has agreed to the program set out above for the sale of the properties.

15. I had the benefit of a transcript of the proceedings before Faulks DCJ on 12 July 2010. Mr Manny appeared in person. Ms Tonkin of counsel appeared for his wife and Mr Roser, solicitor, appeared for the bank. Mr Roser is the Canberra solicitor representing the bank. He instructed Mr McCarthy of counsel on Friday 1 April 2011 before me. Mr McCarthy was unavailable on Monday 4 April 2011 due to a longstanding commitment in another proceeding before the court, and Mr Roser appeared on that day.

16. Mr Manny sought to persuade me that paragraph 16 of the orders of Faulks DCJ in the Family Court should be read so as to preclude the bank from enforcing its security until the program set out by his Honour for the sale of various properties had run its course. I have carefully read the transcript of the proceedings before his Honour on 12 July 2010, including what was said by Mr Roser on behalf of the bank. I am satisfied that his Honour's intention was to record the bank's agreement to the program and its agreement not to exercise its powers under its security documentation before 17 October 2010, and I am satisfied that the order made reflects his Honour's intention in that regard. I am satisfied that his Honour did not intend to restrain the bank from exercising any rights it might have under its security documentation after 17 October 2010, and that the order made does not have that effect. I do not need to consider or decide whether the order made would have precluded the bank from enforcing its security prior to that date had a default event occurred earlier; nor do I need to consider or decide whether his Honour had any power to make an order restraining the bank from exercising its powers. I am in no doubt that nothing in the orders of the Family Court prevented the bank from appointing receivers or taking any other action which might have been available to it after 17 October 2010.

17. There is no issue that the companies did not repay the loan moneys to the bank on 17 October 2010.

18. On 1 November 2010, the bank served a notice of default on each of the companies claiming the total then owing to the bank, $10,733,090.02. The notice of default relied upon failure to repay the amount outstanding by 17 October 2010. The notice also asserted other breaches which I do not need to consider.

19. On 22 December 2010, the bank by deed appointed the first defendants, Mr Sims and Parbery, as receivers over the commercial and residential property of the Manny Group, for the purposes only of collecting the rents on behalf of the mortgagee. This appointment was made pursuant to the individual mortgages over the listed properties.

20. On 20 January 2011, the bank issued notices under section 93 of the Land Titles Act 1925 (ACT) of its intention to exercise power of sale over each of the commercial and residential properties.

21. On 21 January 2011, the bank by deed of appointment extended the role of Messers Sims and Parbery to that of receivers and managers over the listed property generally. On the same date, the bank, exercising the available power under the mortgage debentures, appointed Messers Sims and Parbery as receivers over the "charged property" as defined in the mortgage debentures, that is to say, all of the assets of the companies.

22. On 28 February 2011, the bank appointed the third defendants, Messers Smith and O'Keefe, as administrators of the three companies pursuant to section 436C of the Corporations Act 2001 (Cth).

23. On 10 March 2011, the bank ceased the appointment of Messers Sims and Parbery as receivers of rents, leaving in place their appointment as receivers generally. It is unclear to me whether this cessation had any practical effect.

24. Part 5.2 of the Corporations Act deals with receivers and other controllers of property of corporations. Whilst the appointment of a receiver is the exercise of a contractual rather than a statutory power, the Act regulates quite closely the activities and powers of receivers. However, there is no general statutory power conferred on the courts to terminate a valid appointment of a receiver. Section 418A provides that where there is doubt about whether a purported appointment of a person as receiver is valid, the receiver, the company or a creditor may apply to the court for a declaration as to the validity of the appointment. As to the appointment and position of the first defendants as receivers, it seems to me that this is the only power available to the court. Accordingly, I treat the application as though it were an application for a declaration that the purported appointments of Mr Sims and Mr Parbery were invalid.

25. An issue arises as to the standing of the various plaintiffs to seek the order. Mr Manny tells me from the Bar table that he is a creditor of each of the three companies. Mr Hill, who appeared for the administrators, informs me, also from the Bar table, that Mr Manny has not lodged a proof of debt with the administrators in relation to any of the three companies. There is hence no evidence that he is a creditor of any of them, although he may well be able to establish some debt, for example in respect of unpaid salary or wages.

26. Whilst a company is in receivership, its directors retain their authority and responsibilities. However, once a company is under administration, section 437C provides that no-one other than the administrator may perform or exercise a function or power as an officer of the company. Directors retain their office as such but their authority and powers are frozen whilst the administration continues. Further, section 440D provides that during the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with except with the administrator's written consent or with the leave of the court. It is arguable that the present proceeding is one in relation to the property of each of the three companies. The administrators have not provided written consent to the commencement of the proceedings, nor has the leave of the court been sought or granted. On a strict analysis, Mr Manny may be regarded as having performed a function or exercised a power as a director of each of the three companies, in commencing the present proceedings with each of the companies as a plaintiff. I accept that he did so without legal advice and that he probably did not advert to the fact that he might be committing a breach of the Corporations Act in doing so. However, it is clearly Mr Manny personally who is seeking relief, and not the companies who could presently do so only through the administrators. It seems to me that the three companies should cease to be parties.

27. There is nothing in the Corporations Rules, to be found in Schedule 6 to the Court Procedures Rules 2006, dealing directly with this issue. Rule 230, applicable to civil proceedings generally, gives the court power to order that a person be removed as a party to a proceeding if the party has been inappropriately included as a party. The court may make such an order at any stage of the proceeding, and may do so either on application by a party or on its own initiative. I propose to order that the three companies (the named second, third and fourth plaintiffs) be removed as parties.

28. The fifth plaintiff is a company of which Mr Manny informs me he is the sole shareholder and director, but it is not a party to any agreement with the bank, and it seems to me, has no standing to bring the present proceeding. I propose to order that the fifth plaintiff also be removed as a party.

29. Taking account of the fact that Mr Manny is unrepresented and has brought the proceedings seeking urgent relief, I do not propose to dismiss his application purely on the basis that he has not adduced evidence that he is a creditor of any of the three companies. He may well be a creditor and may be in a position to prove that he is, given further time. Accordingly I propose to assume for the purposes of the exercise that he may be able to do so, and deal with the application on its merits.

30. The powers of the court in relation to administrators are far wider than in relation to receivers. They are set out in Division 13 of Part 5.3A of the Corporations Act. Section 447A gives the court power to make such order as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company. This includes a power to order that the administration is to end. An order may be made subject to conditions, and may be made on the application of the company, a creditor, the administrator, ASIC, or any other interested person. I am satisfied that Mr Manny is an interested person for the purposes of the section. There is a specific power conferred by section 447C to declare whether the appointment of an administrator was valid. Section 447E allows the court to make such order as it thinks just, if satisfied that an administrator is managing the company's business, properties or affairs in a manner that is prejudicial to the interests of some or all of the company's creditors or members. I am satisfied that in respect of each of the three companies, the mortgage debenture gave the bank power to appoint administrators, and that the appointments were made validly pursuant to those powers.

31. In relation to the appointment of the first defendants as receivers, I am satisfied that they were validly appointed. Accordingly Mr Manny's claim for a declaration that their appointment was invalid must fail.

32. Mr Manny has also failed to persuade me that the appointment of the third defendants as administrators was invalid, and his claim for a declaration to that effect must fail.

33. Whilst I acknowledge and understand Mr Manny's concerns, I am not persuaded that any of the other matters he has raised in submissions would justify my making orders under section 447A or 447E which would interfere with the orderly course of the administration. His conviction that he could get better prices for the companies' assets if he were permitted to take charge of the sale process rather than leaving it in the hands of the administrators is entirely understandable and may be soundly based, but it is not a reason to end the administration and place Mr Manny back in charge of the companies' fortunes. The fact is that the companies owe the bank something of the order of $10m and are not in a position to pay it back without at least selling a major portion of their assets, probably most and perhaps nearly all of their assets. The companies are accordingly unable to repay at least their debts to the bank as they fall due and are technically insolvent. It cannot be expected that the court in such circumstances will return control of a company to its director or directors.

34. I am informed by Mr Hill for the administrators that there are unsecured creditors. Their interests must also be taken into account. The administrators speak for them and will properly reschedule the meetings of creditors which I have stayed and place the future of the companies in the hands of the creditors. If Mr Manny is, as he asserts, a creditor of each of the companies, presumably he will lodge proofs of debt and he will be entitled to attend, speak and vote at the meetings of creditors, but in that capacity rather than as a director.

35. The interlocutory process and the originating process will be dismissed with costs.

I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.

Counsel for the first and second defendants: Mr G C McCarthy (1 April 2011)

Solicitors for the first and second defendants: Blake Dawson