N A Investments Holdings Pty Limited V Jonvana Enterprises Pty Limited [2011] NSWSC 125

Judgment 1I am dealing with a claim for urgent interlocutory relief in pending proceedings. The proceedings are brought by three plaintiffs, NA Investment Holdings, FFA Properties and FFA Equipment. They sue six defendants of whom the main defendant is Jonvana Enterprises. The other defendants are associates of that company. 2By their statement of claim filed more than 11 months ago, the plaintiffs seek various relief in respect of security given by the second and third plaintiffs over their assets being, respectively, the site of an oil refinery and the plant and equipment of the oil refinery. 3The first plaintiff is the holder and owner of all the shares in the second and third plaintiffs. 4The securities were given by the second and third plaintiffs to certain of the defendants in connection with funds advanced by them to the second and third plaintiffs. The first plaintiff was not a borrower or a chargor. 5The financing and the giving of the securities followed an earlier abortive transaction under which the first plaintiff was to have sold all of the shares in the second plaintiff and the third plaintiff to the first defendant. The first plaintiff is suing the first defendant in separate proceedings for alleged breach of contract in that connection. It was in the period following the non completion of the share sale agreement that the defendants assisted the second and third plaintiffs with their needs for funding and took the securities to which I have referred. 6In these proceedings, the plaintiffs allege that the defendants engaged in misleading or deceptive conduct and unconscionable conduct in connection with the transactions that enfold the giving of the securities. 7The conduct in question, so far as it involved the making of representations, consisted of the making of oral statements by individuals connected with the defendants. 8On 29 November 2010, one of the defendants as chargee, relying on events which it maintained had caused the securities to become enforceable, moved under s 439C of the Corporations Act 2001 (Cth) to appoint an administrator of each of the second and third plaintiffs. The insolvency practitioner appointed was Mr Johnson. 9Some nine months earlier, in February 2010, the chargee had purported to appoint a receiver but shortly afterwards accepted that no occasion for it to do so had arisen in terms of the security, so that the appointment of the receiver was not maintained. 10Following Mr Johnson's appointment as voluntary administrator under s 439C, the plaintiffs moved in late 2010 to restrain further action by him as such administrator. On 24 December 2010, Mr Johnson gave an undertaking to the court that he would adjourn the meeting of creditors he had taken steps to convene under s 439E. The meeting had been convened for and was due to be held on 5 January 2011. Mr Johnson's undertaking was on the basis that the adjourned meeting would not proceed to business before 9 March 2011. 11It is in those circumstances that the plaintiffs took urgent steps today to obtain interlocutory relief directed towards further postponement of the meeting of creditors or the imposition of some other regime to prevent any decision of a meeting of creditors. 12The plaintiffs' concerns were highlighted by the fact that the administrator's recommendation in his latest report to creditors, dated 1 March 2011, is that they vote for the winding up of both companies, that is, the second and third plaintiffs. 13I should say more about what happened in relation to the meeting convened for 5 January 2011. Mr Johnson duly gave notice of the meeting in order to convene it. The notice specified the time and place. The appearance in court which resulted in Mr Johnson's giving the undertaking I have mentioned then occurred before the day appointed for the meeting. 14Mr Johnson then spoke to the major creditors, being the defendants and an insurance company, and told them, in effect, that the meeting would not be transacting any business or going ahead in any meaningful way because he had undertaken to the court to adjourn it. Then on 5 January 2011, Mr Johnson attended at the appointed time and place and, with no creditor having attended, purported to adjourn the meeting to a time and place to be determined by him in the future. Mr Johnson later decided that the meeting should continue at 10.30am on 9 March and gave notice to creditors accordingly. This notice is dated 1 March 2011 and is accompanied by the further reports of that date to which I have already referred being reports supplementing his original reports to creditors dated 16 December 2010. 15Various questions arise in relation to the events of 5 January 2011. Having regard to s 439B(2) of the Corporations Act and regulation 5.6.18(1) of the Corporations Regulations 2001 (Cth), was it open to the administrator to adjourn the meeting without some resolution of creditors? How, in view of the provisions about adjournment in the Act and the regulations, could there be, in any event, an adjournment to a time and place to be fixed by the administrator at some future point? Was there, on 5 January 2011, a meeting at all, noting that the person nominated by the legislation to be chairman was in attendance but no-one else and, in particular, no creditor was present. Is the true characterisation of events that the s 439A meeting has ended without any resolution under s 439C having been passed so that the administration came to an end under s 435C(2)(c)? 16These questions all arise but there is no need for answers to be attempted at this point. Both sides approached the matter on the footing that the voluntary administration is extant and continuing and that Mr Johnson is the administrator. 17The plaintiffs do not challenge the validity or enforceability of the security according to its terms. They claim, as part of the principal relief in the proceedings, a statutory order making the security void. That order may or may not be made in the fullness of time. Unless and until it is made, the security is on foot and the voluntary administration put in place on the basis of it, must be taken to have been regularly imposed. 18The fact that the voluntary administration became effective has another consequence. Counsel purported to appear for the second and third plaintiffs, that is, the two chargor companies in administration, as well as for the first plaintiff of which those two other companies are wholly owned subsidiaries. By force of s 437C, the powers of the officers of the second and third plaintiffs were suspended when voluntary administration became effective. Only the administrator was able to actuate the company. Mr Johnson has not caused the second and third plaintiffs to bring the present application. The proper cause therefore, is to regard it as brought by the first plaintiff, that is to say, the holding company alone. 19Finally, on this aspect, it is relevant to note that neither the first plaintiff nor anyone else has made an application under s 447A or otherwise for an order putting an end to the administration. 20I have not to this point described the interlocutory relief that the plaintiffs, or as I have just said, effectively the first plaintiff alone wish to have. The claim is, in substance, a claim against Mr Johnson for an order that he be restrained until further order from holding any meeting of creditors in the administrations of the second and third plaintiffs, a claim against the defendants in the substantive proceedings for an order restraining them until further order from appointing any administrator, and a claim also against the substantive defendants for an order restraining them until further order from "taking any step in" the voluntary administrations of the second and third plaintiffs. 21As to the first order, it is relevant to note that Mr Johnson, although not a defendant in the proceedings, was made a respondent to the present notice of motion. 22The second order seems to be in the nature of a precaution in case any action towards putting a new voluntary administration into place is contemplated. 23The third order would prevent the defendants as creditors from voting in any existing voluntary administration presided over by Mr Johnson. 24The first matter to be addressed on this present application is whether there is a serious question to be tried regarding the substantive claims in the proceedings - in essence, that the defendants engaged in misleading and deceptive conduct or unconscionable conduct in connection with the transaction which resulted in the grant of the securities by the second and third plaintiffs. Those claims, as pleaded, rely very heavily on factual matters including, in particular, the content of conversations. For the moment, the best idea is to proceed on the assumption that there is a serious question to be tried and to move to the balance of convenience. 25At this point, I should introduce an important matter. Mr Johnson, in his reports to contractors, one for each company, dated 16 December 2010, reviewed the material he then had, noting, in relation to each company, that the directors had not been fully co-operative and, while he had received a report as to affairs, he had not received the company's books and records or other information requested. He noted also that no proposal for a deed of company arrangement had been received. His overall conclusion at that stage was that it would not be in creditors' interests either for the company to be wound up or for the administration to end. 26Mr Johnson's further report in respect of each company (to which I have already referred) was issued bearing the date 1 March 2011. In each of those reports, he expressed the opinion that the company is insolvent and recommended that creditors resolved that the company be wound up. 27By the time of his further report, Mr Johnson obviously had more information. He referred to steps taken to sell assets to raise money to pay insurance premiums. He referred to investigations through the Department of The Environment about contamination of the refinery site and the status of two clean up notices issued in 2007. He referred to the fact that the operating company to which the site and plant had been leased had gone into liquidation in August 2009 with an apparently large deficiency. He went on to refer to a number of other enquiries including as to suspected theft of equipment. 28In relation to his view that both companies are insolvent, Mr Johnson referred to a conversation with Mr Adil Magar, the principal of the plaintiffs, in which he put it to Mr Magar that each company is unable to pay its debts and is insolvent. Mr Johnson's report continues: "Adil did not deny the statement. Importantly however, in subsequent correspondence with Adil's lawyer, it was indicated that I could expect a response to same. I have not received any response rebutting my opinion that the company is insolvent." 29The considered opinion of Mr Johnson that the second and third plaintiffs are both insolvent and that creditors should, according to his recommendation, resolve that they be wound up is very influential in the balance of convenience. 30It would take some very strong countervailing factor to outweigh that and justify the court's preventing the continuation of due process in the subsisting voluntary administration, including voting by the defendants as creditors. 31Is there any such countervailing factor? The plaintiffs or, technically, the first plaintiff point in general terms to prejudice flowing from a winding up. The argument is that the second and third plaintiffs have valuable assets such that the first plaintiff was able, in 2008, to enter into a contract for sale of the shares in the two companies for $68 million. That sale did not proceed to completion and the first plaintiff has proceedings on foot about that. If the first plaintiff was the victim of a breach of contract in that respect occasioning loss, it will no doubt recover damages accordingly with any decline in the value of the subject matter of the sale (being the shares in the two subsidiaries) being an element to be taken into account in the assessment of damages. 32If the second and third plaintiffs are subjected to winding up, the first plaintiff says, the assets will be sold off and may not realise their full worth; also the causes of action for misrepresentation and the like that the second and third plaintiffs consider themselves to have against the defendants may not be proceeded with and the first plaintiff, as the residuary beneficiary of the estates of the second and third defendants, will thereby suffer. 33I do not find these considerations persuasive. Mr Johnson's report suggests that the physical assets are today in a poor state, or at least a worse state than they were in 2008. It is clear that they may need attention from a health and safety point of view. It is by no means at all clear how victory in the substantive proceedings would free the second and third plaintiffs from the debt they owe, as distinct from causing the assets not to be encumbered. The first plaintiff will enjoy whatever one hundred per cent of the shares in the two companies is really worth whether there is a winding up or not. The assets are not being turned to account now and have been idle for some time. 34The plaintiffs say that the defendants have stood in the way of their obtaining working capital. Reference is made to a caveat lodged by the defendant. But a caveat of its nature does not stop anyone doing anything; it merely gives notice to the world of something which, in this particular context, ought properly to be known anyway. If the second and third plaintiffs had borrowing capacity beyond their borrowings from the defendants, there has been no inhibition on their using it. 35In the end, I am strongly influenced by two particular factors. First, the plaintiffs have not taken steps towards securing termination of the voluntary administration which the parties accept is onging. Second, the second and third plaintiffs are said by the administrator in the supplementary report (which appears to me to be of cogency) to be insolvent. 36The balance of convenience favours a situation in which Mr Johnson and the defendants are free to take such action as is consistent with the administrator's opinion that the two companies are insolvent and that creditors ought, according to administrator's recommendation, vote to put them into liquidation. 37The interlocutory orders sought are refused. The plaintiffs' notice of motion dated 24 December 2010 is dismissed with costs.