Northwalker Realty Pty Ltd v TFM Chatswood Land Pty Ltd

Substantive proceeding

In this proceeding, the plaintiff seeks to recover outstanding sales commission and related marketing fees which it says are due and payable to it under an Agency Agreement dated 29 February 2016. The plaintiff's claim as set out in the Further Amended Statement of Claim filed on 15 August 2022 is for $1,725,044 plus interest. The plaintiff has filed a court book which contains all the evidence on which it relies, its opening submissions and its objections to affidavits and is ready to proceed. The defendant has not filed its submissions or objections but the Defence filed on 29 August 2022 establishes the nature of the grounds on which it would have contested the plaintiff's claim.
Section 440D(1) of the Corporations Act provides as follows: (1) 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: (a) with the administrator's written consent; or (b) with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
Although the discretion under s 440D(1)(b) must be exercised with the objects of Part 5.3A in mind (in particular, the need to maximise the prospect of the company remaining in existence or, if that is not possible, to produce a better outcome for creditors than an immediate winding up), the Court's discretion to grant leave is "at large". In Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd [2011] NSWSC 1305; 285 ALR 207, Hammerschlag J (as his Honour then was) said: [36] I respectfully take a view different to that of Young J and Austin J. It seems to me that an approach which commences with an assumption that leave will only rarely be granted or that the court must approach this type of application with a degree of caution greater than that with which it would approach the exercise of any other discretion within a particular statutory context where it must be satisfied that appropriate circumstances exist for the making of an order imposes upon the applicant a standard higher than that which the section requires. This is an unwarranted confinement of the discretion. [37] The policy underlying Pt 5.3A, as evinced by s 435A, is to maximise the chances of the beleaguered company staying alive. [38] The stay of proceedings imposed by s 440D may facilitate the achievement of this object, among others, by (a) affording the administrator time to assess and report on the company without the distraction of the proceedings; (b) putting a brake on legal and associated costs; (c) allowing time for the development of proposals which might preserve the value of the company as a going concern; (d) giving the creditors time to consider their position for the purposes of the creditors' meeting; and (e) in appropriate circumstances, preventing a creditor from obtaining some advantage over other creditors or potential creditors. [39] While the discretion under s 440D must be exercised with the objects of the part in mind, it remains one at large. A stay is the starting point. There must be circumstances which warrant its displacement. [40] Every application must be considered on its own circumstances. There are infinite possible scenarios. There may be a flurry or a dearth of meritorious applications. Those circumstances need have no particular quality of rarity.
A summary of factors relevant to the exercise of the discretion under s 440D(1)(b) was set out by Tobias JA (with whom Beazley and Giles JJA agreed) in Attard v James Legal Pty Ltd [2010] NSWCA 311; 80 ACSR 585 as follows: [146] More recently, Rein AJ (as his Honour then was) summarised in J F Keir Pty Ltd v Priority Management Systems Pty Ltd (admin apptd) [2007] NSWSC 748 at [8] the factors to be taken into account in respect of an application for leave under s 444E(3): • whether the claim has a solid foundation and gives rise to a serious dispute: Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550; • whether the administrator would be unreasonably distracted from his or her statutory duties and be obliged unnecessarily to incur substantial legal costs: Foxcroft v Ink Group Pty Ltd (1994) 12 ACLC 1063; J & B Records v Brashs Pty Ltd (1994) 12 ACLC 534; Pioneer Water Tanks (Aust 94) Pty Ltd v Delat Pty Ltd (1998) 16 ACLC 36; Slater v Global Finance Group Pty Ltd (1999) 150 FLR 264; • whether the company is insured against the liability that is the subject of the proceedings: Foxcroft v Ink Group Pty Ltd (1994) 12 ACLC 1063; • who appointed the administrator: Wallabah Pty Ltd v Navillo Pty Ltd (1997) 15 ACLC 396; • whether the applicant will suffer any disadvantage if leave is not granted: J & B Records v Brashs Pty Ltd (1994) 12 ACLC 534; Wallabah Pty Ltd v Navillo Pty Ltd (1997) 15 ACLC 396; • whether there are good reasons for allowing a creditor to depart from the general intention of Pt 5.3A, which is that a creditor ought not be able to take action against the company in such circumstances: Foxcroft v Ink Group Pty Ltd (1994) 12 ACLC 1063; Re Grenadier Constructions No 2 Pty Ltd (1994) 12 ACLC 460. [147] To these factors may be added the following: • who is applying for leave: Wallabah Pty Ltd v Navillo Pty Ltd (1997) 15 ACLC 396; BBC Hardware Ltd v GT Homes Pty Ltd [1997] 2 Qd R 123; • what funds the company has available to defend against litigation: Wallabah Pty Ltd v Navillo Pty Ltd (1997) 15 ACLC 396.
It is clear that not all these factors will be relevant in a particular case or of the same significance.
In relation to the first factor, it is clear that the claim made by the plaintiff does have a solid foundation and gives rise to a serious dispute.
In relation to the second factor, there is no suggestion that the administrator would be unreasonably distracted from his or her statutory duties. The matter is ready for hearing and the hearing is likely to take no more than two days. Hence, any potential further legal costs in the matter are unlikely to be substantial. Further, if the matter proceeds in the absence of the defendant (which was the expected position at the time I considered the application for leave), the hearing will take no more than one day and this will have the advantage for the administrator that the claim of the plaintiff will be quantified. I indicated that if the plaintiff was ultimately successful, I would make an order in granting final relief allowing the administrator to bring an application to set aside the judgment within 28 days after the decision and before entry of orders if he so wished.
The third factor is not relevant.
In relation to the fourth factor, being who appointed the administrator, the appointment was made by the company. The plaintiff submitted, and I agree, that this is a matter in favour of the grant of leave. Mr McLean's appointment took effect only two business days before the hearing date and followed only one day after the defendant notified ASIC that the then sole director, Mr James Zhang, had been replaced by Mr Ruiyu Zhang on 30 September 2022. The timing of these events and their proximity to the commencement of the hearing are unlikely to have been coincidental and gives rise to a justifiable concern on the part of the plaintiff that the decision to appoint a voluntary administrator late on the afternoon of Thursday, 6 October 2022 was designed to frustrate the finalisation of the hearing. The delay in appointment of the administrator gives the defendant almost no time in which to provide the administrator with the material necessary to enable him to consider and, if necessary, take advice as to whether to dispute the claim at the hearing or, alternatively, make a determination as to the quantum of the plaintiff's debt ahead of the first meeting of creditors in the administration.
As to the fifth factor, the plaintiff submitted that it will suffer disadvantage if leave is not granted because it will be deprived of the opportunity to establish now, by judgment, the amount of its debt and thus its status as a substantial creditor in the administration. Absent a judgment for a fixed sum, there is a substantial risk that its claim will be assessed, for voting purposes in the administration, at $1, leaving it effectively disenfranchised. I accept the plaintiff's submission that this outcome is likely and, further, is likely to precipitate further litigation, including separate proceedings for declarations under s 90-15 and s 90-20 of the Insolvency Practice Schedule (Sch 2 to the Corporations Act) for the Court to declare the true amount of the plaintiff's proof of debt or, potentially, an application to replace the administrator.
As to the sixth factor, there are good reasons for allowing the plaintiff as a creditor to depart from the general intention of Part 5.3A that its action against the company be stayed. As the plaintiff submitted, the grant of leave to proceed if made now will reduce the prospect of further litigation concerning the quantum of its claim and hence is likely to be less disruptive to the ordinary conduct of the administration. In addition, reducing the prospect of further litigation is consistent with the overriding purpose stated in s 56 of the Civil Procedure Act 2005 (NSW) and the objectives of Part 5.3A of the Corporations Act as set out in s 435A.
I do not regard the further factors referred to in Attard at [147] as relevant in the present matter.
As contemplated by s 440D(1)(b), any grant of leave to proceed can be given on terms. The plaintiff indicated that it would not resist a condition that, until further order of the Court, it is not to take any steps to enforce any judgment it might obtain in this proceeding while the defendant is under external administration.
For the above reasons, in my view, the correct course was to grant leave to proceed, subject to the condition indicated in the previous paragraph.
The Court therefore ordered on 10 October 2022: 1. Pursuant to s 440D(1)(b) of the Corporations Act 2001(Cth) leave is granted to the plaintiff to proceed against the defendant in respect of the claims advanced by the plaintiff in this proceeding. 2. The plaintiff is not to take any steps to enforce any judgment that may be obtained in this proceeding against the defendant without the leave of the Court.

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