2598/02 NRMA WORKERS COMPENSATION (NSW) (NO 2) PTY LIMITED v EATERNITY PTY LIMITED
JUDGMENT
1 HIS HONOUR: This is an application by Eaternity Pty Limited (Administrator Appointed) ("the company") under s 440A of the Corporations Act 2001 (Cth) ("the CA") for an order that the plaintiff's winding up application, brought under s 459A of the CA, be adjourned for a period to be determined by the Court. The period asked for in fact is a period ending on a day shortly after the holding of a second creditors' meeting under the administration, which is scheduled for 20 June 2002, about a fortnight hence. The plaintiff in the proceedings is NRMA Workers' Compensation (NSW) (No 2) Pty Limited. That company, by originating process filed on 8 May 2002, sought the winding up of the company. The originating process was returnable yesterday, 4 June 2002, when the company's application under s 440A came before me and was adjourned by me together with the winding up application until today for the purpose of my delivering judgment on the adjournment application.
2 The company is a company which until recently conducted a number of restaurants and bars and a number of retail food outlets under the old GPO building at 1 Martin Place, Sydney. It also conducted elsewhere in Martin Place a well known restaurant and bar known as Banc and Wine Banc, respectively. It no longer conducts any of these businesses and is not now trading. The GPO businesses appear to have been taken over by a Mr Petroulas or companies associated with him, allegedly by virtue of powers exercised under heads of agreement which the company entered into with Mr Petroulas or his associates in December 2001. The Banc and Wine Banc establishments appear to have been transferred to another company controlled by Mr Sarris, the controller of the company, in circumstances which the administrator says require further investigation. In any event, it seems clear that the company is not trading.
3 This is a case, as is not uncommon, where the administrator was appointed late. Mr Albarran was appointed administrator on 24 May 2002 after the originating process for winding up had been taken out and before its return date. Attempts to conduct companies under administrations which are commenced in those extreme circumstances require close scrutiny where questions of the continuation of the administration are brought before the Court. The circumstances of the company as shown in the evidence are as follows. The company has negligible assets. The administrator's report states it to have debts of some $3 million, including a debt of approximately $1.8 million to the Australian Tax Office ("the ATO"). There were some submissions before me yesterday on the plaintiff's part that, in fact, the debts were $3 million plus the ATO debt (which the ATO has now informed the Court is in fact $1.9 million). However, the evidence appears to indicate that the $3 million is a figure inclusive of the ATO debt. I propose to proceed on that basis, although, as far as I am concerned, the result would not be different if in fact the ATO debt were in addition to the $3 million debt, so that the total debts were about $5 million. The $3 million is clearly exclusive of any claim by Mr Rodney Adler to be a creditor, but Mr Adler has not so far made any such claim. It is clear that before the company ceased operating it paid Mr Adler $1 million, but the administrator states that it is not yet clear whether or not that payment was made in circumstances where it could be characterised as a preference in Mr Adler's favour.
4 The reason for the short adjournment sought under s 440A is to permit further consideration of a possible deed of company arrangement ("DCA"). The relevant offer is sworn to in an affidavit of Mr Sarris, the former controller. Mr Sarris' offer is to make in 18 months time a payment of $450,000 plus the administrator's costs and expenses. This would permit a payment to unsecured creditors of approximately 15 cents in the dollar. In addition, Mr Sarris offers, if the company continues in administration, to fund litigation against Mr Petroulas and his interests. It is alleged that amounts, which may total several million dollars, may be recoverable from this source in relation to alleged breaches of the heads of agreement, which have already been mentioned. Mr Sarris is aware that the costs of such proceedings would be a minimum of $100,000, and may very well be much more, and offers to provide to the administrator all those costs.
5 At the first creditors' meeting under the administration, which was held on 31 May 2001, there were in attendance creditors for amounts totalling approximately $700,000, who voted unanimously for an adjournment of the winding up proceedings and the further consideration of a proposed DCA at the second meeting on 20 June 2002. In addition, the ATO has now appeared before me and indicated that it also supports an adjournment of the originating process to permit consideration of the DCA. The course of adjournment for further consideration is thus favoured on the evidence by creditors representing $2.6 out of the $3 million owed, or a considerable preponderance by value of the creditors. Even if the $5 million figure were correct, those persons would represent a good half by value of the creditors.
6 The plaintiff, which on the material before me is the sole creditor opposing this course, is owed under a judgment debt some $113,000. Its solicitor says to the Court that there is not a discharge on the application of the onus of showing that it is in the interests of creditors that the adjournment be granted. He says that the scheme remains nebulous. He says that the promised payments are considerably down the track and require borrowings by Mr Sarris that are not yet assured. He says that the proposed scheme does not provide for the pursuit of a possible claim against Mr Rodney Adler, and he says that the Petroulas claim could be pursued as well through a liquidator being funded by Mr Sarris or by creditors in some appropriate way. He says that, even if Mr Sarris were not prepared to fund a liquidator but only an administrator, the liquidator could in due course after examination of the situation return the company to administration on appropriate terms.
7 The authorities concerning the proper basis for the exercise of the discretion to adjourn under s 440A were gathered by me in my judgment in TCS Management v CTTI Solutions Pty Ltd [2001] NSWSC 830. In that judgment at [18] I said:
"What I derive from a consideration of the foregoing authorities, as perhaps appears from my reflections during their recitation, is that it is dangerous, as in so many cases, to place any gloss upon the statute. The sole consideration posited as the criterion for the Court's decision in s 440A(2) is the interests of the company's creditors. It is clear that the onus is on the person seeking the adjournment to establish to the satisfaction of the Court that the adjournment is in the interests of those creditors. In general terms, that will be difficult to do unless there is a good case that there will be a greater or more accelerated return from the course contended for. But considerations beyond mere quantum may be relevant to take into account in determining what is in the interests of the creditors and whether it is established that an adjournment may be said to be in the creditors' interests. Where there are advantages in either course, 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."
8 I refer in particular also to the decision of Santow J in Waste Recycling and Processing Services of NSW v Local Government Recycling Co Pty Ltd (1999) 32 ACSR 194 and Deputy Commissioner of Taxation: In the Matter of First Netcom Pty Limited [2000] NSWSC 989, where his Honour referred to what he described as "an intermediate case", where a short adjournment of the winding up application is indicated as being in the interests of the creditors to permit further investigation of a proposed DCA, and of the affairs of the company generally, so that where there is a deal to be said in favour of each of the alternatives of winding up and proceeding by administration the decision can be made by the creditors, who are, of course, the persons most affected.
9 There are two factual matters that I should add. The first is that in view of the fact that the company is no longer trading, there appears to be no public interest against a short adjournment. Secondly, certainly by reason of the shortness of the adjournment now sought, any possible claim of a person against Rodney Adler is in no way prejudiced.
10 The conclusion that I have come to is that this is one of the intermediate cases referred to. The evidence seems clear that, if the matter proceed by way of liquidation, there will be no return to the creditors, unless there is recovery of moneys by litigation. It is certainly not clear at the moment that there is anyone willing to finance litigation against either Mr Petroulas and his interests or against Mr Adler if the company is in liquidation. The promise of $450,000 plus expenses in due course, together with a further offer of funding the litigation against the Petroulas interests, is something which may well be deemed to be in the interests of creditors if satisfactorily incorporated in a DCA. Whilst the submissions which Mr McCrostie has put to me for the plaintiff are not without force, the course I propose to follow is to adjourn the winding up proceedings to a day a short time after 20 June 2002 to permit the proposed DCA to be considered by a creditors' meeting on that day.
11 There will be orders in accordance with short minutes initialled by me.