Offshore and Ocean Engineering Pty Ltd v Greenwich Contractors Pty Ltd

Judgment (extempore) 1CAMPBELL JA: Today there is listed an application for leave to appeal from a decision of Brereton J that was given earlier this week on 22 October 2012: In the Matter of Offshore and Ocean Engineering Pty Limited [2012] NSWSC 1296. His Honour declined to adjourn the hearing of a winding up application that was due to be heard that day. There is also returnable today a notice of motion seeking that the winding up proceedings be stayed pending the determination of the appeal proceedings. It is convenient to deal with the application for leave to appeal first. 2The company that is the subject of the application was incorporated in 2008. It carried on a business of providing marine vessels and barges. 3In February of this year the company ceased active maritime operations. Its activities since that time appear to have been confined to receiving payments of hire for one of its vessels which is on a bareboat charter. 4On 20 April 2012 the respondent served a statutory demand on the applicant, claiming $208,000 for certain work that had been done. The debt was said to arise under five invoices that the respondent had issued in the period from December 2011 to March 2012 and that remained unpaid. 5On 31 May 2012 the company made an application under s 459G of the Corporations Act to set aside that statutory demand. McDougall J heard and decided that application. On 26 July 2012 he decided that a genuine dispute existed concerning two invoices but not concerning the other three: Offshore and Ocean Engineering v Greenwich Contractors [2012] NSWSC 889. In consequence the statutory demand was reduced to about $162,000 and the time for complying with it was extended to 16 August 2012. 6The extended statutory demand was not complied with. On 23 August 2012 the respondent filed an initiating process seeking the winding up because of failure to comply with that statutory demand. The process was made returnable a comparatively long time after the filing, namely on 5 October 2012. 7On 21 September 2012 an administrator was appointed to the company. The assets of the company have at all relevant times been subject to a fixed and floating charge to St George Bank. On 26 September, St George Bank appointed a receiver and manager pursuant to its charge. The first meeting of creditors occurred on 3 October 2012. 8On 17 October 2012, Mr Chris Allsop, who is one of the directors of the company, provided the administrator with a proposal for a Deed Of Company Arrangement ("DOCA"). It will be observed that that was five days before Brereton J made the decision from which leave to appeal is sought. 9The administrator issued a report to creditors on 19 October in which he expressed the view that the DOCA was in the interests of creditors. The DOCA depended upon a deed fund being established, from the company's own resources and earnings and over a lengthy period of time, of some $1.5 million. The administrator was not able to provide any assurance that the money to make up the deed fund would actually be paid, and said that creditors should make their own assessment on the level of risk when considering the DOCA proposal. 10The second meeting of creditors is due to occur on Monday next, 29 October 2012. 11The application for adjournment before Brereton J was under s 440A(2) of the Corporations Act 2001 (Cth) which provides: "The court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up." 12The manner of applying that section was considered in Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd [2003] NSWSC 47, (2003) 44 ACSR 377 at [14], namely that: "There is a positive duty on the court to adjourn the hearing if the company is under administration and the court is satisfied it is in the interests of the company's creditors for the company to continue under administration rather than be wound up." 13The section says nothing about whether the Court should or should not adjourn the hearing of the application if the two criteria set out in subs (2) do not apply. It is apparent from the reasons of the primary judge that he took that approach. 14An application for leave to appeal from a decision under s 440A is not approached as though the first instance application is run afresh. The principles applicable to such an application include those that apply to any application for leave to appeal. In Hudson v State of New South Wales [2012] NSWCA 319 at [5], Meagher JA has recently summarised those principles. "Ordinarily it is only appropriate to grant leave to appeal in proceedings which involve issues of principle, questions of general public importance or where it is reasonably clear that there has been an injustice in the sense of going beyond it being reasonably arguable that the primary judge was in error: Carolan v AMF Bowling Pty Ltd [1995] NSWCA 69; Zelden v Sewell [2011] NSWCA 56 at [22]; Be Financial Pty Ltd v Das [2012] NSWCA 164 at [32]-[34]; Lee v New South Wales Crime Commission [2012] NSWCA 262 at [12]." 15As well, the fact that the application concerns an application to wind up itself enters into the approach that a court should take. Sections 101(2) paras (n), (o) and (p) of the Supreme Court Act 1970 make special provision requiring leave to appeal for particular types of final order that are made in winding up proceedings. These provisions are a reflection of a legislative policy that there is special commercial importance in winding up applications proceeding swiftly and with interference from an appeal court only when good reason is shown. 16The policy arises from it being of general public importance that the court system can provide remedies concerning unpaid debts with speed and certainty. In saying that, I also recognise that there is a public policy in the provisions of the Corporations Act concerning administration that creditors be given the opportunity to consider a DOCA when it appears that creditors will do better under a DOCA than under a liquidation. When those policies come into conflict, as they have done in the application in relation to which the present application for leave to appeal is brought, the decision as to where the balance lies is given to one of the judges of the Equity Division who have experience of corporate and commercial matters. 17The present case is not one that in my view involves any issue of principle or any question of general public importance. 18It was submitted by Mr Coles QC, who appeared for the company, that there were some questions of principle involved. He pointed out that what is involved in the company continuing under administration, within the meaning of s 440A(2), is that all the usual incidents of an administration should be permitted to occur, and that s 435C(2) contemplates that one of the normal incidents of an administration is that the company's creditors might resolve that a DOCA be executed. I would accept that that is one of the incidents that must be taken into account. However, it seems to me that his Honour has given consideration to the prospect of a DOCA being entered into. Indeed the primary judge gave express consideration to the manner in which the DOCA would operate and came to the conclusion in [11] that even a proposal that a related entity of Mr Allsop should subordinate a claim that it had provided no assurance that there would be a deed fund. Thus, there is no room for debate about whether the judge failed to apply the principle to which Mr Coles referred. 19Another error of principle that Mr Coles submitted was made is that at [6] in his judgment the judge expressed the view that in applying s 440A(2) a substantial degree of persuasion was required that an administration rather than liquidation is in the interests of the company's creditors. I did not read that part of the judgment as involving any departure from the usual onus of proof. In any event, this was an extempore judgment and it is well-established that extempore judgments are not to be picked over: Maviglia v Maviglia [1999] NSWCA 188 at [1]; Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 570; Christakos Transport Pty Ltd (in liq) v Croft [2005] NSWCA 472 at [83]-[84; Tchadovitch v Tchadovitch [2010] NSWCA 316; 79 NSWLR 491 at [71]. 20Another matter upon which Mr Coles relied was that the judge expressed the view in [15] that, "When a manifestly insolvent company appoints voluntary administrators following resistance to a creditor's statutory demand and the initiating of winding up proceedings, the court approaches with a degree of scepticism whether the appointment is not an attempt as a last resort to avoid the consequences of liquidation." 21Mr Coles rightly observed that it is a necessary consequence of the Corporations Act that winding up cannot follow an administration without the approval of the creditors or the leave of the court. I do not read his Honour in that paragraph as doing anything other than recognising that in the present case the DOCA is sought to be put forward at the end of a very protracted history. 22Mr Coles submits that the judge failed to take account of the relatively short period for which an adjournment was sought, namely four weeks, which would have been enough to allow a DOCA to be executed. The judge specifically mentioned that the adjournment that was sought was until 19 November 2012 and the second creditors' meeting was to be held on 29 October, so it is difficult to form the view that he overlooked those matters. 23Mr Coles submitted that the shortness of the period of the adjournment that was sought was of particular importance because it is an important element of the operation of administrations that creditors be given the opportunity to decide whether they wish to enter a DOCA. However, as Mr MW Young SC, counsel for the respondent, pointed out in his written submissions, it is not clear that a decision would be made by the creditors at the meeting that is due to occur on Monday. That is because it is always possible that a second meeting of creditors will be adjourned or that there will be a dispute about the effectiveness of any purported decision made at it. Thus the judge could not have approached the matter on the basis that a decision would inevitably be made on 29 October. More importantly though, in any event, while in some situations where there is real doubt about whether a DOCA would be in the interests of creditors, it can be appropriate, and can also be a matter going to what is in the best interests of the creditors, that the creditors be give the opportunity to make up their own mind about a proposed DOCA, the weight that is given to that factor is very dependent upon individual circumstances. 24For all these reasons this is not, in my view, an appropriate matter in which to grant leave to appeal. I would dismiss the application. 25BASTEN JA: I agree with the order proposed by Campbell JA and, subject to one point on which I would wish to reserve a final view, with his reasons. The point of hesitation concerns the factors relevant to the mandatory obligation under s 440A of the Corporations Act 2001 (Cth) to adjourn the winding up proceeding. That obligation is subject to the satisfaction of the court that such a course is in the interests of the company's creditors. The amount and timing of any return to creditors will usually be critical factors in such a consideration. Whether the opportunity for creditors to vote on a proposed Deed of Company Arrangement is relevant to the determination or satisfaction of their interests is a matter as to which I would not wish to express an opinion. 26By contrast, the general power to adjourn, which is implicit in s 440A and may be sourced to s 467(1) as indicated by Perram J in Deputy Commissioner of Taxation v Polcarp Pty Limited [2011] FCA 1142, may well give rise to a wider range of relevant considerations. 27CAMPBELL JA: In the circumstances where the Court is of the view that the application for leave to appeal should be dismissed, the notice of motion has become irrelevant. It should be dismissed. 28As at present advised, I see no reason why the ordinary order as to costs should not be made concerning each of those. I propose that the dismissal of the application for leave to appeal and of the notice of motion be with costs. 29BASTEN JA: I agree.