Parkview Constructions Pty Ltd v Tayeh and Others

Judgment 1By Originating Process filed on 28 March 2011 the plaintiffs, Martin John Green and Peter Paul Krejci as Voluntary Administrators of Bevillesta Pty Limited (the Company), seek orders under s 447A of the Corporations Act 2001 (Cth) (the Act) that s 447D(1) of the Act operates in respect of the Company to enable the Court to give certain directions. The plaintiffs also seek an order under s 447D(1) that the plaintiffs would be justified in putting to the meeting of creditors of the Company to be convened pursuant to s 439A(1) of the Act the Deed of Company Arrangement (DCA) and associated Creditors Trust Deed (the Trust Deed) in the form provided to the Court and making a recommendation to the creditors that it would be in their interests for the Company to execute the DCA and the Trust Deed. 2The proceedings were heard on 11 and 13 April 2011 when Mr C Harris SC appeared for the plaintiffs. On 11 April 2011 leave was granted to Mr F Assaf, of counsel, to make submissions as amicus curiae instructed by the Australian Securities and Investments Commission (ASIC). On 13 April 2011 leave was granted to Mr RD Marshall, of counsel, to make submissions on behalf of Top Ryde Funding Pty Limited (the Funder). Judgment was reserved on 13 April 2011 and the matter was listed on 17 May 2011 for delivery of judgment. On that day Mr Harris made an application that the delivery of judgment be deferred because of some recent events, the relevance of which the plaintiffs had not had time to properly assess. The delivery of the judgment was deferred and the matter was listed on 9 June 2011. On 9 June 2011 Mr Harris called evidence outlining the recent events (referred to later) and I once again reserved my judgment. Background 3The Company was registered on 20 February 1962. It is the registered proprietor of the land on which the Top Ryde Shopping Centre is constructed. On 16 February 2011 the plaintiffs were appointed Administrators of the Company. On the same day Receivers were appointed pursuant to a fixed and floating charge given under a Syndicated Note Facility Deed between the Company and a number of banking institutions (the syndicated banks). Clause 2 of that Deed provides that the banks' recourse to the Company is limited to the ability of the Company to be indemnified from the assets of the trust that "compose or relate to" the Top Ryde Shopping Centre. The plaintiffs have received advice that the syndicated banks would not be entitled to prove in the winding up of the Company. 4Mr Krejci has investigated the affairs of the Company and has formed the view that it does not have any assets beyond those to which the syndicated banks have recourse under the Syndicated Note Facility Deed with the result that if the Company were to go into liquidation, the unsecured creditors would receive nothing. The Report as to Affairs prepared by the director of the Company shows the total non-related unsecured debts as approximately $2.5 million. There are three contingent creditors who have commenced proceedings against the Company and a fourth creditor who has made a claim that is yet to be quantified. However, it would appear that the additional claims would amount to at least $3.4 million. 5The first meeting of creditors took place on 28 February 2011. The plaintiff, Mr Krejci, advised the meeting that the syndicated banks had significant claims against the Company under a limited recourse construction loan facility in respect of a debt of approximately $700 million provided to the Company for the development of the Top Ryde Shopping Centre. It was also noted that the limited recourse construction loan meant that any loss that the syndicated banks suffered on the sale of the asset could not be claimed against the Company. There have been communications between the plaintiffs' solicitors and the solicitors for the syndicated banks for the purpose of reaching some certainty that the recourse of the banks is so limited. It has not been possible because the banks have reserved their positions. 6The former director of the Company, Mr Beville, addressed the meeting and advised that: the Company had suffered significant cash flow difficulties in the previous three years; the construction of the shopping centre was completed within the construction budget but the leasing process was proving to be quite difficult with the necessity for extra financial incentives to prospective tenants; the economic situation following the global financial crisis had resulted in the greater need for those financial incentives; and it is generally accepted that this particular type of development needs to be retained for three years after completion to maximise the value of the asset. 7On 10 March 2011 the plaintiffs received the draft DCA and Deed from the solicitors for the Deed proposer, the Funder. After reviewing those documents the plaintiffs' solicitors replied on 14 March 2011 in terms that included the following (the response to which dated 21 March 2011 is included in italics): I have looked at the draft documents and whilst I appreciate they do not represent your client's final position, I have serious concerns with them. To assist me would you please give consideration to the following and let me have your responses.