Payload Industries Pty Ltd v Melco Engineering Pty Ltd

1. The defendant (Melco Engineering Pty Ltd) and its administrators apply, under ss 440A(2) and 467(1)(b) of the Corporations Act 2001 (Cth), to adjourn the application to wind up Melco brought by the plaintiff (Payload Industries Pty Ltd) on 22 April 2025. The application is supported by three affidavits of Francis O'Neill, sworn 19 June 2025, 20 June 2025 and 26 June 2025 (the latter two were filed on 26 June 2025). Mr O'Neill is one of the administrators appointed to the defendant.
2. Until around May 2024, Melco was a locally owned and operated steel fabrication and engineering business in Queensland. Following a contract dispute with a third party, and ensuing proceedings in the Supreme Court of Queensland (Supreme Court Proceeding), Melco entered administration. Its administrators (Francis O'Neill and David Stimpson) were appointed on 4 June 2025. The first meeting of creditors was held on 16 June 2025.
3. The originating process seeks to have Melco wound up pursuant to s 459A of the Corporations Act for failing to comply with a statutory demand in the sum of $185,194.27, issued to it by Payload on 19 December 2024.
4. Melco seeks to have the winding up application adjourned under s 440A(2) of the Corporations Act to enable a proposal for a deed of company arrangement (DOCA) to be considered at the second meeting of creditors of Melco. The DOCA is proposed by Mark Clifford, the sole director and secretary of Melco, and his related entities (Clifford Group Developments Pty Ltd and Clifford Group Pty Ltd). Clifford Group is the sole shareholder of Melco.
5. The DOCA proposed by Mr Clifford includes that:

(1) Mr Clifford and his related entities would contribute $300,000 by way of a deed fund to be paid in 12 monthly instalments of $25,000;

(2) Related party creditors of Melco (being Clifford Group Developments and Clifford Group, who are collectively owed $28,980,536 or 90.4 percent of the unsecured debts) would not participate in any dividend to creditors under the DOCA;

(3) Clifford Group Developments would not seek reimbursement of its $60,000 indemnity provided to the administrators to fund the administration; and

(4) Clifford Group Developments would provide up to $300,000 in additional funding to cover the costs of the administration and the administration of the DOCA (for which it would not seek reimbursement).

1. The evidence is that the administrators intend to convene a second meeting of creditors by 9 July 2025. Melco seeks an adjournment of the winding up application to 11 July 2025.
2. There is evidence that, at the first meeting of creditors on 16 June 2025, Mr O'Neill informed creditors in attendance, including a representative of the Deputy Commissioner of Taxation, that he intended to seek an adjournment of the winding up to allow the administration to run its course, and that no creditor raised an objection to the proposed application.
3. Payload opposes the application for adjournment.

1. The legal principles are not in dispute.
2. Section 440A(2) of the Corporations Act 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.

1. If 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, the Court is obliged to adjourn the hearing of the winding up application: Deputy Commissioner of Taxation v Scuttle Clothing Pty Ltd [2011] FCA 496 at [14] (Gordon J).
2. It is not apparent that s 467(1)(b) of the Corporations Act is of immediate relevance, given its application on hearing a winding up application. That is not this application, and the objective of the interlocutory process is to defer that point in time.

1. The defendant submits that the adjournment should be granted because:

(1) There is a real prospect of the DOCA being proposed which, in the administrators' opinion on the basis of the material available to them, would be likely to result in a better outcome for creditors than a liquidation. By affidavit sworn 26 June 2025, Mr O'Neill indicated that he had received a formal DOCA proposal on 24 June 2025.

(a) In those circumstances, the creditors should be given the opportunity to consider the proposal and exercise their judgment as to the preferable course.

(2) Neither Payload nor the creditors of Melco as a whole will be prejudiced by the administration continuing until (at least) 11 July 2025 in circumstances where:

(a) the only asset of the company which may be recoverable (aside from the DOCA) is a contingent recovery in a proceeding which will not be affected by any adjournment of the winding up application; and

(b) the administrators are funded.

(3) The largest unrelated unsecured creditor of Melco, the Deputy Commissioner of Taxation, did not raise any objection to an application for an adjournment of the winding up application.

1. Payload's submissions as to why an adjournment should not be granted can be summarised as follows:

(1) Melco and the administrators have not provided any analysis of the potential returns in the winding up of Melco, and there is little evidence of the administrators' investigations, beyond reliance on information provided by Mr Clifford. Accordingly, the Court cannot assess whether continuation of the administration until 11 July 2025, or proceeding with the winding up, is in the best interests of the creditors.

(2) The outcome of the second meeting of creditors is known: namely, the adoption of the DOCA, since related party votes and the casting vote of the administrators will determine the outcome.

(3) Melco and the administrators have failed to provide any analysis as to why its only material asset (being Melco's entitlement to be paid 70 cents in the dollar for every dollar received by Clifford Group Developments in respect of the Supreme Court Proceeding) was sold at less than full value.

(4) Melco and the administrators inaccurately submitted that the creditors will not be prejudiced by an adjournment.

1. I am satisfied that it is in the interests of Melco's creditors for the company to continue under administration, and therefore to adjourn the hearing of the winding up application, for the following reasons.
2. First, the period of the adjournment sought is modest, being to 11 July 2025: Deputy Commissioner of Taxation v Grand Platinum Pty Ltd [2024] FCA 568 at [22] (Yates J).
3. Second, the administrators opine that the DOCA proposal would likely result in a better outcome for creditors than a liquidation. Contrary to Payload's submission as to incomplete investigations (or, more precisely, the failure to indicate what investigations were undertaken), the administrators' opinion is based on what I consider to be:

(1) reasonable investigation by the administrators into the affairs of Melco, proportionate both to their date of appointment and the requested (short) period of adjournment, including investigation into the existence and viability of potential claims, with work undertaken in their role as administrators totalling approximately 100 hours; and

(2) a rational analysis regarding the comparative benefits of continued administration vis-à-vis proceeding directly to a winding up.

1. Moreover, Payload has not proffered any evidence (of investigations) to the contrary. Payload appears to meet its criticism of speculation (regarding potentially realisable assets) with further speculation of "the myriad claims which might be available to Melco or its liquidators in a winding up", without identifying those prospective claims. Furthermore, adjournment would allow for further investigation, which might inform any decision on the proposed DOCA. There is no evidence that further investigation would be best conducted by a liquidator.
2. I am satisfied that it is in the interests of the unrelated creditors to be given the opportunity to exercise their own commercial judgment as to whether the DOCA proposal should be accepted, and in particular to examine the relative merits of a contingent return with an unspecified timeframe, as against a relatively timely and potentially less favourable return, with the assistance of the expert views of the administrators: see Grand Platinum at [21]. The defendant emphasised that there is no guarantee that there will be a return from the Supreme Court Proceeding.
3. Payload claims that there is no analysis of why the defendant's material asset was sold at less than full value. However, that evidence is provided by Mr O'Neill, who explains that he was informed by Mr Clifford that he caused the assignment to occur because Melco had insufficient funds to meet the costs of the Supreme Court Proceeding. I have no cause to doubt the logic of that explanation. More importantly, it is not evident one way or another how the issue informs the merits of the adjournment application. In terms of its impact on potential claims, while not a legal view, the administrators opine that setting aside the assignment is unlikely based on an assessment of the commerciality of the arrangement.
4. Third, adjournment in the present circumstances is consistent with the policy of the scheme of Pt 5.3A of the Corporations Act, of allowing creditors themselves to decide, in accordance with the majoritarian decision-making rules prescribed by the relevant rules and regulations, what course of action is in their own best interests: Mighty River International Ltd v Hughes [2018] HCA 38; (2018) 265 CLR 480 at [61] (Gageler J).
5. The plaintiff claims that the outcome of the second meeting is known, based on a likely majority (in value) vote. I do not accept that it is a foregone conclusion, based on the evidence of the administrators' preliminary view, which is appropriately qualified by reference to the material currently available to them. Even if it were accepted, bearing in mind the policy enunciated in Mighty River (and aside from the question of prejudice, which is addressed below), it is not evident why such an outcome necessarily calls for rejection of the application for adjournment.
6. Moreover, Mr O'Neill has indicated in his affidavit sworn 26 June 2025, in the event that the majority in number of creditors votes against the DOCA, and a majority in value (attributed to the related party creditors) vote in favour of the DOCA, he, as a professional member of the Australian Restructuring Insolvency and Turnaround Association, will exercise his discretion in accordance with the relevant practice statement issued by that body. Whether or not that is so, the prospect of it is sufficient to deny the plaintiff's claim of a foregone conclusion.
7. Furthermore, while not a direct answer to that claim, the statutory mechanisms for terminating the DOCA (e.g., s 445D of the Corporations Act; s 75-41 of the Insolvency Practice Schedule (Corporations) 2016 (Cth)) provide further comfort and redress in circumstances where the vote is carried by the votes of related creditors whose interests are not aligned with unrelated creditors: see Sino Group International Ltd v Toddler Kindy Gymbaroo Pty Ltd [2023] FCAFC 110; (2023) 268 ACSR 311 at [72(2)]. Of course, it is not evident at this stage that those interests will not align.
8. Fourth, there is no evidence of prejudice to Payload or to other creditors. In fact, there is evidence of the absence of objection (to the prospect of Melco's application) from certain creditors, including the Deputy Commissioner of Taxation (the largest unsecured creditor outside of the related entities).
9. Fifth, Melco does not seek an order as to costs, which might otherwise burden the administration. The proposed terms of the DOCA, should it be accepted, ensures that there is sufficient funding to cover the costs of the administration of Melco and of the DOCA (for which the indemnifier will not seek reimbursement).
10. It is important to recount that the present application is one for the adjournment of the winding up application, and not its negation. It was not always apparent that the submissions of Payload were geared towards the prospect of a (short-term) deferral of the winding up. On the evidence before me, I am satisfied that that prospect is in the interests of Melco's creditors.

I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Younan.