SGB Raffia v Gammacon [2007] NSWSC 1511 | Case summary

5064/07 SGB RAFFIA PTY LIMITED (ACN 106 939 262) v GAMMACON PTY LIMITED (ACN 104 275 523) JUDGMENT 1 HIS HONOUR: On 16 November 2007, the plaintiff's application for the winding up of the defendant was listed before Senior Deputy Registrar Musgrave. The defendant sought an adjournment of the hearing, on the basis that it was under administration and that the interests of the defendant's creditors required the continuance of administration, rather than winding up. See s440A(2) of the Corporations Act 2001. 2 The Senior Deputy Registrar acceded to that request, although not, I think, to the extent of granting the full length of the adjournment sought by the defendant. The plaintiff seeks a review of the Senior Deputy Registrar's decision. See UCPR r49.19. 3 The plaintiff contends that the Senior Deputy Registrar lacked power to order the adjournment; and that even if he had that power, his exercise of the discretion to do so miscarried in any event. It is convenient to deal first with the question of power. 4 The power to wind up in insolvency is given to "the Court" by s459A of the Corporations Act. By s58AA, the reference to "Court" includes a reference to this Court. 5 Section 13 of the Civil Procedure Act 2005 authorises the Chief Justice of this Court by instrument in writing to direct that functions of the Court under the Civil Procedure Act, or the Uniform Civil Procedure Rules, may be exercised by registrars and other officers in circumstances and on conditions that may be specified in the instrument. 6 The instrument of delegation that is presently in force (and was in force last Friday) delegates to registrars a number of the Court's powers under the Corporations Act. The powers thus delegated include power to wind up a company in insolvency under s459A. The delegation does not in terms refer to s440A. 7 Section 66 of the Civil Procedure Act authorises the Court at any time and from time to time to adjourn any proceedings before it. That power is delegated to registrars without restriction by the delegation to which I have referred. 8 The delegation also empowers a registrar to "exercise the functions of the Court for the purposes of, and in respect of all matters incidental to, the exercise of the registrar's powers under any Act, under any other provision of the rules, or under this direction". See part 3, clause 9. 9 Mr C D Wood of counsel for the plaintiff submitted that s440A of the Corporations Act gave the Court a power, and that the power so given was not one of those delegated to registrars pursuant to the delegation. Thus, he submitted, although a registrar could hear an application for winding up in insolvency, he or she could not deal with an application for the adjournment of that winding up pursuant to s440A (2). Mr Wood submitted that this was not surprising, given that s440A sets out a test for the adjournment, requires findings of fact and involves the exercise of a discretion that has been much discussed in the authorities. 10 For the defendant, Mr R M Foreman of counsel submitted that, on its proper analysis, s440A does not grant a power or function. He submitted, instead, that it regulates the manner of exercise of a power or function. The power or function in question - to adjourn proceedings - is one delegated to registrars by s66 of the Civil Procedure Act. 11 Alternatively, Mr Foreman submitted, the power to make incidental orders necessarily included the power to adjourn the hearing of an application, where the hearing of that application was itself within another head of power delegated to a Registrar. 12 It appears that there is no authority on the point. I was informed from the Bar table that some registrars have taken the position that they do not have power to adjourn pursuant to s440A(2), or its predecessors, but other registrars have taken the view that they do have such power. It is certainly the case that, from time to time, applications for adjournment based on s440A(2) have been dealt with by a judge of the Court. 13 I have come to the conclusion that the Senior Deputy Registrar did have power to grant, or more accurately to order, the adjournment. In my view, that power arises in at least two ways. Firstly, the power to grant an adjournment is one explicitly given by s66 of the Civil Procedure Act, which is one of the powers delegated without restriction to registrars. Section 66 applies to the hearing of any proceedings in the Court. Hearings of applications to wind up under s459A are proceedings in the Court. It must follow that the power to adjourn applies as much to those proceedings as it does to any other proceedings under any other head of the Court's jurisdiction. 14 Alternatively, I think, the power to grant an adjournment of the hearing of proceedings is an incident of the power to hear and determine those proceedings. Any alternative view would be quite absurd. It would mean, in the facts of this case, that a registrar could hear an application for winding up, but would be required to refer to a judge of the Court an application pursuant to s440A(2) for the adjournment of that hearing, even where the application was one made by consent. That is scarcely consistent with the purpose of delegation. 15 It is, therefore, necessary to consider the question of exercise of discretion. 16 The statutory test is expressed in simple terms. It requires the Court to be satisfied of two things. The first is that the company is under administration. There is no doubt in this case that the defendant was and is under administration.

17 The second matter of which the Court must be satisfied is, "that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up". 18 There are, of course, competing policy considerations at work. One is the policy underlying part 5.3A of the Corporations Act, which deals with administration and deeds of company arrangement. The other is the policy underlying part 5.4, including the protection of creditors by the fixing of a winding up date and, therefore, a relation back period. 19 In applications for adjournment pursuant to s440A(2), reference is frequently made to the judgment of McPherson JA (with whom Pincus and Davies JJA agreed) in Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 at 457. His Honour said for the Court to be satisfied as to the test set out in s440A(2): "There would have to be some persuasive evidence to enable it to be seen that there were assets which, if realised under one form of administration rather than the other, would produce a larger dividend, or at least an accelerated dividend for the creditors". 20 Nonetheless, it is in my view a mistake to approach the question posed by s440A(2) on the basis that the test is anything other than that set out in the language of the statute. Hamilton J said as much in TCS Management Pty Ltd v CTTI Solutions Pty Ltd [2001] NSWSC 830 at [11]. I respectfully agree. That is not to downplay or ignore the significance of the observations of McPherson JA in Creevey. It is to direct attention to the primary question with which the Court is confronted: the question posed by the statute itself. 21 In any event, I do not think that the language of McPherson JA in Creevey should be regarded as laying down some universal rule. His Honour said that "one would expect" there to be the persuasive evidence to which he referred. What is persuasive in any given case is a matter for determination having regard to the particular circumstances in which the application for adjournment is made and the length of the adjournment that is sought. Santow J made this point in Waste Recycling and Processing Services of New South Wales v Local Government Recycling Co-Operative Limited (1999) 32 ACSR 194 at 195 [6]. 22 His Honour said, and I respectfully agree, that any analysis of the interests of creditors involved the consideration, among other things, of the length of the adjournment sought, the purpose for which the adjournment was sought and the consequences of the adjournment. 23 The application for adjournment was based on the affidavit of Mr Neil Robert Cussen, one of the administrators of the defendant, sworn 16 November 2007. Mr Cussen and his partner, Mr John Greig, had been appointed as voluntary administrators on 2 November 2007. They had held the first meeting of creditors on 9 November 2007. No application was there made to remove them. 24 Mr Cussen set out his proposal for convening a second meeting of creditors to be held on or before 29 November 2007, by which time he expected to have completed a report to creditors about the defendant's business, property, affairs and financial circumstances. 25 Mr Cussen set out his understanding, based on his investigations to date, of the defendant's financial position. It is apparent that the financial position, and the likely outcome of the administration, depend on the outcome of a development being undertaken by Redpen Developments Pty Ltd, a related company of the defendant. In paragraphs 11 to 14 of his affidavit, Mr Cussen refers to the prospect that there might be a deed of company arrangement "which will offer a substantial dividend to unsecured creditors". He noted that no proposal had been received, but said that, in his opinion, "It is in the interests of Gammacon's creditors that [its director] be allowed a further period of time to pursue his discussions with the directors of Redpen and the secured lenders". 26 The obvious reason for that appears elsewhere from Mr Cussen's affidavit. If those discussions lead to a compromise between Redpen and its secured lenders, there might be a substantial benefit to the defendant because the defendant had guaranteed the very substantial obligations of Redpen to those lenders. 27 There was some debate before me as to the way in which the Court should undertake the exercise of the power pursuant to rule 49.19. Mr Wood submitted that the review was not one to be undertaken on the principles outlined in House v The King (1936) 55 CLR 499. He submitted that it was open to the Court to re-exercise the discretion for itself, without necessarily finding "House v The King" error in the reasons of the registrar. In the present case, the registrar's reasons are not available, so the task of finding "House v The King" error might be somewhat restricted, unless the error were alleged to be a "Wednesbury" error (Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223). 28 Mr Foreman submitted that, even if the review were not to be undertaken on the basis outlined in House v The King, nonetheless, the review was not a hearing de novo. He submitted that, where the decision of which review was sought related to a matter of practice and procedure, then the Court should give substantial weight to the decision of the registrar. 29 It is not necessary for me to resolve that dispute. In the view to which I have come, it was open to the Senior Deputy Registrar to be satisfied that the adjournment sought was, in all the circumstances, likely to be in the interests of creditors. There are a number of circumstances that point to that. One is that the adjournment sought was for a relatively limited time; and the adjournment granted was for an even shorter time. Another is that the administration was of relatively recent inception, but one to which no creditor had objected at the first meeting. Another is that the administrator, Mr Cussen, offered a rational basis for his view that the adjournment would be in the interests of creditors. Indeed, on analysis, he offered two rational bases. One was that if the matter proceeded by way of deed of company arrangement, the dividend to creditors might be substantial. By contrast, he said, if the matter proceeded by way of winding up, then there might be a "fire sale" of Redpen's assets, thus, a diminished prospect of recovery from Redpen and thus, a smaller return to creditors. The other reason is implicit in what I have said; it is that the adjournment would permit the discussions between Redpen and the secured creditors to continue. 30 It may be said that an approach along those lines falls somewhat short of persuasive evidence demonstrating that one form of administration rather than the other would produce a greater benefit to creditors. But, as I have said, with all the respect that is due to McPherson JA and the Court of which his Honour was a member, the test is that propounded by the statute and, inevitably, a test that falls to be considered having regard to the nature of the application and the circumstances in which it was made. 31 In my view, as I have said, it was open to the Senior Deputy Registrar to come to the conclusion to which he did come. Even if the review were undertaken de novo rather than on some more limited basis, I would not conclude that the exercise of discretion miscarried, or that it should be set aside and re exercised so as to refuse the ajournment. 32 It follows that the plaintiff's interlocutory process filed in Court on 19 November 2007 should be dismissed with costs and I so order.

SGB Raffia v Gammacon

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