10 Creditors were notified in the body of a supplementary report to creditors dated 10 December 2002. The supplementary report drew attention to the issue regarding s 448C that is raised in the present application, and informed creditors that if they wished to have their views brought to the attention of the Court, they should contact the second plaintiff's office. No creditor (other than the parties) has done so. In the supplementary report the second plaintiff said two things particularly worthy of note:
"I took the approach that it was in the hands of creditors whether they resolved that I should be paid for such work. I acknowledge that my report to the second meeting did not clarify that I had no entitlement as such to the amount in question."
"[I]t is not my intention nor the intention of my firm to seek to participate as a creditor in the meeting, to seek to have the previous resolution relating to pre-administration remuneration approved or to prove in any deed of company arrangement that may be approved as a creditor in respect of the performance of work prior to my appointment as administrator."
11 There is no dispute that the second plaintiff or his firm, BDO, carried out pre-administration work, and the amount claimed, namely $14,836.80, has not been challenged before me as excessive (although I make no finding about that matter). However, that work was not the subject of any contract or engagement of the second plaintiff or his firm. That being so, the second plaintiff submits that at the time of his appointment as voluntary administrator, neither he nor the firm of which he is a partner was a "creditor" of the first plaintiff. He relies on the Lawrenson Light Metal and Market Holdings decisions.
12 In the Lawrenson Light Metal case, the question was whether an interim receiver and manager of the company appointed by the Court was a creditor, bound, having regard to s 444D(1), by the terms of a deed of company arrangement into which the company had entered after the receivership. Gillard J said that the reference to a "creditor" in Part 5.3A of the Corporations legislation is "to a person who has had dealings with the company and who is owed money by it". He continued:
"The whole scheme of Part 5.3A puts the fate of the company in the hands of its creditors, those who have dealt with it in the past, are owed money by it and who can by reason of their dealings and information supplied make a decision as to its future."
13 His Honour found that a receiver-manager does not fall into that category. His right does not depend upon the company owing him any money but upon his right in law to be reimbursed for his remuneration, costs and expenses. A receiver-manager is not, according to his Honour, concerned to decide the fate of the company.
14 In the Market Holdings case the question was whether notice of a meeting of creditors of the company, held for the purpose of voluntary winding up, was invalid because no notice of the meeting was given to the plaintiff, who asserted a contested claim for damages. Young J held that for the purposes before him, a person who had the right to prove in a winding up should be regarded as a "creditor".
15 In my opinion, the question raised for determination in the Market Holdings case is fairly remote from the question before me here. It is plain from Young J's judgment that the word "creditor" has a meaning affected by the context in which the word is used. In that case the issue was whether the plaintiff had a sufficient interest that it should have been notified of a creditors' meeting. In the present case the question is whether an insolvency practitioner who carries out pre-administration work for a company should be precluded from accepting appointment as administrator of that company. The issue for determination in the Lawrenson Light Metal case is more closely analogous to the present case.
16 Nevertheless, the position of the second plaintiff, vis-a-vis the claim for $14,836.80, is distinguishable from the position of a receiver-manager appointed by the Court, who seeks payment for work carried out in that capacity. The second plaintiff had a statutory entitlement to remuneration under s 449E(1) with respect to his work as administrator, but that statutory entitlement was limited, by the words of the subsection, to the work that he carried out in his capacity as administrator of the company under administration. In my opinion, it did not extend to the work that he carried out before his appointment, in preparation for the administration. As to the pre-administration work, he or his firm was entitled to remuneration only if there was an express or implied contract between him (or his firm) and the company for the work to be carried out, or he was entitled to recover reasonable payment on a quantum meruit.
17 The limitation created by the wording of s 449E(1) has important consequences. Pre-administration work is not recoverable under the subsection, regardless of whether there is a resolution of the company's creditors purporting to fix the remuneration. Further, the Court has no power under the subsection to fix remuneration for pre-administration work. Nor, it seems, is there any right of indemnity or lien in respect of that work. If the administrator is entitled to recovery at all (on contractual or quasi-contractual grounds), his or her entitlement is that of an ordinary unsecured creditor.
18 It is not easy to see any legal basis upon which the creditors of a company, even if it is unanimous, could validly commit the company to pay for pre-administration work which the company was not otherwise bound to pay the administrator. Quite apart from the legal position, it is hard to see why creditors would ever wish to do so, if the position were properly explained to them. The disclosure made by the second plaintiff in his report to the second meeting of creditors was far from adequate, for it did not even address the question whether the administrator had a contractual or quasi-contractual entitlement to be paid, or had merely (as he later claimed in his letter) engaged in the work voluntarily without any arrangement for payment. Fuller disclosure was made in the supplementary report, but no level of disclosure can overcome the fundamental problem that creditors are not invested with the power to approve payment for pre-administration work where the company is not otherwise bound to pay paid for it.
19 I am not in a position to decide whether there was any contract for performance of the pre-administration work, or any occasion for recovery on a quantum meruit, on the evidence before me. It would be necessary for me to hear evidence as to what was said and done by the second plaintiff and the directors of the company before the work was carried out, and perhaps also during performance of the work. Evidence of that kind has not been adduced.
20 On the first hearing date, counsel for the second plaintiff offered to put his client in the witness box when I raised the point during the hearing. I decided not to proceed in that fashion, because I was concerned at that stage that the application for leave had not been notified to all creditors or to the Australian Securities and Investment Commission, who may have wished to appear and make submissions. I note that in the Lawrenson Light Metal case, by way of contrast, there was a contest on the question between the receiver-manager, and the administrator and two secured creditors, who appeared after the Court directed that the summons be served on them. ASIC was also represented.
21 When the matter returned to me on 16 December 2002, after I had directed that ASIC and creditors be notified of the application, the second plaintiff still did not place before the Court any evidence on the basis of which the Court could proceed to determine whether he or his firm was in fact a creditor of the company.
22 If, as he contends, the second plaintiff was not a creditor for the purposes of s 448C(1)(b), the company's creditors had no authority to approve his remuneration for pre-administration work under s 449E(1), and it appears that they had no other authority to do so. If, on the other hand, he or his firm was a creditor of the company for pre-administration expenses, then he was precluded by s 448C(1)(b) from seeking or consenting to be appointed as, or acting as, administrator of the company, or as administrator under any deed of company arrangement that might be proposed, in the absence of the granting of leave by the Court. I shall assume, contrary to the second plaintiff's submission, that he was a creditor under s 448C(1)(b), for the purpose of considering whether to grant leave under the section.
23 In my opinion, it is appropriate in this case that leave be granted. Section 448C was part of the insolvency law reforms introduced by the Corporate Law Reform Bill 1992. The Explanatory Memorandum to the Bill, paragraph 790, states that an administrator must act in a way that safeguards the interests of the company's creditors as well as those of the company itself, and adds:
"In order to discharge those obligations effectively, it is very important that the administrator is independent of the company. This proposed section specifies a number of possible connections between a person and a company, each of which disqualify the person from being appointed to administer that company".