Strawbridge, in the matter of Retail Adventures Pty Ltd (Administrators Appointed) v Retail Adventures Pty Ltd

Solicitor for DSG Holdings Australia Pty Ltd: Russells

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1681 of 2012

IN THE MATTER OF RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) BETWEEN: VAUGHAN NEIL STRAWBRIDGE, JOHN LETHBRIDGE GREIG and DAVID JOHN FRANK LOMBE, EACH IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 135 890 845

AND: RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 135 890 845

JUDGE: JACOBSON J DATE OF ORDER: 2 SEPTEMBER 2013 WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. Pursuant to s 447D(1) of the Corporations Act 2001 (Cth), the Court directs that the Plaintiffs, in their capacity as administrators of Retail Adventures Pty Limited (Administrators Appointed) ACN 135 890 845 (RAPL) are, to the extent necessary, justified in rejecting the proofs of debt lodged by Retail Adventures Holdings Pty Limited (Administrators Appointed) ACN 136 178 839 (RAHPL) lodged by RAHPL in the administration of RAPL, in the amounts of $80,491,785 and $68,000,000 respectively.
2. The Plaintiffs provide notice to the creditors of the company in the terms of these Orders by email, where an email address for the creditors is held, or by way of written correspondence sent to their last known address. The Plaintiffs are also to make available on their website, www.deloitte.com, a copy of these Orders.
3. The Plaintiffs' costs of this application are costs and expenses in the administration of the company and are to be paid out of its assets. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1872 of 2012

IN THE MATTER OF RETAIL ADVENTURES HOLDINGS PTY LIMITED (ADMINISTRATORS APPOINTED) BETWEEN: VAUGHAN NEIL STRAWBRIDGE, JOHN LETHBRIDGE GREIG and DAVID JOHN FRANK LOMBE, EACH IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF RETAIL ADVENTURES HOLDINGS PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 136 178 839

AND: RETAIL ADVENTURES HOLDINGS PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 136 178 839

JUDGE: JACOBSON J DATE OF ORDER: 2 SEPTEMBER 2013 WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. Pursuant to s 447D(1) of the Corporations Act 2001 (Cth), the Court directs that the Plaintiffs, in their capacity as administrators of Retail Adventures Holdings Pty Limited (Administrators Appointed) (RAHPL) are justified in withdrawing the proofs of debt lodged by RAHPL in the administration of Retail Adventures Pty Limited (Administrators Appointed) (RAPL), in the amounts of $80,491,785 and $68,000,000.
2. The Plaintiffs provide notice to the creditors of the company in the terms of these Orders by email, where an email address for the creditors is held, or by way of written correspondence sent to their last known address. The Plaintiffs are also to make available on their website, www.deloitte.com, a copy of these Orders.
3. The Plaintiffs' costs of this application are costs and expenses in the administration of the company and are to be paid out of its assets. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1681 of 2012

IN THE MATTER OF RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) BETWEEN: VAUGHAN NEIL STRAWBRIDGE, JOHN LETHBRIDGE GREIG and DAVID JOHN FRANK LOMBE, EACH IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 135 890 845

AND: RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 135 890 845

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1872 of 2012

IN THE MATTER OF RETAIL ADVENTURES HOLDINGS PTY LIMITED (ADMINISTRATORS APPOINTED) BETWEEN: VAUGHAN NEIL STRAWBRIDGE, JOHN LETHBRIDGE GREIG and DAVID JOHN FRANK LOMBE, EACH IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF RETAIL ADVENTURES HOLDINGS PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 136 178 839

AND: RETAIL ADVENTURES HOLDINGS PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 136 178 839

JUDGE: JACOBSON J DATE: 2 SEPTEMBER 2013 PLACE: SYDNEY

Introduction 1 The Plaintiffs, as joint and several administrators of Retail Adventures Pty Ltd (Administrators Appointed) (RAPL) and Retail Adventures Holdings Pty Ltd (Administrators appointed) (RAHPL) seek directions under s 447D of the Corporations Act 2001 (Cth) (the Act) or alternatively, s 447A, in respect of various matters that have recently arisen in the course of the administration of those companies. 2 The Plaintiffs (the Administrators) were appointed as administrators to each of RAPL and RAHPL on 26 October 2012 and 7 November 2012 respectively. Each of the appointments was made by Ms Janet Heather Cameron, the sole director of each of RAPL and RAHPL (the Companies). 3 On 7 November 2012, the first meeting of creditors of RAPL was held in accordance with s 436E of the Act at which a committee of creditors was formed. The first meeting of creditors of RAHPL was held two weeks later on 19 November 2012 but no committee of creditors was formed. 4 A second meeting of creditors for each of RAPL and RAHPL has been called for Monday 2 September 2013 with both meetings to be held concurrently. The purpose of the meetings is to decide the future of each of the Companies. 5 RAHPL is RAPL's largest creditor and its debt comprises, relevantly, secured debt of approximately $36 million and $68 million in subordinated convertible notes. Accordingly, at any meeting of creditors of RAPL, the votes of RAHPL, assuming it is permitted to vote, will be determinative of any resolution put based on the value of votes cast. 6 In a Report to Creditors made pursuant to s 439A of the Act and dated 19 August 2013 (Report to Creditors) the Administrators put forward the following options: Option 1 - that each of the administrations end and that the control of the Companies revert to its director; Option 2 - that the Companies execute a Deed of Company Arrangement proposed by Bicheno Investments Pty Ltd (Bicheno) as trustee of the Jan Cameron Trust, the ultimate shareholder of RAHPL and RAPL (the DOCA), further details of which are set out below; and Option 3 - that the Companies be wound up. 7 The Administrators are of the view that both Companies are insolvent and recommend that both Companies be wound up. They expressly recommend against each of Options 1 and 2. 8 On or about 22 August 2013, the Administrators became aware of a provision contained in various leases entered into between RAPL and Sypkes Securities Pty Ltd (Sypkes) who constitutes a significant landlord creditor of RAPL. Each of the leases contains a guarantee and indemnity whereby RAHPL guarantees RAPL's obligations under the relevant lease and a restriction on the ability of RAHPL to "prove in competition with" Sypkes. Other leases containing guarantees and indemnities in substantially similar terms have also been obtained. Since the same issue arises in relation to the other leases, they are not dealt with separately from the issue raised in relation to the Sypkes lease.

Reasons for the Relief Sought 9 The present applications have been necessitated by the Administrators' concerns in relation to the proposed Second Meeting of Creditors. Four issues have arisen in that regard, namely: Issue 1 - whether the relevant restrictions in the various leases to Sypkes prevent RAHPL from lodging any proofs of debt in the administration of RAPL; Issue 2 - in any event, whether RAHPL is entitled to vote at the Second Meeting in respect of its subordinated debt having regard to the terms of the issue of the relevant subordinated convertible notes; Issue 3 - whether the Administrators, as administrators of RAPL, will incur personal liability in respect of certain debts by ratifying a number of payments made on behalf of RAPL by DSG Holdings Australia Pty Ltd (formerly Retail Adventures Group Pty Ltd) (DSG) or whether, if ratified, any resultant liability to DSG would constitute an expense incurred by the Administrators under s 556(1)(a) or s 556(1)(dd) of the Act; and Issue 4 - in the event that the Court decides there is no restriction on RAHPL lodging proofs of debt and voting at the proposed second meeting of creditors, whether the Administrators, as the controlling mind of RAHPL, may vote against the proposal to wind up RAPL and instead vote in favour of the proposed DOCA in circumstances where they have expressly recommended to creditors of RAPL against such a course. 10 The Administrators submit that the various issues raise legal issues of substance and procedure, propriety and reasonableness. Accordingly, the Administrators seek relief by way of two Interlocutory Processes filed in proceedings NSD 1681 of 2012 (filed in respect of RAPL) and NSD 1872 of 2012 (RAHPL) and dated 27 August 2013. The relief sought is to obtain the benefit of the Court's guidance in respect of the above issues and provide protection to the Administrators against incurring personal liability in relation to same. 11 For the reasons set out below, each of the directions in relation to Issue 1 sought in the Interlocutory Processes should be made. However, as explained later, the directions sought in relation to the other issues are either unnecessary, or were not pursued at the hearing.

Evidence in support 12 In support of both applications, the Administrators rely on: the affidavit of Vaughan Neil Strawbridge sworn 26 August 2013 in proceedings NSD 1681 of 2012 (RAPL Affidavit); the affidavit of Vaughan Neil Strawbridge sworn 26 August 2013 in proceedings NSD 1872 of 2012 (RAHPL Affidavit); and a further affidavit of Vaughan Neil Strawbridge sworn 27 August 2013 in proceedings NSD 1872 of 2012 (Second RAHPL Affidavit).

History of each of the administrations 13 RAPL is part of a larger corporate group. An organisational structure chart is located at page 13 of the Report to Creditors. At all relevant times, RAPL conducted a number of discount variety store businesses around Australia under various trading names (the Business). 14 RAHPL is the immediate holding company of RAPL and holds 100% of its share capital. DSG Holdings Australia Pty Limited (DSG) is the immediate holding company of RAHPL and holds 100% of its share capital. Bicheno is the holding company of DSG and holds 100% of the shares in that company. Bicheno holds those shares in its capacity as the trustee of the Jan Cameron family trust. 15 RAHPL and DSG, along with Bicheno, form part of RAPL's secured creditor group. 16 RAHPL has never traded and its only role was as a vehicle for the movement of funds between Bicheno and RAPL. According to the books and records of RAHPL and RAPL, RAHPL is a secured creditor of RAPL in the amount of $77.5 million. 17 Prior to entering into administration, RAHPL provided a number of guarantees to landlords in respect of premises leased to RAPL for the purposes of conducting the Business. Proofs of debt totalling $311,678.37 have so far been lodged in respect of this liability. RAHPL's only other material creditor is DSG which is a secured creditor of RAHPL and currently accounts for approximately 99.75% of the creditor claims in RAHPL. 18 On or about 6 November 2012 (prior to the appointment of the Administrators to RAHPL on 7 November 2012) RAHPL lodged two informal proofs of debt in the administration of RAPL as follows: A proof for $80,491,785 in respect of loans advanced to RAHPL and said to be secured by a fixed and floating charge dated 1 July 2011; and A proof for $68,000,000 in respect of debts arising from subordinated notes issued on or about 4 April 2009 (the Informal Proofs). 19 The Administrators' investigations indicate that the security in respect of about $49.77m of the $77.5m of the loans provided to RAPL by RAHPL could be void as against a liquidator in the event RAPL was wound up. In the event that these secured loans were set aside by a Court in a voidable transaction claim by any liquidator, RAHPL's secured claim would be reduced by $49.77m to $27.2m. 20 Following their appointment, the Plaintiffs entered into a Licence Agreement with DSG (the Licence Agreement). Essentially, the Licence Agreement granted DSG the right to operate the business of RAPL whilst the Administrators conducted a sale process. 21 On about 11 February 2013, contracts were exchanged for the sale of the Business of RAPL (Sale Agreement) to DSG for $58.9 million. After adjustments, the net purchase price is expected to be approximately $41.5 million. That sale completed on or about 13 March 2013. 22 The purchase price was paid by DSG in the form of: a reduction in the RAHPL secured claim of $77.5 million equivalent to the amount of the adjusted purchase price for the Business; and an equivalent reduction in the secured loan from DSG to RAHPL. 23 In order to preserve the potential voidable transaction claim by a liquidator in respect of the secured loan by RAHPL to RAPL for the benefit of unsecured creditors of RAPL, the Sale Agreement provided that in the event that any part of the RAHPL security was subsequently held to be void as against a liquidator of RAPL and the amount of the secured debt was thereby reduced below the adjusted purchase price for the Business, DSG would be liable to pay any shortfall amount to RAPL. The Administrators' estimate of the amount of any shortfall is $13 million. Consequently, the Administrators obtained from DSG as a term of the Sale Agreement, first ranking security over the assets of DSG to secure DSG's obligation to pay any shortfall. 24 On 14 November 2012 and 27 November 2012 the Court (Jagot J) extended the convening periods of each of RAPL and RAHPL respectively to 26 February 2013. On 20 February 2013, her Honour granted a further extension of both convening periods so that the convening periods for each of RAPL and RAHPL was extended to 26 August 2013.

THE Proposed DOCA 25 Bicheno has proposed a DOCA in respect of RAPL and RAHPL. The proposed DOCA is set out at Appendix C of the Report to Creditors. 26 The key aspects of the proposed DOCA are as follows: The DOCA is for both RAPL and RAHPL and will involve the creation of a single DOCA fund against which the creditors of RAPL and RAHPL will claim. The Deed Administrators will be Vaughan Strawbridge and David Lombe (two of the three current Administrators). Creditors' claims must have arisen on or before 26 October 2012 if they are to be admissible under the DOCA. This includes claims arising after 26 October 2012 but which are based on contracts or circumstances arising before 26 October 2012. The adjudication of their claims will be dealt with as if the Companies were in liquidation. A Deed Fund will be established which comprises the cash held by the Administrators at the time of the execution of the DOCA and a contribution from Bicheno, DSG, the current director and former directors (Contributing Creditors) of $5.5m to be made by 31 January 2014 or such later date agreed by the Deed Administrator. Upon payment of the contribution, the related parties will be released from any claims arising prior to the commencement of the administration of RAPL and RAHPL. All creditors will be bound by the DOCA as provided by the Act. Creditors must accept their entitlement under the DOCA in full satisfaction and complete discharge of all debts and claims against RAPL. Related party creditors will not participate in the DOCA. The control of RAPL will be returned to the Director following execution of the DOCA.

The administrators' assessment of the proposed DOCA 27 The Administrators estimate that in the event that the proposed DOCA were accepted, unsecured creditors would receive about 6.46 cents in the dollar. By contrast, it is estimated that unsecured creditors are likely to receive between 20.71 cents (low estimate) and 45.12 cents (high estimate) in the dollar if RAPL were wound up. 28 In addition, the Administrators are of the view that: The proposed DOCA contains a number of inherent risks and issues which have been raised with Bicheno's advisers. Based on our communications with Bicheno's advisers and our analysis of the proposed DOCA, we provide the following comments: ... Bicheno has given no assurance that the contribution will be made and the source of funds for the contribution is not identified … An unusual aspect of the proposed DOCA is that there is no obligation on the contributing parties to pay the DOCA contribution … 29 While identifying some potential benefits of a DOCA the Administrators conclude that: Despite the above potential benefits the DOCA would, if the Deed fund is received and based on our estimated returns to creditors, result in a significantly lower return to creditors than under liquidation. Further, the inherent risks in the DOCA proposal identified above, in our opinion, outweigh the potential benefits to creditors. (Emphasis in original). 30 As mentioned above, the Administrators expressly recommend to creditors not to accept the DOCA. At page 65 of the Report to Creditors, the Administrators note: We are of the opinion that the return to creditors would not be greater under the proposed DOCA than in a liquidation scenario. The proposed DOCA estimates that unsecured creditors may receive a distribution in the vicinity of 6.46 cents in the dollar to creditors whereas our view is that liquidation provides a return of between 20.71 and 45.12 cents in the dollar. We are also of the opinion that the inherent risks to creditors in the DOCA proposal outweigh any potential benefits. Taking all factors into account we do not recommend that it is in the best interests of creditors to enter into the proposed DOCA. (Emphasis in original). 31 The risks to creditors of the DOCA proposal identified by the Administrators include: the DOCA proposal contemplates that the deed administrators will be prevented from commencing proceedings against the Contributing Creditors if the contribution is not made; creditors will not know whether the contribution is going to be made until it is paid which may not be until 31 January 2014; under the DOCA proposal, control of RAPL would be returned to the director who would then have the ability to release the security provided by DSG to RAPL to secure any amount required to be paid under the Sale Agreement if RAHPL's security is found to be voidable in a subsequent liquidation; and in the event that that security was released by the director and the contribution was not made by the Contributing Creditors, any subsequent liquidator would not have recourse to the security for the purposes of obtaining payment of any amount required to be paid by DSG under the Sale Agreement.

Relevant legal principles 32 Section 447A(1) of the Act provides that: The Court may make such order as it thinks appropriate about how this Part [5.3A] is to operate in relation to a particular company. 33 The power under s 447A is extremely wide and has been used in a wide variety of cases: White v Huxtable (2006) 57 ACSR 435 per Young J at [30]. The width of the power contained in s 447A was confirmed by the High Court in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 at [24]. 34 Section 447A is often used in conjunction with applications made under section 447D for directions. However, it is unnecessary to have regard to s 447A in considering the issues which are raised. 35 Section 447D(1) of the Act relevantly provides: The administrator of a company under administration, or of a deed of company arrangement, may apply to the Court for directions about a matter arising in connection with the performance or exercise of any of the administrator's functions and powers. 36 It is well established that the principles and authorities relevant to the rights of liquidators to seek directions from the Court are applicable to the rights of administrators to seek directions: see Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409 at [43] (Goldberg J). 37 The purpose of s 447D is to provide a procedure for administrators to obtain the benefit of the Court's guidance on matters of principle and law. Directions given under the section provide protection to the administrator against incurring personal liability in relation to the action the subject of the application: Re Ansett (No 3) at [44], citing Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674. 38 In Re Ansett (No 3), Goldberg J, after undertaking a detailed review of the authorities, summarised the relevant principles in such applications as follows (at [65]): There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised.

THE RIGHTS OF Third parties 39 The Court will not make orders as to the rights of third parties in an application under s 447D: Re Media World Communications Ltd (2005) 216 ALR 105; 52 ACSR 346 at [5] (Finkelstein J). 40 Accordingly, directions under s 447D do not constitute any binding or authoritative determination of substantive rights, but function to protect the administrator's rights in the event of an allegation of breach of duty in respect of the conduct of the administration: Re Media World at [5]; Re Riverside Nursing Care Pty Ltd [2004] FCA 93 at [2]. 41 The Court has the power to grant leave to, inter alia, a creditor of the company to be heard on the question in order to assist the court, without being made a party or for any directions to take any binding effect over the creditor: Editions Tom Thompson v Pilley (1997) 77 FCR 141 at 150 (Lindgren J).

Issue 1 - Restrictions contained in the Sypkes' leases on RAHPL's right to prove in RAPL's administration 42 The creditors of RAPL who are unrelated to DSG comprise RAPL's landlords in respect of which RAHPL has guaranteed the performance of RAPL's obligations. As mentioned above, on or about 22 August 2013, Sypkes brought to the Administrators' attention clause 23.8 of their leases, which provides as follows: 23.8 Suspension of Guarantor's rights The Guarantor [RAHPL] may not: (a) raise a set-off or counterclaim available to it or the Tenant [RAPL] against the Landlord [Sypkes] in reduction of its liability under this guarantee and indemnity; or (b) claim to be entitled by way of contribution, indemnity, subrogation, marshaling or otherwise to the benefit of any security or guarantee held by the Landlord in connection with this Lease; or (c) make a claim or enforce a right against the Tenant or its property; or (d) prove in competition with the Landlord if a liquidator, provisional liquidator, receiver, administrator or trustee in bankruptcy is appointed in respect of the Tenant or the Tenant is otherwise unable to pay its debts when they fall due, until all money payable to the Landlord in connection with this Lease or the Tenant's occupation of the Premises is paid. 43 It is not disputed that RAPL has not paid Sypkes all money payable to it in connection with the relevant lease (Lease). 44 By letter dated 26 August 2013, Harris Carlson, solicitors for Sypkes, wrote to the solicitors for the Administrators asserting that the above clause prevents RAHPL from proving in the administration of RAPL and enforcing a right against RAPL including by exercising any right to vote at the second meeting of creditors of RAPL. 45 The Administrators accept that the proofs of debt lodged by RAHPL would constitute "proving in competition" with Sypkes for the purposes of cl 23.8. Based upon this construction of cl 23.8(d) of the Lease, RAHPL would be prevented by way of an express contractual stipulation by which it is bound not to lodge any proof of debt in competition with Sypkes. 46 The Administrators have also belatedly raised the submission that in lodging an informal proof or voting at the second meeting of creditors of RAPL, RAHPL would be making a claim or enforcing a right against RAPL or its property within the meaning of cl 23.8(c).

Reasons why directions should be made in respect of Issue 1 47 Having regard to the above, the Administrators, in their capacity as administrators of RAHPL, propose to withdraw the Informal Proofs. The directions sought in respect of Issue 1 would provide protection to the Administrators in their respective capacities as administrators of each of RAPL and RAHPL. 48 The issue which is raised is an issue of construction which affects the reasonableness of the proposal of the Administrators to withdraw the Informal Proofs. It is quintessentially one which falls within the power of the Court to give directions to an administrator to guide him (or her) on matters of law or principle so as to protect him against accusations of acting unreasonably: see Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 at 117 (Young J). 49 The construction of cl 23.8(d) was fully debated by senior counsel for the Administrators and senior counsel for DSG, that company having been given leave to be heard as a creditor. The issue of construction of cl 23.8(c) was also addressed, although it was not at the forefront of the argument. 50 I accept, as was submitted by Mr Studdy SC, for DSG, that ordinarily the phrase "prove in competition" would connote the lodgement of a proof of debt for the purpose of obtaining a distribution or dividend in the winding up of a company. The words "in competition with" strongly suggest such a construction. 51 That was the sense in which McLelland CJ in Eq used the phrase "prove in competition with other creditors" in Re Nature Springs Pty Ltd (in liq) (1994) 13 ACSR 50 at 53. See also the use of the phrase "prove in competition with" by Tadgell J in Westpac Banking Corporation v Gollin & Co Ltd (in liq) [1988] VR 397 at 405. 52 However, it seems to me that the issues which their Honours considered in those cases were different from the issue of construction which arises under cl 23.8(d) of the Lease. In particular, the phrase "prove in competition with" in that clause must be considered in its full context. The terms of the clause do not merely preclude RAHPL from proving in competition with the Landlord if a liquidator is appointed. Rather, it extends the circumstances in which RAHPL is prevented from proving in competition with the Landlord to a wider range of insolvent events, including the appointment of an administrator, until all money payable to the Landlord is paid. 53 The question which then arises is whether the extension of the prohibition to all of those circumstances indicates a wider meaning of the phrase "prove in competition with" than it would have in the context of a proof of debt in a winding up. In my opinion it does have that effect. 54 This view seems to me to be supported by the observations of Austin J in Derwinto Pty Ltd (in liq) v Lewis (2002) 42 ACSR 645 at [39]. The effect of his Honour's observations is that there is a distinction between a proof of claim for the purposes of voting at a meeting of creditors and a proof of debt for the purposes of obtaining a distribution under a deed of company arrangement. Regulation 5.6.23, being one of the relevant regulations in the Corporations Regulations 2001 (Cth) to which Austin J referred, is particularly apt to support that distinction. 55 Mr Studdy submitted that the distinction to which Austin J referred supports the construction of cl 23.8(d) favoured by DSG. But in my opinion, it does not because the clause prevents RAHPL from proving in competition with the Landlord in relation to both voting at a meeting of creditors and proving for the purposes of obtaining a distribution. 56 There is some force in Mr Studdy's submission that proving for the purposes of voting is not proving in competition with the Landlord. That was at the heart of his submission as to the meaning of the clause. However, it seems to me that proving for the purposes of voting is nevertheless proving in competition with the Landlord within the meaning of the clause. To read the clause otherwise would, in my opinion, give no effect to the extension of the prohibition beyond the event of liquidation to other events including administration. 57 Distributions to creditors are not payable out of an administration. Distributions are payable to creditors in a winding up or under a deed of company arrangement if creditors vote to adopt such a deed proposed by a party in relation to a company in administration. This seems to me to suggest that cl 23.8 contemplates a prohibition upon the lodgement of a proof of debt for voting purposes at a meeting of creditors of RAPL. It also indicates in my view that the competition with the Landlord arises from the mere lodgement of the proof. It is true that mere lodgement of such a proof will not necessarily mean that RAHPL will vote in a contrary manner to the Landlord. But the competition with the Landlord arises from the assertion of an entitlement to attend and vote. In my opinion that is sufficient to attract the operation of cl 23.8(d). 58 This seems to me to be a businesslike construction of the Lease in the sense referred to by the High Court in Wilkie v Gordian Runoff Pty Ltd (2005) 221 CLR 522 at [15] (Gleeson CJ, McHugh, Gummow and Kirby JJ). The objective purpose of cl 23.8 considered as a whole is to prevent RAHPL from asserting a claim or right which may have the effect of competing with the Landlord's right to recover moneys due to it from RAPL, so long as any such money is payable to the Landlord in connection with RAPL's tenancy. A proof of claim for the purpose of voting at a meeting of creditors to consider the future of RAPL is the assertion of such a right. 59 I accept that the effect of the construction which I prefer will have the serious consequence of preventing RAHPL from voting on the question of whether RAPL should enter into a DOCA or be placed into liquidation. There is a dispute between senior counsel for the Administrators and senior counsel for DSG as to the calculation of RAHPL's percentage of the creditor claims. On either view of the figure, the effect of the construction which I prefer is to leave the outcome of the meeting to the votes of a minority of creditors. 60 But that seems to me to be the effect of cl 23.8(d). The fact that the result may be an inconvenient one does not seem to me to be in conflict with the principle that requires a businesslike interpretation. That requires attention to the language used by the parties, the commercial circumstances which the document addresses and the objects it is intended to secure. I have endeavoured to address those considerations in what I have said above. 61 I do not consider there to be ambiguity in the clause. Accordingly, there is no room for the operation of the principle that ambiguous contractual provisions should be considered in favour of a surety: see Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549 at 561. 62 As to the Administrator's submission on cl 23.8(c), in my opinion, the better view is that the informal proof of debt constitutes the making of a claim or the enforcement of a right against RAPL. That construction is supported by the language of cl 23.8(c) and the objective purpose of cl 23.8 as set out above. 63 Regulation 5.6.23 of the Corporations Regulations 2001 (Cth) is of some importance in arriving at the construction. Paragraph (a) of that regulation provides that a person is not entitled to vote as a creditor at a meeting of creditors unless his or her debt or claim has been admitted or he or she has lodged with the chairperson of the meeting or the person named in the notice of meeting particulars of the debt or claim. 64 It seems to me to follow from this that the lodgement of a proof for the purposes of voting at a meeting, when seen in light of reg 5.6.23, has the consequences that cl 23.8 is designed to prevent. In particular, reg 5.6.23 shows that the lodgement of the proof constitutes the making of a claim against RAPL. It is also the enforcement of a right because without lodgement of the proof, RAHPL would not be entitled to vote as a creditor at the meeting. It is a first step in the enforcement of a right to vote, the actual entitlement arising from the admission of the proof that has been lodged. 65 In my opinion the contrary construction proposed by Mr Studdy is not correct. He submitted that cl 23.8 is concerned with the financial priority of the landlord over RAHPL as guarantor under the lease. This conclusion was said to follow from the concluding words of the clause, namely "until all money payable to the Landlord in connection with the Lease or the Tenant's Occupation of the premises is paid". 66 It is true that the concluding words state the condition which must be satisfied before the prohibitions set out in paragraphs (a) to (d) cease to apply. But the subject matter of the clause is not to be gleaned solely from the words contained in the qualifying condition. Rather it is to be gathered from the content of the prohibitions set out in paragraphs (a) to (d). As I said above, those prohibitions, and the qualifying condition in the clause, when read as a whole, show that the purpose of the clause is to prevent RAHPL from asserting rights in competition with the Landlord, which impacts on the Landlord's rights, until the Landlord has been paid in full. 67 Finally, in my opinion, the construction of cl 23.8(d) which I have accepted does not offend s 555 of the Act because that section is concerned with the ranking of debts and claims proved in a winding up.

Issue 2 - Whether RAHPL is entitled to vote having regard to the terms of issue of the subordinated notes 68 Since I accept the Administrators' arguments as to the proper construction of cll 23.8(c) and 23.8(d) it is strictly unnecessary to deal with Issue 2. This is because RAHPL would be prevented from voting at any second meeting of creditors by virtue of the express contractual prohibition on doing so contained in cll 23.8(c) and 23.8(d) as explained above. 69 For completeness however, and having regard to the amounts involved, the Administrators have requested that the Court consider Issue 2. 70 As mentioned above, $68 million of the debt owed by RAPL to RAHPL is in the form of subordinated convertible notes and RAHPL has lodged an Informal Proof in the administration of RAPL in respect of those convertible notes (of which RAPL was the issuer). 71 The terms of issue of the Subordinated Notes are set out at pages 153 to 164 of Exhibit VNS7 to the RAHPL Affidavit (the Terms of Issue). Clause 4.3 of the Terms of Issue provides as follows: 4.3 Winding up (a) On a Winding Up of the Issuer [RAPL], the rights of the Noteholders against the Issuer in respect of the Notes are postponed to the claims of all holders of Senior Indebtedness of the Issuer and, accordingly, no amount will be payable to the Noteholders in respect of the Notes until the claims of all holders of Senior Indebtedness which have been admitted or are capable of being admitted in a Winding Up have been satisfied in full. (b) Until Senior Indebtedness has been paid in full and all securities therefore have been duly released and discharged, a Noteholder must not (except with the prior written consent of the holders of Senior Indebtedness) prove or claim in competition with the holders of Senior Indebtedness so as to diminish any distribution, dividend or payment which, but for such proof, the holders of Senior Indebtedness would have been entitled to receive. (Emphasis in added). 72 The Terms of Issue define the following expressions: "Winding Up" is defined to mean, relevantly, a liquidator, an official manager or administrator being appointed in respect of the Issuer, being RAPL. "Noteholders" is defined to mean "the persons entered on the Register as the holder of a Note", being RAHPL. "Note" is defined to mean "an unsecured redeemable convertible note issued by the Issuer on these Terms". "Senior Indebtedness" is defined to mean "secured obligations, and unsecured and unsubordinated obligations of the Issuer, other than Notes and Shares", that is, all other creditors of RAPL. 73 An issue arises as to the proper construction of cl 4.3(b) of the Terms of Issue and in particular whether RAHPL voting at the Second Meeting of Creditors in all the circumstances would constitute "proving or claiming so as to diminish any distribution, dividend or payment" in competition with the holders of Senior Indebtedness. 74 The Administrators have formed the view that but for the prohibition in cll 23.8(c) and (d) the Terms of Issue would not prevent RAHPL from submitting the Informal Proofs for voting purposes in the administration of RAPL notwithstanding that RAHPL would not be entitled to prove in competition with other creditors in a liquidation of RAPL. In the Administrators' view cl 4.3(b) applies only in relation to voting at the winding up stage and not for the purposes of a second meeting of creditors. 75 In that regard, the prohibition contained in cl 4.3(b) against proving or claiming in competition with the holders of Senior Indebtedness only arises if such proving or claiming "diminishes any distribution, dividend or payment which, but for such proof, the holders of Senior Indebtedness would have been entitled to receive". This is not the case at the stage of voting at a second creditors meeting. 76 This interpretation is supported by the observations of Austin J in Derwinto v Lewis at [39] to which I referred earlier and the terms of reg 5.6.23. 77 I have come to a different view of the construction of cl 4.3(b) of the Terms of Issue than my view of the construction of cl 23.8(d) of the lease. This is because of the different language of the clauses. In particular, as stated above, the prohibition in cl 4.3(b) is limited to a proof or claim which diminishes any distribution, dividend or payment which the holders of Senior Indebtedness would have been otherwise entitled to receive. Clause 23.8(d) is not so limited. 78 However, in view of the conclusion I have reached as to the width of the operation of cll 23.8(c) and (d) of the lease, it is not appropriate to give any direction as to the effect of cl 4.3(b).

Issue 3 - Administrators ratifying debts 79 This issue was not pressed and it is therefore unnecessary for me to deal with it.

Issue 4 - Whether the plaintiffs may vote in favour of the DOCA in their capacities as administrators of RAHPL 80 Since I have come to the view that the Administrators are justified in withdrawing the Informal Proofs, it is not necessary for me to deal with this issue.

Conclusion and Orders 81 For the reasons set out above, I propose to make directions in matter No 1872 of 2012 that the Administrators are justified in withdrawing the proofs of debt lodged by RAHPL in the administration of RAPL. 82 I will also direct in matter No 1681 of 2012 that the Administrators are, to the extent necessary, justified in rejecting the proofs of debt lodged by RAHPL in the administration of RAPL. I certify that the preceding eighty-two (82) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.