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[2001] FCA 136
Federal Court of Australia
1999-11-12
Fryberg J, Carr J
Original judgment source is linked above.
introduction 1 The Court has before it a notice of motion by the liquidator of the respondent corporation ("the Corporation") for an order pursuant to s 477(2B) of the Corporations Law [as applied by s 67 of the Aboriginal Councils and Associations Act 1976 (Cth) - "the Act"] approving the entry by the liquidator into a management agreement and a lease (more particularly referred to below) and, pursuant to s 482(1) of the Corporations Law (as also so applied), an order terminating the winding up of the Corporation.
factual and procedural background 2 The Corporation was incorporated on 25 September 1991 as an Incorporated Aboriginal Association (a defined term) under the Act. Its main activities between 25 September 1992 and 17 December 1997 were to construct what is known as the Wardan Cultural Centre on land owned by the Corporation near Yallingup in the south-west of Western Australia, and to train Aboriginal people in various projects such as woodwork. The Wardan Cultural Centre includes a building which has been virtually completed, at a cost of approximately $350,000, but still requires some fitting out and landscaping. The land on which the building is constructed comprises approximately 37 acres which form the subject of a Crown grant from the State of Western Australia to the Corporation. Those who brought the Corporation into existence hoped to include in the Centre, or as part of its activities, the display and sale of Aboriginal art and craft, bush cooking, a museum area, story telling, walk trails and other eco-tourism-related attractions. Construction work was primarily funded by the Aboriginal and Torres Strait Islander Commission ("ATSIC"). However other parties, including the Lotteries Commission of Western Australia (through the Department of Commerce and Trade) and the Commonwealth of Australia (through the Department of Tourism) also provided funding. 3 The Corporation failed to comply with various requirements of the Act, with the result that on 17 December 1997 Sundberg J ordered that it be wound up and that Mr A J Halse be appointed as the liquidator. 4 By approximately July 2000, negotiations had taken place between various interested parties concerning a proposed reconstruction of the Corporation. Those parties were the liquidator, Needac Ltd (a company established under the Corporations Law with one of its activities being the creation and administration of Aboriginal enterprises), ATSIC and the Commonwealth, through the Department of Commerce and Trade: Office of Aboriginal Economic Development ("DCT"). 5 The proposed reconstruction involved the following: 1. The liquidator obtaining leave from this Court to appoint himself as administrator of the Corporation, then appointing himself as such administrator and proceeding under Part 5.3A of the Corporations Law with a view to the execution of a Deed of Company Arrangement. 2. That a Deed of Company Arrangement be entered into between the Corporation and its creditors whereby: · ATSIC would provide $39,000 towards the remuneration and expenses of the liquidator as administrator, deed administrator, and as liquidator of the Corporation; · ATSIC would also provide $20,000 to pay a dividend to creditors in respect of debts due by the Corporation. This would result in priority creditors receiving 100 cents in the dollar and unsecured creditors receiving 54.6 cents in the dollar. The priority creditors were the applicant in respect of his taxed costs in the winding up petition and the Deputy Commissioner of Taxation for $224.27 unremitted superannuation. There were nine unsecured creditors owed approximately $26,000. The liquidator's uncontradicted evidence was that in the absence of the proposed reconstruction the return to the Corporation's creditors would be negligible. 3. Arrangements be put in place for the appropriate management of the Corporation upon termination of the Deed of Company Arrangement involving at least: (a) registration of a minimum of 25 members of the Corporation; and (b) a new Governing Committee being appointed to the Corporation. 4. The ongoing operations of the Wardan Cultural Centre be dealt with as follows: (a) Needac Ltd to operate the Centre under a management agreement ("the Management Agreement") with the Corporation having an advisory role. (b) The Corporation to lease the land on which the Wardan Cultural Centre is situated to Needac for a period of at least five years. 5. Upon payment of all claims under the then proposed Deed of Company Arrangement and satisfaction of all conditions precedent to the coming into effect of the Management Agreement and the Lease (other than orders from this Court) an application would be made to the Court for termination of the winding up of the corporation. 6 In accordance with the above proposals, on 18 July 2000 the liquidator applied for and (on 18 September 2000) obtained leave, under s 436B(2) of the Corporations Law to appoint himself as administrator of the Corporation. 7 The Management Agreement was executed on 9 December 1999. The coming into effect of the Management Agreement is subject to and conditional upon various matters, one of which is either the Court or the Corporation's creditors approving its terms. Strictly speaking, I do not think that it is entirely accurate to describe the approval of the Court under s 477(2B) as an approval of the terms of the relevant agreement. But the motion has proceeded upon the basis that the approval sought, and referred to in the relevant condition precedent in the Management Agreement, is pursuant to that subsection. 8 A lease agreement ("the Lease") has been prepared and executed (also on 9 December 1999), but its operation is subject to and conditional upon various matters, one of which is the coming into effect of the Management Agreement. 9 The affidavit evidence before me shows that on 21 September 2000 the liquidator duly appointed himself as administrator of the Corporation pursuant to Part 5.30 of the Corporations Law and that two meetings of the Corporation's creditors were held, on 28 September 2000 and 18 October 2000 respectively. The first meeting was pursuant to s 436E of the Corporations Law, at which the creditors considered, but decided against, appointing a Committee of Creditors. The second meeting was convened pursuant to s 439A of the Corporations Law. At that meeting the liquidator provided the creditors with his report, again pursuant to s 439A, as to the Corporation's business, property affairs, financial circumstances and the proposal that the Corporation execute a Deed of Company Arrangement. The creditors resolved that the Corporation execute a Deed of Company Arrangement ("the Deed"). The Corporation and the liquidator (in his capacity as administrator) executed the Deed on 24 October 2000. The Deed is essentially in the same terms as set out in the liquidator's report to the creditors and as described earlier in these reasons. 10 There is evidence that ATSIC has paid the sum of $59,000 provided for in the Deed for the purposes referred to above, that the Corporation, by its governing committee, has ratified the Corporation's entry into the Management Agreement and the Lease, although this was not within one month of the date of execution of the Deed. In accordance with the terms of that Deed the liquidator permitted an extended period for such ratification. 11 I have been informed by counsel, and of course accept this, that on 27 November 2000 the liquidator, as Deed Administrator distributed the sum of $20,000 (referred to above) to the creditors of the Corporation. I infer that the balance of $39,000 has been applied in accordance with Clause 8 of the Deed. Accordingly, the Deed came to an end on 27 December 2000 pursuant to clause 10.1(1) of that document. Clause 11.1 of the Deed provides, in those circumstances, that all creditors' claims against the Corporation have been released. 12 The Corporation has arranged for at least 25 persons to become registered as members of it and has appointed the governing committee referred to above. There is evidence before the Court that ATSIC and DCT have agreed to provide funding of $120,000 and $18,500 respectively for the completion and operation of the Wardan Cultural Centre. 13 The liquidator has sworn, and I accept his evidence, that he believes that the proposed reconstruction of the Corporation will be beneficial to its creditors, members and other interested parties in that, amongst other things, the Wardan Cultural Centre will be put to its intended purpose i.e. to benefit its members and the surrounding Aboriginal community, and that effective arrangements can be made for the proper management of the Corporation upon termination of the Corporation's winding up. Mr P M Rundell, the chartered accountant having the carriage of this matter on behalf of the liquidator, has sworn to his belief that upon termination of the Corporation's winding up and termination of the Deed, the Corporation will be solvent. This is on the basis that the Corporation has, through the Deed of Company Arrangement process, arranged for the release of all its debts and that the Corporation will be left with an asset in the form of its interest in the Wardan Cultural Centre. 14 In those circumstances I turn to the motion before the Court.
my reasoning 15 When the motion came before me on 15 February 2001, I told counsel for the liquidator that I was concerned that his client had actually entered into the Management Agreement and the Lease, conditional as each of them were as summarised above. I said that I appreciated that those conditions had the effect that the operation of the Lease was subject to the coming into effect of the Management Agreement. I understood also that the coming into effect of the Management Agreement was, among other things, conditional upon the Court ordering that the Corporation's winding up be terminated and approving the liquidator's entry into the Management Agreement. Clause 1(d) of the Management Agreement ("the best endeavours clause") bound the parties (including the liquidator) to use their best endeavours and do all such acts and things as were reasonably necessary to have the conditions precedent fulfilled as expeditiously as possible. 16 In written submissions filed on behalf of the liquidator, he explained that the course was adopted for administrative convenience, given the need to embody the parties' negotiations into a document and the requirement that the Lease have Ministerial consent. I note that the two agreements are endorsed as having been approved by the Governor in Executive Council on 16 May 2000. 17 Counsel submitted that it was common for liquidators to adopt this expedient of having an agreement entered into conditional upon approval of the Court. He referred me to cases such as Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 16 ACLC 1642; Nambucca Investments Pty Ltd v Snoco Ltd [1999] NSWSC 211 and Re Imobridge Pty Ltd (In Liquidation) Supreme Court of Queensland, unreported, Fryberg J, 12 November 1999. 18 In this particular matter, the best endeavours clause contained a provision to the effect that if all the conditions precedent were not fulfilled within 3 months of the date of the Management Agreement then any party at any time thereafter could, by notice in writing to the other parties, but before the Management Agreement became effective, terminate it. The person who drafted that provision probably had s 477(2B) in mind. I still have some slight reservations about whether the liquidator has, by accepting the commitment under the best endeavours clause, contravened that sub-section. If so, it would only be a very technical contravention which would not stand in the way of Court approval. 19 In any event, were it necessary in this matter, I would grant approval on a nunc pro tunc basis: Empire Aust Nominees Pty Ltd v Vince (2000) 18 ACLC 738. In that case the Court granted retrospective approval, exercising its powers under s 479(3) and pursuant to its inherent jurisdiction, to a litigation funding agreement which the liquidator had entered into without Court approval. The Court also made an order under s 1322(4) that that agreement was not invalid and time was extended for the liquidator to make application for approval under s 477(2B). If it were necessary in this matter, and I do not think that it is, I would respectfully adopt the same course as that adopted by Warren J in that case. 20 It seems clear that the Court's function in granting approval under s 477(2B) is simply to review the liquidator's proposed agreements (in this case the Management Agreement and the Lease), paying due regard to his commercial judgment and knowledge of all of the circumstances of the liquidation, satisfying itself that there is no error of law or ground for suspecting bad faith or impropriety, and weighing up whether there is any good reason to intervene in terms of the "expeditious and beneficial administration" of the winding up. The Court's approval is not an endorsement of the proposed agreement, but is merely a permission for the liquidator to exercise his or her own commercial judgment in the matter - see Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 16 ACLC 1,642 at 1,649 to 1,651 and the cases there cited. 21 I think that it is appropriate in this matter to grant approval, applying all those principles, for the following reasons. Approval of the Management Agreement and the Lease, as the liquidator submits, is part and parcel of the application for termination of the liquidation. The same factors that support that application support the granting of such approval. In summary, those factors are as follows: · the Corporation has always engaged in quasi-charitable pursuits and has only one asset of significance, the Wardan Cultural Centre. The Centre is on land granted to the Corporation in trust for "Aboriginal heritage and cultural purposes" which limits the Corporation's ability to realise that asset; · the Corporation has, as part of a reconstruction, caused the creditors to receive, through the Deed, a greater return than would have been the case in an ordinary liquidation; · the Corporation has also obtained the release by the creditors of their claims against it; · provision has been made for the future management of the Corporation by the various steps which I have referred to above; · arrangements have been made for the financing and management of the Corporation's on-going operations with a sensible mechanism for it to retake control of the operation of the Wardan Cultural Centre after five years; · the application is made by the liquidator and is supported by the applicant for the winding up order i.e. the Registrar of Aboriginal Corporations; · creditors and members of the Corporation have been given notice of the application, but none have appeared to oppose it; · this is not a matter in which an insolvent company is to be allowed to continue to trade; as mentioned above, the Corporation is no longer insolvent; · the liquidator has investigated whether there has been misfeasance such as would make it in the public interest for there to be further investigation of the circumstances of the Corporation's winding up, but he has formed the view that there are no further actions that need to be taken in that regard; and · there is nothing to suggest that continuation of the winding up is in the interests of the Corporation, its creditors or the community. 22 I accept the liquidator's submissions that these are telling public interest considerations which favour the making not only of an order approving the Management Agreement and the Lease, but also terminating the winding up. 23 For the foregoing reasons, there will be orders substantially in terms of the liquidator's notice of motion filed on 25 January 2001. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of Justice Carr.
Counsel for the Liquidator Mr J C Vaughan (Applicant in the motion):
Solicitors for the Liquidator: Messrs Deacons, Lawyers
The Registrar of Aboriginal Corporations
Bibelmen Mia Aboriginal Corporation