Vouris and Tonks as Deed Administrators Of Good Impressions Offset Printers Pty Limited (ACN 002 306 587) [2012] NSWSC 603

Judgment (ex tempore) 1HIS HONOUR: The plaintiffs John Vouris and Bradley John Tonks were appointed voluntary administrators of Good Impressions Offset Printers Pty Ltd (ACN 002 306 587) ("the Company") on 5 March 2012. The first meeting of creditors was held on 15 March 2012. Following that meeting, on or about 10 April 2012, the director of the Company proposed a Deed of Company Arrangement ('the Deed') and, on 10 April 2012, the plaintiffs convened the second meeting of creditors pursuant to (Cth) Corporations Act 2001 ('the Act'), s 439A. 2On the day of the second meeting, 18 April 2012, the director varied the proposal for the Deed so that, instead of the fund established by the Deed being reliant upon collection from the Company's debtors, it was proposed that the director would pay the "trade-on deficiency" and make payments totalling $650,000 over the term of the Deed, such payments to be guaranteed by a third party and secured on that third party's real estate. The effect of this was that uncertainty attending collectability of the debts due to the Company was removed, and company's the creditors could be much more assured of being paid. The plaintiffs executed the Deed, as did the Company by its administrator, and the director. 3Prior to the appointment of the administrators, the Company had thirty-one employees. Of them, ten have been terminated, and one resigned during the period of administration. The effect of the Deed is that the employee entitlements of the terminated employees will be paid in full out of the fund created pursuant to the Deed, and the Company will be bound to pay the remaining entitlements of the current employees as and when they fall due. Although the deed might be less than clear in this respect, it appears that it is envisaged that, as the Company will pay current employees as and when obligations to them fall due, they will not have claims as creditors capable of being lodged against the fund. The continuing employees are nonetheless eligible employee creditors for the purposes of s 444DA of the Act. 4The Deed contains, in clause 14.1, a provision that obliges the administrators to apply the fund, first, in payment of administrators' expenses and remuneration, and, secondly, in payment in accordance with the priorities set out in s 556, s 560 and s 561 of the Act. 5However, although in respect of the fund the priority of terminated employees' claims is preserved by cl 14, there is no such provision in the Deed as is required by s 444DA(1) to the effect that, for the purposes of the application by the administrator of the property of the Company coming under his or her control under the Deed, the continuing employees would be entitled to a priority equal to that to which they would have been entitled if the property were applied in accordance with s 556, s 560 and s 561. By originating process filed in court today, the administrators seek an order pursuant to s 444DA(5) of the Act, approving the non-inclusion of such a provision in that respect. 6Section 444DA(5) provides that the Court may approve the non-inclusion of such a provision in a deed of company arrangement if satisfied that its non-inclusion would be likely to result in the same or a better outcome for eligible employee creditors as a whole than would result from an immediate winding up of the Company. 7In the administrator's affidavit in support of the application, Mr Vouris sets out the likely outcomes of immediate liquidation, on alternative optimistic and pessimistic bases, and of the Deed. Essentially, on an optimistic view of the outcome of the liquidation, there would have been a deficiency of funds available for priority employee creditors in an amount of about $90,000, and those creditors would have received about 50 cents in the dollar. On a pessimistic view, there would have been a deficiency of funds available for priority employee creditors of about $140,000, and a dividend to that class of creditors of something under 20 cents in the dollar. Under the Deed, there is a surplus of almost $230,000, and all participating priority employee creditors would be paid 100 cents in the dollar, with a surplus available for distribution between ordinary unsecured creditors. 8Mr Vouris expresses the opinion that in this context, the non-inclusion of a provision of the type contemplated by s 444DA(1) results in a better outcome for eligible employee creditors as a whole than would have resulted from an immediate winding up of the Company, by reason that terminated priority employee creditors will receive 100 cents in the dollar (rather than lesser amounts that would have been received in a winding up), and if the Deed succeeds, continuing priority employee creditors will receive the entirety of their employee entitlements, which is more than they would have received in a winding up, and they will remain employed, which would not have been the case in a winding up scenario. 9On this type of question, the Court is entitled to give weight to an administrator's opinion [Re Ansett Australia Ltd (Administrators appointed) (No 1) [2001] FCA 1806; (2002) 115 FCR 376 [49], [52]; Mentha, In the matter of Griffin Coal Mining Company Pty Ltd (administrators appointed) [2010] FCA 764 (Gilmore J, unreported) [24]]. 10It is to be borne in mind that the objects of Pt 5.3A of the Act are to maximise the prospects of the Company or its business continuing in existence for the benefit of creditors and contributories, or if this is not possible, to obtain a better return than would result from an immediate winding up. 11As the fund is to be created out of a contribution made to the Company by a third party, and is not reliant on the recovery of debts due to the Company, it is difficult to see how any class of creditors could be but better off under the deed than on an immediate winding up. This reinforces the opinion that the administrator has expressed. 12The section in question was introduced into the Act by the (Cth) Corporations Amendment (Insolvency) Act 2007, to reflect the policy that employees are accorded a measure of priority, both in personal bankruptcies and in company liquidations. However, the section provides two bases for exception from the general rule that that priority must be preserved in a deed of company arrangement. 13The first basis is that the eligible employee creditors at a meeting convened before the second creditors' meeting agree to the non-inclusion of such a provision [s 444DA(2)(a)]. This means that, where the eligible employee creditors consider the question and agree not to insist on priority, that agreement can be given effect. 14The alternative basis is if the Court makes an order under s 444DA(5). The Court can make such an order notwithstanding that the eligible employee creditors do not agree and even over their opposition, as was the case in Re Advance Health Care Group Ltd (2008) 68 ACSR 349, in which Finkelstein J was satisfied that notwithstanding the opposition of the employees, that non-inclusion of a provision of the relevant kind would be likely to result in the same or a better outcome for eligible employee creditors as a whole than an immediate winding up. Honour found the opposition difficult to understand, and speculated that it might be attributable to a desire to elicit a better offer, or to spite. 15In this case, the position is rather different. As has been pointed out already, the terminated employees will be paid in full and their priority is in any event preserved by cl 14 of the Deed. It is only in respect of the continuing employees that a relevant provision is not included in the Deed. Each of the continuing employees has provided a letter to the administrators in the following terms: Good Impressions Offset Printers Pty Limited (Administrators Appointed) (ACN 002 306 587) Deed of Company Arrangement I am a current employee of the company. I am aware that on 18 April 2012 creditors approved an arrangement pursuant to which the company was to enter into a deed of company arrangement in accordance with terms of the proposal enclosed with this letter. I have been made aware that prior to the creditors approving this proposal a meeting of employees should have been held to approve entry into the deed as the deed contemplates that I will not be paid my entitlements in the priority I would usually be given in liquidation. I am aware that the proposal means that my entitlements will be paid as and when they fall due given that I will be maintaining my job with the company and my employment will continue. I wish for the deed to be given effect to so that I can remain in employment and had I had the opportunity to vote at a meeting of employees to approve entry into this deed I would have voted in favour of the deed being entered into. I am aware that this letter may be tendered to the court in support of an application that may be made by the deed administrator to validate the deed. 16Moreover, the continuing employees, or all but one or two of them, were represented at the second creditors' meeting. It is clear that, had a meeting of eligible employee creditors been convened, they would have supported a resolution agreeing to non-inclusion of a s 444DA(1) provision. While that is not of itself sufficient to establish the ground referred to in subsection (5), it is a strong discretionary consideration in favour of making an order once the ground is satisfied, as I have found that it otherwise is. 17This application is made after the second creditors' meeting and after the execution of the deed. Although it is clear that, for the exception under subsection (2)(a) to be invoked, the meeting of eligible employee creditors must be held before the second creditors' meeting, no such limitation attends the ground in subsection (2)(b). In addition, subsection (6) provides that such an order may be made on the application of "the administrator or proposed administrator of the deed", which implies that an application can be made by the administrator after execution of the deed as well as by the proposed administrator before its execution. Moreover, subsection (7) provides that an order can be made before or after the second creditors' meeting. In those circumstances, I am satisfied that there is no obstacle to making the order at this stage, notwithstanding that the deed has already been executed. 18Accordingly, by order I approve the non-inclusion of a provision of the type referred to in (Cth) Corporations Act 2001, s 444DA(1), in the Deed of Company Arrangement of Good Impressions Offset Printers Pty Ltd, dated 9 May 2012. 19I order that the plaintiffs not be indemnified out of the Deed fund constituted under the Deed of Company Arrangement or out of the assets of the Company in respect of their costs of these proceedings.