Wellnora Pty Ltd v Fiorentino

Corporations Act 2001 (Cth) LEGISLATION CITED : Income Tax Assessment Act 1936 (Cth) Corporations Amendment (Insolvency) Act 2007 (Cth)

Wellnora Pty Ltd v Fiorentino [2008] NSWSC 483; (2008) 66 ACSR 229; 26 ACLC 527 Energy & Resource Conservation Co Ltd (in liq) v Abigroup Contractors Pty Ltd (1997) 41 NSWLR 169 Deputy Commissioner of Taxation v ACN 080 122 587 Pty Ltd [2005] NSWSC 1247 Federal Commissioner of Taxation v All Suburbs Car Repairs Pty Ltd (1994) 14 ACSR 753 Dean-Willcocks v ACG Engineering Pty Ltd (in liq) [2003] NSWSC 353; (2003) 45 ACSR 290 Shepard v Sports Mondial of Australia Pty Ltd (in liq) [2005] NSWSC 432; (2005) 53 ACSR 746 CASES CITED : Commonwealth of Australia v Rocklea Spinning Mills Pty Ltd [2005] FCA 902; (2005) 145 FCR 220 Lombe v Wagga Leagues Club Ltd [2006] NSWSC 3; (2006) 56 ACSR 387 Purchas, Re; Estore Pty Ltd (in liq) [2006] FCA 1222; (2006) 154 FCR 246 Parker, Re; Strongest Link Pty Ltd (in liq) [2008] FCA 1007; (2008) 250 ALR 118 DKLR Holding Co (No. 2) Pty Ltd v Commissioner of Stamp Duties (NSW) [1980] 1 NSWLR 510 Re Transphere Pty Ltd (1986) 5 NSWLR 309 Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) [2005] HCA 20; (2005) 220 CLR 592 Re Spargold Enterprises Pty Ltd; Ex parte McDonald [1999] NSWSC 623; (1999) 32 ACSR 363

TEXTS CITED : F.M.B Reynolds, Bowstead & Reynolds on Agency, 18th ed (2006)

PARTIES : In the matter of Jick Holdings Pty Ltd (in liquidation) (subject to a deed of company arrangement)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

1840/09 In the matter of Jick Holdings Pty Ltd (in liquidation) (subject to a deed of company arrangement) JUDGMENT 1 HIS HONOUR: The first plaintiff, Mr Pleash, is the administrator of a deed of company arrangement executed by the second plaintiff ("the company") on 28 November 2006. Under the deed of company arrangement the company was to establish a deed fund from which the claims of creditors (other than certain named excluded creditors) with claims against the company as at 3 November 2006 were to be satisfied. 3 November 2006 was the date on which the company appointed voluntary administrators (see Corporations Act 2001 (Cth), s 444A(4)(i)). 2 After execution of the deed of company arrangement, the directors reassumed management of the company's business. The company incurred further debts which would not be satisfied from the deed fund. The post-administration creditors included the Deputy Commissioner of Taxation for unremitted PAYG deductions. The company's director, Mr Bulter, was served with a notice under ss 222AOE and 222APE of the Income Tax Assessment Act 1936 (Cth). He took steps to have the company wound up so as to avoid personal liability for the company's taxation liabilities. On 2 February 2009 the company resolved that a Mr Hathaway and a Mr Van der Veld be appointed as liquidators for the purposes of winding up its affairs and distributing its property (Corporations Act, s 491). As required by s 497 of the Corporations Act, the liquidators convened a meeting of creditors. The meeting was held on 20 February 2009. Pursuant to s 497(11), the creditors resolved to remove the liquidators and to appoint Mr Pleash as liquidator of the company. 3 The company carried on business as a real estate agent. It managed investment properties and was entitled to a commission as a percentage of rents collected on the properties it managed. As a result of amendments to the deed of company arrangement the company was required to provide a deed fund in an amount sufficient to enable the payment of 100 cents in the dollar to the creditors entitled to distribution under the deed, or such lesser sum as might be available following completion of the sale of the company's "rent roll". The "rent roll" was the company's entitlement to commission in respect of the properties it managed. Mr Pleash, as deed administrator, has received moneys which form the deed fund amounting to $408,701.84. These moneys were paid from the sale of the company's rent roll. A further part of the purchase price has been retained and the company may be entitled to an amount up to a further $73,906.40. Mr Pleash says that once the balance of the retention moneys has been paid, he will be in a position to make a final distribution to the creditors entitled to participate under the deed, if that is appropriate following the company's winding-up. 4 The company is hopelessly insolvent. The summary of affairs discloses assets of $10,000 and debts incurred after 3 November 2006 of $374,502. The principal creditor is the Deputy Commissioner of Taxation. 5 The first issue concerns the validity of Mr Pleash's appointment as liquidator. He seeks a declaration that s 532 of the Corporations Act 2001 (Cth) did not preclude his seeking to be appointed or acting as liquidator of the company. Alternatively he seeks retrospective leave under s 532(2). 6 The creditors wanted Mr Pleash to perform the role of both deed administrator and liquidator. The rights of creditors who are entitled to prove under the deed and other creditors conflict. Mr Pleash seeks an order under s 445D(1) that the deed of company arrangement be terminated. He also seeks orders that he is justified in his capacity as deed administrator and as liquidator in making that application. Mr Pleash also seeks a direction that he would be justified in treating the fund established pursuant to the deed of company arrangement as property beneficially owned by the company and available for distribution to all creditors on a winding-up in accordance with s 556 of the Act. The application raises the question whether the deed fund is property beneficially owned by the company, or whether it is held on trust for deed creditors. If the latter, there is a question as to whether the deed should in any event be terminated, and if so, whether the trust would be extinguished. 7 Mr Pleash has taken all reasonable steps to find a contradictor to represent the interests of the deed creditors and the other creditors of the company. The largest creditor, the Deputy Commissioner of Taxation, supports the application. The Australian Securities & Investments Commission has been given notice of the proceedings but has declined to make submissions. The former liquidators have also been served but have not sought to participate. They do not challenge the validity of the creditors' resolution to appoint Mr Pleash as liquidator in their place. Mr Pleash caused a report to creditors to be circulated to all of the creditors of the company including those whose claims arose both before and after his appointment as administrator. The creditors were invited to complete a form indicating their attitude to the application. They were provided with an estimated return to creditors if the deed of company arrangement is terminated. The creditors were advised of the return date of the application. They were advised that they could express their views to the Court by completing an enclosed form stating the amount of their debts that arose before and after 3 November 2006, whether they supported or opposed the termination of the deed of company arrangement, and whether they supported or opposed Mr Pleash remaining as liquidator. They were also advised that they could express their views by attending at court or by seeking their own legal advice. On the return date of 20 April 2009 the Court was advised that one creditor, WDA Solutions Pty Ltd was considering whether it would be a contradictor. It had filed a winding-up application in 2006 prior to the company being placed into voluntary administration. In the result it did not appear as contradictor. 8 All reasonable steps to obtain a contradictor have been taken. Undesirable though it may be, it is necessary to decide the questions raised on the application in the absence of a contradictor. Validity of Creditors' Resolution to Appoint Deed Administrator as Liquidator 9 The issue concerning the validity of Mr Pleash's appointment as liquidator arises under s 532(2)(b) and (c)(i) of the Act. Subs 532(2) and (5) provide: "532 Disqualification of liquidator ... (2) Subject to this section, a person must not, except with the leave of the Court, seek to be appointed, or act, as liquidator of a company: (a) if the person, or a body corporate in which the person has a substantial holding, is indebted in an amount exceeding $5,000 to the company or a body corporate related to the company; or (b) if the person is, otherwise than in his or her capacity as liquidator, a creditor of the company or of a related body corporate in an amount exceeding $5,000; or (c) if: (i) the person is an officer or employee of the company (otherwise than by reason of being a liquidator of the company or of a related body corporate); or (ii) the person is an officer or employee of any body corporate that is a mortgagee of property of the company; or (iii) the person is an auditor of the company; or (iv) the person is a partner or employee of an auditor of the company; or (v) the person is a partner, employer or employee of an officer of the company; or (vi) the person is a partner or employee of an employee of an officer of the company. ...

(5) Paragraph (2)(c) does not apply to a creditors' voluntary winding up if, by a resolution of the creditors passed at a meeting of the creditors of which 7 days notice has been given to every creditor stating the purpose of the meeting, it is determined that that paragraph does not so apply. " 10 An administrator of a deed of company arrangement executed by a corporation falls within the definition of "officer of a corporation" in s 9. Unless the contrary intention appears, such a person is an "officer ... of the company" within s 532(2)(c)(i). In this case, the creditors resolved pursuant to s 532(5) that s 532(2)(c) should not apply. In his submissions, Mr Russell, solicitor for the plaintiffs, said that there may be a question as to whether notice required by s 532(5) had been given. On 6 February 2009 the then liquidators gave notice to the creditors of a meeting to be held pursuant to s 497 on 20 February 2009. It appears to me that the notice fairly stated the purpose of the meeting. The notice included a statement that creditors might, by resolution, appoint someone else as liquidator of the company. The evidence on this application does not establish that the notice was given to all creditors, but it is to be presumed that the then liquidators would have complied with the requirements of s 497(2) to give notice to all creditors. Accordingly s 532(c)(i) does not apply. 11 The real difficulty arises under s 532(2)(b). Mr Pleash claims to be entitled to remuneration of $9,281 in respect of work he has carried out as administrator of the deed of company arrangement. If the company is liable to pay that amount he is a creditor of the company who, by reason of s 532(2)(b), prima facie would not be entitled to accept the appointment as liquidator without the leave of the court. 12 The submissions for the plaintiffs assumed that Mr Pleash was a creditor of the company by reason of his claim for remuneration for work done as administrator of the deed of company arrangement. Mr Russell submitted that there is an implied exception to s 532(2)(b) and (c)(i) such that those provisions do not apply to the appointment of an administrator or deed administrator as liquidator. It is first necessary to consider the accuracy of the assumption that Mr Pleash is a creditor of the company for the work done as deed administrator. 13 In exercising his powers and carrying out his duties as deed administrator, Mr Pleash is taken to have acted as agent for and on behalf of the company (Corporations Regulations Sch 8A cl 1). He was entitled to recover his proper remuneration out of the deed fund. Clauses 4.1 and 5.1 provided: " 4.1 The Deed Administrators are entitled to draw upon the Deed Fund to pay:- (a) their remuneration and expenses; and (b) the Administrators' remuneration and expenses at any time they in their unfettered discretion see fit, upon that remuneration being approved in accordance with the Corporations Act. 5.1 The Deed Administrators and the Administrators are each entitled to be indemnified out of the Deed Fund for their remuneration and for any costs, expenses or charges of any description whatsoever incurred in the course of acting as Deed Administrators or Administrators. In addition to any other rights they may have, the Deed Administrators are hereby granted a lien over the Deed Fund as security for this indemnity. " 14 For the reasons below I consider that the deed fund is property of the company. It is not an asset held on trust for creditors entitled to prove under the deed. Thus Mr Pleash is entitled to recover his proper remuneration for administering the deed out of the company's property. In Wellnora Pty Ltd v Fiorentino [2008] NSWSC 483; (2008) 66 ACSR 229; 26 ACLC 527, Barrett J held at [21]-[32] that the Corporations Act does not make a company personally liable to pay the remuneration of a deed administrator. His Honour said (at [23]): " [23] None of ss 443D, 443E and 443F applies to or in relation to remuneration to which the administrator of a deed of company arrangement is 'entitled' under s 449E. In fact, the Corporations Act is silent on the matter of satisfaction of that entitlement except in the case of a subsequent winding up. Upon such a winding up, remuneration of the administrator of a deed of company arrangement is within the s 556 definition of 'deferred expenses' and is cognisable in the application of assets under s 556 accordingly. Otherwise, as I have said, the Act does not specify the means of satisfying the s 449E entitlement of the administrator of a deed of company arrangement. In particular, there is nothing in the Corporations Act that says or implies that the company subject to the deed of company arrangement is obliged to pay the remuneration of the deed administrator. " 15 It is evident that Barrett J did not consider that because on a winding-up a deed administrator is entitled to be paid remuneration as a deferred expense having the priority afforded by s 556(1)(de), it should be implied prior to the company's being wound up that the company was liable for that remuneration. A number of claims entitled to priority under s 556 only arise after the "relevant date" for the admission and computation of claims, and are implied exceptions to ss 553 and 554 (Energy & Resource Conservation Co Ltd (in liq) v Abigroup Contractors Pty Ltd (1997) 41 NSWLR 169 at 174). 16 As in this case, a deed administrator may be entitled to have recourse to company property to satisfy his entitlement to proper remuneration. But it does not follow from that circumstance that the relationship between the company and the deed administrator is that of debtor and creditor. The matter can be tested by asking what remedy the deed administrator would have if the deed fund were insufficient to meet his claim for remuneration. The fact that cl 1 of Sch 8A applies, and the deed administrator is taken to act as agent for and on behalf of the company in exercising his powers and carrying out his duties under the deed, would not entitle him to remuneration from his principal (the company) unless that is an express or implied term of the contract of agency, or he has a right in restitution for reasonable remuneration for work done (F.M.B Reynolds, Bowstead & Reynolds on Agency, 18th ed (2006) at Article 55). 17 There is no provision of the deed whereby the company becomes personally liable for the deed administrator's remuneration. The express provision for the deed administrator to be remunerated out of the deed fund would exclude any implied personal covenant by the company to pay remuneration, and any recourse to a restitutionary remedy. 18 For these reasons I conclude that prior to its being wound up the company had no personal liability for the deed administrator's remuneration. 19 On the company's being wound up, the deed administrator has a statutory right to be paid remuneration as a deferred expense pursuant to s 556(1)(de) and (2). This right is described in s 556(1) as a debt or claim. As it is a claim for a liquidated sum I think it can properly be said that from the commencement of the company's winding-up, Mr Pleash was a creditor of the company by reason of his being entitled by statute to be paid his remuneration as deed administrator by the company. Therefore I conclude that he was a creditor of the company at the time of the resolution and that the assumption in the plaintiffs' submissions was well-founded. 20 Mr Russell submitted that on the proper construction of the Act, subs 532(2) does not apply to an officer of a company who is only an "officer" because he or she is the administrator of a deed of company arrangement executed by the company, nor to a creditor of a company who is only a creditor in respect of fees due to him or her by reason of his or her position as an administrator of a company or administrator of a deed of company arrangement executed by the company. He relied upon the decision of McLelland CJ in Eq in Energy & Resource Conservation Co Ltd (in liq) v Abigroup Contractors Pty Ltd. In that case an administrator had incurred debts for which he was personally liable under s 443A of the Corporations Law, but the voluntary administration was terminated by a resolution of creditors under s 439C(c) that the company be wound up. The administrators thereupon became the company's liquidators for the purpose of the winding-up and the company ceased to be under administration. It was argued that upon becoming liquidators, s 443A ceased to apply in respect of debts incurred whilst the liquidators were administrators because the winding-up was taken to have begun on the day on which the administration began. In support of that argument, counsel for the administrators/liquidators argued that in the usual course, an administrator who becomes a liquidator upon the administration becoming a winding-up will be a creditor of the company in respect of debts for which he had become personally liable and for which he had a right of indemnity against the company; yet, unless his previous status as administrator was retrospectively nullified by being retrospectively converted into that of liquidator, he would be precluded from seeking appointment or acting as liquidator without the leave of the court, both because he is likely to have been a creditor for an amount in excess of $5,000 and because he is an officer (at 172). 21 McLelland CJ in Eq rejected the contention that because the winding-up was taken to have begun on the day on which the administration began, the appointment of the liquidator should be taken to have begun or commenced at the same time. His Honour said (at 174): " The true position in my view is that where a voluntary administration is terminated by a winding up, whether by resolution of the creditors or by the court, there is no element of retrospectivity in the appointment of the liquidator in the winding up, notwithstanding that the winding up is taken to have commenced at an earlier date, and the winding up has no effect on the operation of s 443A (or for that matter, ss 443D, 443E and 443F) in respect of debts which were incurred by the administrator while the company was under administration, and such debts may be the subject of proof in the winding up under s 556(1)(a), (d) (and where applicable (dd) and (de)), by way of implied exception to s 553 and s 554, as Cohen J indicated in Re Crawford House Press Pty Ltd (1995) 17 ACSR 295 at 299; 13 ACLC 874 at 877.

This view of the matter does not avoid the apparent problem arising under s 532(2) already referred to. It could hardly have been the intention of the legislature that every administrator who would otherwise automatically become liquidator by virtue of the operation of s 446A should, before so acting, make an application to the Court for leave under s 532(2). One might readily suspect that by oversight the legislature failed to add the words 'or administrator' after the word 'liquidator' in s 532(2)(b) and (c)(i), when enacting Pt 5.3A: cf s 448C(1)(b) and (c). Be this as it may, I consider that the enactment of Pt 5.3A had the effect of excluding by necessary implication from the operation of s 532(2)(b) and (c)(i) an administrator who becomes a liquidator by virtue of the operation of s 446A. " 22 Mr Russell referred to other provisions pursuant to which an administrator or deed administrator may automatically be appointed as liquidator. If creditors resolve that the company execute a deed of company arrangement but the company fails to do so, the company is taken to have passed a special resolution that it be wound up voluntarily without a declaration of solvency and the creditors are taken to have appointed the administrator to be the liquidator (ss 444B(2), 446A(1)(b), (2), and 499(2B)). If, at a meeting convened under s 445F, a company's creditors pass a resolution terminating a deed of company arrangement executed by the company and also resolve that the company be wound up, the company is taken to have passed a special resolution that it be wound up voluntarily without a declaration of solvency. Unless the creditors appoint another person to be liquidator, they are taken to have appointed the deed administrator to be liquidator (ss 445E, 445F, 446A(1)(c), (2) and 499(2C)). Sections 445D, 446B and reg 5.3A.07 provide another instance of a company's being taken to be subject to a creditors' voluntary winding-up where a deed of company arrangement is terminated. However, after the amendment of reg 5.3A.07 on 31 December 2007, it is not clear that the deed administrator is to be taken to have been appointed as liquidator in such a case. 23 Mr Russell submitted that the same reasoning as led McLelland CJ in Eq to conclude that by necessary implication s 532(2)(b) and (c)(i) did not apply in a case of an administrator who becomes a liquidator by virtue of s 446A, shows that those provisions do not apply in the case of an administrator who becomes a liquidator by virtue of s 446A and 499(2B), nor where a deed administrator is taken to have been appointed as liquidator pursuant to ss 446A(1)(c) and (2) and 499(2C). He submitted that these were examples of unexpressed "carve-outs" from the prohibitions in s 532(2)(b) and (c)(i) and that to avoid anomalies, the same "carve-out" should be implied not only in the specific circumstances provided for in those provisions, but in circumstances such as the present where the creditors vote at a meeting convened pursuant to s 497 to appoint a deed administrator as liquidator. 24 Some of the steps in the argument can be accepted. I agree that consistently with the reasoning in Energy & Resource Conservation Co Ltd (in liq) v Abigroup Contractors Pty Ltd, it is to be implied that s 532(2)(b) and (c)(i) do not apply where an administrator is automatically appointed as liquidator upon the creditors resolving that the company execute a deed of company arrangement and its failing to do so. I also agree that it is to be implied that s 532(2)(b) does not apply where a deed administrator is taken to be appointed as liquidator following a resolution under s 446A(1)(c). But that is because of a necessary implication to be drawn from the fact that the legislature could not have intended those parts of s 532(2) to apply where the administrator or deed administrator is to be taken to be appointed as liquidator and (in the case of an administrator) he or she is likely to be a creditor of the company and (in the case of both an administrator and a deed administrator) he or she would be precluded from taking the appointment by virtue of being an officer of the company and the Act not contemplating that there would be a meeting of creditors to pass a resolution under s 532(5). 25 However, no such necessary implication arises in the present case. Subsection 497(11) is a general provision relating to the replacement of a liquidator. No qualification to s 532(2)(b) and (c)(i) can be implied from the terms of s 497. It does not follow from the fact that some exceptions to s 532(2)(b) and (c)(i) are necessarily implied, nor from the fact that the legislature could reasonably have excluded both administrators and deed administrators from s 532(2)(b) and (c)(i) in all of the circumstances to which the section might apply, that the section should be construed as if those persons were added to the exceptions in the case of liquidators, so as to exempt them from those provisions. Such a construction would amount to a rewriting of the provisions. There is no necessary implication that s 532(2)(b) and (c)(i) do not apply to an administrator or deed administrator where creditors propose to replace a liquidator at a meeting convened pursuant to s 497(11). In my view s 532 applied to the appointment of Mr Pleash as liquidator. 26 Accordingly Mr Pleash required leave of the court to accept the appointment. That leave can be given retrospectively (Deputy Commissioner of Taxation v ACN 080 122 587 Pty Ltd [2005] NSWSC 1247). This is an appropriate case for the grant of leave. Mr Pleash has acted in accordance with the wishes of the creditors. He did not overlook the requirements of s 532. He took legal advice as to whether he could accept the appointment and received advice as to the reasoning in Energy & Resource Conservation Co Ltd (in liq) v Abigroup Contractors Pty Ltd. I have not accepted the submission of Mr Pleash's solicitor as to the extent of the implied exceptions to s 532(2)(b) and (c)(i), and Mr Pleash should have appreciated, and probably did appreciate that it was at least doubtful whether he could accept the appointment without leave of the court. However, the time for seeking that leave was short. There were other pressing issues. There is no question that Mr Pleash acted in good faith. He has acted properly in making this application. It is in the interests of creditors that leave be given. 27 For these reasons I will make an order pursuant to s 532(2) that Mr Pleash have leave nunc pro tunc to be appointed and act as liquidator of the company. 28 Before leaving these provisions I should note that there appears to have been a slip in the amendments made by the Corporations Amendment (Insolvency) Act 2007 (Cth) in a case where, under reg 5.3A.07, the company is to be taken to have passed a special resolution under s 491 for its being wound up voluntarily without a declaration of solvency. Prior to the amendments on 31 December 2007 the regulation provided that the company was taken to have nominated the deed administrator to be the liquidator for the purposes of the winding-up and the creditors were taken not to have nominated anyone (reg 5.3A.07(04)). That regulation was repealed with effect from 31 December 2007 when amendments were made to ss 497 and 499. Whilst s 499 deals with who is taken to be appointed as liquidator in cases to which s 446A applies, it does not deal with who is taken to be appointed as liquidator in cases to which regulations made under s 446B apply. This would seem to be an oversight. By reg 5.3A.07(3), s 497 is taken to have been complied with in relation to the winding-up. A possible construction of the legislation is that the company is required to convene a general meeting to appoint a liquidator pursuant to s 499(1). It is not clear what the position would be if the company failed to do so, or what opportunity the creditors would have to replace a liquidator appointed by the members in general meeting. The explanatory memorandum to the Corporations Amendment (Insolvency) Bill 2007 states that the Bill would allow creditors to appoint a different person as liquidator when a company proceeds from a deed of company arrangement into liquidation (clause 4.205). It is not clear how that objective is achieved in a case to which reg 5.3A.07 applies. This is a matter which deserves attention when the next amendments are made to the Act. Directions that Application is Justified 29 Mr Pleash is acting properly in seeking orders for the termination of the deed of company arrangement and directions as to how he should deal with the deed fund. Because he holds positions where he is required to consider the interests of creditors whose claims conflict he is entitled to protection against any disgruntled creditor who might contend that he has not acted properly in making this application. 30 He seeks such a direction both in his capacity as deed administrator and liquidator. Mr Pleash is not entitled to seek directions under s 447D(2) of the Corporations Act as deed administrator. That section provides that the administrator of a deed of company arrangement may apply to the court for directions about a matter arising in connection with the operation of, or giving effect to, the deed. As the company is being wound up, by reason of s 471A(2), Mr Pleash cannot perform or exercise, or purport to perform or exercise, any function or power as an officer of the company. "Officer" includes an administrator of a deed of company arrangement. A deed administrator is not within the exemption in s 471A(1A). Accordingly the direction sought will be given pursuant to s 479(3) to Mr Pleash in his capacity as liquidator. Beneficial Ownership of the Deed Fund 31 Now that the company is in liquidation there is a question whether the creditors who are entitled to the moneys constituting the deed fund (after allowance for the remuneration and expenses of Mr Pleash as deed administration) are all of the creditors of the company or only those creditors who are entitled to participate under the deed. If the deed fund is property beneficially owned by the company it is to be dealt with by the liquidator by paying debts and claims in accordance with ss 555 and 556 of the Corporations Act, that is to say, for the benefit of all creditors who are entitled to prove in the winding-up. On the other hand, if the effect of the deed of company arrangement is that the deed fund is held by the company on trust for the creditors entitled to participate under the deed, whilst Mr Pleash would no longer be entitled to deal with the fund in his capacity as deed administrator by virtue of s 471A (which prohibits a person exercising any function or power as an "officer" of the company), Mr Pleash, as liquidator of the trustee, would be obliged to distribute the deed fund to the beneficiaries of the trust (himself as deed administrator for his proper remuneration and the participating creditors under the deed) after recovering remuneration from such trust assets for work done by him as liquidator in administration of the trust. 32 A number of cases has considered the question whether property contributed by a company or by third parties to be subject to a deed of company arrangement is held on trust for participating deed creditors or remains beneficially owned by the company prior to distribution to participating creditors. The principal authorities are Federal Commissioner of Taxation v All Suburbs Car Repairs Pty Ltd (1994) 14 ACSR 753; Dean-Willcocks v ACG Engineering Pty Ltd (in liq) [2003] NSWSC 353; (2003) 45 ACSR 290; Shepard v Sports Mondial of Australia Pty Ltd (in liq) [2005] NSWSC 432; (2005) 53 ACSR 746; Commonwealth of Australia v Rocklea Spinning Mills Pty Ltd [2005] FCA 902; (2005) 145 FCR 220; Lombe v Wagga Leagues Club Ltd [2006] NSWSC 3; (2006) 56 ACSR 387; Purchas, Re; Estore Pty Ltd (in liq) [2006] FCA 1222; (2006) 154 FCR 246 and Parker, Re; Strongest Link Pty Ltd (in liq) [2008] FCA 1007; (2008) 250 ALR 118. 33 The leading decision is that of Barrett J in Lombe v Wagga Leagues Club Ltd. Contrary to what has been suggested, I do not understand his Honour to have concluded that it is not possible, consistently with the scheme of Pt 5.3A, for a deed of company arrangement to provide that property of the company (including property contributed by third parties which becomes property of the company in accordance with s 444A(4)(b)) be settled on trust for the benefit of creditors entitled to prove under the deed, either by transferring the legal title of the property to the deed administrators, or by the company declaring itself to be trustee of the property. (See at paras [74]-[76]). 34 In Parker, Re; Strongest Link Pty Ltd, Lander J of the Federal Court appears to have been of the view that a deed of company arrangement could not create a trust in favour of creditors (at [47]-[50]). With respect, I do not think that conclusion follows either from the scheme of the Act, nor the earlier authorities. In particular, it is not inconsistent with a trust being created by a deed of company arrangement that, s 444A(4)(b) describes the property to be the subject of the deed as "the property of the company". "Property" is defined in s 9 as meaning any legal or equitable estate or interest in property. A beneficiary's interest in trust property is engrafted onto, not carved out of, the legal estate (DKLR Holding Co (No. 2) Pty Ltd v Commissioner of Stamp Duties (NSW) [1980] 1 NSWLR 510 at 518-520; Re Transphere Pty Ltd (1986) 5 NSWLR 309 at 311). A deed fund would not cease to be property of the company within the meaning of s 444A(4)(b) because it might be held on trust. It does not seem to me to be conceptually impossible for the company to be trustee of a deed fund for the benefit of creditors, and for the trust to be administered by the deed administrator as the company's agent as is usually the case when clause 1 of sch 8A is incorporated. 35 With respect, I do not see any inconsistency between the reasoning of Davies J in Federal Commissioner of Taxation v All Suburbs Car Repairs Pty Ltd and the reasoning of Austin J in Dean-Willcocks v ACG Engineering Pty Ltd. In All Suburbs Car Repairs, no question arose of the deed creating a trust in favour of participating creditors. 36 However, as Barrett J convincingly demonstrates in Lombe v Wagga Leagues Club Ltd, it does not follow that merely because the deed administrator is required to hold the deed fund and apply the balance after certain deductions pro rata to participating creditors, that the company (let alone the deed administrator who is usually the agent of the company) holds the property on trust for those persons. (Compare Dean-Willcocks v ACG Engineering Pty Ltd at [15]). A deed administrator performs a function analogous to that of a liquidator required to distribute property of the company to the creditors entitled. But it is inaccurate to speak of the company as having lost its beneficial ownership in its property which is to be dealt with by the liquidator for the creditors' benefit (Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) [2005] HCA 20; (2005) 220 CLR 592 at [48]-[49], [54]-[55]). In Lombe v Wagga Leagues Club Ltd, Barrett J held that even specific references in the deed in question in that case to the deed fund being held on trust, did not indicate that a trust was created, but rather was a use of the term "trust" other than in a strict sense. In that case, it was contended that the deed administrators were themselves trustees, rather than being agents for the company as a trustee, but there was no language or mechanism by which the legal title to the company property was transferred to the deed administrators to be held by them on trust. 37 In the present case the deed does not use the language of trust. It provided for the company to provide funds for the payment of the claims of participating creditors. There is no need to imply from the language of the deed that a trust was intended to be created. 38 If the deed had created a trust, this would have been a clear case to make an order terminating the deed. The trust would thereupon be extinguished. There is no reason that the trade creditors who allowed the company to continue to trade, or the Commissioner of Taxation, should be postponed to the deed creditors (Re Spargold Enterprises Pty Ltd; Ex parte McDonald [1999] NSWSC 623; (1999) 32 ACSR 363; Commonwealth of Australia v Rocklea Spinning Mills Pty Ltd at [23]-[27]). 39 As the deed property is beneficially owned by the company, it is to be dealt with for the benefit of all creditors in accordance with ss 555 and 556. The deed has no further work to do and should be terminated pursuant to s 445D(1)(g) (Parker, Re; Strongest Link Pty Ltd at [54]).

Costs of Creditor on Winding-Up Application 40 Mr Pleash also seeks directions that he would be justified in treating the costs incurred by WDA Solutions Pty Ltd in winding-up proceedings instituted by it against the company as a payment entitled to priority under s 556(1)(b) of the Act as if the company had been wound up by the court on the application of that creditor. That creditor has lodged a proof of debt for legal costs of $3,923.44 arising from a costs order made by consent in the 2006 winding-up proceedings. The order was made on 17 November 2006, that is, after the appointment of Mr Pleash and his then partner Mr McDonald, as voluntary administrators, and before execution of the deed of company arrangement. The administrators consented to an order that "the defendant (the company) pay the plaintiffs (WDA Solutions Pty Ltd) costs of these proceedings as though those costs had been ordered by the Court in the winding-up of the company and those costs shall be treated as costs pursuant to ss 466 and 556(b) of the Corporations Act 2001." Mr Pleash has sworn that he considers it to be in the best interests of the company's creditors that the priority provided for in that costs order be observed by him as liquidator, notwithstanding that at the time the order was made, the events which have since occurred were not in contemplation of the parties and were not understood to be in the contemplation of the court. 41 Section 556(1)(b) provides priority for the costs of the application for a winding-up order if the winding-up is a court-ordered winding-up. That is not the position. However, WDA Solutions Pty Ltd would be entitled to priority in accordance with s 556(1)(ba) because it commenced its winding-up application within 12 months before the appointment of the voluntary administrators on 3 November 2006. That is the date on which the winding-up is taken to have begun (s 513B(c) and s 513C(b)). 42 There will be a direction that the liquidator is justified in treating the costs incurred by WDA Solutions Pty Ltd in the winding-up proceedings instituted by it as a debt entitled to priority in accordance with s 556(1)(ba). 43 For these reasons I make the following orders:

Grant leave pursuant to s 532(2) nunc pro tunc to the first plaintiff to be appointed and to act as liquidator of the second plaintiff.

Direct pursuant to s 479(3) that the first plaintiff is justified in seeking the orders in the amended originating process.

Order pursuant to s 445D(1)(g) that the deed of company arrangement executed by the second plaintiff on 28 November 2006 be terminated.

Order pursuant to s 447A that Pt 5.3A of the Corporations Act is to operate so that the termination by these orders of the deed of company arrangement executed by the second plaintiff on 28 November 2006 is not to be taken as the passing of a special resolution in accordance with s 446B(1) of the Act and reg 5.3A.07 of the Corporations Regulations 2001.

Direct pursuant to s 479(3) that the first plaintiff in his capacity as liquidator of the second plaintiff is justified in treating the fund established pursuant to the deed of company arrangement as property beneficially owned by the second plaintiff available for distribution to the creditors of the second plaintiff in accordance with ss 555 and 556 of the Act.

Direct pursuant to s 479(3) that the first plaintiff as liquidator of the second plaintiff is justified in treating the costs incurred by WDA Solutions Pty Ltd (ACN 117 199 434) in Supreme Court of New South Wales proceedings 5418 of 2006 as a debt entitled to priority in accordance with s 556(1)(ba).

Order that the amended originated process be otherwise dismissed. 44 It appears to me that the costs of the present application, to the extent they are properly incurred, are expenses incurred by the first plaintiff as liquidator entitled to priority out of the assets of the company in accordance with s 556(1)(dd) and that the debt owed to Mr Pleash for his remuneration as deed administrator is a deferred expense entitled to priority in accordance with s 556(1)(de). If there is any argument about this I will hear further submissions on these matters. 45 The exhibit may be returned.

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