Judgment
1Two proceedings and three applications were heard together before me. By its Originating Process filed 12 September 2012, Weriton Finance Pty Limited ("Weriton") brings an appeal under s 1321 of the Corporations Act 2001 (Cth) from the decision of Mr Louttit, the administrator ("Administrator") of P.N.R. Pty Limited (administrator appointed) ("PNR"), at the first meeting of PNR's creditors held on 29 August 2012 to refuse to admit for voting purposes its proof of debt dated 28 August 2012 in the sum of $15,501,615.68, but rather to admit its proof of debt only in the sum of $1.
2The second application is brought by Australian Residential and Commercial Finance Pty Limited ("ARCF") which seeks orders winding up PNR under s 459A of the Corporations Act on the ground of insolvency and that a liquidator be appointed to PNR. The third application is brought by Weriton by Interlocutory Process filed on 1 November 2012, which seeks an order under s 440A(2) of the Corporations Act adjourning the hearing of ARCF's winding up application until 30 November 2012.
3ARCF also applied, by interlocutory application, for an order under s 600A of the Corporations Act that votes cast by Mr Graham Werry and companies associated with him are to be excluded at a second meeting of creditors of PNR on the basis that Weriton, DTC No 1 Pty Limited ("DTC") and Werry & Associates are related entities of PNR. ARCF did not press that application at the hearing before me, recognising that s 600A of the Corporations Act would be applicable after a resolution had been passed at the second meeting of creditors and did not permit an anticipatory order excluding particular persons from voting. It is therefore not necessary to deal with that application.
4ARCF also sought an order that the Court appoint Mr Jamieson Louttit, who is presently the administrator of PNR, as provisional liquidator of PNR or as liquidator of PNR. It will not be necessary to deal with the former application if the Court determines that PNR should be wound up and a liquidator should be appointed. The second application will be determined as part of determining whether a liquidator should be appointed to PNR and, if so, whom.
Factual background
5I should first set out something of the factual background to the matter. PNR was trustee for the Muswellbrook Residential Property Trust and was involved in the development of townhouses in Muswellbrook New South Wales. It appears that assets were owned by the Trust although PNR had a right of indemnity against the Trust. Mr Werry was a director of PNR from February 2004 until February 2007 and from 4 June 2010 to 28 February 2012, approximately 6 months prior to the Administrator's appointment, and is presently a shareholder in PNR. Mr Werry does not presently hold a formal appointment as director of PNR. The question whether Mr Werry is a de facto or shadow director of PNR, within the extended definition of that term in s 9 of the Corporations Act, was raised in the course of submissions before me but it is not necessary or appropriate to determine that question for the purposes of these applications.
6Mr Werry's evidence is that DTC, of which Mr Werry is sole director and secretary, in its capacity as trustee of Australian Residential Financial Trust ("ARFT") entered into an agreement with PNR in respect of a loan facility of $1 million on or about 23 September 2004, comprising a loan agreement dated 23 September 2004, a second mortgage over a property situated at Muswellbrook (ranking behind a mortgage granted by PNR to Kingsway Group Limited ("Kingsway Mortgage")) and a Deed of Charge dated 23 September 2004 over PNR's assets ("Charge"). Mr Werry's evidence is that DTC advanced $500,000 to PNR on 23 September 2004, $5,000 on 29 July 2005, $2,500 on 1 May 2006, $300,000 on 8 June 2006 (although it appears that amount was repaid) and $30,000 on 3 December 2007. Mr Werry's second affidavit exhibits bank statements for the account held by DTC for the period August 2004 to December 2007 which appear to show advances by DTC to PNR totalling $1,580,000 during the period with repayment of an amount of $300,000 on 18 July 2006, and bank statements in respect of the account of PNR as trustee for the Muswellbrook Residential Property Trust showing corresponding receipts.
7The interest rate of the DTC mortgage was varied from 30% per annum to 37.5% per annum on 14 July 2006, by variation of mortgage signed by Messrs Werry and McMillan who were each directors of both PNR and DTC.
8About 1 October 2008, DTC acquired a debt owed by PNR to Kingsway Group and the first ranking mortgage previously given by PNR to Kingsway was transferred to DTC; Mr Werry's evidence is that a further sum of approximately $600,000 was lent by Weriton to PNR as at 27 March 2009, and added to the amount owing under the Kingsway Mortgage. Also on 27 March 2009, Weriton replaced DTC as trustee of ARFT; the loan was assigned to Weriton under a Deed of Assignment of Debts and Other Assets; the mortgage was transferred to Weriton and that transfer was registered on the title of the property; and Weriton lodged a Form 311A with the Australian Securities and Investments Commission to notify it of an assignment of the Charge to Weriton.
9On 7 March 2011, by an enforceable undertaking provided to the Australian Securities and Investments Commission under s 93AA of the Australian Securities and Investments Commission Act 2001 (Cth), Mr Werry, DTC and Weriton acknowledged that certain entities were entitled to be repaid principal and interest owing under promissory notes issued to them by specified dates.
10ARCF issued a statutory demand dated 14 February 2012 to PNR. It appears that statutory demand was served on Mr Werry on 9 March 2012.
11It appears that properties owned by PNR at Muswellbrook were sold for a stated value of approximately $12,277,000 pursuant to a Power of Attorney granted by PNR to Mr Werry and DTC and Mr Werry or DTC signed the relevant transfer forms in their capacity as attorney. It appears that five properties were transferred in May 2012 for a claimed value of $1,200,000 to creditors of Weriton and other properties transferred in May 2012 and June 2012 for a claimed value of $3,318,000. The Administrator's second report to creditors indicates that sale proceeds from the sale of properties totalling $3,758,000 were forwarded to promissory noteholders of Weriton on sale of the properties and that other properties with notional sale proceeds of $3,300,000 were transferred "in specie" to Weriton's promissory noteholders. Mr Werry's evidence is that Weriton offered promissory note investors the option to acquire unsold townhouses, with the purchase price of the townhouse being applied so as to reduce the debt owing by PNR to Weriton. Mr Werry subsequently clarified that evidence, in his third affidavit, to indicate that 25 on-sold townhouses were subject to options to purchase by the promissory noteholders; 11 promissory noteholders exercised such options, resulting in contracts for sale of those townhouses being exchanged; and the remaining 14 townhouses were, Mr Werry contends, "sold on the open market to arms length purchasers". Weriton contends that the transfer of the 11 unsold townhouses to the promissory noteholders took place in exchange for Weriton reducing PNR's indebtedness under the Kingsway mortgage for each townhouse transferred in the amount of $300,000 less the costs of sale for that townhouse.
12The Administrator was appointed voluntary administrator of PNR on 17 August 2012 under s 436A of the Corporations Act.
13The Administrator's report to creditors dated 12 September 2012 noted that he had requested Weriton to provide agreements in relation to loans provided to PNR; agreements in relation to the increase of interest rates plus risk fee from a total of 30% per annum to 37.5% per annum; and reconciliation of loan accounts including details regarding the application of proceeds from the sale of properties to set off the loan balance, but no documentation had been provided in that regard. The Administrator's report identifies the possibility that the loan by Weriton could be avoided on the basis that the interest on the loan was extortionate when the loan was made or became extortionate because of the variation in its terms. The Administrator's report also expresses the opinion that the interest rate charged on loans at 30% and subsequently increased to 37.5% appears to be relatively high and may be uncommercial and unfair in nature. At that time, no proposal for a DOCA had been received, and the Administrator noted that it was unlikely that ordinary unsecured creditors would receive a return subject to the possible recovery of preferences, uncommercial transactions and unfair loans and/or recovery in respect of insolvent trading (if applicable) and that he was of the opinion that it was in creditors' interest for the Company to be placed in liquidation. The reference to "uncommercial transactions" and "unfair loans" is respectively to categories of voidable transactions specified in ss 588FB and 588FD of the Corporations Act. Section 588FF permits the Court to make appropriate remedial orders on the application of a liquidator in respect of such transactions.
14On 8 November 2012, the Administrator completed a supplementary report to creditors in anticipation of a second creditors meeting convened under s 439A of the Corporations Act. The Administrator's second report indicates an estimated return to ordinary unsecured creditors on liquidation of between nil and 8¢ in the dollar, the latter representing a "best case scenario". In particular, the Administrator identified an issue requiring further investigation as to whether the power of attorney which was relied upon to transfer the relevant properties authorised the transfer of those properties, having regard to the terms of s 12 of the Powers of Attorney Act 2003 (NSW). Mr Young SC, who appears for Weriton, in turn contended that other powers of attorney and other documents in favour of Weriton would authorise that transfer. It is not necessary to determine that matter for the purposes of this proceeding. That second report again recommended that PNR be wound up and, in his affidavit dated 13 November 2012, the Administrator indicates that that remains his recommendation.
Weriton's application for adjournment of ARCF's winding up application
15It is convenient first to deal with Weriton's application for an adjournment of a winding up application brought by ARCF and, if not adjourned, with that application. Weriton's second application in respect of the admission of proofs of debt at the first creditors' meeting of PNR will be of lesser practical significance if ARCF's winding up application is successful, other than in respect of the question of the identity of any liquidator appointed to PNR.
16Section 440A(2) of the Corporations Act provides that:
"The Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up."
That section requires the Court to adjourn the proceedings if the relevant pre-condition is satisfied: Deputy Commissioner of Taxation v Polcarp Pty Ltd [2011] FCA 1142 at [4]. Generally, an adjournment under s 440A(2) of the Corporations Act requires that the Court is satisfied that it is in creditors' interests to continue the administration in all the circumstances, and this requires that there be sufficient possibility, as distinct from mere optimistic speculation, that creditors' interests will be accommodated to a greater degree in an administration than in a winding up: Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 at 457; TCS Management Pty Limited v CTTI Solutions Pty Ltd [2001] NSWSC 830 at [15]; Australian Securities and Investments Commission v Storm Financial Ltd (recs and mgrs apptd) (admins apptd) (2009) 71 ACSR 81; Deputy Commissioner of Taxation v C-Change Cairns Pty Ltd [2011] FCA 1372.
17In Creevey v DCT above, McPherson JA, speaking for the Queensland Court of Appeal, said that the question of whether an administration should continue, rather than that there be a winding up, was "closely related to the further question of whether the creditors could hope to get more by payment of their debts from one form of process or administration than from the other". His Honour observed at 457:
"In order to satisfy the court of the matter referred to in s 440A(2) of the Corporations Law, one would expect that there would have to be some persuasive evidence to enable it to be seen that there were assets which, if realised under one form of administration rather than the other, would produce a larger dividend, or at least an accelerated dividend for the creditors."
18In Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd [2003] NSWSC 47; (2003) 44 ACSR 377, Campbell J, as his Honour then was, said (at [18]):
"Ultimately what the court needs to do is to be persuaded. The amount of proof which can result in persuasion, differs with the circumstances in which litigation comes before the court. It is common enough, in applications under s 440A, for an administrator to need to seek an adjournment very soon after his or her appointment, at a time when he or she knows very little about the affairs of the company. In that sort of situation, comparatively little material might be needed to justify a short adjournment. As time goes on, however, and the occasion that there has been for the collecting of evidence increases, so the amount of material which might need to be put before the court before it is persuaded, will increase."
19In Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd [2003] NSWSC 535; (2003) 47 ACSR 197 at [77], Austin J observed that:
"The requirement for "persuasive evidence", if considered in isolation from the facts and decision in that case, could set the barrier fairly high. In Waste Recycling, Santow J (at 199) noted that a less stringent formulation has been adopted in an unreported case in the Federal Court, although he later applied the Creevey dictum in Re First Netcom Pty Ltd (2000) 35 ACSR 615. Campbell J applied the Creevey test in Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd (2003) 44 ACSR 377. For present purposes, it is not necessary to decide upon the precise standard of proof. Whatever be the correct formulation, it is plain that if the evidence points to nothing more than "mere optimistic speculation" that a proposal might emerge (to use Santow J's words), the case has not been made out."
20The principles applicable to the exercise of the discretion under s 440A(2) was also summarised by Greenwood J in Sunstate Orchards Pty Ltd v Citrus Queensland Pty Ltd [2009] FCA 452 at [28]:
"The discretion under s 440A(2) is to be exercised having regard to the well known observations of McPherson J (Davies and Pincus JJ concurring) in Creevey v DCT(1996) 19 ACSR 456 (see also Re First Netcom Pty Ltd (2000) 35 ACSR 615, per Santow J) concerning the closely related question of whether the creditors could hope to get more by way of payment of their debts from administration rather than liquidation and whether there is persuasive evidence of assets which if realised under one form of administration rather than the other would produce a larger or accelerated dividend to the creditors. The hope must however be a real and not remote possibility, unclouded by cascading contingencies all of which must fall in before an asset might become available to the creditors as a group. In Creevey, the court discounted a contended claim as a possible asset available to creditors. In that case the foreshadowed claim had not been formulated in any concrete way."
21In Re Offshore and Ocean Engineering Pty Ltd [2012] NSWSC 1296 at [6], Brereton J observed that:
"What is required by s 440A(2) is satisfaction that it is in the interest of the company's creditors for the company to continue under administration, rather than be wound-up, as distinct from satisfaction that it may be so. That reinforces the view that a substantial degree of persuasion that administration rather than liquidation is in the interests of the company's creditors is required to invoke the section."
Leave to appeal from that decision was refused in Offshore and Ocean Engineering Pty Ltd v Greenwich Contractors Pty Ltd [2012] NSWCA 371, where Campbell JA also noted at [16] that it is "of general public importance that the Court system can provide remedies concerning unpaid debts with speed and certainty", although there is a public policy in the provisions of the Corporations Act concerning administration that creditors be given the opportunity to consider a DOCA when it appears that creditors will do better under a DOCA than under a liquidation".
22In support of the application for adjournment of the winding up application, Weriton relies on a proposal that it has advanced for a Deed of Company Arrangement ("DOCA") with PNR that includes terms that, relevantly:
- Weriton as chargee of PNR will continue proceedings in the Supreme Court of New South Wales in which PNR has filed a cross-claim against Pentaj Pty Limited ("Pentaj");
- If PNR is successful in the proceedings, Weriton will apply the monies recovered by it from Pentaj first to reimbursement to Weriton of all future legal costs and disbursements incurred by it in connection with the proceedings; 90% of the net proceeds recovered (after deduction of those future costs and disbursements) are to be paid to Weriton and 10% of the net proceeds recovered by PNR are to be paid into a deed fund administered by the deed administrator to be paid to unsecured creditors on a pro rata basis according to their proofs of debt;
- A specified person is to be appointed as deed administrator in relation to the DOCA and PNR is to be returned to the control of its director on execution of the DOCA, except that the proceedings will be placed under the control of Weriton;
- All unsecured debts of PNR are to be released in full on execution of the DOCA, and the creditors are to be granted in lieu a right to claim from the Deed Fund; and
- Parties related to Weriton Finance will forego any claim to the Deed Fund; although Weriton Finance will, of course, have secured 90% of any proceeds of the cross-claim.
23That proposal was put on the basis that Weriton has the power under the Charge to assume control of the proceedings following an event of default by PNR; Weriton stated in that proposal that it considered that, if PNR were successful in the proceedings, it would be awarded a judgment for damages against Pentaj in excess of $1.3 million, and an amount in excess of $650,000 is held in the trust account of a firm of solicitors pending the outcome of the proceedings and would be available for partly discharging the judgment debt; and PNR is also claiming $600,000 from a director of Pentaj who guaranteed its obligations in that sum and, assuming he holds significant personal assets, the likely recovery would be in the vicinity of $1,250,000 even if Pentaj itself held no further assets. Weriton also stated in the proposal that, pursuant to the terms of its Charge, it would be entitled to the whole of the amount recovered by PNR if successful in its cross-claim against Pentaj in the proceedings and, if the DOCA was not executed, the creditors would likely receive nothing from the winding up of PNR. Weriton also estimated that the likely cost of the proceedings would be in the vicinity of $60,000.
24Weriton contends that it is in creditors' interests to consider the proposal put by Weriton for PNR to enter into a DOCA. Weriton contends that its proposal compares very favourably with the position where PNR has no assets apart from the Pentaj litigation, needs to find funding to continue that litigation if its value is to be realised, and all of any proceeds would be paid to Weriton by reason of it being a secured creditor and having a charge over PNR's assets. Weriton contends that, even if a future application brought by a liquidator under s 588FF of the Corporations Act reduced the interest on PNR's debt to, say, 12% simple interest, the debt owed to it would still be in excess of $1.6 million. Weriton contends that an adjournment to 30 November 2012 will permit the second creditors' meeting to occur and provide time for the finalisation and execution of any deed of company arrangement that may be approved by the creditors at that meeting.
25I am not satisfied that the DOCA proposal involves more than faint speculation as to the possibility of a benefit to creditors. In particular:
Any benefit of the proposal depends on the prospects of success of the cross-claim, and there is no evidence before me to provide any basis for assessment of the prospects of success of the cross-claim. The prospects of recovery in the proceedings turn not only on the prospects of the cross-claim against Pentaj, but also on the prospects of Pentaj's claim against PNR, and no information is provided to assess the prospects of that claim or any amount likely to be recovered by Pentaj or whether that amount is likely to exceed any recovery by PNR under the cross-claim.
The only information provided as to likely damages is Weriton Finance's estimate, the basis of which is not disclosed. The prospects of recovery is dependent on an express assumption as to the level of personal assets of a director of Pentaj, and no information is provided to determine whether that assumption is soundly based.
Any benefit of the proposal also depends on the amount of future legal costs and disbursements incurred by Weriton "in connection with the proceedings" and Weriton does not disclose the basis of its estimate of likely future costs of the proceedings and does not provide any estimate as to disbursements which would in future be incurred in the proceedings. It is striking, in this regard, that the terms of the proposal refers to deduction of costs and disbursements but the estimate provided by Weriton itself relates only to costs. Mr Werry's evidence in cross-examination was that he had received no written advice as to the prospects of the proceedings and no estimate as to the future or overall costs of the litigation from the lawyers acting in it (T35). Mr Werry also gave evidence under cross-examination that the lawyers acting in those proceedings had declined to do anything further including giving an advice on the future costs involved until the administration of PNR was "resolved".
26In these circumstances, I do not consider that the Court can be satisfied of sufficient prospect that the 10% of net proceeds recovered by PNR against Pentaj, after deduction of future legal costs and disbursements, has any real value to warrant the adjournment of the winding up application. The DOCA would require unsecured debts of PNR to be released in full on execution of the DOCA, so that creditors would give up any prospect of recovery in a liquidation in return for a prospect of recovery under the DOCA which is at best speculative. On the other hand, there is at least a prospect that further investigations undertaken by a liquidator, if PNR is placed in liquidation, would establish the basis for a challenge to the property sales or a claim against statutory or de facto directors of PNR. I am not satisfied that the material put before the Court in respect of the proposed DOCA is sufficiently persuasive to allow the Court to conclude that it is in the interests of creditors that the administration should continue. In these circumstances, Weriton has not satisfied me that it is in the interests of creditors further to adjourn the winding up application, in circumstances that no party has contended that PNR is solvent.
27I should add that, had I not declined to adjourn the winding up application by reason of these matters, it would have been necessary to hear the parties as to whether I should reach the same result on the basis that the Court should not in any event facilitate a proposal contemplating the return of the control of PNR to its statutory director, where it appears that he has paid no substantive attention to its affairs for some considerable time.
ARCF's winding up application
28As noted above, ARCF seeks orders winding up PNR under s 459A of the Corporations Act 2001 (Cth) on the ground of insolvency and that a liquidator be appointed to PNR. ARCF relies on the affidavit of Rene Benitez, who is a director of ARCF, in support of the application for the winding up of PNR. Mr Benitez's evidence is that ARCF is a creditor of PNR in the amount of $2,079,508. Mr Benitez's affidavit dated 12 November 2012 indicates that, since a statutory demand was served on PNR, a sum of $200,000 has been received by ARCF from a guarantor in reduction of the debt but principal and interest continued to accrue on the balance. ARCF therefore has standing to bring an application for the winding up of PNR in insolvency.
29It is plain that PNR is insolvent and no party suggested to the contrary before me. Mr Werry acknowledged in the course of cross-examination that he knew, at the time of a previous winding up application by ARCF in February 2012, that PNR was likely to be insolvent. The Administrator's second report to creditors indicates that the total quantum of unsecured debt of PNR amounts to $7,282,280.88 and the proceedings were conducted on the basis that it had no material assets other than the cross-claim against Pentaj to which I have referred above, putting aside any potential recoveries in a liquidation.
30Notice of the application for the winding up order was published on 7 November 2012 and listed on the ASIC insolvency website and notification of court action relating to the winding up in Form 519 was lodged with the Australian Securities and Investments Commission. The Administrator supported the application for winding up of PNR and the order that a liquidator be appointed. Mr Young SC, who appears for Weriton, did not seek to be heard in opposition to the order for winding up, subject to Weriton Finance's application for an adjournment of the winding up application that I have addressed above. In these circumstances, I am satisfied that an order should be made that PNR be wound up.
31Weriton opposed the appointment of the Administrator as liquidator of PNR, contending that there is reason to believe that he favours the interests of ARCF over those of Weriton and most other creditors. The primary basis of that submission was the attack on the Administrator's treatment of Weriton's proof of debt at the meeting. I will hold, for the reasons set out below, that the Administrator's decision was a proper and reasonable one, based on the information then available to him and this provides no basis not to appoint him as liquidator. Weriton also relies on the fact that several other creditors had their proofs reduced to a nominal amount of $1.00. However, Weriton did not lead evidence to seek to establish that decision in respect of any or all of those creditors was not justifiable on its merits, and I do not consider that this matter provides any basis not to appoint the Administrator as liquidator.
32Weriton also relies on the fact that funding had been provided by ARCF by payment of $10,000 and a promise of further payment of $10,000, and contends that that fact was not disclosed until Mr Werry raised the matter at the creditors meeting on 29 August 2012. There were difficulties with Mr Werry's evidence in this regard. Paragraph 31 of Mr Werry's affidavit of 12 September 2012 attributed an answer to a question as to disclosure of funding by ARCF to the Administrator in direct speech. By contrast, Mr Werry's evidence in cross-examination was that he had prepared handwritten notes at the meeting, which were subsequently prepared as a typewritten note which record, beside a reference to Mr Werry's question of the administrator "did you inform creditors" of that matter that "I cannot recall his answer exactly". Mr Werry acknowledged that at the time of the meeting he could not recall the administrator's answer to that question (T24). When asked how he was able to recall that answer in preparing his affidavit but not preparing his note during the meeting, Mr Werry responded that he was able to recall that matter with the opportunity to sit back, reflect and consider what was said. I do not consider that Mr Werry's further recollection of that matter would have been more reliable that his contemporaneous note that he did not recall that answer. I do not accept Mr Werry's evidence as to this matter. Mr Werry ultimately acknowledged in cross-examination that Mr Louttit informed the creditors meeting that he had received the sum of $10,000 from ARCF and expected to receive another $10,000 from that creditor.
33Putting aside the question of disclosure, Weriton submitted that the Administrator was not independent because ARCF had been "funding the administration". It appears that ARCF has contributed the sum of $20,000 to the costs of the administration. It is, of course, by no means unusual for major creditors to provide funding for insolvency administrations and I do not consider that this matter, in itself, gives rise to a real conflict of interest which would warrant a refusal to appoint the Administrator as liquidator, absent evidence or a risk that he would not maintain a proper professional distance from the funding creditor. No party drew my attention to any authority where an administrator had been removed, or a liquidator not appointed or removed, merely because of the receipt of funding from a funding creditor.
Weriton's application for review of the admission of its proof of debt at the first meeting
34As I noted above, Weriton brings an appeal under s 1321 of the Corporations Act from the Administrator's decision at the first meeting of PNR's creditors held on 29 August 2012 to refuse to admit for voting purposes its proof of debt dated 28 August 2012 in the sum of $15,501,615.68, but rather to admit its proof of debt only in the sum of $1.
35Weriton submits that, when an appeal is made under s 1321 with respect to the rejection of a proof of debt, the appeal is in the form of a hearing de novo, with evidence not being restricted to the evidence before the administrator at the time of his decision: Westpac Banking Corporation v Totterdell (1997) 16 ACLC 53. At the same time, the case law recognises that, where an appeal is brought against a discretionary decision by an administrator or liquidator, the court will recognise that the discretion has been vested by statute in the administrator or liquidator and will not interfere unless it is shown that: he or she made errors of law; failed to take into account relevant matters or took into account irrelevant matters; or if the liquidator's decision in the circumstances appears such that no reasonable person could arrive at it or was made in bad faith: Selim v McGrath [2003] NSWSC 927; (2003) 47 ACSR 537 at [36]-[38]; Bacnet Pty Ltd v Lift Capital Partners Pty Ltd (in liq) [2010] FCAFC 36; [(2010) 183 FCR 384; 78 ACSR 57 at [72] (although the Full Court of the Federal Court there noted other authorities suggesting that such an appeal may be a hearing de novo and did not decide which approach was correct (at [74]); McGrath v Sturesteps [2011] NSWCA 315; (2011) 284 ALR 196; 254 FLR 384).
36The form of order sought by Weriton is that the Administrator's decision be modified such that that proof of debt is, for the purposes of its voting as a creditor in the administration of PNR (emphasis added) admitted in the sum of $15,501,615.68. In my view, there is a substantial difficulty with an order in this form, since the question to be decided by the Administrator at the meeting of creditors of PNR held on 29 August 2012 was whether to admit Weriton's proof of debt at that meeting for voting purposes, and in what amount, not whether to admit that proof of debt at some future meeting or in the administration generally for any particular amount. An appeal may be brought from the decision that the Administrator actually made, whether to admit that proof of debt at that meeting in that amount. However, the appeal process under s 1321 of the Corporations Act may not be used to appeal from a decision which the Administrator has not yet made, whether to admit the proof of debt or any particular amount at the second meeting or for any other purpose in the administration.
37The parties paid limited attention in submissions to the operation of regs 5.6.23 and 5.6.26(2) of the Corporations Regulations 2001 (Cth), which are important to the framework for proof of debts at a creditors meeting in an administration. The former is particularly relevant in this case and relevantly provides that:
"(1) A person is not entitled to vote as a creditor at a meeting of creditors unless:
(a) his or her debt or claim has been admitted wholly or in part by the liquidator or administrator of a company under administration or of a deed of company arrangement; or
(b) he or she has lodged, with the chairperson of the meeting or with the person named in the notice convening the meeting as the person who may receive particulars of the debt or claim:
(i) those particulars; or
(ii) if required - a formal proof of the debt or claim.
(2) A creditor must not vote in respect of:
(a) an unliquidated debt; or
(b) a contingent debt; or
(c) an unliquidated or a contingent claim; or
(d) a debt the value of which is not established;
unless a just estimate of its value has been made."
38It is unnecessary in this case to determine whether the "just estimate" required by reg 5.6.23(2) was to be made by the administrator or by the chairperson, because the Administrator here occupied both roles. The making of a just estimate under reg 5.6.23(2) is necessarily of a "somewhat summary nature"; the regulation does not require that the chairperson or administrator undertakes any detailed inquiry but do the best that he or she can on the basis of the information available; and the decision as to creditor eligibility for voting "is undertaken by reference to documents persons claiming to be creditors choose to present": Selim v McGrath above at [103], [123]; Bacnet Pty Ltd v Lift Capital Partners Pty Ltd (in liq) above at [76]-[77]; Re Free Wesleyan Church of Tonga in Australia Inc (admin apptd), Phoenix Lacquers & Paints Pty Ltd v Free Wesleyan Church of Tonga in Australia Inc (admin apptd) [2012] NSWSC 214; (2012) 87 ACSR 658 at [16].
39I turn now to the evidence relevant to this issue. Mr Werry's evidence is that he lodged a proof of debt and proxy on behalf of Weriton and several other persons claiming to be creditors of PNR with Mr Louttit on 28 March 2012. At the first meeting of creditors of PNR on 29 August 2012, Mr Louttit admitted the claim by Weriton and by several other creditors for whom Mr Werry held proxies at the amount of $1. None of those other creditors have appealed against the assessment in respect of their claims, although Weriton criticised that assessment in the course of submissions. Weriton's proof of debt was in the amount of $15,501,615.68 as at 30 June 2012 plus interest since that date, in its capacity as trustee for the ARFT. The proof of debt reflected a principal amount of $529,840.72 and interest and a "risk fee" at 30 June 2012 of $14,971,774.96 charged from 23 September 2004 to 14 July 2006 at 30% per annum capitalised monthly and interest from 14 July 2006 calculated at 37.5% per annum calculated monthly.
40The Administrator relies on his affidavit dated 14 September 2012, which attaches a copy of the minutes of the first meeting of creditors of PNR held on 29 August 2012. The administrator deposes that those minutes accurately record his recollection of the events that transpired at the meeting. The Administrator's evidence is that his reason for adjudicating the proof of debt for the value of $1 was not based solely on the high interest and possibility of it being an unfair loan, but also the reasons stated during the meeting and reflected in the minutes. The Administrator was not cross-examined as to that evidence and I accept that evidence.
41The minutes of the first meeting of creditors of PNR held on 29 August 2012 recorded that:
"The Chairman [Mr Louttit] advised that based on his preliminary investigations in to the Company, its director and former director he had the following concern:
(i) The interest rate of 37.5% being charged by Weriton Finance to P.N.R. Pty Limited may be uncommercial or unfair loans (ie an Uncommercial Transaction or an Unfair Loan).
(ii) There appears to be approximately 14 properties which have been transferred by Mr Werry after the Winding up application was filed with the Court on 27 April 2012 by Australian Residential and Commercial Finance Pty Limited.
(iii) The transfers of the 14 or so properties were signed by Mr Werry and/or DTC No 1 under a Power of Attorney. The Power of Attorney appears to have been granted by PNR and signed by Mr Werry as a director of P.N.R. granting the Power of Attorney to Mr Werry and DTC No 1 Pty Limited.
The Chairman specifically asked creditors whether there were any further additional documents which they would like to be supplied in support of their claim. No further documents were supplied."
42The minutes recorded the Chairman providing his reason for adjudicating on the claim by Weriton. Those reasons first referred to matters relating to requests for documents made to Mr Werry, which had not been provided and to the transfer of properties to creditors of Weriton Finance and to the matters which I have quoted above and went on to note:
"There was a schedule of the amount claimed. However, there was no other supporting documentation attached.
The Chairman reiterated the interest rate of 37.5% being charged by Weriton Finance Pty Limited to P.N.R. Pty Limited may be uncommercial or unfair loans (ie an Uncommercial Transaction or an Unfair Loan).
The Chairman was of the opinion that he was unable to make a just estimate based on the schedule.
There were no other books and records of the Company which would enable the Chairman to verify the claim made by the creditor.
For the reasons outlined above (including the Adjudication Reasons numbered above) the Chairman has decided to admit the claim for $1.00 and mark it 'in doubt'."
43The proof of debt form completed by Weriton, under the heading particulars of the debt, had requested, in bold italics, attachment of all outstanding invoices, statements and agreements. Mr Werry acknowledged in cross-examination that he saw the reference requesting the attachment of invoices outstanding, statements and agreements at the time of completing the proof of debt (T21). The particulars provided by Weriton were "Loan to PNR Pty Ltd $1.85m advanced by 4 tranches between 23/9/2004 and 8/6/2006 (together with interest) and secured by registered company charge". The information provided by Weriton to the Administrator in support of its proof of debt was limited to a 3 page schedule containing a calculation headed "ARFT Loan to Muswellbrook Residential Property Trust (Blackhill Villas)", indicating total advances of approximately $1,280,000; a total principal of $529,840.72 and interest of $14,971,774 for a total claim of $15,501,615. As Mr Werry accepted under cross-examination, that schedule did not expressly identify the relationship between Weriton and the loan referred to as the ARFT loan or between PNR and the Muswellbrook Residential Property Trust on the other hand. Mr Werry also acknowledged that no further documentation in support of the proof of debt was submitted to the Administrator at the time of the first meeting of creditors on 29 August and that he had provided no books or records to the administrator at the time (T21).
44Weriton relied on other documents in order to substantiate its claim in these proceedings, including a loan agreement dated 23 September 2004 between DTC and PNR; a mortgage also dated 23 September 2004 by PNR as mortgagor in favour of DTC and the Charge. Weriton also relied in these proceedings on a Deed of Assignment of Debts and Other Assets dated 26 March 2009 by DTC in favour of Weriton and a transfer of mortgage dated 27 March 2009 and a notification of assignment of a charge from DTC to Weriton also dated 27 March 2009. None of these documents were made available by Weriton or Mr Werry to the Administrator prior to or during the first meeting of creditors.
45Each of the Administrator and Mr Werry gave evidence as to the circumstances surrounding requests for documents by the Administrator and the fact that Mr Werry did not provide such documents. I do not accept Mr Werry's evidence that his failure to provide documents, when requested to do so, was justified because he was a sole practitioner with limited resources. Mr Werry's letters to the Administrator are transparent in their attempt to avoid production of documents by pointing to others who might hold such documents. Even if, as he contended, many hours would have been required to review a large quantity of material to determine what belongs to PNR, collate those materials and arrange delivery to the Administrator's solicitors, he made no attempt, for example, to provide important documents in the first instance with others to follow.
46There is also a contest between the Administrator's and Mr Werry's evidence as to what occurred at the second meeting, although the Administrator was not cross-examined as to his account of that meeting. I prefer the Administrator's evidence for reasons that will emerge below. Mr Werry's evidence in his second affidavit, in apparent explanation of why no more than the calculation of interest was provided to Mr Louttit in order to support Weriton Capital's claim was that:
"I am not familiar with the normal procedure of administrators for substantiating a creditor's debt and had assumed that Mr Louttit would tell me what was required."
47Mr Werry was cross-examined as to this evidence and I have formed the firm view that his evidence in that regard should not be accepted. First, that evidence faces the obvious difficulty that one might expect a solicitor with some 30 years experience would recognise that an administrator might wish to have access to the most basic of documentation, such as the loan agreement, before admitting a proof of debt by a creditor in an amount of $15,501,615.68, a fortori where the only information provided by the creditor demonstrated that the amount claimed in the proof of debt was a multiple of the amount of principal claimed to be advanced. Second, Mr Werry's evidence is even more implausible when advanced by an experienced solicitor who had previous experience, as a director of PNR, with an administration of that company and had in fact submitted documents to support a proof of debt in that previous administration. PNR was previously placed in administration in 2009 and Weriton then lodged a proof of debt, which provided substantive evidence of the debt by attaching documentation of the relevant loan. I do not accept that Mr Werry, having known of the desirability or necessity of providing such documentation when PNR was in administration in 2009, was ignorant of that matter or needed to be advised of it by the Administrator when PNR was again in administration some 3 years later.
48Mr Werry's evidence is that the Administrator did not request any further information before adjudicating on proofs of debt at the first creditor's meeting. Mr Werry's evidence is also that:
"At no time during the meeting on 28 August 2012 did Mr Louttit inform me that he required copies of the loan agreement and loan securities or any other documents to substantiate the Proofs of Debt nor did Mr Louttit inform me that unless he received those documents he intended to admit these debts to allow the creditors to vote at the creditor's meeting for $1.00 only."
49The Administrator gives evidence that Mr Werry had a large A4 folder in front of him during the creditor's meeting but did not offer to provide any source documentation to support the proof of debt of Weriton during the course of the meeting. The Administrator gives evidence, consistent with the minutes of that meeting to which I have referred above, that all creditors were requested at that meeting to provide any further documentation in support of their claim. The Administrator also gives evidence, as to which he was not cross-examined and which I accept, of a request to Mr Werry to provide him with any documents that he would like the Administrator to consider before the next creditors meeting; a direct request for access to the bundle of documents in Mr Werry's folder, and of Mr Werry stating that that folder did not have records relating to the proof and declining to provide documents on a "piecemeal" basis. Mr Werry acknowledged in cross-examination that the Administrator made "some mention" of the folder of documents that Mr Werry had with him at the meeting, but he did not think that the Administrator had asked for the contents of that folder; but also acknowledged that the Administrator may have done so although Mr Werry did not recall that (T25). Mr Werry's evidence was that the folder comprised the loan security documents relating to the loan by Weriton to PNR.
50Mr Werry gives evidence in his second affidavit as to a matter which was not included in his first affidavit, that he had asked the Administrator whether he was prepared to reconsider his determination; the Administrator had said he was not prepared to change that determination; Mr Werry said "so there would be no point giving you the documents to verify Weriton Finance's debt? I have them here"; and the Administrator nodded. Mr Werry's evidence as to this matter then shifted in re-examination and cross-examination. He gave evidence on re-examination that the administrator's answer to the question whether making available the documents would make any difference to the proof of debt was "more body language, shake of the head" (T37) and then, on further cross-examination, that Mr Werry believed that the Administrator had "shook his head" (T37). I also do not accept Mr Werry's evidence in this regard.
51Weriton submits that none of the matters relating to the production of books and records by Mr Werry provide any basis for reducing Weriton's debt to $1 or, indeed, by any other amount. I do not accept that submission. In particular, Mr Werry's failure to produce documents relating to the loan was, in my view, plainly relevant to the Administrator's decision whether to admit that loan for voting purposes at the first meeting, whether for a nominal amount or at all. It appears that, in this case, the Administrator made a just estimate of the value of Weriton's debt under reg 5.6.23(2) on the basis that its value was not established for the purposes of reg 5.6.23(2)(d). As I noted in Phoenix, the language of reg 5.6.23(2) draws attention to whether the value of a debt is "presently established" and the concept of "establish" includes being validated or being proved. In the present case, it seems to me that the Administrator could properly hold the view that Weriton's debt had not been established, validated or proved given the failure to provide adequate documentation to support it. The Administrator contends, and I accept, that the approach of valuing the claim at a nominal value of $1.00 for voting purposes was open, where the material before the administrator was not sufficient to allow a conclusion as to value to be drawn: Kirwan v Cresvale Far East Ltd (in liq) (2002) 44 ACSR 21 at [269]; Bovis Lend Lease Pty Ltd v Wiley (2003) 45 ACSR 612 at [269]; Selim v McGrath above at [103].
52Weriton also attacked the Administrator's reliance on the high rates of interest attached to the loan to allocate a nominal value to the proof of debt. I do not consider it necessary to determine whether the Administrator was entitled to admit the proof of debt at a value of $1 on this basis, where I have held that he could properly do so on the basis of the inadequacy of the supporting materials provided to him.
53I should note, however, that Mr Werry's third affidavit recalculates, purportedly at the request of his accountant, the amount owing to Weriton under the DTC mortgage (as assigned to Weriton) if an interest rate of 12% per annum calculated on a simple basis, rather than an interest rate of 30% per annum increased to 37.5% on a compound basis, was applied. It appears that 12% adopted in Mr Werry's calculation is the rate of interest under the loan made by ARCF to PNR in March 2007. That may or may not be an appropriate comparator, which would depend upon further analysis of the respective security positions of the relevant lenders and other relevant factors. Mr Werry's calculation demonstrates the impact of the interest rate charged by Weriton, on a compound basis, by demonstrating that the amount owing would be $1,607,929.15 at 30 June 2012 if interest were calculated at 12% per annum on a simple basis, rather than the amount in excess of $15.5 million claimed. Weriton criticised the administrator, in submissions, for not admitting proof of debt for the lesser amount.
54Weriton also submits, and I accept, that the fact that relief might in future be granted under s 588FF of the Corporations Act if a liquidator were appointed and proceedings were brought and the Court made appropriate orders, does not in itself warrant a refusal to admit an existing proof of debt. There is also force in Weriton's submission that the Court would not be likely to simply avoid a loan made by DTC to PNR, without compensating Weriton as its successor in title for the amount of the unpaid principal and, possibly, a commercial rate of interest.
55I should add that there is no suggestion that any practical consequence would follow from modification of the Administrator's decision in respect of the proof of debt at the first meeting, by reference to information now produced by Weriton that was not made available to the administrator at that meeting. The lack of utility in the appeal is emphasised by the Administrator's submission that, if the administration is permitted to continue and based on the further documentation now produced by Weriton, he proposed, at the second meeting, to mark Weriton's proof as objected to and then permit Weriton to vote at the second meeting held on that date for the whole amount claimed in the proof. I see no reason why the Court should interfere with a decision which was properly made by the Administrator, on the basis of the information before him, where no practical consequence would follow from doing so.
Costs
56PNR and the Administrator seek an order that Weriton pay their costs, if the application for an adjournment is dismissed and PNR is wound up. I have held that Weriton's appeal against Mr Louttit's treatment of its proof of debt at the first meeting of creditors has, in substance, failed, because that treatment was reasonable at the time it occurred and there is no utility in overturning it based on new information where the Administrator already acknowledges that he should take a different approach based on that new information. Weriton should pay the costs of proceedings 2012/284738.
57ARCF was successful in its winding up application, which was not opposed by any party once Weriton's application for an adjournment of that application failed. I will hear the parties as to the costs of those proceedings.
58Weriton sought an order that the Administrator should personally pay the costs of the proceedings. That order does not arise, given the result reached in the proceedings; in any event, I do not consider that it has been established that the Administrator had acted unreasonably so as to justify the imposition of personal liability for the costs of the proceedings; compare Silvia v Brodyn Pty Ltd [2007] NSWCA 55 at [52]-[55].
Orders
59I therefore make the following orders in proceedings number 2012/284738:
(1) The proceedings be dismissed.
(2) Weriton Finance Pty Limited pay the costs of the proceedings as agreed or as assessed.
60I make the following orders in proceedings number 2012/268787:
(1) P.N.R. Pty Ltd (in Administration) be wound up; and
(2) Mr Jamieson Andre Louttit be appointed as liquidator of P.N.R. Pty Ltd (in Administration).
As noted above, I will hear the parties further as to the costs of proceedings 2012/268787.
61In each proceedings, I direct that exhibits and subpoenaed material may be returned forthwith; any exhibits returned must be retained intact by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined.