Yeshiva Properties No 1 Pty Ltd & Ors; Yeshiva Properties No 7 Pty Ltd [2011] NSWSC 25

Judgment 1Mr Malanos is the provisional liquidator of each of seven companies, namely, Yeshiva Properties No 1 Pty Ltd, Yeshiva Properties No 2 Pty Ltd, Yeshiva Properties No 3 Pty Ltd, Yeshiva Properties No 4 Pty Ltd, Yeshiva Properties No 5 Pty Ltd, Yeshiva Properties No 6 Pty Ltd and Yeshiva Properties No 7 Pty Ltd. As will be seen presently, he was also the administrator of a deed of company arrangement executed by each company. 2The orders appointing Mr Malanos as provisional liquidator were made in December 2006. He replaced Mr Dean Willcocks who had been the provisional liquidator of each Yeshiva company by virtue of an order made in 2003. 3In two related proceedings, Mr Malanos now asks the court to make orders directed towards the termination of not only his appointment as provisional liquidator but also the existence of each of the Yeshiva companies. 4It is necessary to refer to matters of background and to describe the situation in which the Yeshiva companies now find themselves. 5In circumstances that need not be related in detail, each Yeshiva company became subject to voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth) and a deed of company arrangement was later executed, with Mr Malanos as deed administrator. These events happened after the provisional liquidator appointment of 2003 and while a provisional liquidator was in office. In due course, the provisions of the deed of company arrangement were implemented and performed to a point where, by March 2010, the only remaining issue was outstanding remuneration of the deed administrator. A compromise was reached and, in October 2010, a sum was paid to the deed administrator and accepted by him in full satisfaction of his entitlement. 6By October 2010, therefore, nothing remained to be done to give effect to the deed of company arrangement and, on or about 13 October 2010, Mr Malanos, as deed administrator, executed and lodged with ASIC, in respect of each company, a notice stating that the deed of company arrangement had been fully effectuated. The execution of that notice had implications under the deed itself, given the following provision: "The execution of the notice terminates the Deed." 7The deed thus specified the circumstance of execution of the notice lodged on or about 13 October 2010 as the circumstance in which the deed was to terminate: see s 445C(c). Section 445C therefore caused the deed to terminate upon and by virtue of that execution. 8There was not, however, any transition to creditors' voluntary winding up in consequence of the termination of the deed. Division 12 of Part 5.3A (s 446A and s 446B) deals with such transition. It does not make any specific provision about a case where a deed of company arrangement is terminated by operation of s 445C(c). Rather, that case is left to be dealt with in the non-specific way provided for in s 446B which allows regulations to be made prescribing cases where a company that has executed a deed of company arrangement is to be taken to have passed a special resolution under s 491 that the company be wound up voluntarily. Regulation 5.3A.07(1)(b) of the Corporations Regulations 2001 (Cth) is in the following terms: "For [sic] subs 446B(1) of the Act, a company that has executed a deed of company arrangement is taken to have passed a special resolution under s491 that the company be wound up voluntarily: (a) .....; or (b) if the deed of company arrangement specifies circumstances in which the deed is to terminate and the company is to be wound up - if those circumstances exist at a particular time." 9The case dealt with in regulation 5.3A.07(1)(b) is that where the deed "specifies circumstances in which the deed is to terminate and the company is to be wound up". The deed specification thus contemplated is wider than that referred to in s 445C(c). The latter has the first element (specification of circumstances in which the deed is to terminate) but not the second ("and the company is to be wound up"). On the face of the legislation, therefore, s 445C causes a deed to terminate but s 446B, coupled with regulation 5.3A.07(1), does not effect transition to a creditors' voluntary winding up where there arises a circumstance which the deed defines as one in which it is to terminate but the deed does not go the extra step of also identifying the circumstance as one in which "the company is to be wound up". 10The deed in the present case did not satisfy the description in reg 5.3A.07(1)(b). It follows that, when the deed terminated by operation of s 445C, the combination of s 446B and regulation 5.3A.07(1) did not produce a deemed special resolution under s 491 for voluntary winding up. Furthermore, the antecedent voluntary administration ended when the deed was executed (see s 435C(1)(b) and s 435C(2)(a)) and there is nothing in the statutory scheme that caused it to be revived by subsequent events. 11The present situation, therefore, is that each Yeshiva company is not subject to voluntary administration, is not subject to a deed of company arrangement and is not in the course of being wound up in consequence of any deemed passing of a special resolution under s 491 - but each also continues to be a company in respect of which a provisional liquidator is in office by virtue of orders made by the court, most recently in 2006. 12Furthermore and having regard to both the effects produced by the deed before its termination (in particular, the barring of creditors' claims) and evidence given by Mr Malanos, the position today is that none of the companies has assets or liabilities and none has traded since 2003. The implication is that none will in future trade unless some business is injected into it at a later stage. There is no reference to any plan in that direction - which would be, in any event, inconsistent with the outcome Mr Malanos seeks to achieve by the present application. 13It is in these circumstances that Mr Malanos seeks, in respect of each Yeshiva company, two orders: first, an order that his appointment as provisional liquidator be terminated; and, second, an order that the company "be deregistered". 14As to the first aspect of the application, valuable guidance is provided by the decision of Austin J in Re United Medical Protection Ltd [2003] NSWSC 1031; (2003) 47 ACSR 705. After noting that there is no express statutory power for the court to terminate the appointment of a provisional liquidator and drawing parallels with termination of winding up and termination of the office of a court-appointed receiver, his Honour said (at [33]): "Nevertheless, it is reasonable to take the view that the cases on termination of winding up and receivership are helpful by analogy, because they identify factors relevant to the exercise of the court's discretion. When coupled with McLellandJ's observations in Butler Pollnow , those cases suggest that the following issues are relevant to an application to terminate the appointment of a provisional liquidator: · whether the purposes for which the appointment was made have been exhausted, and whether there is a reasonable prospect that matters may arise in future with which the provisional liquidator should deal; · whether the termination might put at risk the interests of creditors, contributories and the provisional liquidator; · whether it is in the public interest that the appointment be terminated." 15In the present case, no issue arises under the first and second headings identified by Austin J. The purpose of the appointment of the provisional liquidator (in essence, to facilitate the process that was ultimately carried into effect by the deed of company arrangement) has been exhausted, each company is without assets, liabilities and trading activities and there is accordingly no ground for apprehension that the interests of creditors or contributories will be prejudiced by departure of the provisional liquidator. 16But a question of public interest arises under Austin J's third heading. It goes to the governance of the companies. 17If each company ceases to be under the control of a provisional liquidator, responsibility for management and administration will revert to its directors by virtue of the removal of the embargo created by s 471A(2). The court is not told whether the directors are willing and equipped to assume that responsibility. Nor is it clear that they are aware of the application. 18Of course, the issue of future governance will not arise if, immediately after termination of the provisional liquidator's appointment, each company is deregistered and ceases to exist. Deregistration is the objective sought to be achieved by the second order for which Mr Malanos applies. 19The problem with that part of the application is that the submissions do not identify any power of the court to make the order sought. 20Deregistration causes a company to cease to exist: s 601AD(1) - indeed, the statutory scheme is such that deregistration is the only means by which a the existence as a body corporate arising by operation of s 119 upon a company's registration can come to an end. Deregistration may be effected only by Australian Securities and Investments Commission. In some cases, ASIC has a discretion whether or not to deregister: s 601AA, s 601AB. In the case of voluntary winding up, ASIC is obliged to act after final lodgement by the liquidator: s 601AC(2). ASIC is also obliged to deregister if ordered by the court to do so (see s 601AC(1)); but the court has power to make such an order only under certain provisions, notably s 413(1)(d), s 481(5)(b) and s 509(6). 21None of the provisions permitting the court to order deregistration by ASIC applies in this case. Nor, in this statutory context, can the court resort in any useful or meaningful way to its "plenary power and inherent jurisdiction" (A K Ehlers, "The inherent equitable jurisdiction and the plenary power of the Supreme Court of New South Wales to order the winding up of companies" (2010) 18 Insolv LJ 52 at 61). No aspect of the "inherent jurisdiction" of a superior court allows it to annihilate (or to direct the annihilation of) a body corporate created by or pursuant to an Act of Parliament. 22It follows that, because it has no power to do so, the court will not order that the Yeshiva companies be deregistered. That, in turn, leaves unresolved the question of future governance following any termination of the appointment of the provisional liquidator. 23Because of that governance issue, it is not appropriate that the appointment of the provisional liquidator be terminated. Mr Malanos will no doubt address other possibilities of bringing about the result he considers appropriate and which the evidence suggests is warranted, namely, that, since each company has come to the end of its useful life, its existence is terminated. 24Those other possibilities may entail the making of orders by the court. For that reason, it is desirable that the current applications be kept on foot even though it is not appropriate, at least at this point, for the first order sought to be made and it will never be appropriate for the second order to be made. 25The orders in each proceeding at this stage will simply be: (a) an order that the application for order 2 in the interlocutory process filed on 1 December 2010 be dismissed; (b) an order that the balance of the interlocutory process stand over to 2 May 2011 before the Corporations Judge with liberty to restore to the list on seven days' notice; and (c) an order that the applicant have leave to amend the interlocutory process.