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Supreme Court of Victoria |
Last Updated: 29 October 2010
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST E
IN THE MATTER OF AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED ACN 095 474 436 (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED)
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Plaintiffs
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JUDGE:
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WHERE HELD:
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Melbourne
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DATE OF HEARING:
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DATE OF JUDGMENT:
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CASE MAY BE CITED AS:
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CORPORATIONS – Voluntary administrators – Appointment by secured creditor – Doubt about validity of appointment of administrators – Whether appointment should be validated – Corporations Act 2001 (Cth) ss 436A, 436C, 447A, 447C and 1322(4).
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APPEARANCES:
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Counsel
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Solicitors
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For the Plaintiff
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Cornwall Stodart
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For the National Australia Bank Limited and Capital Finance Australia
Limited
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Mr B Coles QC with
Mr R Cheetham |
Clayton Utz
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1 On 18 October 2010, Stirling Lindley Horne (“Horne”) and Petr Vrsecky (“Vrsecky”) were appointed joint and several administrators (“the Administrators”) of Australian Property Custodian Holdings Limited (“the Company”).
2 The appointment of the Administrators was made pursuant to s 436C of the Corporations Act 2001 (Cth) (“the Act”) by a secured creditor, Daytree Pty Ltd (“Daytree”), pursuant to a registered charge dated 23 July 2008 (“the Charge”).
3 The Company is the Responsible Entity of the Prime Retirement and Aged Care Property Trust (“the Trust”). The Company holds an Australian Financial Services Licence (“AFSL”).
4 It is not surprising that the assets of the Trust and the sum of $5,000,000 held on deposit at the National Australia Bank (“NAB”) – a condition of the AFSL – are excluded from the operation of the Charge.
5 By letter dated 20 October 2010 Clayton Utz, solicitors acting on behalf of the NAB, queried the validity of the appointment of the Administrators. The query is not without substance.
6 Section 436C of the Act is in the following terms:
“436C Chargee may appoint administrator
(1) A person who is entitled to enforce a charge on the whole, or substantially the whole, of a company’s property may by writing appoint an administrator of the company if the charge has become, and is still, enforceable.”
7 Mr Coles QC, who appeared with Mr Cheetham for the NAB and Capital Finance Australia Limited (by leave of the Court), submitted that the appointment was invalid because the Charge was not over “the whole or substantially the whole, of [the Company’s] property”. The balance sheet of the company as at June 2010 discloses total assets of $15,751,942.63. Total liabilities are disclosed as $10,709,020.58. Accordingly, the net asset position as at 30 June 2010 was $5,042,922.05. If the $5,000,000 term deposit with the NAB is excluded from the asset position of the Company, as it must, the Charge as at 30 June 2010 would be over $10,751,942.63 of the assets of the Company, out of total assets of $15,751,942.63. Put another way, the Company encumbered (as at 30 June 2010) about 68% of its assets in favour of Daytree. Of course, the property of a company may change from time to time and the position referred to above is only at a particular point in time. However, the exclusion of the $5,000,000 term deposit is, in my opinion, definitive as it represents a substantial asset of the Company.
8 In my opinion, the Charge is not over the whole or substantially the whole of the Company’s property. It is over a significant part of the Company’s assets, but certainly not the whole and in my opinion, certainly not substantially the whole. In this context, substantially refers to almost all of the assets but certainly not 68% of the assets. The exclusion of a substantial asset must, inevitably, lead to the conclusion that a charge is not over the whole, or substantially the whole, of a company’s property.
9 Accordingly, I consider that the appointment of the Administrators of the Company was not a valid appointment. It is accordingly, unnecessary to deal with the further submission of Mr Coles QC to the effect that all property of which the Company is legal owner (including property which it holds as trustee) should be included in the analysis relating to the extent of the Charge.
B. Appointment of administrators to other companies in the Prime Group
10 The Company has 18 wholly owned subsidiaries or subsidiaries of subsidiaries. All of the companies should be considered as forming part of a group.
11 A meeting of the directors of each of the companies in the group was held on 18 October 2010 at the offices of Blake Dawson. The directors resolved that Horne and Vrsecky be appointed joint and several administrators of 11 of the 18 companies. All directors were present at the meeting. On the following day, that is, 19 October 2010, it was resolved that the remaining seven companies be placed into administration and that Horne and Vrsecky be appointed joint and several administrators of such companies. It is apparent from the affidavit sworn by Neil Rodaway (“Rodaway”) in support of the application, that in each case, the directors of each company (and the Company) formed the requisite opinion that:
(a) each company was insolvent or likely to become insolvent at some future time; and
(b) that administrators should be appointed to each company.
Rodaway is a director of each company and the Company.
12 The formalities required by s 436A of the Act were complied with in respect of each of the 18 companies. There has been no complaint as to the appointment of Horne and Vrsecky as joint and several administrators of each of the said 18 companies. In fact, each of the said companies held a first meeting of creditors on 28 October 2010. I ordered that the first meeting of the Company be adjourned to a date to be fixed.
13 It is clear from Rodaway’s affidavit that the only reason why Horne and Vrsecky were not appointed joint and several administrators of the Company by the directors acting pursuant to s 436A of the Act was because of the prior appointment by the secured creditor, Daytree, purportedly acting pursuant to s 436C of the Act. Had the appointment not been made, it is obvious that the directors, directing their minds as they did to the overall position of each of the companies and the group (including solvency issues), would have passed the necessary resolution in the proper form in compliance with s 436A of the Act as they did in respect of the other companies.
14 As pointed out, there is no attack on the validity of the appointment of Horne and Vrsecky in relation to each of the other companies in the group. It may be assumed that had they been appointed by the directors as joint and several administrators of the Company on 18 October 2010 (as they would have if Daytree had not acted) such appointment would not be challenged.
15 Consequently, it is beyond dispute that the directors of the Company and the Administrators assumed the validity of their appointment and acted accordingly. They obviously could have been appointed by the directors (and would have) but, for the reason stated, were not.
16 All of the directors were present at the meeting at Blake Dawson. There is nothing to suggest that they would not have made the appointment of the Administrators to the Company had the secured creditor not made such appointment or had they been alerted to the fact that such appointment may not be valid. In fact, the position is to the contrary. Further, and perhaps more significantly, from the context of their meeting as referred to in Rodaway’s affidavit it is evident that the directors directed themselves to the solvency position of the companies and the group as a whole.
17 Paragraph 11 of Rodaway’s affidavit deposes to the fact that on 18 October 2010 the directors regarded 11 of the companies within the group as either being insolvent or likely to become insolvent. Appointments were made. It is reasonable to infer that the very next day the directors were of the same opinion in relation to the other 7 companies. It is also reasonable to infer that they were of the same opinion in relation to the Company. Further, paragraph 74 of the Vrsecky’s affidavit provides additional evidence of the likelihood of insolvency in relation to each member of the group and the Company.
18 Accordingly, there is sufficient evidence to conclude that but for the purported appointment by the secured creditor, the board would have formally made the appointment in accordance with s 436A, as they indeed did in relation to 18 of the other companies.[1] All the ingredients for the operation and valid appointment of the Administrators pursuant to s 436A of the Act were present. No action was taken because the directors did not think it was necessary.
19 Another way of putting the position is that a decision was, in effect (and in the context and circumstances where the future of the group was being discussed), made by the board but not required to be formally implemented because of the purported appointment by the secured creditor.
20 Accordingly, I conclude on the facts the following:
(a) That the appointment by the secured creditor of the Administrators of the Company was invalid; and
(b) That the board of directors was desirous of Horne and Vrsecky acting as joint and several administrators of the Company. The only reason why they did not formally make the appointment was because they assumed the validity of the appointment by the secured creditor.
21 On these findings there is no valid appointment. The purported appointment pursuant to s 436C is not valid and there was no relevant appointment pursuant to the specific requirements of s 436A. Accordingly, the next question is whether recourse to s 447A or 1322(4) of the Act can ameliorate the position.
C. The application of ss 447A and 1322(4)
22 I am not prepared to use s 447A(1), despite its extremely broad application, to cure the invalidity of the appointment made by the secured creditor. However I am prepared to use s 447A(1) in order to confirm or validate the appointment of Horne and Vrsecky, pursuant to s436A, as joint and several administrators of the Company. This was the clear intention of the directors of the Company. It is what they always had in mind and what was always intended to be achieved on the day, one way or another.
23 Section 447A(1) is in the following terms:
“447A General powers to make orders
(1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.”
24 Section 447A of the Act has been interpreted very broadly by the courts. The section has been used with approval not only in relation to procedural matters but also to change the substantive operation of Part 5.3A. Despite some pointers from the High Court in Australasian Memory Pty Limited v Brien[2] (“Brien”), the precise ambit and extent of the section has yet to be worked out. New and unusual situations continue to arise as in the case before me.
25 According to Young J (as his Honour then was) in Cawthorn v Keira Constructions Pty Ltd[3], a case that precedes Brien, the court “is to have plenary powers to do whatever it thinks is just in all the circumstances ...”. The High Court did not disagree and gave an indication as to the intended operation of the section. The section has been used in many different contexts, both procedural and substantive. In particular and for present purposes, the section has been used to cure defective appointments.
26 Mr Bick QC, who appeared with Mr Trichardt of counsel for the Administrators, submitted that if there was a defective appointment under s 436C of the Act I should, in the circumstances identified by him, use s 447A of the Act to, in effect, remedy the defect and validate the appointment. His first point however, was that there was no such defect and that I should declare the appointment valid under s 447C of the Act. As I have found that the appointment was defective, s 447C of the Act is not applicable.
27 It may well be that s 447A of the Act is broad enough to overcome the defect in the appointment arising out of the limited Charge, despite the fact that the requirement in section 436C that the appointee be entitled to enforce the charge over the whole or substantially the whole of the Company’s property is a specific precondition to the validity of the appointment, as contended for by Mr Coles QC. I have some reservations about the matter. Can s 447A of the Act be used to enliven the very section permitting the appointment even if the conditions are absent and can never be subsequently created? What if unsecured creditors purported to appoint? Can that be validated if the court thinks it should? Why is Daytree in any different position given its limited Charge? There is no case on point and in view of the decision I have come to, I do not regard this as a suitable case to decide the issue or the outer limits or further limits of s 447A. It may well be that there is a qualitative difference between the requirements of s 436A and s 436C of the Act. The preconditions to s 436A are able to be enlivened by subsequent act. This is not the case with s 436C.
28 An appointment was always contemplated by the directors of the Company in circumstances that but for the defective appointment would have been made. All relevant matters that needed to be considered for a valid s 436A appointment were considered, but not implemented for the reason given. I propose to implement it by recourse to s 447A of the Act. It ought to be done because everyone intended it to be done and acted on the basis that it was done.
29 In my opinion, applications of this kind are better dealt with under s 447A of the Act, although in appropriate cases, recourse may be had to s 1322(4). This is not such a case and I do not propose to grant any relief under that section which is of more general application in relation to procedural irregularities.
30 It is obvious that the directors or the court could appoint the Administrators today. The only real issue is whether s 447A of the Act should be used to validate what has already been done. There is, of course, a natural reluctance by lawyers to resort to the legal fiction of regarding (at a later stage) things and acts that were invalid as valid. Despite such reluctance, this is precisely what has been done on a number of occasions by recourse to s 447A of the Act. Mr Bick QC referred me to a number of cases.
31 Although validation orders were made in Deputy Commissioner of Taxation v Portinex Pty Ltd[4] (“Portinex”) and Re Wood Parsons Pty Ltd (in liq),[5] Austin J has expressed some reservations[6] about the extent of the retrospective operation of the orders under s 447A and preferred the use of s 1322(4).
32 However, in Panasystems Pty Ltd v Voodoo Tech Pty Ltd[7] (“Panasystems”) Merkel J took a different view. Having found that the appointment made on 2 April 2003 was invalid, his Honour made orders on 9 May 2003 validating the appointment with effect from 2 April 2003. In dealing with the retrospective operation of s 447A of the Act his Honour, after referring to Portinex, referred to cases that supported a broader view of s 447A and in particular the extent to which it has retrospective effect. Reference was made to Shirlaw v Graham[8] (“Shirlaw”). In the end, his Honour made the orders but accepted that a court “should hesitate to exercise the power under s 447A to overcome a failure to comply with a statutory requirement for a valid appointment”[9].
33 In Pasdonnay Pty Ltd (ACN 009 131 622) (admins. apptd); McDonald & Anor[10], Gyles J made a declaration of validity. His Honour made orders on 29 March 2005 the effect of which was to regard the administrators as having been validly appointed under s 436A of the Act on 7 March 2005, despite the fact that the requirements for a valid appointment under s 436A of the Act were not complied with.
34 In Re Vouris; EPromotions Australia Pty Ltd and Relectronic-Remech Pty Ltd (in liq)[11], Campbell J agreed with the form of the order proposed by Merkel J in Panasystems and after reference to Shirlaw said as follows:[12]
“An order can be one about how Pt 5.3A ‘is to operate’ even if its effect is that, as and from the date of the order, no one can assert that some past transaction is invalid. Such an order is for practical purposes no different to an order nunc pro tunc. Recognising that s 447A permits the making of such an order will enable the intention of parliament in enacting s 447A to be effectuated.”[13]
35 With respect, I consider the view expressed by Campbell J to be the correct view.
36 The order I propose to make will be effective from an earlier date, in this case 18 October 2010, and in effect validates (proper) conduct engaged in since this date, and is consequently in this regard retrospective. However, it merely regularises what was always intended and what the parties thought the situation to be. I agree with Gyles J in Pasdonnay that there is nothing in Brien to the contrary. If the section can be used to cure a defective appointment which is probably void ab initio, it should be used where in all the circumstances an appointment was intended and indeed assumed to have taken place.
37 In all of the circumstances, I consider that I should use the broad power conferred by s 447A of the Act notwithstanding its effect is to validate past acts and conduct. Accepting the line of authority referred to (the broad view), such validation in this case accords with what the position should always have been and governs the way forward. It is no less forward looking because it places the administration on a proper footing to enable it to go forward unencumbered by any assertion of invalidity. No adequate basis has been suggested as to why such retrospective validation would adversely affect any party or accrued rights, one of the concerns of the narrower line of authority exemplified by the decisions of Austin J referred to above. Further, it is in the interests of the group as a whole that all companies fall under the same insolvency regime unless and until peculiar circumstances calling for different treatment are disclosed. No compelling reason has been advanced as to why the Company should be treated any differently or its Administrators should operate from a later date. The Administrators have done a lot of work.
38 Perhaps the Administrators should have acted earlier. However they had a lot to contend with and I am not prepared to hold this against them.
39 Accordingly, I propose to make the following orders:
(a) Order pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (“the Act”) that Part 5.3A of the Act is to operate in relation to Australian Property Custodian Holdings Limited (“the Company”) as if Stirling Lindley Horne and Petr Vrsecky were validly appointed as administrators of the Company by resolution of the board of directors of the Company on 18 October 2010 pursuant to s 436A of the Act.
(b) Order that the plaintiffs’ costs of the application and the costs of the National Australia Bank and Capital Finance Australia Limited be paid out of the assets of the Company.
[1] See for example, Affidavit of Neil Rodaway sworn 26 October 2010 at [12].
[3] (1994) 33 NSWLR 607, 611.
[4] [2000] NSWSC 99; (2000) 34 ACSR 391.
[5] [2002] NSWSC 1058; (2002) 43 ACSR 257.
[6] The reservation is based on his Honour’s view, in the cases referred to and other cases, that Part 5.3A looks to the future (“how this Part is to operate”).
[8] [2001] NSWSC 612 (“Shirlaw”).
[9] Panasystems Pty Ltd v Voodoo Tech Pty Ltd [2003] FCA 428 at [19].
[10] [2005] FCA 335; (2008) 53 ACSR 717.
[11] [2003] NSWSC 702; (2004) 47 ACSR 155.
[12] His Honour went on to say that if this was not the case s 1322(4) would be used to validate the past while s 447A for the future and that these distinctions should be avoided.
[13] Re Vouris; EPromotions Australia Pty Ltd and Relectronic-Remech Pty Ltd (in liq) [2003] NSWSC 702; (2004) 47 ACSR 155 at [70].
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