In the matter of LOCM Pty Ltd (Administrators appointed) [1997] FCA 1099 (22 October 1997)

FEDERAL COURT OF AUSTRALIA

CORPORATIONS LAW - voluntary administration - meeting convened under s 439A and adjourned - whether court may order that the time limit provided by s 439B(2) be extended to a date more than sixty days after the first day upon which the meeting was held - consideration of the scope of s 447A

Corporations Law s 436A(1), s 436E, s 439A(1), s 439A(4), s 439A(6), s 439B(2), s 439C, s 447A

Pt 5.3

Cawthorn v Keira Constructions Pty Ltd (1994) 13 ACSR 337 considered

Brash Holdings Ltd (admr apptd) v Katile Pty Ltd (1994) 13 ACSR 504 considered

Re Brashs Pty Ltd (1994) 15 ACSR 477 considered

Mann v Abruzzi Sports Club Limited (1994) 12 ACSR 611 considered

Re Taylor (1995) 16 ACSR 774 approved

Re Double V Marketing Pty Ltd [1995] FCA 1151; (1995) 16 ACSR 498 considered

ASC v Marlborough Goldmines Limited [1993] HCA 15; (1993) 177 CLR 485 applied

IN THE MATTER OF LOCM PTY LTD (ADMINISTRATORS APPOINTED)

VG 3315 of 1997

GOLDBERG J

MELBOURNE

22 OCTOBER 1997

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 3315 of 1997

IN THE MATTER OF SECTION 447A(1) OF THE CORPORATIONS LAW

AND

IN THE MATTER OF:

LOCM PTY LTD (ADMINISTRATORS APPOINTED)

(ACN 070 142 166)

Applicant

JUDGE:	GOLDBERG J
DATE OF ORDER:	22 OCTOBER 1997
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The period fixed by s 439B(2) of the Corporations Law within which the meeting of the applicant which was held on 26 August 1997 may be adjourned be extended to 24 December 1997.

2. Leave is reserved to any person claiming to be interested in the affairs of the applicant, including the Australian Securities Commission, to make such application as they may be advised to vary this order upon forty-eight hours written notice to the administrators of the applicant.

3. The costs of this application be costs in the administration of the applicant.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 3315 of 1997

IN THE MATTER OF SECTION 447A(1) OF THE CORPORATIONS LAW

AND

IN THE MATTER OF:

LOCM PTY LTD (ADMINISTRATORS APPOINTED)

(ACN 070 142 166)

Applicant

JUDGE:	GOLDBERG J
DATE:	22 OCTOBER 1997
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

LOCM Pty Ltd ("the company") was incorporated on 30 June 1995 and commenced the business of supplying construction management services in September 1995. It operated a substantial business with a large turnover but it ran into difficulties. On 30 July 1997 the company by instrument under seal appointed John Menzies Spark and Gregory Pollard Meredith to be the company's administrators pursuant to s 436A(1) of the Corporations Law.

On 6 August 1997 the first meeting of creditors was held in accordance with s 436E at which meeting there were no other nominations for appointment as administrator and accordingly, Messrs Spark and Meredith remained as administrators.

On 15 August 1997, in accordance with s 439A(1) the administrators sent a notice to creditors of the company convening a meeting of creditors on 26 August 1997. Enclosed with the notice was the administrators' report about the company's business and affairs in accordance with s 439A(4). That report showed that there was a claim by the company against Pivot Limited ("Pivot") for the sum of $776,283.00. At the meeting, the creditors passed a resolution that the meeting be adjourned to 14 October 1997, the major reasons for the adjournment being that the creditors had requested further information in respect of:

(a) the likelihood of recovery in respect of the claim against Pivot;

(b) the intention of the company's largest secured creditor Westpac Banking Corporation ("Westpac") to apply to the Court to validate a charge held over the business and assets of the company which charge had not been registered as required by s 266 of the Corporations Law.

On 25 September 1997 an order was made in the Federal Court granting Westpac an extension of time within which to lodge a notice of particulars of its charge under s 263(1) of the Corporations Law with the result that Westpac now has a validly enforceable charge over the company's assets.

During September and October the administrators conducted discussions with the directors and their legal advisers for the purpose of seeing if they could finalise details of a proposal for a deed of company arrangement to be put to creditors of the company for their approval at the meeting which had been adjourned to 14 October 1997. The administrators say that a central part of the proposal revolves around the company's claim against Pivot. The company's directors have told the administrators, and the administrators have confirmed, that further time is required to collate information in relation to the potential claim against Pivot. This is substantially because other companies were involved in the business relationship between the company and Pivot and because a substantial number of documents need to be examined to substantiate the company's claim against Pivot.

The adjourned meeting of creditors was held on 14 October 1997 when the creditors passed the following resolutions:

"a. That the administrator make application to the Federal Court for Orders seeking an extension of time in which to hold an adjourned meeting of creditors until 14 January 1998.

b. That this meeting of creditors be adjourned to Thursday 23 October 1997 subject to any Order of the Court resulting from the application to be made by the Administrator."

By application filed on 17 October 1997 the company seeks an order pursuant to s 447A(1) of the Corporations Law extending the period by which the administrators of the applicant are required to convene a meeting under s 439A and s 439B(2) to 14 January 1998. The form of that application is misconceived as the meeting has already been convened and held under s 439A and adjourned. The only matter in respect of which the Court's assistance is required is the further adjournment of the meeting pursuant to s 439B(2). I therefore take the application to be an application that the time provided for in s 439B(2) be extended to a date more than sixty days after the first day on which the meeting was held, namely to 14 January 1998.

A threshold question arises as to whether I have any jurisdiction to grant the relief sought. More particularly, the relevant question is whether the Corporations Law enables an adjournment of a meeting convened under s 439A of the Corporations Law to a day more than sixty days after the first day on which the meeting was held. The provisions relating to the appointment of administrators and the execution by a company of a deed of company arrangement are found in Pt 5.3A of the Corporations Law. There is included within that Part s 447A which is in the following terms:

"(1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.

(2) For example, if the Court is satisfied that the administration of a company should end:

(a) because the company is solvent; or

(b) because provisions of this Part are being abused; or

(c) for some other reason;

the Court may order under subsection (1) that the administration is to end.

..."

However, there are specific provisions in Pt 5.3A in relation to the time periods within which meetings of creditors are to be called. Section 436E(2) requires an administrator of a company to convene a meeting of creditors in order to determine whether to appoint a committee of creditors, and whether to appoint someone else as administrator within five business days after the administration begins. Section 439A(1) requires the administrator to convene a meeting of the company's creditors, where the administration does not begin in December or within twenty-eight days of Good Friday, within the period of twenty-one days beginning on the day when the administration begins. Section 439A(2) requires that the meeting must be held within five business days after the end of that twenty-one day convening period. Section 439A(6) is in the following terms:

"The Court may extend the convening period on an application made within the period referred to in paragraph (5)(a) or (b), as the case requires."

Section 439B(2) provides for the adjournment of a meeting convened under s 439A in the following terms:

"A meeting convened under section 439A may be adjourned from time to time, but cannot be adjourned to a day that is more than 60 days after the first day on which the meeting was held, even if no resolution under section 439C has been passed at the meeting."

Section 439C provides for what may occur at a meeting convened under s 439A in the following terms:

"At a meeting convened under section 439A, the creditors may resolve:

(a) that the company execute a deed of company arrangement specified in the resolution (even if it differs from the proposed deed (if any) details of which accompanied the notice of meeting); or

(b) that the administration should end; or

(c) that the company be wound up."

Unlike s 439A(6), which specifically gives the Court power to extend the period within which the meeting of the company's creditors is to be convened in accordance with s 439A(1), there is no such specific power of extension of the period within which the meeting may be adjourned after it has been convened beyond the sixty days referred to in s 439B(2).

In Cawthorn v Keira Constructions Pty Ltd (1994) 13 ACSR 337 Young J in the Supreme Court of New South Wales drew in aid s 447A, and concluded that the Court had power under s 447A to extend the time for concluding the meeting convened under s 439A(1) notwithstanding that the time to which the adjourned meeting was extended was more than sixty days after the first day in which the meeting was held. His Honour examined the history of Pt 5.3A of the Corporations Law and looked at the explanatory memorandum to the Corporate Law Reform Bill 1992 which introduced Pt 5.3A into the Corporations Law. He noted that the paragraphs which dealt with s 439B and s 447A to s 447F (paragraphs 510, 620 - 627) gave him the impression that:

"the court's power was intended to be a wide one, and that the basic reason for s 439B(2) and the complementary s 435C(3)(e) was that there may be a situation where creditors could not make up their mind about administration, in which case if they had not done so by the time limit, the administration should cease".

His Honour noted that the Second Reading Speech did not assist to resolve the problem and then concluded:

"Although the flavour from this material is that there is to be a short moratorium, and that the interim administration, before the creditors make the appropriate resolution, is not to be indefinite, there is also the flavour that whilst the court is to keep on the sideline as much as possible, it is to be involved in a supervisory capacity, it is to be involved to ensure that secured creditors are not prejudiced and, indeed, it is to be involved and to use its powers to tailor-make a procedure for each company, so that the spirit and objects of the Part will be implemented.

It seems to me that this reinforces the construction that I have placed on s 447A, that the court is to have plenary powers to do whatever it thinks is just in all the circumstances, but the court is to bear in mind when exercising those powers the rights of the various groups of people that are affected by voluntary administration, and that there is a very great public interest in not permitting such voluntary administration to go on for a long period of time. Provided that those principles are borne in mind, the court is to ensure that the object of the exercise, that is to consider whether in everybody's interest it is better to have some form of administration short of winding up, is fulfilled."

The wide scope of s 447A has been the subject of consideration in other cases: Brash Holdings Ltd (admr apptd) v Katile Pty Ltd (1994) 13 ACSR 504, 507 - 508; Re Brashs Pty Ltd (1994) 15 ACSR 477, 481; Aloridge Pty Ltd (prov liq apptd) v Christionas [1994] FCA 972; (1994) 13 ACSR 99, 101; Milankov Nominees Pty Ltd v Roycol Pty Ltd [1994] FCA 1276; (1994) 124 ALR 391; Re GIGA Investments Pty Ltd (admr apptd) (1995) 17 ACSR 547, 549; Hamilton v National Australia Bank Ltd (1996) 19 ACSR 647, 675.

The problem which arises is that in considering the scope and extent of operation of s 447A, it is necessary to reconcile with it provisions which, in their terms are mandatory. As the Full Court of the Supreme Court of Victoria pointed out in Brash Holdings Ltd (admr appt) v Katile Pty Ltd (supra, 507):

"The application to the court was on its face made under s. 447A, an unusual section, which evidently proceeds on the view that Pt 5.3A is inadequate in the provision which it otherwise makes for the new form of administration and that it is therefore necessary to enable gaps in the part to be filled by the exercise by the court of wide powers to make such orders as it thinks appropriate about how the Part is to operate in relation to a particular company. It seems clear enough that s. 447A(1) is intended to empower the court to make orders which alter what would otherwise be the operation of the Part in relation to a particular company".

However I do not consider that the Full Court was limiting the operation of s 447A literally to filling gaps in the legislative scheme but rather was expressing the view that its operation enabled the alteration of the operation of a provision in Pt 5.3A in relation to a particular company in particular circumstances: Wood v Laser Holdings Ltd (1996) 19 ACSR 245, 257. Indeed in Re Brashs Pty Ltd (supra, 482) Hayne J rejected the submission of the Australian Securities Commission that the only type of order which could be made under s 447A was one which filled a gap in the legislative scheme or added to the provisions of the Part.

In Re Brashs Pty Ltd (supra) Hayne J concluded that s 447A enabled the making of an order that a company need not set out in its documents after its name the expression "(administrator appointed)" as required by s 450E notwithstanding that that section was expressed in mandatory terms: "A company under administration must set out ...". Hayne J confronted the problem of statutory interpretation and divining the legislative intention in the following passage (482):

"It was said on behalf of the ASC that there is no `gap' in the legislation in respect of that [s 450E] or other similar provisions because by using the mandatory expressions found in the sections, the legislature intends to create a universal rule from which there can be no departure. But if that is so, similar reasoning would lead to the conclusion that the specified events on which administration may be brought to an end by order of the court are also intended by the legislature to be an exhaustive statement of those matters. Yet it is clear that s 447A is intended to serve a purpose. To say that that purpose is to provide only for cases in which the legislature is not intending by other provisions of the part to lay down a rule of universal and mandatory application leads to circularity of reasoning. It is not possible to conclude whether the legislature intends that some provision in Pt 5.3A is to have mandatory and universal application without first construing the part as a whole, including s 447A. Thus just as I do not consider that it is legitimate to conclude from the presence in the law of provisions that specify circumstances in which administrations may be brought to an end prematurely, that s 447A(1) is not intended to permit the making of orders of termination in circumstances other than those identified in the particular sections, so too in the case of s 450E I do not consider that it is possible to conclude that that section is intended to have universal and mandatory application without having first made the a priori assumption that s 447A has nothing to say in such cases. In my view the language used in s 447A makes plain that such an assumption is not warranted."

I have had considerable reservations about the conclusion reached by Young J. It seems to me that the issue is to be resolved by reference to principles of statutory interpretation. Although as Young J said in Cawthorn v Keira Constructions Pty Ltd (supra) the Court is given a very wide supervisory role under s 447A, there is significance in the fact that while the Court is specifically given the power to extend the time within which the meeting of creditors to be held pursuant to s 439A is to be convened, no such power is given in relation to the adjournment of that meeting once it is convened. However, as against that fact, one has to consider the extremely broad power found in s 447A.

It seems to me that the correct approach is that the Court is allowed under s 447A not only to fill in gaps which might arise in the course of an administration not otherwise provided for in Pt 5.3A, but also to make an order that a particular provision of that Part is to operate in a manner otherwise than as provided for in the Part. As Hayne J observed in Re Brashs Pty Ltd (supra, 481):

"I consider that so much follows from the fact that the section speaks of a court making an order about how the part `is to' operate in relation to a company rather than referring to the making of an order about how the part `does' operate. Although it is clear from the reasons for decision in Katile that the court reserved any general question about the scope of the section for future consideration, I consider that the court did hold that the section does empower the court to make orders altering what otherwise would be the operation of Pt 5.3A of the Law. Even if that is not so, and the matter is to be treated as free from authority which binds me, I am clearly of the view that the section does have the operation that has been identified."

In my opinion there is manifested a legislative intention that administrations under Pt 5.3A are to proceed expeditiously. Paragraphs 449 and 507 of the explanatory memorandum make it clear that it is of the essence of Pt 5.3A that there be an expeditious administration and the minimum of meeting procedures. In particular, paragraph 507 in referring to s 439A states:

"The Court will be given the power to extend these periods ... [proposed subsection (6)] though it is not expected that this power would be exercised frequently, since it is an important objective of the new provisions for creditors to be fully informed about the company's position as early as possible, and to have an opportunity to vote on its future as soon as possible."

As Young J observed in Mann v Abruzzi Sports Club Limited (1994) 12 ACSR 611 at 612:

"Indeed, there is much in Pt 5.3A, and particularly in Div 6 of that Part, to underline the necessity of an administration proceeding very speedily. Whilst the administration is in place no winding up can be commenced or enforcement of process carried out and thus it would be quite contrary to the whole spirit of the Part to allow administration to be unduly extended or, indeed, to over-encourage administrators to apply to the court."

Paragraph 510 of the explanatory memorandum which refers to the proposed s 439E is in the following terms:

"This proposed section will provide for the administrator to preside over the meeting of creditors and will allow the meeting to be adjourned from time to time, but only for 60 days. If creditors have not by that time passed a resolution on what is to be done with the company, the administration comes to an end (see proposed paragraph 435C(3)(e)), and control of the company will revert to the company's directors."

I was initially of the view that notwithstanding the breadth of s 447A it might be said that Div 5 of Pt 5.3A (s 439A -s 439C) manifested the legislative intention that a meeting convened under s 439A cannot be adjourned, even by order of the Court, to a day more than sixty days after the first day on which the meeting was held. It seemed to me that it might be said that the operation of the general provision found in s 447A is excluded when one compares, within Div 5 of Pt 5.3A, the express power to extend the convening period within which the creditors meeting is to be convened with the absence of any such expression in relation to the adjournment of the meeting once convened. Section 439B(2) uses the expression "... cannot be adjourned ...". However that approach, in my view, pays insufficient regard to the significance and scope of s 447A. I refer again to Hayne J's observation in Re Brashs Pty Ltd (supra, 482):

"It is not possible to conclude whether the legislature intends that some provision in Pt 5.3A is to have a mandatory and universal application without first construing the part as a whole, including s 447A."

If I were to reach the conclusion that simply because of the mandatory and peremptory terms of s 439B(2) "cannot be adjourned" - the operation of s 447A was excluded in relation to that section, I would be failing to give full content to s 447A, particularly having regard to the object of Pt 5.3A enshrined in s 435A.

Cawthorn v Keira Constructions Pty Ltd (supra) has been followed in subsequent cases. In Re Taylor (1995) 16 ACSR 774 Brownie J accepted that there was power to make an order extending the time fixed by s 439B(2) relying simply upon Cawthorn v Keira Constructions Pty Ltd (supra) and Re Brashs Pty Ltd (supra). In Re Double V Marketing Pty Ltd [1995] FCA 1151; (1995) 16 ACSR 498 Lindgren J also relied on the authority of Cawthorn v Keira Constructions Pty Ltd (supra) and Re Brashs Pty Ltd (supra) for his conclusion that the Court had power under s 447A to extend the period of sixty days in s 439B(2). In particular his Honour was influenced by the need for uniformity in judicial decisions in relation to matters under the Corporations Law. In this respect he was adopting the observations of the High Court in ASC v Marlborough Goldmines Limited [1993] HCA 15; (1993) 177 CLR 485 as to the importance of uniformity of decisions in the interpretation of uniform national legislation such as the Corporations Law.

Like Hayne J in Re Brashs Pty Ltd (supra) I should be very slow to dissent, and to depart, from decisions of single judges in relation to the Corporations Law unless I am "convinced that that interpretation is plainly wrong"; ASC v Marlborough Goldmines Limited (supra, 492). Although I have had reservations about the matter I am not convinced that the interpretation placed on s 447A in relation to s 439 in the decisions to which I have referred is plainly wrong and I therefore conclude that I have the power under s 447A to make an order extending the time fixed by s 439B(2).

I turn briefly to the merits of the application. It is apparent that the administrators have not been standing idle but have been actively pursuing the possibility of the company entering into a deed of company arrangement. Mr Spark has set out in some detail the further steps that need to be taken, particularly in relation to the assessment of the claim against Pivot, before a final decision can be made by the creditors. What is being pursued is an option which may give a better return for the company's creditors and members than a winding up.

In all the circumstances, I consider it appropriate that the period fixed for the adjournment of the second meeting of creditors be extended. Mr Spark recommended to the meeting that there be a further adjournment for three months until 14 January 1998. However, I am not prepared to extend the period for more than a further sixty days. I share the concern voiced by Brownie J in Re Taylor (supra) where he said at 776:

"What does trouble me is that I am asked to double the period fixed by the statute, when, in my view, the statute makes it clear that expedition in relation to the resolution of the affairs of the company under administration is an important object. To extend the period of sixty days fixed by s 439B(2) is permissible, but the extension ought not ordinarily to be anything like the further 60 days now sought".

The application of s 447A to the period provided in s 439A(6) is such that there is no limit on the extension which might be granted. However, as Young J observed in Cawthorn v Keira Constructions Pty Ltd (supra) there is a substantial public interest in not permitting voluntary administrations to go on for a long period of time. An administration under Pt 5.3A should proceed expeditiously having regard to the restraints that operate during the period of administration.

Having regard to the matters which the administrators wish to investigate I am prepared to extend the period within which the meeting is to be adjourned but not beyond the end of the current calendar year. There is no suggestion in any of the material that any person would be prejudiced by such extension. However, in order to protect the position of any interested party I consider it appropriate that leave should be reserved to any person claiming to be interested in the affairs of the company, including in particular any creditor or the Australian Securities Commission, to make such application to the Court as they or it may be advised to vary the order extending the period within which the adjourned meeting is to be held on forty-eight hours written notice to the administrators.

I certify that this and the preceding eleven (11) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg

Associate:

Dated: 22 October 1997

Counsel for the Applicant:	Deacons Graham & James
Solicitor for the Applicant:	Ms Julie Dodds-Streeton
Date of Hearing:	21 October 1997
Date of Judgment:	22 October 1997