Lucas v Queensland Maintenance Services Pty Ltd (Administrators Appointed), in the matter of Queensland Maintenance Services Pty Ltd (Administrators Appointed) [2012] FCA 49 (30 January 2012)

Last Updated: 14 February 2012

FEDERAL COURT OF AUSTRALIA

Lucas v Queensland Maintenance Services Pty Ltd (Administrators Appointed), in the matter of Queensland Maintenance Services Pty Ltd (Administrators Appointed) [2012] FCA 49

Citation:		Lucas v Queensland Maintenance Services Pty Ltd (Administrators Appointed), in the matter of Queensland Maintenance Services Pty Ltd (Administrators Appointed) [2012] FCA 49
Parties:		PETER ANTHONY LUCAS AND GLENN MICHAEL SHANNON AS ADMINISTRATORS OF QUEENSLAND MAINTENANCE PTY LTD ACN 104 887 103 (ADMINISTRATORS APPOINTED) v QUEENSLAND MAINTENANCE SERVICES PTY LTD ACN 104 887 103 (ADMINISTRATORS APPOINTED)
File number:		QUD 51 of 2012
Judge:		JACOBSON J
Date of judgment:		30 January 2012
Catchwords:		CORPORATIONS – extension of time to convene a second meeting of creditors of company in voluntary administration
Legislation:		Corporations Act 2001 (Cth), s 439A Taxation Administration Act 1953 (Cth), schedule 1 item 260-5
Cases cited:		Diamond Press Australia Pty Ltd; Re [2001] NSWSC 313 Lord; in the matter of Tallwood Nominees Pty Ltd (Administrators Appointed) [2011] FCA 1118 Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) (ACN 008 667 285) [2010] FCA 30 Riviera Group Pty Ltd; Re [2009] NSWSC 585; (2009) 72 ACSR 352
Date of hearing:	30 January 2012
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	16
Counsel for the Plaintiff:	C Wilson
Solicitor for the Plaintiff:	McInnes Wilson Lawyers

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION	QUD 51 of 2012

IN THE MATTER OF QUEENSLAND MAINTENANCE SERVICES PTY LTD ACN 104 887 103 (ADMINISTRATORS APPOINTED)

BETWEEN:	PETER ANTHONY LUCAS AND GLENN MICHAEL SHANNON AS ADMINISTRATORS OF QUEENSLAND MAINTENANCE PTY LTD ACN 104 887 103 (ADMINISTRATORS APPOINTED) Plaintiff
AND:	QUEENSLAND MAINTENANCE SERVICES PTY LTD ACN 104 887 103 (ADMINISTRATORS APPOINTED) Defendant

JUDGE:	JACOBSON J
DATE OF ORDER:	30 JANUARY 2012
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act), the convening period for the meeting of the creditors of Queensland Maintenance Services Pty Ltd ACN 104 887 103 (the Company) be extended for 90 days to 1 May 2012.
   
2. Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to the Company so that, notwithstanding s 439A(2) of the Act, the meeting of the creditors of the Company under s 439A of the Act may be convened at any time before, or within five (5) business days after, the end of the convening period as extended by the immediately preceding order, provided that the Applicant is to give notice of the meetings in accordance with s 439A(3) of the Act at least five (5) business days before the meeting.
   
3. The Applicant give notice of these orders to the Company’s creditors by means of a circular be posted to the Company’s creditors by ordinary post sent no later than 13 February 2012.
   
4. Any creditor of the Company, or other interested person, have liberty to apply to vary these orders within 48 hours written notice to the Applicant.
   
5. The Applicant’s costs of and incidental to this Application be costs in the Administration of the Company to be paid out of the assets of the Company.
   

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION	QUD 51 of 2012

IN THE MATTER OF QUEENSLAND MAINTENANCE SERVICES PTY LTD ACN 104 887 103 (ADMINISTRATORS APPOINTED)

BETWEEN:	PETER ANTHONY LUCAS AND GLENN MICHAEL SHANNON AS ADMINISTRATORS OF QUEENSLAND MAINTENANCE PTY LTD ACN 104 887 103 (ADMINISTRATORS APPOINTED) Plaintiff
AND:	QUEENSLAND MAINTENANCE SERVICES PTY LTD ACN 104 887 103 (ADMINISTRATORS APPOINTED) Defendant

JUDGE:	JACOBSON J
DATE:	30 JANUARY 2012
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. This is an application brought by the administrators of Queensland Maintenance Services Pty Limited (“QMS”) for an extension of the convening period within which to hold the second meeting of creditors. The application is brought pursuant to s 439A(6) of the Corporations Act 2001 (Cth). The principle affidavit upon which the administrators rely is an affidavit of Mr Peter Anthony Lucas sworn on 25 January 2012. Mr Lucas is one of the two administrators of QMS. The affidavit of Mr Lucas describes the business of QMS. It is a company which operates a business of managing subcontractors as providers of services to the childcare industry and, in particular, childcare centres. In addition, QMS performs certain construction works from time to time.
2. Mr Lucas deposes that the company’s books and records are in a good state, and that the sole director of the company, Mr Frank Gerard Zullo, is assisting Mr Lucas with his inquiries. QMS’s records indicate that it has unsecured creditors totalling approximately $10.9 million. Three of the creditors are owed amounts totalling approximately $5.6 million, but each of the three creditors is associated with Mr Zullo or his family company, Zullo Family Holdings Pty Limited, which is the sole shareholder of QMS. The majority of the remaining creditors are individual subcontractors who provide, through QMS, services to the childcare industry throughout Australia. Those creditors comprise close to half of the sum of $10.9 million being the amount owed by QMS as disclosed in the company’s records.
3. A major reason why QMS has entered voluntary administration appears to be the fact that QMS has received a very substantial tax assessment from the Deputy Commissioner of Taxation. The Australian Taxation Office (“ATO”) undertook an audit of QMS for the financial years 2006, 2007 and 2008. The audit was completed in about May 2011, and the Commissioner of Taxation (“Commissioner”) determined to disallow deductions claimed by QMS for a total of approximately $50 million. The effect of the decision by the Commissioner was that amended notices of assessment were issued by the ATO to QMS on 1 June 2011, and QMS now has unpaid tax liabilities exceeding $20 million. QMS has lodged objections with the Commissioner in respect of the assessments, but it has not yet received the decision maker’s response.
4. The administrators are therefore in the position where they may wish to consider lodging an appeal under the Taxation Administration Act 1953 (Cth) in respect of any refusal of the Commissioner to uphold QMS’s objections. In addition, the Commissioner issued a notice pursuant to item 260-5 of Schedule 1 of the Taxation Administration Act 1953 (Cth). The effect of such a notice is to garnishee moneys which would otherwise have been payable to QMS. Litigation resulted from the issue of the garnishee notice. Ultimately the garnishee notice was in respect of 20 percent of moneys payable by a company known as Goodstart. The effect of the garnishee notice was to secure for the Commissioner an amount of approximately 20 percent of the sum owed by Goodstart which was approximately $1 million (20 percent of $5 million).
5. The proceeding by QMS seeking to set aside the item 260-5 notice was dismissed by Collier J on 15 December 2011, but the company has briefed senior counsel as to the prospects of an appeal.
6. On 27 January 2012, QMS filed a notice of appeal against Collier J’s decision. If the appeal is successful it will have the effect of returning to QMS a sum of approximately $1 million, which would of course be for the benefit of creditors of QMS.
7. QMS has other litigation on foot. The proceedings are described in paragraph 29 of Mr Lucas’ affidavit. It is sufficient to say that there is at least a possibility of the proceedings producing some funds for QMS. The reasons why Mr Lucas believes that an extension of the convening period is appropriate and in the best interests of QMS’s creditors are set out in paragraph 14 of his affidavit. I need not set out all of the nine reasons which are enumerated. It is sufficient to say that the principal reasons concern QMS’s disputes with the Commissioner of Taxation. That is to say, the principal matters are those which I have described, namely, the appeal against the decision of Collier J and the possibility of proceedings against the Deputy Commissioner of Taxation in respect of the amended assessments which relate to unpaid tax liabilities exceeding $20 million.
8. Proceedings in respect of the amended tax assessments, if successful, would bring about the result that QMS would have a surplus and would be able to resume trading as a solvent company. Also, the effect of a successful appeal against Collier J’s decision would be to provide the company with substantial funds which I have referred to above and which, as I have said, would be of benefit to the creditors of the company.
9. The principles which have been applied by the courts in relation to the exercise of the power to extend the convening period were summarised in a decision of McKerracher J in Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) (ACN 008 667 285) [2010] FCA 30 at [15] ff. His Honour referred in some detail to the decision of Austin J in Re Riviera Group Pty Ltd [2009] NSWSC 585; (2009) 72 ACSR 352 (“Re Riviera”) in which his Honour set out the factors to be taken into account.
10. I referred to those decisions in Lord; in the matter of Tallwood Nominees Pty Ltd (Administrators Appointed) [2011] FCA 1118 at [8] ff. I do not need to repeat what was said in those cases. It is sufficient to say that what is required is the striking of an appropriate balance between the interests of creditors in a speedy administration, and the need to allow sufficient time for the administrators to carry out their functions properly so as to maximise the benefit to creditors through a proper and full administration: see Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10] (Barrett J).
11. Also, the authorities demonstrate that what is required is that the administrators must prove a substantial ground for the exercise of the Court’s jurisdiction to grant the extension. I am satisfied in the present case that there is such a substantial ground. This seems to me to follow from what I have said about the position in relation to the tax affairs of QMS. There is some degree of complexity in those matters and, as Austin J said in Re Riviera at [17], “the degree of complexity of the administration is a key to the understanding of the court’s current approach to such applications.”
12. Another factor to be taken into account is whether or not any objection has been taken to an extension of the convening period for the second meeting of creditors. The matter was raised at the first meeting of creditors and no objection was raised. Also, the evidence establishes that the Commissioner, who is a party affected by the extension of the convening period, has stated that “the Commissioner does not hold any position” in respect to the application which has been made to me this morning.
13. The extension which is sought is for a period of 90 days. That is a period which is within the period of time that is commonly granted for an extension of time in such cases. Whilst that period will probably not be sufficient for the administrators to complete any objection process or proceedings or appeals against the Commissioner, it will enable the administrators to advance the situation and to be able to inform the creditors with more certainty at the second meeting as to the likely outcome.
14. What seems to me to be of particular importance is the position of the individual subcontractors who comprise nearly 50 percent of the amount of the unsecured creditors of the company. It seems to me that the administrators ought to be able to pursue, to the extent possible, actions which are designed to maximise the possibility of return to those creditors.
15. I should add that Mr Zullo has proposed the possibility of propounding a deed of company arrangement. The terms of his proposal are at present somewhat vague, but it may well be that an extension of the convening period of 90 days will enable him to put forward a deed of company arrangement which is unconditional or at least does not have the extensive conditions which are contained in the proposal outlined in the letter dated 23 January 2012 from Mr Zullo’s solicitors.
16. For these reasons, I propose to make orders in terms of paragraphs 1 to 5 of the originating process filed on 25 January 2012.
    

I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Associate:

Dated: 30 January 2012