Re A and D Hagan [2003] NSWSC 531 (18 June 2003)

Last Updated: 28 July 2003

NEW SOUTH WALES SUPREME COURT

CITATION: Re A & D Hagan [2003] NSWSC 531

CURRENT JURISDICTION: Equity

FILE NUMBER(S): 2188/03

HEARING DATE{S): 2 June 2003

JUDGMENT DATE: 18/06/2003

PARTIES:

A & D Hagan Pty Ltd (Receiver and Manager Appointed) (Administrators Appointed) (P1)

Geoffrey David McDonald and Richard Albarran (P2, A)

JUDGMENT OF: Austin J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:

Mr P Fordyce (Solicitor) (P2, A)

SOLICITORS:

Morgan Lewis Alter (P2, A)

CATCHWORDS:

CORPORATIONS - voluntary administration - whether administrator required to attend personally to chair creditors' meeting - whether order should be made under s 447A to permit administrators to nominate their partner to chair meeting

ACTS CITED:

Corporations Act 2001 (Cth) s 439A, 439B, 447A

DECISION:

Order under s 447A to permit liquidators to nominate their partner to chair a creditors' meeting

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

AUSTIN J

WEDNESDAY 18 JUNE 2003

2188/03 RE A & D HAGAN PTY LTD (RECEIVER AND MANAGER APPOINTED) (ADMINISTRATORS APPOINTED) & ANOR

JUDGMENT

1 HIS HONOUR: The first plaintiff ("the Company") is a company which operates two hotels, in Erskineville and Surry Hills. The second plaintiffs ("the Administrators") are the voluntary administrators of the Company, appointed by resolution of the director of the Company on 20 January 2003.

2 The director of the Company is a director of another company, which has an interest in a hotel in Lewisham. A receiver and manager has been appointed, pursuant to fixed and floating charges, to the business undertaking and assets of the Company, and also the business undertaking and assets of the company interested in the Lewisham hotel. The receiver has negotiated the sale of the Lewisham hotel.

3 The director wishes to propose a deed of company arrangement for the Company, but needs to know the amount realised for the sale of the Lewisham hotel. Additionally, the Administrators have been exploring the sale of the Erskineville and Surry Hills hotels.

4 The Administrators circulated a report to creditors on 6 February 2003, pursuant to s 439A of the Corporations Act, and the second meeting of creditors was held under that provision on 14 February 2003. At the date of their report, the Administrators had not received the anticipated proposal from the director for a deed of company arrangement. They considered that it was possible that the Company could be returned to solvency. They therefore recommended that the meeting be adjourned for 60 days to allow those issues to be resolved. Sixty days is the maximum period allowed for an adjournment by s 439B(2).

5 By an originating process filed on 3 April 2003, the plaintiffs applied for an order under s 447A having the effect of extending the permissible adjournment time beyond the 60 day period provided for in s 439B(2). The application was dealt with by Gzell J and then Barrett J, who made orders extending the time limit to 11 June 2003. The application for an extension of time was opposed by Albert Hotel Pty Ltd, the sub-lessor to the company of the hotel in Surry Hills.

6 An interlocutory application in the same proceeding, for further extension of time, was made to Bergin J on 30 May 2003, on very short notice. Evidence was adduced before her Honour to the effect that the sale of the Lewisham hotel had not settled on the due date, and further time was sought because there were investigations continuing as to the ability of the purchaser to complete. There was also some evidence of negotiations for sale of the Surry Hills hotel business. Once again, Albert Hotel Pty Ltd opposed the application, arguing that it was unfair for it to be subjected for a longer time to the statutory embargo imposed by s 440C.

7 Bergin J concluded that there was insufficient evidence to support the application for a further extension, although she noted that if better evidence became available it would be open to the plaintiffs to make a fresh interlocutory application.

8 Rather than making a fresh application for a further extension of time, the plaintiffs came before me on 2 June 2003 with a different interlocutory application, in the same proceeding. The new interlocutory application was for

· directions under s 447D as to whether s 439B (1) would require one of the administrators to chair the adjourned meeting on 11 June, or would permit the administrators to nominate another person to chair the adjourned meeting; and

· in the event that s 439B (1), on its proper construction, requires one of the administrators to chair the meeting personally, an order under s 447A that Part 5.3A is to operate in relation to the Company so as to permit the Administrators to appointed a nominee to chair the adjourned meeting.

9 The application was made ex parte, but I directed that Albert Hotel Pty Ltd be notified of it. Then, when further evidence was adduced that Albert Hotel Pty Ltd did not wish to make any submissions, I proceeded to determine the application. I have already made orders, and now I set out my reasons for doing so.

10 The question whether s 439B (1) requires an administrator to be personally present at a meeting convened under s 439A, and to chair it personally, was a matter I had already under consideration, because it had been fully argued in a contested case upon which I had reserved judgment. In the present case the plaintiffs provided me with a submission from the Australian Securities and Investments Commission. I decided that the best course of action was to make the submissions in the present case available to the parties in the earlier case, so that they could address any supplementary submissions to me before I delivered my reserved judgment. Having heard further submissions accordingly, I delivered a considered judgment on the question: Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467 (17 June 2003).

11 I reached the conclusion that on its proper construction, s 439B(1) requires the administrator (or, I should add, one of them when there are two) to chair the s 439A meeting personally, notwithstanding regulation 5.6.17 (1), which (taken in isolation) would authorise the appointment of a nominee. In the Bovis case, the creditors' meeting and its adjournment had been held before the application was made. I decided that, on the facts, grounds existed for me to make a curative order under s 1322(4)(a) and I did so.

12 In the present case, when the matter came before me the meeting had not been held. The plaintiffs submitted that the appropriate course was to make an order under s 447A modifying the effect of s 439B(1) so as to permit the Administrators to appoint a nominee. Their case was that both of the second plaintiffs had arranged to be overseas on pre-booked holidays on 11 June 2003. They do not contend that a holiday overseas should in every case be a justification for not personally chairing a meeting of creditors, if the law requires the administrator to do so. They submit that in the special facts of this case it was not unreasonable for them to make their holiday arrangements on the assumption that either the creditors' meeting would have been held and completed before 11 June or, if it proved impossible to do so, a further adjournment would have been granted on application.

13 I have decided, on balance, to make an order under s 447A in this case. The grounds for doing so are not overwhelmingly strong. I would certainly not make such an order simply to suit the convenience of an administrator who had planned to take a holiday at the time of a meeting or adjourned meeting. I would be even less inclined to do so, generally speaking, if there were two joint administrators who had decided to take their overseas holidays at the same time. In the present case, however, not only is there the uncertainty produced by delays in the formulation of a proposal for a deed of company arrangement, but there is also the factor that the question whether the law requires an administrator personally to chair the s 439A meeting has been a matter of some uncertainty, not the subject of any judicial decision until the publication of my reasons in the Bovis case. Administrators should expect a less lenient judicial attitude in future.

14 ASIC's submission contended that if the Court exercises its discretion under s 447A or s 1322, the permitted nominee should be required to be a registered liquidator who has been adequately, properly and sufficiently briefed by the administrator in relation to the company in question, and provided with access to the administrator’s files. That seems to me to be a reasonable approach to take, unless there are exceptional circumstances. In the present case the order permits a named registered liquidator who is a partner of the Administrators to be nominated, and there is evidence that he has been properly briefed.

15 The ASIC submission also invited me to express an opinion as to whether an administrator could adjourn or postpone the s 439A meeting to a less inconvenient date within the 60 day period. I have address that issue in my reasons for judgment in the Bovis case.

16 The ASIC submission also contended that if an order is made under s 447A or s 1322, the applicant for relief should bear the costs of the application, and also costs inherent in the nominee becoming acquainted with the company for the purpose of presiding at the meeting, and none of those costs should be charged to the administration (except such costs as the administrator would have been able to charge if the administrator had personally attended in the first place). I have not yet reached a decision on costs in the Bovis case. In the present case, I have decided to permit the Administrators to recover their costs of the application from the assets of the Company, having regard to the special circumstances that I have outlined (including the previous uncertainty as to the legal position). Administrators should not to expect a similar outcome in future, at least where the grounds for the order relate to matters of personal convenience.

17 The orders in the present case were:

“1. Order, pursuant to s 447A of the Corporations Act, that Part 5.3A is to operate in relation to the first plaintiff so that, notwithstanding s 439B(1), the Second Plaintiffs may by instrument in writing appoint their partner, Robert William Joseph Elliott, to chair the adjourned meeting of the creditors of the First Plaintiff convened under s 439A and to be held on 11 June 2003.

2. Costs of this application be paid out of the assets of the First Plaintiff."

18 I have decided it is not appropriate, when no-one has appeared to contest the application, to use s 447D make a direction which would effectively operate as a declaratory order. The plaintiffs' purposes are adequately served by the order under s 447A I have made.

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LAST UPDATED: 25/07/2003

Authorities Cited1

Referred to (1)