This case involved an application by a voluntary administrator under section 440A(2) of the Corporations Act 2001 (Cth) to adjourn a pending winding up application in the Supreme Court of New South Wales for determination after the second meeting of creditors in a voluntary administration to allow creditors to determine the fate of the company (rather than it be wound up by Court order).
Section 440A(2) of the Corporations Act 2001 (Cth) provides that the Court is to adjourn the hearing of an application for an order to wind up a company in voluntary administration if it is in the interests of the company’s creditors for the company to continue under administration, rather than be wound up.
Background Facts
Mono Constructions Pty Ltd (Mono), a builder, applied to wind up Cresco Opus Fund No 4 Pty Ltd (Cresco) for unpaid debts arising from the completion of several buildings for a property development. Approximately 3 weeks after the filing of the application, Cresco appointed a voluntary administrator prior to the final hearing. The voluntary administrator conducted substantial investigations in determining several voidable transactions. However, the voluntary administrator had also reported that a proposed deed of company arrangement (DOCA) would see a better return to all unsecured creditors as related party creditors would forego their claims, and a contribution would be made by the director of Cresco.
Mono was dissatisfied with the proposed DOCA, having suspicions that the DOCA was merely an attempt by the director to avoid further investigations by a potential liquidator and the avoidance of transactions under Part 5.7B of the Corporations Act 2001 (Cth). The proposed DOCA return was 30 cents in the dollar.
Outcome
Rees J gave a well-reasoned decision in winding up Cresco, and refusing the voluntary administrator’s application for an adjournment under section 440A(2) of the Corporations Act 2001 (Cth). While section 440A(2) referred to the ‘interests of creditors’, her Honour gave specific recognition to the interests of Mono, noting that it was not in the financial interests of the related party creditors to enter into the DOCA despite their apparent willingness to do so (as their interests were essentially to prevent a liquidator investigating suspicious transactions).1
Her Honour therefore gave less weight to the interests of the related party creditors as they did not appear to receive any benefit under the proposed DOCA.2 So too, her Honour gave little weight to the interests of financiers who she concluded may have been content to enter into further property investment with the deed proponent and to defer repayment of their capital and interest.3
Her Honour also observed that the purpose of the second meeting of creditors was to enable the company’s general body of creditors to exercise commercial judgment as to where their best interests lie. Putting aside the related party creditors and the financier, the only substantial unrelated creditor likely to attend the meeting was Mono. As Mono had already made its commercial decision, balancing the benefit of receiving potentially 30 cents in the dollar under the DOCA against outlaying further funds in a liquidation in an endeavour to obtain more, it was appropriate for Cresco to be wound up.4
This article was written by Matthew Broderick, Partner in our Brisbane office.
Publication Editor: Grant Whatley
1 At [29] – [31], following Brereton J in Sales Express Pty Limited (Administrators Appointed) [2014] NSWSC 460 and Lindgren J in Deputy Commissioner of Taxation v Alternative Business Solutions (Aust) Pty Limited (administrators appointed) (2006) 24 ACLC 425; [2006] FCA 400.
2 At [33].
3 At [33].
4 At [34].