Byers v Downie & Anor as administrators of St Stephens College Ltd [2001] QSC 437

46~7~ State Reporting [:iroi> QSC 431 B (~ Queensland Government urea u ~ DepartmentofjustlceandAttomey-General Transcript of Proceedings Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau. SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION PHILIPPIDES J ,. No 9437 of 2001 HENRIETTE GRACE BYERS and PHILLIP GRAEME DOWNIE and SUSAN RUTH CARTER AS ADMINISTRATORS OF SAINT STEPHENS COLLEGE LIMITED (ACN 071 134 024) BRISBANE .. DATE 05/11/2001 ORDER Floor, The Law Courts, George Street, Brisbane, a. 4000 1 REVISED COPIES ISSUED State Reporting Bureau Date2"6/ // Io( Applicant Respondents Telephone: (07) 3247 4360 Fax: (07) 3247 5532 -- 1 of 7 -- 05112001 T26/SA2 M/T 4/2001 (Philippides J) HER HONOUR: This is an application for an order pursuant to section 445G of the Corporations Law and alternatively pursuant to section 445D of the Corporations Law. As regards the application under section 445G(1), the applicant seeks an order from the Court declaring the deed of company arrangement exhibited to the affidavit of Mr Downie to be void on the basis that part 5.3A is contravened. Mr Sheahan referred me to the cases of Mulvaney v. Rob Wintulich Pty Ltd (1995) 13 ACLC 1649 and the decision of Deputy Commissioner of Taxation v. Pddam Pty Ltd (1996) 1 10 20 14 ACLC 659. 30 Those decisions point to the narrow field of operation of section 445G of the Corporations Law. In particular, what that provision requires is that there be doubt on a specific ground as to the compliance of the deed of arrangement. 40 In my opinion, no sufficient ground was identified by the applicant. The applicant referred to the failure of the deed to comply with the object of part 5.3A as set out in ·section 435A; namely that, under the deed, property and SO affairs of company in question would not be administered in such a way that the creditors would be afford a better result than would be the case on the winding up of the company. 60 2 ORDER -- 2 of 7 -- 1 05112001 T26/SA2 M/T 4/2001 (Philippides J) That general complaint appears to me to be more appropriately mounted in relation to the application under 445D(1) which provides that the Court may make an order terminating a deed of company arrangement if satisfied that 10 effect cannot be given to the deed without injustice. The applicant's case under section 445D(1) (f) is essentially that under the deed the net amount available for unsecured creditors is the sum of $2 million. The applicant as an 20 unsecured creditor would therefore only be able to participate with other unsecured creditors in that pool. Under a liquidation, however, the applicant submits that a potential pool of some $2.5 to $3 million would be available 30 from insolvent trading actions, which sums would be available for unsecured creditors including the applicant who total some $11 million. The applicant therefore submits that under the deed only 40 $2 million is available for unsecured creditors as opposed to the potential figure of $2.5 to $3 million on an insolvency and that the unsecured creditors would be worse off under the deed. The difficulty with this submission is that it fails to properly take into account the risk of l:..tig-ation 50 in pursuing the insolvent trading actions, but more importantly does not address the fact that currently, as stated in the administrator's report at page 16/17: "The only realisations available to the liquidators would come as a result of potential legal actions against some creditors for preference payment and the directors under the insolvent trading provisions of the 60 3 ORDER -- 3 of 7 -- 05112001 T27-28/SJ3 M/T 4/2001 (Philippides J) Act. In both cases it would be necessary to seek external funding (probably from creditors) to meet the costs of the actions and, as already reported, there are defences available in both cases under the provisions of the Act." There is nothing in the material placed before me to indicate that there is or is likely to be any external funding for any anticipated insolvent trading actions. Mr Barker, for the applicant, also raised the issue that some creditors are treated differently from others under the proposal in the deed. As was explained in Haganvale Pty Ltd v. Dpela Pty Ltd (1995) 13 ACLC 885 the test is not merely discrimination but unfair discrimination or unfair prejudice. Mr Barker has not been able to point to any unfair discrimination between creditors per se. He does point to the fact that under the deed it is proposed that a fund be available to purchase property owned by certain leasing creditors. However, it does not appear to me that in the totality of the circumstances which the administrators are required to consider that that results in any unfair discrimination or unfair prejudice. Furthermore, the point essentially refers back to the argument that the effect of that money being available under the deed to purchase property from the leasing creditors is to reduce the total funds available to unsecured creditors under the deed to some $2 million. 4 ORDER 1 10 20 30 40 50 60 -- 4 of 7 -- 05112001 T27-28/SJ3 M/T 4/2001 (Philippides J) As I have already indicated it does not appear to me that it is appropriate simply to compare the total funds available under the deed of some $2 million (after deducting money proposed to be available for the purchase of the property off the leasing creditors) with the potential figure that might be recoverable under a liquidation scenario in respect of insolvent trader action. 1 10 20 As mentioned in Khoury v. Zamvena Pty Ltd (1997) 15 ACLC 620 at 627 the mere fact that a creditor is prejudiced by the operation of a deed will not be sufficient because the mere existence of the deed procedure usually means that some creditors will gain something and some creditors.will 30 lose something out of the arrangement. In the final analysis Mr Baker has not been able to persuade me that it is in the interests of the creditors that the deed be terminated or that effect cannot be given 40 to the deed without injustice. It seems to me that Mr Barker's key argument was that, when one makes a mathematical comparison of the funds available . 50 under the deed to the unsecured creditors with the funds potentially available on a successful insolvent trader action, the unsecured creditors would be in a worse position under the deed than in an insolvency, such that the object of part 5.3A, as expressed in section 435A, is not met. 60 5 ORDER -- 5 of 7 -- 05112001 T27-28/SJ3 M/T 4/2001 (Philippides J) The flaw with this argument is as mentioned, that at the moment, on the material as presented before me, there is nothing to suggest that such actions could be funded and moreover the potential figure that might result on a successful insolvent trading action is somewhat speculative. I say somewhat speculative because the administrator's report outlined certain defences that would be available to the directors up to the period of January 2001. Thereafter, there are other defences that may be available although those defences are said not to be as strong as the defences available for the earlier period. The risks inherent in pursuing insolvent trading actions are underlined by her Honour Justice Branson in Employers Mutual Indemnity and JST Transport (1997) 15 ACLC 314 at 327/8. In my opinion it is appropriate to take into account the risks inherent in that litigation in assessing whether indeed the unsecured creditors are worse off under the arrangement proposed in the deed as opposed to the situation which would eventuate on an immediate winding-up. I am unable to conclude on the material presently before me that the unsecured creditors would be so disadvantaged. In those circumstances, I am unable to conclude that the deed of arrangement cannot be given effect to without injustice for the purposes of section 445D(1) (e). Accordingly, I dismiss the application. 6 ORDER 1 10 20 30 40 . 50 60 -- 6 of 7 -- 05112001 T27-28/SJ3 M/T 4/2001 (Philippides J) HER HONOUR: Having heard submissions on behalf of the parties with respect to costs I order that the applicant pay the respondent's costs to be assessed. 7 ORDER 1 10 20 30 40 50 60 -- 7 of 7 --