Carey Builders Pty Ltd, Re [1997] QSC 86

IN THE SUPREME COURT OF QUEENSLAND No 2938 of 1996 Brisbane Before the Hon Justice White CATCHWORDS: Appearances: Solicitors: Hearing Date: IN mE MA TIER of The Corporations Law - and - IN mE MATIER of CAREY BUILDERS PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 010 919 669 REASONS FOR JUDGMENT - WHITE J Judgment delivered 14/05/1997 DEED OF COMPANY ARRANGEMENT - application to set aside - ss.445D; 445G; 447 A; 600B of Corporations Law - discretion. Mr P Morrison QC for the directors Mr D Tucker Solicitor for Mikkelsen Contractors (Mt Isa) Pty Ltd Mr C Wilkins Solicitor for Queensland Building Services Authority Dunhill Madden Butler as town agents for Boulton Cleary & Kern for the directors Russell and Company for Mikkelsen Contractors (Mt Isa) Pty Ltd Clayton Utz for Queensland Building Services Authority 17 April 1997 -- 1 of 43 -- IN THE SUPREME COURT OF QUEENSLAND No 2938 of 1996 IN THE MA ITER of The Corporations Law - and - IN THE MA ITER of CAREY BUILDERS PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 010 919 669 REASONS FOR JUDGMENT - WHITE J Judgment delivered 14/0511997 Mikkelsen Contractors (Mt Isa) Pty Ltd ("Mikkelsens") an unsecured creditor of Carey Builders Pty Ltd (the company) filed an application on 19 December 1996 seeking orders: Pursuant to s.445D(l) of the Corporations Law that a Deed of Company Arrangement between Mr RJ Dennis and Mr R Buckby the administrators, the company and Randal and Bronwyn Carey, the directors of the company, dated 22 April 1996 (the Deed) be terminated; Alternatively pursuant to s.445G(2) a declaration that the Deed is void; Alternatively pursuant to s.44 7A that the Deed be set aside; Alternatively pursuant to s.600B that the resolution of creditors on 2 April 1996 to accept the Deed be set aside; • In each case that the company be wound up. -- 2 of 43 -- 2 It was supported by Queensland Building Services Authority (QBSA) who appeared. Mikkelsens' solicitor exhibited letters of support from seven unsecured creditors of the company. The application was heard in chambers by Fryberg J over two days, the first day in January in the vacation and the second on 8 February 1997. His Honour declared the Deed to be void pursuant to s.445G(2), ordered that it be terminated pursuant to s.445D(1), that the company be wound up and that the previous administrators be appointed liquidators. His Honour also ordered that those orders be stayed "until the filing of an affidavit deposing to the effluxion of 14 days from the service of the material referred to in paragraph 3 following and an affidavit of service of that material". He ordered that the application be amended by directing it to the directors of the company and his Honour further ordered that unless the directors applied to have the orders set aside within 14 days after service upon them then Mikkelsens and QBSA were to have their costs. The directors filed an application on 26 March 1997 seeking orders that the orders made by Fryberg J on 8 February be set aside. Williams J extended the stay ordered by Fryberg J until the application filed by the directors could be heard. That occurred on 17 April. Mikkelsens and QBSA appeared on that application to oppose those orders. Undertakings have extended the effect of the stay. Chmnology The company was incorporated on 6 April 1989 the principal activity of which was in the building and construction industry particularly in the Mt Isa region. According to the directors it effectively ceased to trade in or about September 1994. On 7 February 1996 Mikkelsens filed an application in the Supreme Court at Townsville to wind up the company. The return date for the application was 22 March 1996. -- 3 of 43 -- 3 On 6 March the two directors of the company, Randal and Bronwyn Carey resolved to appoint Mr RJ Dennis and Mr RW Buckby of Ernst & Young, accountants, as administrators having determined that the company was insolvent. The first meeting of creditors was held on 12 March 1996. The Report to Creditors prepared by the administrators was dated 25 March as was Mr and Mrs Carey's statement of assets and liabilities. The second meeting of creditors at which a Deed of Company Arrangement was approved was held on 2 April. On 12 April Thomas J dismissed an application by Mikkelsens to appoint a provisional liquidator to the company. The Deed was executed on 22 April 1996. As mentioned, on 8 February 1997 Fryberg J declared the Deed void and ordered the company to be wound up and stayed those orders. Procedure before Flyberg J The directors of the company who were parties to the Deed had not been served with the application to declare the Deed void. The company as represented by the administrators were the only respondents to the application. It was not until well into the second day of the hearing, a Saturday, that his Honour was made aware that Mr and Mrs Carey had not been served. Mikkelsens' solicitor contacted Mr and Mrs Carey's solicitors in Townsville when that matter was raised. Mr Guy, solicitor with Boulton Cleary & Kern, Mr and Mrs Carey's solicitors indicated that he was aware of the application, that some material had been received from the administrators' solicitors and that he had sent it on to Mr Carey for his further instructions. His Honour did not consider that sufficient notice but continued with the hearing and made the orders to which I have referred making provision for Mr and Mrs Carey to be heard. -- 4 of 43 -- 4 The Heating Although it is quite usual for a different judge to hear a matter after an interim order has been made, in this case it would have been preferable for Fryberg J to have considered the further- material tendered on behalf of Mr and Mrs Carey and the submissions made by Mr Morrison QC. Calendaring arrangements have rendered that course impossible if the matter were to be disposed of expeditiously. Mr Morrison's approach was to subject his Honour's reasons for judgment to minute scrutiny and to seek to demonstrate why the path to his conclusion that the Deed ought to be avoided was flawed. The solicitors who appeared for Mikkelsens and QBSA took the position that they should seek "to hold" his Honour's orders. In effect, this led to treating the hearing as an appeal although evidence was tendered and the original material before his Honour was examined. That approach has a tendency to alter the burden of proof and place it upon Mr and Mrs Carey which cannot be right. His Honour's views should not be disregarded, but once it is recognised, as his Honour's order clearly does, that, as parties to the Deed, Mr and Mrs Carey had a right to be heard, they may not be put in a more disadvantageous position than they would have enjoyed had they appeared on Mikkelsens' application before Fryberg J. Mikkelsens carry the burden of satisfying the court that the Deed ought not continue in one or more of the ways sought in its application. Nonetheless the procedure before me was that Mr Morrison was heard first followed by the solicitors for each of Mikkelsens and QBSA. The administrators did not appear although they were made respondents to Mr and Mrs Carey's application to set aside Fryberg J's orders. The Issues Mikkelsens and QBSA (for convenience I shall refer only to Mikkelsens in these reasons since it has brought the application) argue that since the return to the unsecured -- 5 of 43 -- 5 creditors will be nil under the Deed, the object of Part 5.3A of the Corporations Law will not be given effect, whereas a winding-up may result in some return. Mikkelsens further contend that certain clauses in the Deed purport to release any claims which creditors may have against guarantors of the company's obligations; the resolution of creditors approving the Deed was passed in circumstances in which it should not have been; a mortgage granted by the company to its solicitors warrants closer investigation both as to the level of fees and as a possible voidable transaction; the Deed permits the directors to retain certain property which ought to have been made available to the creditors, namely a motor vehicle and bobcat; the directors misled the meeting of creditors as to their financial position, being better off than they revealed; the chairman ought not to have cast his vote III favour of the Deed as it discriminated against the unsecured creditors; in the period since the execution of the Deed blocks of land owned by the company remain unsold. There has been considerable overlap in the facts put forward as justifying orders under ss.445D, 445G and 447A of the Law. The repoli to creditol~ The report to creditors was signed by Mr Buckby and dated 25 March 1996. Mikkelsens submit, inter alia, that false and misleading evidence was given to the creditors which was material to their vote and if revealed may have affected the chairman's casting -- 6 of 43 -- 6 vote. Mikkelsens also submit that the chairman's rulings on proxies was exercised, in effect, oppressively. The statement of the company's affairs from the directors showed the main asset of the company as its interest in land valued at $486,500. The company had constructed a unit development known as "Sunset Palms" in Mt Isa financed by Queensland Industry Development Organisation (QIDC). It consisted of some 18 units which had been built in stages. When the administrators were appointed three residential units remained to be sold, and eleven vacant blocks of land remained which had been planned for future development. Sundry debtors were shown as owing $69,000 to the company while plant and equipment were valued at "unknown". There was no cash, stock, work in progress or other assets declared by the directors. The directors' statement made no reference to the directors' loan accounts with the company which were substantial, nor to wages claimed by the directors. Secured creditors were QIDC for $212,000 and solicitors Boulton Cleary & Kern for $114,000. Unsecured creditors' claims totalled $278,495 of which $198,916 were then admitted. This gave an estimated net deficiency for the company of $117,995. The sundry debtors were described by the administrators as being unlikely to produce a return to the company and of that there appears to be no contest. The administrators commissioned Taylor Byrne, valuers of Townsville to provide an independent valuation of the units both on a current market value and a forced sale value basis. The remaining three units had not been issued with a final building certificate and there were outstanding works required to render them saleable. The estimated cost of completing the works was estimated by the valuers to be in the vicinity of $10,000 to $20,000. Of the eleven blocks of vacant land located in the development there were outstanding requirements estimated at $6,500 per lot. A summary of the information -- 7 of 43 -- 7 contained in the Taylor Byrne valuations was set out in the body of the report with the details annexed thereto. The net realisable value of the units and vacant land was assessed at being between approximately $328,099 on a forced sale basis and $352,354 on a current market value basis. The nature and value of any outstanding requisitions from the Mt Isa City Council had been canvassed by Taylor Byrne and if there were none then it was estimated that there could be a gross return as high as $484,500. The administrators had been unable to obtain from the council the nature of outstanding requisitions. The report included the opinion of the valuers that the unit market in Mt Isa was limited and an extended marketing period would normally be required. One of the Mikkelsen complaints is the failure of the administrators to either convey to the creditors or to take into account the warning in the administrators' solicitors' letter of advice given prior to the second meeting that because of industrial action in Mt Isa real estate was not easily disposed of. I discuss that criticism later. The administrators inspected plant, equipment and building materials located at the development site. The approximate gross value was $2,800 on an auction basis. The administrators considered that moving the assets from the site was not cost efficient. A small quantity of plant and equipment was located at Mackay and was valued by a registered valuer as having an auction value of approximately $600. There was an allegation that other plant and equipment had not been disclosed. The company leased a Toyota Landcruiser whose registration had expired in November 1995 and had not been renewed. The administrators permitted Mr Carey to retain possession of it in Mackay. At the time of making the report to creditors the payout on the lease was $16,037.23. The account was in arrears in the sum of $936 and Toyota Finance had indicated to the administrators it intended to take possession of the vehicle if the arrears were not paid forthwith. An independent valuation of the vehicle was approximately $28,000. In order to -- 8 of 43 -- 8 preserVe the equity Mr Carey told the administrators he was making arrangements with Toyota Finance to pay the arrears owing. The company leased a Mustang 940 bobcat through QIDC. The payout figure on the lease as at 10 March 1996 was $12,298. A registered valuer indicated that its current market value was $14,000 with an auction value of $10,000. The administrators concluded that it was unlikely that any equity would be realised from its sale. Mr and Mrs Carey claimed beneficial ownership of the equity In the Toyota Landcruiser and bobcat pursuant to "a verbal agreement between the company and its directors in September 1994". The administrator concluded that such an agreement was inconsistent with the lease agreements entered into with the company. The administrators did not recognise the claim and reserved the company's rights pending receipt of documentary evidence in support of Mr and Mrs Carey's claim. The directors' loan accounts showed a debt to the company of $208,833. The company's financial statements for the year ended 30 June 1994 and a draft set of accounts as at 30 June 1995 were made available to the administrators by the company's accountants. For the financial years ended 30 June 1993 and 1994 the company had a deficiency of assets to liabilities of $155,969 and $19,805 respectively. The draft accounts for 1995 showed a deficiency of $143,255. The" current assets" in the 1994 accounts disclosed that the directors, personally and under the name Randal Carey & Co, owed the company a total amount of $404,771. The balance sheet includes two loans from Randal Carey & Co totalling $114,877. Assuming a right of set off the administrators concluded that the amount owed by the directors to the company as at 30 June 1994 was $289,894. The draft accounts in 1995 showed that amount as reducing to $208,833. Those draft accounts included provision for unpaid salaries to the directors of $195,000 claimed by the Mikkelsens -- 9 of 43 -- 9 for the financial years 1993, 1994 and 1995. The directors claimed to set off their unpaid wages against their loan account so that their debt could be reduced to approximately $13,000. Further information from the directors was to be sought. The property, plant and equipment of the company as disclosed in the depreciation schedule as at 30 June 1995 had a written down value of $72,369. It included leased and owned motor vehicles, but some plant and equipment had not been' identified to the administrators. Mr Carey told the administrators that those assets had either been "scrapped, sold, and in one instance, (a "kerb machine"), stolen". Investigations were said to be continuing. The Australian Tax Office claimed a priority debt in the sum of $6,560.89. The balance of the Commissioner's claim of $68,851.63 was unpreferred and unsecured. QIDC held real property mortgages over the three town house units and the company's eleven vacant blocks of land and the fixed and floating charge over the company's assets and undertakings. At the date of appointment the amount owed was $209,559 with interest accruing at approximately 14% per annum. Boulton Cleary & Kern, the company's solicitors until the appointment of the administrators, also acted for Mr and Mrs Carey. The firm lodged a claim against the company in the sum of $114,533.84 for legal services rendered to the company and Mr and Mrs Carey claiming security "pursuant to a Deed of Compromise and Bill of Mortgage dated 6 April 1994". The real property mortgages were not registered until 16 February 1996. The report to creditors indicated that a copy of the security documentation upon which the firm relied had been obtained and independent legal advice in relation to its validity sought. That advice has come before the court via the affidavit of Mr David Tucker, Mikkelsen's solicitor. -- 10 of 43 -- 10 Considerable criticism has been directed to the administrators for failing to investigate more fully the details of the firm's claim. The following appears in the report "The advice received is that the security appears to be valid with respect to legal services provided by BCK to the company, as· opposed to the directors personally. I am unable to specifically confirm the debt owing on the basis that it is not an advance but legal services rendered. However, I have reviewed BCK's files and advise that the majority of the work performed relates to defending legal actions and dealing with Queensland Building Tribunal matters on behalf of the company. It appears that BCK have provided legal services over many years and I have no reason to doubt the level of fees claimed." As they were obliged to do pursuant to Reg. 5.3A.02, the administrators advised the creditors whether there were any transactions that appeared to be void or voidable in respect of which money, property or other benefits might be recoverable by a liquidator. The report stated "My investigations into void and voidable transactions has been significantly hampered by the lack of books and records made available to me by the directors of the company, particularly those relating to the period from October 1994 involving the cash receipts and payments of the company." He referred to numerous legal actions in which the company was involved, usually as a defendant, for moneys owed and some of which culminated in winding up proceedings being commenced or statutory demands being issued and raised the possibility of unfair preferences. He suggested that the company may have been insolvent for some time based on its financial accounts. The following appears "Accordingly, there may be action against the directors for insolvent trading by a liquidator appointed to the company. If successful, the action would result in the directors being liable for the debts incurred whilst the company was insolvent." Without the books and records of the company from October 1994 relating to the company's payment history, quantifying the amount of possible voidable transactions was not then possible. The most recent company cheque book delivered by the directors was dated to -- 11 of 43 -- 11 27 April 1994 and the most recent cash book, 31 October 1994. The bank statements dated 28 February 1995 showed that the last cheque drawn and presented on the account was on 18 November 1994. Mr Carey advised Mr Buckby that the company's cheque account facility with QIDC was withdrawn in about September 1994 and from then on Mr and Mrs Carey claimed to have "financed and paid for everything". Further enquiries were to be made of the directors as to the company's trading history after September/October 1994 and the administrators would "possibly be in a position to advise creditors further in this regard at the Meeting of Creditors". Enquiries made subsequently with the company's Brisbane based accountants suggested that there was no likelihood of any unfair preferences. Based on the valuations obtained and the indicated debts of the secured and unsecured creditors the financial position of the company as at 25 March 1995 showed an estimated deficiency of $27,508. As required by the law the administrators set out the options available to creditors. Deed of Company Ammgement The major details of the proposed deed set out in the report were:- The company's three remaining units to be realised by the administrators. The question of funding the estimated costs of $10,000 to complete the units had not been resolved. The eleven vacant blocks of land were to be realised by the administrators. A block of land owned personally by the directors adjacent to the Sunset Palms development to be sold by the administrators with the proceeds of sale after realisation costs to be made available for distribution under the deed. The land was valued at $80,000 by Taylor Byrne. The property was -- 12 of 43 -- 12 encumbered by a mortgage to QIDC dated 7 June 1993, a writ of encumbrance by the National Australia Bank dated 19 December 1995, a writ of encumbrance by one Wardrop dated 18 January 1996, a caveat and mortgage by Boulton Cleary & Kern both dated 16 February 1996. The validity and quantum of the NAB and Wardrop encumbrances were then "unclear". Land owned by the directors at Burketown in Queensland to be sold by the administrators with the proceeds of sale being made available for distribution under the deed after realisation costs. The report stated that the administrators had only recently become aware of the directors' ownership of the land and were in the process of determining its value. (The directors' statement of affairs dated 25 March 1996 showed the value put on two blocks of land at Burketown by the directors at $1,000. They were eventually valued at $2,000 each). The company's plant and equipment excluding the Toyota Landcruiser and the bobcat (which were to be retained by Mr and Mrs Carey provided the lease repayments were completed within three months) to be sold by the administrators and the net proceeds distributed under the deed. The rental income derived from the three town house units to be applied against interest accruing on QIDC's facility and then against its principal. The order of distribution of funds realised under the deed was proposed as • the cost of realisation of assets QIDC (Ist mortgagee) • Boulton Cleary & Kern (2nd mortgagee) $25,000 payable to Boulton Cleary & Kern for preparing the deed -- 13 of 43 -- 13 administrators' remuneration and expenses unsecured creditors excluding any claim of Mr and Mrs Carey or any entity associated with them. Mr and Mrs Carey were to be released from any further claim by creditors under the deed, even if the deed subsequently failed, unless the failure was attributable to their actions. The estimated funds available under the proposed deed was $429,354. The sale of the directors' land in Mt Isa was estimated as realising $75,000. The value of the Burketown land was specifically excluded. The deductions were the QIDC mortgage of $211,000; the costs of finish to the units, $10,000; the Boulton Cleary & Kern mortgage of $114,533; the firm's fees for preparing the deed of $25,000; the administrators' estimated fees prior to the deed of $25,000 and the estimated fees during the administration of the deed of $25,000, which together totalled $410,533. From the funds then available the Australian Taxation Office's priority claim of $6,561 was taken leaving an estimated amount available for the unsecured creditors of $12,260 which would given a return of 4.5 cents in the dollar. The report emphasised that "at this time, the valuation of the Burketown land is not known and has therefore been excluded from the above calculation". It was suggested that if there were not as many requisitions as had been provided for the return may be greater. • Release from Control of Administrators This option was not recommended since the company was insolvent and there was a current winding up petition before the court. -- 14 of 43 -- 14 • Liquidation The report sought to estimate the position of the unsecured creditors should the company be placed in liquidation. The administrators used the forced sale figures provided by Taylor Byrne and the valuations of the company's plant and equipment. They included the equity in the Toyota Landcruiser of $12,000 and the estimated funds available from the asset sales at $6,566. They provided for the payment in full of QIDC's mortgage, the repair cost to the units of $10,000 and Boulton Cleary & Kern's mortgage. The administrators' fees were estimated at $25,000, the Australian Tax Office's priority of $6,561 was taken into account and an estimate of the liquidator'S fees including legal fees was set at $50,000. This brought about.a shortfall of $74,995 so that the return to the unsecured creditors would be nil. The investigations that might be undertaken by a liquidator which might result in further funds being available were set out. Investigations would be carried out and possible recoveries made in respect of unfair preferences, unfair loans, uncommercial transactions, insolvent transactions, the recovery of the directors' loan account and fraudulent transactions. The costs of undertaking such investigations and pursuing such claims were said to be significant and the creditors would need to fund those actions. The report emphasised that in the event of liquidation it was possible that either QIDC or Boulton, Cleary & Kern would appoint a receiver and manager to enter into possession of the assets of the company. This would involve additional enforcement costs and would further reduce any prospect of a return to unsecured creditors. The administrators recommended that it would not be in the creditors' best interests for the company to be wound up. The likelihood of any return to unsecured creditors on a liquidation was dependent on a number of contingencies including -- 15 of 43 -- IS whether the secured creditors would seek to enforce their securities and the effect on the realisable value of the assets; • clarification of the position of the loan accounts between the company and its directors; if funds were owed to the company by the directors, whether the directors had the capacity to satisfy any judgment; • further investigations required to determine whether any transactions were void or voidable so as to be recovered by a liquidator the ability of a liquidator to conduct further investigations and pursue recovery actions would be dependent upon creditors being prepared to fund those actions and the level of such funding would "need to be significant". The administrators recommended that it was in the interest of creditors to execute a Deed of Company Arrangement because on balance there appeared to be greater prospects of a return to unsecured creditors; land assets, the property of the directors personally, were being made available for the benefit of creditors of the company which would not under a liquidation, prima facie be available; there was a prospect of an improved return to unsecured creditors under the deed on the basis of an orderly sale of the land assets as opposed to the reduced return from a mortgagee's or receiver's sale; costs associated with administering a deed were likely to be "significantly less" than the cost of winding up and ancillary investigations. -- 16 of 43 -- 16 The recommendation was made on the basis that the encumbrances registered on the title of the directors' land at Mt Isa were removed by the directors to facilitate its sale. The Second Meeting of Creditors The second meeting of creditors was held on 2 April 1996 at the offices of the administrators who were both present. Mr Dennis was appointed chairman. Those present were the administrators' solicitors' representative Mr G Rodgers of Gadens Ridgeway and Mr N Seeton of the administrators' office who was appointed minute secretary, Mr Carey, the representative of QIDC, Mr Keith Kern a partner in the firm Boulton Cleary & Kern, Mr J Guy also of that firm and several unsecured creditors. Mr C Turnbull formerly solicitor for Mikkelsens was present to observe on behalf of a number of unsecured creditors. Ms Cynthia Stevenson was present on behalf of Mikkelsens and held a number of proxies from unsecured creditors as did Mr Kern. The meeting was tape-recorded for the purpose of minute taking. • The Proxies A number of proxies held by Ms Stevenson were rejected by the chairman on the ground that only one director had signed through the company seal when such companies were not known to be single director companies. Some telephone enquiries were made. Another proxy held by Ms Stevenson was disallowed because a later proxy had been given by that creditor to Mr Kern. The meeting had commenced at 3. OOpm, the proxies were ruled on at about 4.lSpm and at about S.OOpm Ms Stevenson asked the chairman to adjourn the meeting so that the proxies ruled invalid for voting purposes could be rectified. This occurred after discussion on the proposed deed. There was discussion concerning the proper form of proxies given by corporations. The chairman took advice from Mr Rodgers. On inquiry it was suggested that the cost of an adj ournment for seven days could be as high as $10,000. Mr Kern called for a poll to be taken on the motion for adjournment. The result of the poll -- 17 of 43 -- 17 was nine votes in favour of the motion totalling in value $190,076.06 and nine votes against totalling in value $517,146.18. The chairman exercised his casting vote pursuant to Reg. 5.6.21(4) voting against the motion. Mikkelsens has maintained that the proxies were incorrectly disallowed or alternatively that the corporate creditors were misled by the form of the proxy sent out to creditors by the administrators. Regulation 5.6.35 provides that a document purporting to be a copy of a resolution made under subsection 249(3) authorising a person to act as proxy at a meeting which has been verified as a true copy of the resolution or that is under the seal of the company is conclusive evidence of authority to act as proxy. Section 164(3) provides that a document has been sealed by the company if it bears what appears to be the impression of the company seal attested by two persons whom it may be assumed to be directors of the company or a director and secretary. The proxies disallowed (except for the one given later in time) were not in accordance with the Law and as much now appears to be conceded. The letter notifying the meeting sent to creditors by the administrators included the following "You are not obliged to execute the proxy form under company seal, but if you do not please provide me with a certificate of the resolution of the board of directors which authorised the signatory to execute the form." The proxy forms exhibited to Ms Stevenson's affidavit of 9 April 1996 merely have printed provision for one signature. The proxy form which is "CAS 2" to the affidavit, lodged on behalf of Mikkelsens at the first creditors' meeting had separate provision for individual and corporate authorisation indicating "director" with two lines and "secretary". Such a form is helpful and is likely to obviate error. Failure to provide such a form can hardly be described as misleading as was submitted on behalf of Mikkelsens. The value of the creditors' claims whose proxies were in dispute was $51,656.07. Even had those proxies been allowed that -- 18 of 43 -- 18 would not have increased the value of those voting against the deed so as to affect the outcome. Mr Dennis swears that he would still have voted as he did. The failure to vote in favour of an adjournment given the paucity of funds and the reason for the adjournment cannot be criticised as exercised not bona fide. One other matter needs to be mentioned about the proxies. Mr Kern voted in favour of the deed both on his own behalf and on behalf of the proxies which he held. He and his partners would receive remuneration out of the assets of the company if the deed were approved because they were to be paid for the preparation of the deed. Pursuant to Reg. 5.6.33 he might not vote in favour of any resolution which would directly or indirectly lead to that advantage. Mr Kern has sworn that he voted the proxies due to inadvertence. They add up to $88,608.64 but if disallowed would not have affected the voting on the deed as to value. That would have meant that creditors to the value of $387,375.89 were in favour of the deed. If the value of the unsecured creditors' debts whose proxies were disallowed and held by Ms Stevenson are added to the value of those who voted against the deed that gives an amount of $282,237.71. The chairman would still have been required to cast his vote and in view of his indication at the meeting and his sworn evidence that he continues to support administration over liquidation it may reasonably be concluded that he would have cast his vote in favour of the deed. One further comment needs to be made on the question of proxies. Mr Kern is shown in the minutes of the meeting to have held a proxy from his firm. He has since said that that is incorrect, no proxy was tabled and he voted in his own right as a partner. The hearing before Fryberg J proceeded on the basis that he did indeed hold a proxy for the firm and the argument was confined to the effect of Reg. 5.6.33. This appeared to have been given particular weight by his Honour. However it is clear and was accepted by those who -- 19 of 43 -- 19 appeared before me that as a partner he had an undivided interest in the whole of the debt owing to the partnership. He was thus voting his own debt when he voted the partnership debt and not as a proxy, Canny Gabriel Castle Jackson Advertising Pty Limited v. Volume Sabs (Finance) Pty Ltd (1974) 131 CLR 321 at pp.327-8; Halsbury 4th ed vol 35 para 1. The chairman tabled the directors' statement as to the company's affairs and financial position and the administrators' report to creditors. Mr Guy thought that Mr and Mrs Carey's statement of assets was also tabled. It is not recorded in the minutes. The chairman advised that the administrators believed that they had now received the majority of the books and records of the company from the directors although some were incomplete. The chairman took the meeting through the report. He explained that the outstanding requisitions had not been received from the Mt Isa City Council and drew the meeting's attention to the different bases of valuation by Taylor Byrne. He advised that the unsecured creditors' claims at the time of preparing the report were estimated to be approximately $270,000 but that further claims of unsecured creditors had been drawn to the administrators' attention. The administrators had expended considerable time in investigating and reconciling the directors' loan accounts. The directors owed the company approximately $107,000 but had lodged a counterclaim for unpaid wages in the sum of $195,000 which would make them net creditors in the sum of $88,000. There had been allegations that plant and equipment had been disposed of but after investigations nothing conclusive had been identified by the administrators. Investigations into voidable transactions had been hampered by the lack of books and records but the company's accountants in Brisbane had indicated that it was unlikely that any creditors had received unfair preferences which could be recovered by a liquidator. -- 20 of 43 -- 20 The administrators had formed the view that due to the number of winding up petitions brought against the company and because of the historical trading figures it was possible that there was an action against the directors for insolvent trading since 1993. Mr Rodgers outlined the terms of the proposed deed of company arrangement which in summary form was attached to the minutes of the meeting. The meeting was told by Mr Kern that Mr and Mrs Carey would only be released from all claims against them provided that the deed did not fail due to any action on their part. The chairman recommended that the deed be approved stating that the administrators' recommendations had not changed as a result of further investigations. He emphasised that the secured creditors would more than likely take action to enter into possession of the assets of the company as mortgagees if the company went into liquidation which would result in a lower return to the creditors and the administration costs of a liquidation would be greater than the administration of a deed of arrangement. The chairman advised the meeting that the administrators had enquired into Mr and Mrs Carey's financial position. He observed that under the proposed deed Mr and Mrs Carey agreed to release the company from all claims to unpaid wages and would not share in any dividend. He told the meeting that the administrators had sought legal advice and undertaken significant investigations in respect of voidable transactions but that it was unlikely that there was any prospect of recovering unfair preferences in a liquidation. The administrators had received minimal funds' in the administration and in the event of liquidation the creditors would have to fund any further investigations or legal actions. The chairman pointed out that under the deed Mr and Mrs Carey were offering personal assets which prima facie would not be available to the creditors of the company in the event of liquidation. Those assets comprised the land at Mt Isa and the land at Burketown. The meeting was informed that -- 21 of 43 -- 21 there were encumbrances registered on the directors' land at Mt Isa. Mr and Mrs Carey had agreed to pay a Bankcard debt of $7,692.34 in Mrs Carey's name secured by NAB and the debt due to Mr Wardrop of about $2,461.10. Mr Kern told the meeting that the secured creditors would not waive their rights; as to insolvent trading Mr and Mrs Carey had no assets "of any significant value" and had provided a statutory declaration in that regard. In the event of liquidation, the minutes record him as saying, a liquidator would recover nothing from Mr and Mrs Carey as they had nothing to offer. After the motion for adjournment was lost Mr Kern moved that the deed of company arrangement be accepted by the creditors. The chairman invited creditors to speak to the motion. Ms Stevenson wished to move a motion that the administration should end. The chairman refused to allow her to do this since there was already a motion before the meeting. In response to a question from the representative of the Australian Tax Office Mr Kern on behalf of Mr Carey said that Mr Carey would be working in his own right as a builder and the company would not be trading. After some further discussion Mr Kern requested a poll be taken. The results of the poll were seven creditors in favour of the deed totalling $475,983.53 in value and eleven unsecured creditors against totalling $231,237.7l. The chairman cast his vote in favour of the deed. The chairman pointed out to the meeting that even were the proxies which had been rejected for voting purposes admitted the outcome of the vote would not have changed in that the majority in value would have voted in favour of the resolution and he would have exercised his casting vote in the same fashion. Ms Stevenson advised that she would apply to set aside the resolution on the ground that the chairman had not acted bona fide in casting his vote. -- 22 of 43 -- 22 The chairman tabled the accounts for the administrators for the period to 28 March in the sum of $28,866.58. There were no questions in relation to the fees .. Mr Kern moved that the~ be approved which was carried. There was no further discussion and the meeting closed. Before Thomas J It is relevant to the exercise of the discretion to grant the relief sought to consider in some detail the application heard by Thomas J. On 12 April Mikkelsens brought.an application to appoint a provisional liquidator to the company. The Deed of Company Arrangement had not then been executed. In his reasons for judgment Thomas J said "A number of features of the conduct of the meeting have given concern to various creditors and this had led to the present application by one of them." His Honour pointed out that one of the features of the proposed deed was that the directors of the company would hand over their property in Mt Isa "worth between $75,000 and $90,000 for the benefit of the creditors and they will also provide some other minor assets and contributions". His Honour noted that the opinion of the administrators was that on a conservative estimate of realisation of assets there would be enough to payout the secured creditors and to pay the unsecured creditors 4.5 cents in the dollar. His Honour was satisfied that the realisation would "probably be less advantageous" in the event of a liquidation. His Honour observed that many issues had been raised on the application including irregular conduct of the creditors' meeting. His Honour accepted counsel for Mikkelsens' submission that "in the end the single issue which must determine the result is whether it is in the interests of the creditors that the present administration should continue rather than a liquidation which will result in investigation of the activities of the company and its directors" . -- 23 of 43 -- 23 His Honour referred to the engagement of Boulton Cleary & Kern a secured creditor, to draw the deed for a fee of $25,000 which had "left a bad taste in the mouth of those creditors who want a liquidator appointed." His Honour noted that the fee was authorised by the resolution of a majority of creditors at the meeting but that vote was sustainable only if Mr Kern's own vote in favour of his own firm was counted and if the chairman's exclusion of Ms Stevenson's five proxies was valid. I do not take his Honour by that to be suggesting that Mr Kern was disqualified from voting as a creditor in favour of the Deed but only that he had a very personal interest in its outcome. As has already been discussed Mr Kern was precluded by Regulation 5.6.33 from voting the proxies in favour of any resolution which would entitle his firm to any remuneration out of assets of the company except as a creditor rateably with the other creditors. His Honour noted that the difficulty occasioned by the fee was "largely" removed by an undertaking offered through counsel that the firm would retain only so much of the $25,000 as would be certified by an independent costs expert. His Honour noted that he was not asked to decide the question of the validity of the resolution but simply to regard the points of objection as a factor in the wider issue of which procedure, administration or liquidation, should now be preferred. He saw the task as primarily a practical commercial decision whilst recognising that there were some factors which involved the "public interest and the appearance of things". Counsel for Mikkelsens submitted that the expected realisation was unlikely to be as good as the administrators had advised. Counsel for the administrators drew attention to the conservative nature of the estimates. His Honour mentioned the risk of reduced prices if there was a liquidation and if the secured creditors appointed a receiver. Counsel for Mikkelsens indicated that his client would wish to have proceedings taken to set aside the Boulton Cleary & Kern mortgage as an uncommercial transaction on the -- 24 of 43 -- 24 ground that some of the fees were incurred by the directors personally rather than on behalf of the company. His Honour characterised this as not a particularly promising line of attack. He pointed out that if ultimately litigated it would be fought hard and expensively. It was submitted that there was a potential claim against the directors over the loan accounts. His Honour noted that the material suggested that the directors had not received any payment of wages which the administrator accepted they would be entitled to. He noted that there was "serious doubt" that the Careys had assets that were worth pursuing if there were to be actions against them as directors. The question of the Toyota Landcruiser and bobcat remaining in the possession of the Careys was raised. His Honour observed that since the Careys were personally making the repayments on the lease then that would have to be taken into account should the company repossess the vehicles and it was unlikely that any benefit would come out of it to the company. His Honour observed that it may have been the case that during the inactive period the directors may have mixed accounts but noted that investigations by the administrators' would suggest that no particular loss had resulted to the company in them so doing. It was submitted that an investigation into the affairs of Mr and Mrs Carey was desirable because they had not given all of the books to the administrator before the meeting and probably even not yet. His Honour said "Accepting those criticisms the case still does not reach that of a situation that calls for close analysis and investigation in the public interest." He considered the general allegations against the conduct of the directors. He observed that there was "very little specificity" in the type of impropriety that was alleged to have been committed by them. One claim ventilated was that the Mt Isa land ought to have been a company asset. Enquiries made by the administrators indicated that it was acquired before the company was incorporated. His Honour observed, in the event it made little difference -- 25 of 43 -- 25 because the land was to be surrendered. He noted that the administrators had made enquiries of other persons concerning the affairs of the directors without turning up anything against them. Their further enquiries after the second meeting of creditors tended to confirm their satisfaction that overall the state of account between the company and the directors would be reasonably handled by the current administration. His Honour concluded "So it seems to me the question whether there is a sufficiently bad odour to require in the public interest further legal investigation and pursuit should be answered in the negative." He agreed with counsel for the directors that there did not appear to be "any pot of gold at the end of the road". In commercial terms he said it was not probable that the creditors would get any financial advantage if a winding up replaced the present administration. He did not think that it would be "overall in the interest of the creditors to change direction at this point". His Honour dismissed the application for the appointment of a provisional liquidator on an undertaking by Boulton Cleary & Kern to retain only such fee as would be certified by Mr F Monsour, a costs assessor, to be a fair and reasonable charge for the preparation of the deed. The Deed The Deed of Company Arrangement was executed between the administrators, the company and Mr and Mrs Carey on 22 April 1996. It contains standard clauses. The effect of relevant clauses has been mentioned. By c1.l4(a) the creditors accepted the Deed in full and final satisfaction and discharge of all debts and all claims against the company. Clause 25 discharged Mr and Mrs Carey from all claims, arising out of their relationship with the company. By c1.26 that release would not be avoided inter alia by the termination of the Deed, any winding up of the company or appointment of a liquidator except due to their default. -- 26 of 43 -- 26 By c1.24 the administrators disclaimed any interest in the Toyota Landcruiser or the Mustang bobcat if Mr and Mrs Carey paid all the sums arising out of the leases within three months of the Deed coming into operation. Mr and Mrs Carey undertook to remove the encumbrances of NAB and Mr Wardrop from their Mt Isa land. Should the Deed Now be Avoided? Mikkelsens submit, inter alia, that the deed should be avoided because:- There is now no prospect of a dividend being paid to the unsecured creditors. There is some prospect of recovery from the directors for insolvent trading and the recovery of company loans. There is some prospect of setting aside the Boulton Cleary & Kern mortgage .as an uncommercial transaction. The directors deceived the second creditors' meeting as to their financial worth. The contribution of the directors' Mt Isa land and the Burketown land was advanced as a benefit to the creditors which would be lost if a deed was not approved, but which in reality, was worth very little. Mr Morrison submitted that if there is to be no dividend that is due in part to conduct by Mikkelsens in bringing the applications before Thomas J and Fryberg J. This further application has been necessary due to a failure by Mikkelsens to serve Mr and Mrs Carey. He points to conduct by Mikkelsens in putting a "black ban" on the switchboard of one of the units to be sold by the administrators which resulted in several months' delay in the unit being completed and its sale. The evidence reveals that Mikkelsens would lift the ban for $20,000. The value of their claim against the company is $18,315. Although there was no reduction in the price realised for the unit from that which had been estimated, interest to QIDC continued to run and was an extra cost as well as the extra costs associated with the real -- 27 of 43 -- 27 estate agents attempting to resolve the problem over months. He submitted that the delay in bringing the application was significant, the terms of the Deed having been substantially carried out and that the issues raised by Mikkelsens and QBSA had been litigated before Thomas Jon 12 April 1996. He argued that the directors had altered their position in reliance on the Deed and in any event, because certain clauses in the Deed and s.445H of the Law prevented recourse against them, there was nothing to be gained. The Legislation Mikkelsens and QBSA maintain that the objects of Part 5.3A of the Law are now unable to be given effect to and accordingly the Deed should come to an end. The object of Part 5.3A is stated in s.435A "... to provide for the business, property and affairs of an insolvent company to be administered in a way that: (a) maximises the chances of a company, or as much as possible of its business, continuing in existence; or (b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company." Plainly (a) does not apply. The scheme of the following sections IS to reqUIre an administrator to act quickly. Whilst this expedition is of obvious benefit if a business is to continue, there is an advantage to creditors in being paid as quickly as possible rather than wait for what often becomes years in a liquidation. As is recognised this often means that the administrator's investigations are less complete than on a liquidation. Section 444H releases the company from a debt only in so far as the deed provides for its release and the creditors are bound by the deed. Section 445D empowers the court to terminate a deed if it is satisfied that -- 28 of 43 -- 28 "(a) information about the company's business, property, affairs or financial circumstances that: (i) was false or misleading; and (ii) can reasonably be expected to have been material to creditors of the cornpany in deciding whether to vote in favour of the resolution that the company execute the Deed; was given to the administrator of the company or to such creditors; or (b) such information was contained in a report or statement under subsection 439A(4) that accompanied a notice of the meeting at which the resolution was passed; or (c) there was an omission from such a report or statement and the omission can reasonably be expected to have been material to such creditors in so deciding; or (d) there has been a material contravention of the deed by a person bound by the deed; or (e) effect cannot be given to the deed without injustice or undue delay; or (f) the deed or a provision of it is, an act or omission done or made under the deed was, or an act or omission proposed to be so done or made would be: (i) oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more creditors; or (ii) contrary to the interests of the creditors of the company as a whole; or (g) the deed should be terminated for some other reason." The court may void the deed in certain circumstances. Section 445G provides "(1) Where there is a doubt, on a specific ground, whether a deed of company arrangement was entered into in accordance with this Part or complies with this Part, the administrator of the deed, a member or creditor of the company, or the Commission, may apply to the Court for an order under this section. (2) . On an application, the Court may make an order declaring the deed, or a provision of it, to be void or not to be void, as the case requires, on the grounds specified in the application or some other ground. -- 29 of 43 -- 29 (4) Where the Court declares a prOVISIOn of a deed of company arrangement to be void, the Court may by order vary the deed, but only with the consent of the deed's administrator." Section 445H provides that the termination or avoidance in whole or in part of a deed does not affect the previous operation of the deed. As was observed by Cohen J in Hagenvale Pty Ltd v. Depela Pty Ltd (1995) 13 ACLC 886 at p.890 "The intention [in respect of Part 5.3A] was, as has been indicated in several cases, to provide a more expeditious and less expensive way of assisting those creditors and members than under the greater formality of a winding-up or of the entry into a scheme of arrangement. One result, however, is that an administrator, constrained as he or she is by the time limits imposed under the Part, cannot carry out a detailed investigation of a company in the same way as can a liquidator, and accordingly the administrator's actions must be looked at in the light of that more restricted range of activities which were available to him. A further result, when dealing with a Deed of Company Arrangement under Part 5.3A, is that the amount of detailed information which would be given to creditors in a scheme for arrangement under s.411 of the Corporation Law is not available, again because of time restrictions and the need to have material sent to creditors quickly. It will also be noted that the provisions for the passing of resolutions to approve a Deed of Company Arrangement under this Part do not require meetings of various classes of membexs or creditors, nor for the passing of the resolution by a majority in value or a majority of creditors present of more than 75%, as is the case under a s.411 scheme." There are two broad areas that require consideration, namely, whether the public interest requires the Deed to be set aside and investigations be carried out into the conduct of the directors' and whether a liquidation is likely to result in a better return for the company's creditors than would result from an immediate winding up of the company. Alleged Deceit bv the Directors Much has been made of the alleged deceit of the directors. Two areas were identified by Ms Stevenson in her affidavit. The first was that the personal assets being advanced by the directors were said to be of value when they were -- 30 of 43 -- 30 virtually worthless. The second was that the directors' individual financial position was parlous and they were not worth pursuing when evidence suggested that they had and had access to, funds. The land at Mt Isa realised $60,000 and not the $80,000 value put on it in the statement of assets. The Taylor Byrne valuation was $80,000. Mikkelsens contend that the administrators ought to have taken greater account of the warning from their solicitor who advised caution when assessing the likelihood of funds being realised from land in Mt Isa because prices were depressed due to industrial action. The administrators did not direct the attention of the creditors to that advice but they had obtained valuations from respected valuers and were entitled to expect that the valuers had taken all appropriate factors into account. It could hardly be regarded as deceptive conduct for the directors to nominate a value which was the same as that given by the valuers. There is no suggestion that either the administrators or the creditors relied upon the directors rather than the valuer's valuation of the land when considering the recommendations. Perhaps a word of caution ought to have been given that the price .may not be achieved, but it is a common experience that land prices often do not achieve their estimate. The directors identified the land which they owned at Burketown as two blocks being worth $1,000. The chairman did not draw this valuation to the attention of the creditors but said that there was no valuation of the land and it should be counted in at nil value. Mikkelsens submit that the Burketown land was put forward as a "selling point" together with the land in Mt Isa. A perusal of the minutes does not suggest that the Burketown land was puffed up as being likely to add to the dividend. A fair reading suggests that it was mentioned as indicating that the directors were prepared to put in whatever assets of value they had. As to the Mt Isa land it was quite plain that it was encumbered with the QIDC and -- 31 of 43 -- 31 Boulton Cleary & Kern mortgages as well as the writs of execution. The amount of the debts was identified. No creditor could have been under any mistaken belief that in some way something extra from the proceeds of sale was going into the pool of funds. The advantage was that the proceeds of sale were immediately available to discharge part of the QIDC debt and the extra cost involved in the appointment of receivers and managers was avoided. The directors agreed to discharge the encumbrances on the land which were personal to them, namely Mrs Carey's credit card debt for approximately $8,000 and the Wardrop debt for approximately $2,500. Had those latter encumbrancers sought to enforce their security they would have received nothing but the payment of those debts by the Careys freed the land immediately. There was a net benefit to the creditors in the directors cooperating in this fashion. The main complaint about the "deceit" of the directors was that the date on which they executed their statutory declaration "fortuitously" occurred on a day when there was very little in their joint bank account. The following day, the 26 March, the account showed a cheque deposited for $27,580. At the date of the second creditors' meeting the balance stood at around $15,000. Mr Carey was present at the meeting and Mikkelsens complain that he permitted Mr Kern to say that it was pointless pursuing Mr and Mrs Carey for insolvent trading because they were worthless financially. Mr Carey offers an explanation. By letter dated 5 March he was notified by the Nebo Shire Council that he had been successful in tendering to build two duplex units in Nebo for $217,440 and constructing an office block for $58,368. By letter dated 20 March Mr Carey set out the basis of payment for each stage of the works including the first invoice for $27,580 being a 10% deposit payment. The meeting had been informed that Mr Carey proposed to continue in the building industry in his own name and the company would not be trading. This sum of money was clearly no "pot of -- 32 of 43 -- 32 gold" smce it was a deposit for work to be done under a contract. Apart from the representative~ofthe Australian Tax Office who enquired as to how Mr Carey proposed to pay his tax, the creditors present did not seek to question him in any way as to any work which he had obtained or was likely to obtain in the future. Moneys coming into the Carey's account after the meeting are identified as progress payments from the Council. Two incidents are referred to in Mikkelsens' material to support the allegation that Mr and Mrs Carey had a fund of money from which they could draw when pressed. Mr Carey purchased a Mack truck from a Mr Russell for $11,000 very approximately in early 1995. He had possession of the truck but had not paid for it. A confrontation ensued on 19 April 1996 during which Mr Russell put in train seizing the truck. Mrs Carey withdrew $11,000 from their National Australia Bank account on that day and he was paid. She did so from the payments made by the Nebo Shire Council. There is also some reference to payment of traffic and other fines in the vicinity of $1,000. They would appear to have been paid from the same source. Questions were also raised as to how Mr Carey was able to satisfy the financial requirements of the Building Services Authority in the second half of 1996. He had had restrictive conditions imposed upon his licence to work as a builder. The balance sheet provided by his accountant as at 9 August 1996 showed him as entitled to a 50% share of the assets of the partnership between himself and Mrs Carey and that he personally owned plant and equipment. The total was valued at $77,980. The plant and equipment as described is old and whether the items would carry the values attributed to them in light of the valuations obtained for other chattels retained by the administrator is very doubtful. The Mack truck, for example, is valued at $11,000 several years after its purchase for that price. Mr Carey swears that his improved position was due to the work from the Nebo Shire Council and sets -- 33 of 43 -- 33 out his contracts. By the time the application to appoint provisional liquidators came before Thomas Jon 12 April numerous small payments had been made out-of the joint bank account and it was in debit. Shortly afterwards another progress payment was made by the Council. Allegations of access to undeclared funds and the hiding of plant and equipment had been made to the administrator by some of the unsecured creditors prior to the second creditors' meeting. Mr Buckby has sworn that he made investigations and has had investigations carried out concerning those allegations. Nothing has been turned up. It may well be the case that the plant and equipment in the company's returns was over-valued as with Mr Carey's own plant. I am not concerned to investigate that. The reality is that there were no funds or secreted assets or indications of them at the time of the second creditors' meeting and nothing has been revealed since. Nonetheless, directors seeking the agreement of creditors to a deed of company arrangement in respect of a company operated by them must be scrupulous in their dealings with their creditors. The better course would have been to reveal the contract and its profitability to the creditors. Commonsense would have suggested to the creditors that having revealed that he was working as a builder on his own account that the contracts would be expected to be profitable. It is a factor to take into account, but not a weighty one. The Boulton CIeruy & Kem Mortgage It was not surprising that Mikkelsens and other unsecured creditors were concerned about this mortgage. It was registered only three weeks before the company resolved to go into administration and was described in the report to creditors as "pursuant to a Deed of Compromise" which proved not to be the case. Mikkelsens' solicitors expended effort in chasing up the "deed" which was finally revealed to be an agreement in the form of letter dated 12 April 1994 from Boulton Cleary & Kern signed and returned by the directors. -- 34 of 43 -- 34 Mr Guy informed the administrators' office of the true nature of the agreement prior to the second creditors' meeting but it was referred to in the report as a "Deed of Compromise." Mr Kern did not seek to correct this at the meeting so far as the minutes reveal. The administrators were satisfied that there was an agreement and it is not suggested now that there was not but to persist in calling it a deed of compromise when it was clearly not the case has served only to arouse the suspicions of numbers of the unsecured creditors. The advice of the administrators' solicitors was that the mortgage would not be an unfair preference given its date in 1994 but did raise whether it may be an uncommercial transaction which could be avoided by a liquidator. This, they advised, depended on an examination of the files to ascertain the extent to which the work was done for the company or for Mr and Mrs Carey. If virtually all of the work was carried out for the Careys then granting the mortgage would be an uncommercial transaction because there was little benefit given to the company. Even if the work was done largely for the company the reasonableness of the fees could be investigated. The solicitors advised that copies of all memoranda of fees and dates of payment should be obtained from Boulton Cleary & Kern together with any fee agreements to ascertain the level of work done for the Careys and whether the fees were reasonable in all the circumstances. The administrators were advised to inspect Boulton Cleary & Kern's files "to determine all possible bases for challenging the quantum of their fees". Mr Buckby informed the meeting that he had reviewed the files and advised that the majority of the work performed related to defending legal actions and dealing with Queensland Building Tribunal matters on behalf of the company. The firm had provided legal services to the company over many years and he had no reason to doubt the level of fees claimed. In his affidavits Mr Buckby discusses this matter in greater detail. From his -- 35 of 43 -- 35 investigations he understood that Boulton Cleary & Kern claimed outstanding fees in a greater amount but reduced the claim. The evidence suggests that there had been numerous suits against the company including a number of winding up applications in the past. Mikkelsens argued that the administrators ought to have had the fees charged assessed by a costs assessor. There has been very little income in the administration. Having satisfied themselves of the nature of the work done and the appropriateness of the level of fees it was not unreasonable not to have incurred further costs. Mr Cameron Turnbull, Mikkelsens then solicitor was present at the creditors' meeting and is not recorded as asking any questions in respect of this matter. On a liquidation the level of fees could be investigated. Credit would have to be given for the work done for the company. Since some fees have been waived the result may be of no advantage. Creditors' Guarantees Mikkelsens submit that if the Deed remains its terms prevent a creditor from pursuing any guarantees which it might hold from the directors. Mikkelsens is not a party to the Deed. It binds all creditors by virtue of s.444D of the Law but only so far as they are creditors of the company. A company is released from its debts insofar as the Deed provides for the release and the creditor is bound by the Deed, s.444H. The extinguishment of the company's debts is by operation of law and not by agreement and there is authority to the effect that it does not operate to discharge a surety, Hill v. Anderson Meat Industries Ltd (1972) 2 NSWLR 704. Mandie J in Gan v. Saunders (1994) 15 ACSR 298 considered that very clear language would be needed in a deed of company arrangement as intending to stay proceedings against third parties including sureties. Section·440J of the Law protects guarantors who are directors from enforcement of a guarantee whilst the company is under administration. See also Re Andersons Home Furnishing Co Pty Ltd unreported decision of Demack J of 16 -- 36 of 43 -- 36 August 1996 (O.S. No. 14 of 1996 in the Mackay District Registry). The guarantee is not before the court. While cl.25 of the Deed expresses Mr and Mrs Carey's discharge and release in wide terms it is in respect of their relationship with the company as directors and/or shareholders and not as guarantors of its debts. This aspect of Mikkelsens' contentions was not argued at all fully and in the absence of clear words and a consideration of the guarantee I would not conclude that the Deed discriminates against Mikkelsens in this respect. Boulton C1eruy & Kem's Fee for Drawing the Deed Mikkelsens are critical that Boulton Cleary & Kern have not had their fee assessed for drawing the Deed. The firm has not been paid. If there are any prospects that they will be paid then the undertaking to the court not to retain any greater amount than assessed by a costs assessor deals with that concern as was recognised by Thomas J. The Directors' Position Altered Mr Carey has sworn that had he and/or his wife been exposed to personal liability they would not have entered into the Deed and made available to the administrators and the creditors their interest in the real property at Mt Isa and Burketown. He swears that he would have considered the incorporation of a further company to conduct further business as a builder and would have dealt with any claims in respect of matters concerning loan accounts and directors'liability as and when they arose. Although Mr Carey was already operating in his own. name as a builder prior to the Deed being put to the meeting that does not answer the directors' concern. I do not consider the potential exposure of the directors alone as a compelling reason for maintaining the Deed if it ought to be otherwise set aside. Mikkelsens submit that the Toyota Landcruiser and the bobcat could be repossessed by a liquidator and sold. The amounts paid by Mr and Mrs Carey in discharge of the lease liabilities of the company would have to be taken into account. They claim that they are -- 37 of 43 -- 37 personally entitled to the equity in the chattels. No proof has been forthcoming but if the company ceased to trade in 1994 and Mr and Mrs Carey paid the lease payments with their own funds there is ground for a dispute. It is not a promising area for recovery, and the very best for the company would be in the vicinity of $12,000. It was contended by Mikkelsens that the Burketown land could be reconveyed to Mr and Mrs Carey. Mr Morrison has submitted that s.445H would prevent this occurring. I doubt that this is so, but prefer not to consider this further in the absence of detailed submissions and it is unnecessary for the resolution of the matter. Mr and Mrs Carey paid from their own funds an amount of approximately $11,000 to clear the encumbrances on the title to the Mt Isa land which secured the debts of QIDC and Boulton Cleary & Kern. Mr Carey maintained that the Wardrop debt was a debt owed by the company and not him personally. If the Deed were avoided this may become a debt owed to Mr Carey. It would be difficult to argue that the $8,000 should be repaid to Mr and Mrs Carey as it was a debt which Mrs Carey was obliged to pay and has now been paid. There may however be some argument that she would have reached some other accommodation with the National Australia Bank. Mr Morrison has contended that s.445H prevents any recourse against Mr and Mrs Carey even if the Deed is brought to an end because c1.26 protects them and maintains their release from all liabilities by virtue of their relationship with the company should the Deed be terminated or the company be wound' up. That submission is not, in my view, correct in as much as such an arrangement cannot oust the operation of the Law at least to the extent that they would be exempt from proceedings for insolvent trading, Winterton Constructions Pty Ltd v. MA Coleman Joinery Co Pty Ltd (1996) 20 ACSR 671 per Young J at p.676. -- 38 of 43 -- 38 Telmination Under S.445D From the above it can be seen that I am not persuaded that the information given to the creditors about the directors' land and their financial circumstances including their loan accounts with the company or the Boulton Cleary & Kern mortgage was false or misleading or there was an omission which would have been material to the creditors in deciding to vote for or against the deed. The other basis raised for terminating the Deed is that it is unfairly discriminatory against the unsecured creditors. I do not understand Mikkelsens to argue that it is contrary to the interests of the creditors of the company as a whole. The secured creditors are protected whether by the Deed or in a liquidation, indeed QIDC has been paid in full. The interests of the unsecured creditors required particular attention because it was plain that after the expenses of an administration or liquidation there would be little if anything available for them. There is nothing to suggest that the administrators did not have due regard for their interests. Even though the price obtained for the directors' Mt Isa land was less than had been expected, had it been disposed of as a forced sale by receivers the return would have been even less. In my view there is no basis for terminating the Deed pursuant to s.445D. Declaration That Deed Void Pursuant to S.445G The doubt which has been identified by Mikkelsens is that there was no genUIne likelihood that the company's creditors would get a better return from a deed of company arrangement than from an immediate winding up of the company. When the deed was recommended to the meeting of creditors there was some expectation that a dividend would be paid to the unsecured creditors. Optimism was expressed that it may be greater than 4.5 cents in the dollar. This depended upon fewer or nil requisitions by the Council. Since then -- 39 of 43 -- 39 there has been conduct on the part of Mikkelsens which has eroded that fragile margin in addition to the lower price of the directors' land. Mikkelsens have said in respect of that submission that the administrators have not put forward the cost of their appearances in court to answer Mikkelsens' applications. In my view it is not necessary for them to do so in order to make the point. Counsel instructed by solicitors appeared for the administrators before Fryberg J and Thomas J. Fees will have to be paid. There is also the matter of the "black" ban and Mikkelsen's conduct associated with it which has reduced the return to creditors. Mikkelsens have also complained that the administrators have not explained to the creditors how the company came to be in its poor financial circumstances. That seems to be a factor to which very little weight should be given. No questions were asked of the administrators nor of Mr Carey at the creditors' meeting and no suggestion has been raised that there is any reason other than poor management or external economic conditions for the company falling into such a poor debt situation. Although Mikkelsens have said they would consider financing a liquidator's investigations into insolvent trading and the directors' loan accounts nonetheless when the amount of its debt of $18,315 is taken into account it seems unlikely that the funds necessary to do so would be forthcoming. Further the known facts show that Mr and Mrs Carey are worth very little even though their financial position has improved during 1996. An insolvency practitioner both prior to and after appointment as a deed administrator must act objectively in a manner which gives due regard and balance to the interests of all creditors including different classes of creditors where different classes exist, Lam Soon Australia Ptv Ltd (administrator appointed) v. Molit (No 55) Pty Ltd (1996) 14 ACLC 1737 at p.1749. From the affidavit filed by Mr Russell, solicitor for Mikkelsens, it might be discerned that there is an allegation of some kind of collusion between Boulton Cleary & -- 40 of 43 -- 40 Kern and the firm of accountants associated with the administrators. There is no evidence of that. It is a practice, whether to be decried or not is irrelevant here, whereby firms of solicitors and firms of accountants regularly refer work in insolvency matters to each other's firms. The administrators retained their own solicitors through the solicitors' Brisbane office so that "local" factors to that extent were excluded. The advice given by Mr Rodgers would suggest that the administrators were not influenced in any inappropriate way by Boulton Cleary & Kern. There were a number of features, as I have mentioned, which were likely to excite the suspicions of creditors particularly unsecured creditors of the company. These matters I am persuaded have been appropriately investigated by the administrators. There is nothing to suggest a source for a return of anything of value to the unsecured creditors which has not been investigated by the administrators. The real benefit to the creditors both secured and unsecured lay in the different returns which were likely if the sales were carried out under an administration rather than pursuant to a liquidation together with the reduced costs of an administration as against a liquidation. The margin was not great but it was the best expectation for the creditors both secured and unsecured. It is now unlikely that there will be a return to the unsecured creditors. That does not necessarily mean that the Deed must be set aside. The objects of Part 5.3A as set out in s.345A(b) have been achieved in a modest way since there is likely to be a better return overall than would occur if at this late stage a liquidation were to be set in train. Discretion It is a matter of discretion whether the Deed should be avoided or set aside. Two matters are of importance. One is the delay in bringing this application and the other is the hearing by Thomas J on 12 April 1996. The application to appoint a provisional liquidator -- 41 of 43 -- 41 was brought promptly. This application however has been delayed until significant costs have been expended by the administrators and action taken under the Deed. It is well recognised that proceedings of this kind must be brought to a hearing promptly, Molit (No 55) Pty Ltd v. Lam Soon Australia Pty Ltd (1996) 14 ACLC 366 per Branson J at p.375. Mikkelsens submit that Thomas J invited a "wait and see" approach when dismissing the application to appoint a provisional liquidator. The only expression used by his Honour which might lead to that conclusion appears at the end of his reasons for judgment "However, I do not think that it would be overall in the interests of the creditors to change direction at this point." In my view there is nothing in that statement to suggest the approach of his Honour contended for by Mikkelsens. It cannot be in the interests of the orderly disposal of affairs to allow a deed of company arrangement to progress almost to completion and after nine months seek to set it aside on the ground that it has not had the desired outcome, namely a better return to creditors, in the absence of other compelling facts. Mikkelsens has already argued nearly all of the matters of fact canvassed on this application before Thomas J. It is not in my view appropriate that a second opportunity should be given in the absence of good reasons which have arisen since that occasion and none have been demonstrated. It only remains to consider the public interest which might dictate that the full investigations that a liquidation would allow should occur. I am persuaded that adequate investigations have been carried out by the administrators into the affairs of the directors. Without funding from the unsecured creditors which, despite Mikkelsens' statement to the contrary is unlikely to be to the level required, investigations cannot occur. There is no evidence after investigations to suggest there will be any return to the unsecured creditors. There is no conduct by the directors apart from that of insolvent trading, serious though that -- 42 of 43 -- 42 IS, which calls for investigation on the state of the evidence. There is no likelihood of recovery from them personally and pursuit would serve no useful purpose, apart perhaps from precluding them from involvement in a company for the protection of those who deal with them. QBSA has power to control the issue of licences to builders which is the real concern here. No grounds have been advanced which would cause me to exercise the discretion to terminate, set aside or void the Deed of Company Arrangement entered into on 22 April 1996. Mikkelsens' application is dismissed. Unless there are submissions made to the contrary the costs should follow the event. The formal order is: The orders made by Fryberg J on 8 February 1997 be set aside. ( · , -- 43 of 43 --