Australasian Memory Pty Ltd v Brien

• Jurisdiction: Australia Federal only
• Court: High Court (Australia)
• Judge: Gleeson CJ,McHugh,Gummow,Hayne,Callinan JJ
• Judgment Date: 25 May 2000
• Neutral Citation: [2000] HCA 30,2000-0525 HCA A
• Docket Number: S84/1999
• Date: 25 May 2000

Australasian Memory Pty Limited & Anor

Appellants

and

Richard Campbell Brien & Anor

Respondents

[2000] HCA 30

Gleeson CJ, McHugh, Gummow, Hayne AND Callinan JJ

S84/1999

HIGH COURT OF AUSTRALIA

Australasian Memory Pty Limited v Brien

Corporations — External administration — Administration with a view to executing a deed of company arrangement — Power of court to make such order as it thinks appropriate about how Pt 5.3A is to operate in relation to a particular company — Whether power to remedy defect caused by convening of creditorsmeeting prior to specified period — Whether power to alter time periods fixed by Pt 5.3A where specific provisions for extension of time — Whether power retrospectively to vary the operation of Pt 5.3A — Whether power to affect vestedrights.

Words and phrases — ‘is to operate’.

Corporations Law, s 447A, Pt 5.3A.

1 Gleeson CJ, McHugh, Gummow, Hayne AND Callinan JJ. The Corporate Law Reform Act 1992 (Cth) made many amendments to ‘the Corporations Law set out in section 82’ of the Corporations Act 1989 (Cth)1. By operation of s 7 of the Corporations (New South Wales) Act 1990 (NSW), and equivalent provisions of other State Corporations Acts, those amendments changed not only the Corporations Law set out in s 82 of the Commonwealth Corporations Act, but also the Corporations Law of each State. (There being no relevant difference between the provisions of the various Corporations Laws, it is convenient to refer simply to the ‘Corporations Law’ or ‘the Law’.)

Gleeson CJ

2 TheCorporate Law Reform Act introduced a new Part (Pt 5.3A, ss 435A-451D) into the Corporations Law. It was headed ‘Administration of a Company's Affairs with a View to Executing a Deed of Company Arrangement’. The object of Pt 5.3A was said, by s 435A, to be

‘to provide for the business, property and affairs of an insolvent company to be administered in a way that:

• (a) maximises the chances of the 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 inexistence–results in a better return for the company's creditors and members than would result from an immediate winding up of the company.’

Part 5.3A contains elaborate and detailed provisions about how and when the administration of a company is to begin and end2, about the consequences of administration3, and about how and when a company may pass from administration to the making of a deed of company arrangement4, or into liquidation5 or back into the hands of its directors6.

3 The central issue in this appeal concerns the extent of the power given to a

court (here the Supreme Court of New South Wales) by s 447A of the Law. That

section provides:

‘447A(1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.

(2) For example, if the Court is satisfied that the administration of a company should end:

• (a) because the company is solvent; or

• (b) because provisions of this Part are being abused; or

• (c) for some other reason;

the Court may order under subsection (1) that the administration is to end.

(3) An order may be made subject to conditions.

(4) An order may be made on the application of:

• (a) the company; or

• (b) a creditor of the company; or

• (c) in the case of a company under administration–the administrator of the company; or

• (d) in the case of a company that has executed a deed of company arrangement–the deed's administrator; or

• (e) the Commission; or

• (f) any other interested person.’

There are also some issues about the width of the powers of a court to make orders under s 1322 of the Law to deal with certain irregularities but it isconvenient to deal first with the issue about s 447A because that is the matter to which argument was primarily directed. That issue arises in the following circumstances.

4 On 18 February 1997, the respondents were appointed joint administrators of the first appellant (which it is convenient to refer to as ‘the Company’). They were appointed following a resolution of the directors of the Company pursuant to s 436A of the Law, presumably to the effect that, in the opinion of the directors voting for the resolution, the Company was insolvent, or was likely to become insolvent at some future time, and that administrators should be appointed. One of those directors (Mr B C Amor) is the second appellant.

5 An administrator appointed under Pt 5.3A must convene a meeting of the company's creditors in order to determine whether to appoint a committee of creditors and, if so, who are to be its members7. That meeting ‘must be held within 5 business days after the administration begins’8. The respondents convened that first meeting of creditors of the Company within the prescribed time.

6 Division 3 of Pt 5.3A provides that the administrator of a company underadministration is to assume control of the company's affairs. In particular, by s 437A(1), the administrator is given ‘control of the company's business, property and affairs’ and is given power to carry on, terminate or dispose of all or part of the business and dispose of any of its property. The powers of other officers of the company are suspended while a company is under administration9 and only the administrator can deal with the company's property10.

7 Section 438A requires the administrator ‘[a]s soon as practicable after the administration of a company begins … [to] investigate the company's business, property, affairs and financial circumstances’ and to form an opinion aboutwhether it would be in the interests of the company's creditors for the company to execute a deed of company arrangement, for the administration to end, or for the company to be wound up. These opinions, and the reasons for them, are to be set out in a statement given to creditors11 at the time they are given notice of a second meeting of creditors.

8 Section 439A deals with the convening and holding of that second meeting. Sub-section (1) provides that the administrator ‘must convene a meeting of the company's creditors within the convening period as fixed by subsection (5) or extended under subsection (6)’ and sub-s (2) provides that the meeting ‘must be held within 5 business days after the end of the convening period’. Sub-sections ( 5) and (6) provide:

‘(5) The convening period is:

• (a) if the administration begins on a day that is in December, or isless than 28 days before Good Friday–the period of 28 days beginning on that day; or

• (b) otherwise–the period of 21 days beginning on the day when theadministration begins.

(6) The Court may extend the convening period on an application made within the period referred to in paragraph (5)(a) or (b), as the case requires.’

9 The respondents convened (in the sense of gave notice of) the second meeting of the creditors of the Company within the convening period prescribed by the Law and that meeting was held on 3 March 1997. The convening period ended on 10 March 1997 and it follows that the meeting was not held within five business daysafter the end of the convening period. It was held eight days too early12. The meeting was adjourned and, by notice dated 18 March 1997 a further meeting was convened for 24 March 1997. At that meeting the creditors resolved to wind up the Company. Section 446A provides (in effect) that when creditors resolve to wind up a company in administration, the administrator becomes the liquidator for the purposes of the winding up.

10 Following the creditors' resolution of 24 March 1997 the respondents took substantial steps to get in and realise the assets of the Company. They terminated the employment of all of the Company's employees, sold most of its property and paid out the Company's secured creditor.

11 In May 1997, the respondents issued statutory demands (as liquidators of the Company) to two companies associated with the second appellant. After

these demands had been made, the two companies to which the demands were directed brought proceedings in the Federal Court of Australia seeking orderssetting the demands aside and also seeking declarations, including declarations that ‘the purported meeting of creditors of [the Company] held on 3 March 1997and subsequently adjourned to 24 March 1997 … was invalid and of no effect’ and that ‘all resolutions of creditors of [the Company] purportedly made at [that meeting] are invalid and of no effect’.

12 On 6 June 1997, a judge of the Federal Court (Whitlam J) held13 that the meeting of creditors of the Company held on 3 March 1997 was not convened in accordance with s 439A(2) of the Law and ordered that the statutory demands be set aside. Whitlam J made no declaratory order. On 10 June 1997, application to validate the meeting of 3 March 1997 was made to the Federal Court in the name of the Company. That application was summarily dismissed on 19 June 1997, it being held (in effect) that the proceedings were irregularly constituted, the present respondents not being able to bring the application in the name of the Company.

13 The present respondents then made urgent application to the Supreme Court of New South Wales14. At first the application was for orders pursuant to s 1322 for orders curing the irregularity that had occurred in calling the second meeting of the Company's creditors but later the application was amended to seek orders pursuant to that section or s 447A. On 19 September 1997, Santow J made orders

• (a) under s 1322(4)(d) abridging the period for holding the second meeting of creditors of the Company;

• (b) declaring, pursuant to s 1322(4)(a), that the resolution of the creditors for winding up the Company was not invalid by reason of any contravention of s 439A;

• (c) declaring, pursuant to s 1322(4), that the winding up of the Company...