Deputy Commissioner of Taxation v Wellnora Pty Limited

• Jurisdiction: Australia Federal only
• Court: Federal Court
• Judgment Date: 15 August 2007
• Neutral Citation: [2007] FCA 1234

FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Wellnora Pty Limited [2007] FCA 1234

CORPORATIONS – application by Deputy Commissioner of Taxation (DCT) to set aside Deed of Company Arrangement (DOCA) – resolution passed at creditors’ meeting in favour of execution of DOCA on casting vote of company administrator presiding at meeting – extent of obligations on that person in deciding how to cast vote – company was one of many in a group of companies, a large number of which had either gone into liquidation or executed a DOCA owing tax – DCT was the only unsecured creditor, and voted against execution of DOCA – all creditors who voted in favour of DOCA were associated with company – whether person presiding at meeting of creditors must take into account the public interest and commercial morality when deciding how to exercise casting vote – discretionary considerations – whether DOCA had already terminated by reason of DOCA fund having been exhausted – whether order for “termination” of DOCA remained an available remedy.

Held: (1) DOCA had terminated under s 445C(c) of Corporations Act 2001 (Cth) and specification in DOCA; (2) company administrator was limited to considering the interests of creditors as a whole in having the debts owed to them paid; (3) Court has a wider discretion under ss 600B and 447A, enabling Court to take into account public interest and commercial morality; (4) parties allowed opportunity to make further submissions with respect to, inter alia, any purpose to be served by a winding up in absence of an undertaking by DCT to fund a liquidator’s investigations, public examination and recovery proceedings.

Corporations Act 2001 (Cth) ss 445C, 445D, 445G, 445H, 447A, 600B

Bidald Consulting v Miles Special Builders (2005) 226 ALR 510 referred to

Blue Ring Pty Ltd v Landshore Pty Ltd (Subject to a Deed of Company Arrangement) [2006] WASC 245 cited

Cresvale Far East Ltd (in liq) v Cresvale Securities Ltd (2001) 37 ACSR 394 referred to

Deputy Commissioner of Taxation (Cth) v PDDAM Pty Ltd (1996) 19 ACSR 498 referred to

Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 34 ACSR 391 referred to

Hagenvale Pty Ltd v Depela Pty Ltd (1995) 17 ACSR 139 referred to

Lewis v Doran (2004) 208 ALR 385 cited

Re Bartlett Researched Securities Pty Ltd (Administrator Appointed) (1994) 12 ACSR 707 referred to

R v Bradford Metropolitan City Council; ex parte Corris [1989] 3 All ER 156 cited

Re Coaleen Pty Ltd (Administrator Appointed) (1999) 30 ACSR 200 referred to

Re Martco Engineering Pty Ltd (Administrator Appointed); Deputy Commisioner of Taxation v Martco Engineering Pty Ltd (1999) 32 ACSR 487 referred to

Re Rugs Galore Australia Pty Ltd; Linen House Pty Ltd v Rugs Galore Australia Pty Ltd [1999] VSC 126 referred to

Young v Sherman (2002) 170 FLR 86 referred to

DEPUTY COMMISSIONER OF TAXATION v WELLNORA PTY LIMITED

(ACN 084 651 936) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) AND WILLIAM JAMES HAMILTON AND PINO FIORENTINO (IN THEIR CAPACITY AS ADMINISTRATORS OF THE DEED OF COMPANY ARRANGEMENT)

NSD 502 OF 2006

DEPUTY COMMISSIONER OF TAXATION v WELLNORA PTY LIMITED

(ACN 084 651 936) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)

NSD 2335 OF 2005

LINDGREN J

15 AUGUST 2007

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 502 OF 2006

IN THE MATTER OF WELLNORA PTY LIMITED (ACN 084 651 936)

(SUBJECT TO A DEED OF COMPANY ARRANGEMENT)

BETWEEN:	DEPUTY COMMISSIONER OF TAXATION Plaintiff/Cross Defendant
AND:	WELLNORA PTY LIMITED (ACN 084 651 936) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) First Defendant WILLIAM JAMES HAMILTON AND PINO FIORENTINO (IN THEIR CAPACITY AS ADMINISTRATORS OF THE DEED OF COMPANY ARRANGEMENT) Second Defendants/Cross Claimants
JUDGE:	LINDGREN J
DATE OF ORDER:	15 AUGUST 2007
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The plaintiff file and serve submissions by 29 August 2007.

2. The defendants file and serve submissions by 12 September 2007.

3. The plaintiff file any submissions in reply by 19 September 2007.

4. The proceeding be listed on 26 September 2007 at 2.15 pm for any oral elaboration on the written submissions.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 2335 OF 2005

IN THE MATTER OF WELLNORA PTY LIMITED (ACN 084 651 936)

(SUBJECT TO A DEED OF COMPANY ARRANGEMENT)

BETWEEN:	DEPUTY COMMISSIONER OF TAXATION Plaintiff
AND:	WELLNORA PTY LIMITED (ACN 084 651 936) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) Defendant

JUDGE:	LINDGREN J
DATE OF ORDER:	15 AUGUST 2007
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The plaintiff file and serve submissions by 29 August 2007.

2. The defendant file and serve submissions by 12 September 2007.

3. The plaintiff file any submissions in reply by 19 September 2007.

4. The proceeding be listed on 26 September 2007 at 2.15 pm for any oral elaboration on the written submissions.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 502 OF 2006

IN THE MATTER OF WELLNORA PTY LIMITED (ACN 084 651 936)

(SUBJECT TO A DEED OF COMPANY ARRANGEMENT)

BETWEEN:	DEPUTY COMMISSIONER OF TAXATION Plaintiff/Cross Defendant
AND:	WELLNORA PTY LIMITED (ACN 084 651 936) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) First Defendant WILLIAM JAMES HAMILTON AND PINO FIORENTINO (IN THEIR CAPACITY AS ADMINISTRATORS OF THE DEED OF COMPANY ARRANGEMENT) Second Defendants/Cross Claimants
IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY		NSD 2335 OF 2005

IN THE MATTER OF WELLNORA PTY LIMITED (ACN 084 651 936)

(ADMINISTRATOR APPOINTED)

BETWEEN:	DEPUTY COMMISSIONER OF TAXATION Plaintiff
AND:	WELLNORA PTY LIMITED (ACN 084 651 936) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) Defendant

JUDGE:	LINDGREN J
DATE:	15 AUGUST 2007
PLACE:	SYDNEY

REASONS FOR JUDGMENT

INTRODUCTION

1 This case raises questions concerning the duty of a company administrator when exercising a casting vote on the question whether the company is to execute a deed of company arrangement (DOCA) under Pt 5.3A of the Corporations Act 2001 (Cth) (the Act).

2 The case presents a not uncommon picture – a conflict between creditors favourably disposed to those individuals who control the company and to the proposed DOCA on the one hand, and a substantial unrelated creditor who would prefer a winding up on the other. Questions raised include the question whether the administrator is obliged, in the public interest and in the interests of enforcing standards of commercial morality, to inquire into and to take account of, the conduct of the company’s controllers and of persons associated with them, including their conduct in relation to the affairs of associated companies. The opposing view is that the administrator is limited to addressing the commercial question whether the proposed DOCA is likely to give creditors a greater return than a winding up would do.

3 There are two proceedings before the Court – proceeding NSD 502 of 2006 in which the plaintiff (the Deputy Commissioner of Taxation) seeks to have the DOCA set aside (the DOCA proceeding) and proceeding NSD 2335 of 2005 in which the plaintiff (also the Deputy Commissioner of Taxation) seeks a winding up (the winding up proceeding). I will sometimes use the abbreviation “ATO” for the Australian Tax Office, rather than “the Deputy Commissioner of Taxation” (DCT).

4 The DOCA was between the first defendant, Wellnora Pty Limited (Administrator Appointed) and the second defendants to the DOCA proceeding. I will call Wellnora Pty Limited, Wellnora Pty Limited (Administrator Appointed) and Wellnora Pty Limited (Subject to a Deed of Company Arrangement), simply “Wellnora”. The second defendants are the administrators of the DOCA, and I will call them “the Administrators”. Of the Administrators, it is Mr William James Hamilton who has been chiefly involved in the administration of Wellnora and who has given evidence. I will often refer simply to “Mr Hamilton” rather than to “the Administrators”.

5 The winding up proceeding was commenced on 25 November 2005. It was based on Wellnora’s failure to comply with a statutory demand in a sum of $556,571.94 served on it by the DCT. On 18 January 2006, Wellnora, acting through its sole director, Ms Desley Soong, appointed the Administrators as administrators of Wellnora, pursuant to s 436A of the Act (see also s 451A of the Act). On 24 January 2006, Ms Soong proposed that Wellnora enter into a DOCA.

6 It was common ground that the winding up proceeding should remain in abeyance pending the resolution of the DOCA proceeding. The DCT concedes that if she fails in the DOCA proceeding she must also fail in the winding up proceeding.

7 On 3 February 2006, the return date of the Originating Process in the winding up proceeding, that proceeding was adjourned to 24 February 2006 to permit Wellnora’s creditors to consider the proposed DOCA at a meeting of creditors to be held on 14 February 2006.

8 At that meeting held on 14 February 2006 Wellnora’s creditors resolved that Wellnora execute the DOCA.

9 The creditors’ resolution was passed on the casting vote of the chairman, Mr Hamilton. Five creditors, all of whom were represented at the meeting by Venus Cassimaty and were associated with Wellnora, voted in favour of the motion that Wellnora execute the proposed DOCA. Their debts admitted for voting purposes totalled $3,130,289.27. The DCT, who was represented (by telephone) at the meeting by Leisa Kelly, voted against the motion. The DCT’s debt admitted for voting purposes was $3,957,519.62. Thus, it could not be said that a majority in both number and in value voted for...