Fullview Pty Ltd v WLW Pty Ltd [1997] FCA 972

FEDERAL COURT OF AUSTRALIA CORPORATIONS LAW - WINDING UP - PRACTICE AND PROCEDURE - whether ADJOURNMENT - exercise of discretion - Corporations Law ss440A, 459E FULLVIEW -V- WLW PTY LIMITED VG 3208 of 1997 PARKINSON JR MELBOURNE 17 SEPTEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY VG 3208 of 1997

BETWEEN: FULLVIEW PTY LTD (ACN 059 626 658)

Applicant

AND: WLW PTY LIMITED (ACN 006 691 612) (in administration)

Respondent

JUDICIAL REGISTRAR: PARKINSON JR

DATE OF ORDER: 17 SEPTEMBER 1997

WHERE MADE: MELBOURNE

THE COURT ORDERS THAT: 1. The application be adjourned to 13 October, 1997 at 10.15 am. 2. Costs be reserved. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY VG 3208 of 1997

BETWEEN: FULLVIEW PTY LTD (ACN 059 626 658)

Applicant

AND: WLW PTY LIMITED (ACN 006 691 612) (in administration)

Respondent

JUDICIAL REGISTRAR: PARKINSON JR

DATE: 17 SEPTEMBER 1997

PLACE: MELBOURNE

REASONS FOR DECISION In this proceeding I am required to determine whether an order ought be made adjourning the proceeding for the winding up of the respondent company. The applicant seeks an order that a liquidator be appointed and the company be wound up. The applicant is a creditor of the respondent company in the amount of$45,530.29, being the lessor of property to the respondent under which lease amounts of rental have not been paid. The report to creditors states the respondent's liability to secured creditors as $25,484,921.00, and $936,576.00 in wages to484priorityemployee unsecured creditors, and $1,336,417.00 to ordinaryunsecured creditors. (Exhibit CMcD1) The respondent company is one a number of companies in a group trading under the name of 'Bells Restaurants'. The 'Bells' chain resulted from the acquisition on 7 April, 1997 of the 'Sizzler' restaurant chain which was then trading in New South Wales, Victoria, South Australia and Tasmania. The group companies traded until 1 June, 1997, when according to the administrator's report to creditors, a decision was made to cease trading as a consequence of ongoing trading losses.

On 19 June, 1997 the applicant served a Statutory Demand under s459E of the Corporations Law requiring payment of the sum of $45,530.29. Upon the failure of the respondent to comply with the demand, the applicant sought an order that the respondent be wound up. On 25 June, 1997 one of the principal secured creditors, the Commonwealth Bank, appointed joint controllers pursuant to the fixed charge over the company's assets. On 19 August,1997 the directors of the respondent company, acting pursuant to Part 5.3A of the Corporations Law, appointed administrators. The administrators, having examined the affairs of the respondent and that of other companies in the group of companies, comprising what might be described as other administrative and trading arms of the Bells business, reported to the creditors. The administrators' report recommended that a deed of company arrangement be executed. The deed of arrangement is conditional upon the outcome of various creditors meetings in the association and funds remaining after the secured creditors have been satisfied. The respondent's administrators, Dean Roysten McVeigh and Colin Raymond McDonald, seek that the application for winding up be adjourned to enable the proposed deed of arrangement to be either accepted or rejected by a meeting of creditors. The administrator, Mr McDonald, in his affidavit sworn 9 September, 1997 stated: "As a result of our investigations Mr McVeigh and I have, in a report to the creditors of WLW Pty Ltd formed the view that it was not in the best interest of the creditors for the company to be placed in liquidation.". In support of this view reference was made to the conditional offer as to returns to creditors contained in the proposed deed of arrangement, which provided a possibility of some return to unsecured creditors by its terms. A meeting of creditors, held on 22 August, 1997, did not appoint a committee of creditors. The appointment of Mr McVeigh and Mr McDonald as administrators was continued. A further meeting of creditors was scheduled to take place on 15 September, 1997, the day of the hearing of this application. Subsequent meetings of creditors of the associated companies, the subject of part of the conditions in the proposed deed of arrangement, were also to take place on 15 September. Obviously, in view of the timing of this proceeding, there is no material before the Court as to the outcome of these meetings. The respondent by its administrators seeks that the application for winding up be adjourned to enable the deed of arrangement to be considered by the meetings of creditors. The applicant opposes the adjournment application and seeks an order for the winding up of the company. Section 440A provides: 440A(1) [No voluntary winding up] A company under administration cannot be wound up voluntarily, except as provided by section 446A. 440A(2) [Court may adjourn winding up application] The Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up. 430A(3) [Provisional liquidator] The Court is not to appoint a provisional liquidator of a company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than have a provisional liquidator appointed. Section 435A of the Corporations Law provides: 435A The object of this Part is 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. The question to be determined is whether having regard to the interests of the creditors there would result from the continued administration a better return than if the company was wound up. The scheme of the Corporations Law allows for the creditors in meeting to determine upon the acceptance or rejection of the scheme of arrangement proposed by the administrators. In my view this is a significant consideration in the exercise of the discretion in s440A(2). In determining whether the application ought be adjourned for the purpose of such consideration it is relevant to consider the likelihood of the scheme being adopted, together with matters such as the possibility of success of the scheme. The affidavit of the joint administrator sets out the liabilities of the respondent and it is of significance that of the identified liabilities of $27,757,914, the substantial proportion of the liability, is to secured creditors. The principal creditor, the Commonwealth Bank of Australia, has already taken steps as holder of secured mortgages, in relation to the real property and fixed assets of the respondent. It is stated in the affidavit of the administrator and in the report to creditors exhibited to the affidavit, that some possibility of a return to unsecured creditors exists in the event that steps are taken other than by winding up of the company. The substance of the report to creditors and the affidavit dated 9 September, 1997 of Mr McDonald, the joint administrator, puts the issue of a return for unsecured creditors being achieved as no higher than a possibility, where the company is not wound up, with the costs of the administrator being met by the group independently of payments to creditors. However he is unequivocal that there would be no likelihood of return to unsecured creditors if the company were to be wound up at this time. I am conscious that the affidavit material does not disclose the basis for the asserted belief of the administrators that there is any possibility of a return to the unsecured creditors and this is a matter raised by the applicant. However it is not apparent from the affidavit of the applicant how it is that the interests of the unsecured creditors would be advanced by the Court moving to wind up the respondent at this stage. Nor is it apparent from the affidavit material what prejudice accrues to the unsecured creditors in the event that the Court declines to make such an order at this time. The respondent administrator bears the onus of satisfying the Court that it is in the interests of the company's creditors that the administration continue. I accept that the only material in the affidavit of Mr. McDonald, which would show cause for the view adopted by him as to the best interests of the creditors, is that pertaining to the proposed deed of arrangement, and possible outcomes of property and asset sales. However despite the deficiencies in the affidavit material and in view of the continuing concurrent meetings of creditors, I am satisfied that a mere possibility of a return to creditors is sufficient basis for the exercise of the discretion in s440A(2) at this point in time. I am conscious that the second meeting of creditors had not been concluded at the time of this hearing and that is a matter which I have taken into account. Having regard to the above matters, I am not satisfied that an order for winding up the company is an appropriate step to be taken at this time. The affidavit material filed by the respondent informed of various meetings of creditors to be held on the day of the hearing of this application. In view of the above matters I will adjourn the application for winding up until 10.15am on 13 October, 1997. On or before 6 October, 1997 the respondent, by its administrator, is directed to file and serve an affidavit setting out the steps which have been taken in the meetings of creditors referred to in the affidavit of Colin Raymond McDonald, sworn on 9 September, 1997, and the outcome of those creditors' meetings. The adjourned application will be relisted before the Court as presently constituted on 13 October, 1997 at 10.15 am. Costs will be reserved. I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment of Judicial Registrar Parkinson.

Associate : Dated : 17 September 1997

APPEARANCES Counsel for the Applicant : Mr. J. Tsalanidis Solicitors for the Applicant : Sheezel Sandor & Associates Counsel for the Respondent : Mr. P.J. Booth Solicitors for the Respondent : Wisewoulds Date of hearing : 15 September 1997