Case: Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456
Outcome: cited
17 April 2009, the winding up application was adjourned to 29 April 2009 to enable the administrators to isolate and identify with Mr Tracy the terms and conditions attaching to his proposal to establish a Deed of Company Arrangement and how that deed might be funded. Since the field of creditors is very contained and Mr Tracy has the carriage of Citrus's affairs and is the party proposing the deed, the application was adjourned to 29 April 2009 to enable discussions to take place between Mr Tracy and the administrator. Those discussions would necessarily inform the exercise of the Court's discretion on the question arising under s 440A(2) as to whether the Court could be affirmatively satisfied that "it is in the interests of the company's creditors for the company to continue under administration rather than be wound up". The administrator was ordered to provide a report arising out of his discussions with Mr Tracy in relation to the company's affairs and Mr Tracy's proposal for a deed. A report was filed on 27 April 2009. In that report, Mr McLeod confirms the field of creditors of Citrus as discussed in these reasons. He says he has spoken with Mr Tracy. He is to receive the books of account and financial statements of Citrus from Mr Tracy and the company's former accountant shortly. He has not had time to determine whether any other assets might be available to the company arising out of any transactions that might be susceptible of challenge. The company is plainly insolvent. Mr McLeod attaches to his report a deed proposed by Mr Tracy by which he proposes to continue to fund the costs of the appeal, which costs would be repaid to him in priority. Any fruits of a successful appeal would be available to the creditors. Upon approval of the deed, the day to day management, operation, control, supervision and administration of Citrus would be returned to Mr Tracy subject only to the specific reservations expressed in the deed (cl 6.6.1). During the arrangement, Citrus, subject to the overall supervision of the administrator, would be entitled to continue its business and undertaking (cl 6.6.2). That undertaking now involves the acquisition of legal services in the conduct of the appeal and the conduct of consequential proceedings. Clause 7.4 of the deed provides for a discharge of claims against Citrus. By cl 9.1.3, the proceeds of any judgment against Sunstate Orchards or Mr Strahley in the appeal or any subsequent retrial will be paid into the fund established for creditors under the deed. By cl 9.2.1, Mr Tracy shall cause Citrus to prosecute the appeal and shall pay all legal expenses of Citrus in so doing. A monthly report is to be made to the administrator. In the event that the administrator in good faith believes that Citrus is failing to prosecute the appeal with due diligence, he may require Citrus to show cause why he should not convene a meeting of creditors and seek termination of the deed. By cl 9.2.6, Mr Tracy agrees to pay Citrus's costs of conducting any retrial of the primary proceeding and in the event that the administrator forms a good faith belief that Citrus is failing to prosecute any retrial, a meeting of creditors can be convened to consider termination of the deed. The discretion under s 440A(2) is to be exercised having regard to the well known observations of McPherson J (Davies and Pincus JJ concurring) in Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 (see also Re First Netcom Pty Ltd (2000) 35 ACSR 615 , per Santow J) concerning the closely related question of whether the creditors could hope to get more by way of payment of their debts from administration rather than liquidation and whether there is persuasive evidence of assets which if realised under one form of administration rather than the other would produce a larger or accelerated dividend to the creditors. The hope must however be a real and not remote possibility, unclouded by cascading contingencies all of which must fall in before an asset might become available to the creditors as a group. In Creevey , the Court discounted a contended claim as a possible asset available to creditors. In that case the foreshadowed claim had not been formulated in any concrete way. The claim in this case has been formulated but has already been found to be unmeritorious after a lengthy trial. A liquidator of Citrus could form a view about the merits of the proceeding and conduct discussions with Mr Tracy as to his willingness to fund the liquidator in the conduct of an appeal and any subsequent retrial of the proceeding.