Case: Re Octaviar Ltd (formerly MFS Limited) [2008] QSC 216
Outcome: considered
Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 at 457 McPherson JA, with whom Pincus and Davies JJA agreed, observed of s 440A(2): It is evident from the terms of that subsection that before it applies the court must be satisfied not only that there is an administration but also as the subsection says, that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up. ... The question of whether an administration should continue, rather than that there be a winding up, is obviously closely related to the further question of whether the creditors could hope to get more by way of payment of their debts from one form of process or administration than from the other. In order to satisfy the court of the matter referred to in s 440A(2) of the Corporations Law, one would expect that there would have to be some persuasive evidence to enable it to be seen that there were assets which, if realised under one form of administration rather than the other, would produce a larger dividend, or at least an accelerated dividend for the creditors. These are observations made by an intermediate appellate court in respect of Commonwealth legislation adopted, under the co-operative scheme then prevailing, by the various States. The provision concerned has been taken up in the Act in respect of analogue facts and though not, strictly, bound by a decision given in the Court of Appeal Division of the Supreme Court of Queensland, it is incumbent on me not to depart from the interpretation of s 440A(2) of the Act evident in these observations unless convinced that that interpretation is clearly wrong: Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15 ; (1993) 177 CLR 485. To be convinced that a judge of the eminence of McPherson JA was clearly wrong in a matter touching upon corporate insolvency is a considerable step, especially when his Honour's observations commanded the concurrence of Pincus and Davies JJA. As it happens, not only do I respectfully agree with the observations but also I did not understand any party to seek to persuade me that those observations were clearly wrong, as opposed to Mr and Mrs Cassimatis urging that they were distinguishable on the facts of this case. The quoted observations made by McPherson JA in Creevey's Case were not though made in a vacuum, as the following statement made by Philip McMurdo J in Re Octaviar Ltd (formerly MFS Limited) [2008] QSC 216 at [55] serves to remind: There are two matters to be noted about that passage from Creevey . The first is that read in context, it is referring to the absence of evidence of any assets whatsoever. Secondly, it is not possible to read this passage as a statement of some principle that in every case, for a court to be satisfied in terms of s 440A(2), there must be some detailed comparison of the dividends from one regime or the other. It will often be the case where not enough is known about what is likely to come from one or both regimes for that comparison to be made at this stage. As McDougall J said in SGB Raffia v Gammacon (No 2) [2007] NSWSC 1510 , McPherson JA in Creevey "was not purporting to reframe the statutory test but, rather, to state its application firstly in the case before the court and secondly by reference to more general considerations." McDougall J there referred to what was said by Campbell J in Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd [2003] NSWSC 47 ; (2003) 44 ACSR 377 at 380 in a passage which I respectfully adopt: "[18] Ultimately what the court needs to do is to be persuaded. The amount of proof which can result in persuasion, differs with the circumstances in which litigation comes before the court. It is common enough, in applications under s 440A, for an administrator to need to seek an adjournment very soon after his or her appointment, at a time when he or she knows very little about the affairs of the company. In that sort of situation, comparatively little material might be needed to justify a short adjournment. As time goes on, however, and the occasion that there has been for the collecting of evidence increases, so the amount of material which might need to be put before the court before it is persuaded, will increase." In Re Octaviar Ltd [2008] QSC 216 the occasion for the deciding whether the Court was satisfied that it was in the interests of creditors that the administration proceed was a decision by the directors of the company concerned to appoint administrators (subject to the discharge or expiry of injunctions then in place) after the hearing of an application for the winding up of the company had commenced. Necessarily, the Court did not at that time have the benefit of the considered views of those administrators as to the relative worth of what was offered under the DOCA compared with a liquidation so far as the interests of creditors were concerned. Further, the present is not an adjournment application by Storm Financial's administrators but rather by two of its directors and members, who are also creditors. They wish to promote a known DOCA to a creditors' meeting following an administrators' report which recommends the contrary.