TERRI CO PTY LTD & ORS v TERRI CO PTY LTD

Supreme Court of the Northern Territory of Australia Martin J.
16 March, 10 April 1989

COMPANIES - Liquidation - Expiry of Scheme of Administration
Litigation arising out of Scheme - Indemnity sought by administrator from liquidator - Power of Court to order

COMPANIES - Liquidation - Practice & procedure - Directions
Application by liquidator - Proper procedure - Companies Act 1981 (Commonwealth) s. 379(3); Supreme Court of the Northern Territory (Companies) Rules r. 136

COMPANIES - Liquidation - Post-expiry of Scheme of Administration - Discussion of position and powers of liquidator and administrator

Cases considered:
In re Waymouth Guarantee (1974) 10 SASR 407

Cases referred to:
NBT Builders Pty Ltd (1984) 8 ACLR 724
RE Terri Co Pty Ltd (1987) 12 ACLR 457

Counsel for Liquidator, Terri Co Pty Ltd
Counsel for Scheme Administrator, R Southwell

P Robinson

J Stirk

mar890070

mar890070
IN THE SUPREME COURT
OF THE NORTHERN TERRITORY OF AUSTRALIA
No. 293 of 1988

BETWEEN:

TERRI CO PTY LTD
and THE COMPANIES (NORTHERN TERRITORY) CODE
STEPHEN EDWARD CALDER WILLIAM REX JETTER

AND:
TERRI CO PTY LTD

Plaintiffs

Defendant

CORAM:	MARTIN J.

REASONS FOR JUDGMENT
(Delivered 10 April 1989)

In March 1986, Mr Southwell was appointed as the administrator of a scheme of arrangement approved by this Court under the provisions of the then Companies Act of the Territory.	At the same time it was further ordered:

"That the Company be and is hereby permitted pursuant to Section 227(2)(b) of the aforesaid Act and until further Order of this Court, to carry on any business of the Company and to do, omit or suffer all such acts, matters and things as are conducive, incidental or ancillary thereto upon the following conditions;

that the Scheme Administrator shall control, supervise, manage and administer the business

and affairs of the Company in accordance with the aforesaid Scheme of Arrangement; and

that the directors of the Company and each of them shall desist from exercising their powers, discretions and authorities in relation to the control, supervision, management and administration of the business and affairs of the Company as are under the control, supervision, management and direction of the aforesaid Scheme Administrator except with the concurrence of or pursuant to any direction of the aforesaid Scheme Administrator."

Bys. 6 of the Territory Companies (Application of Laws) Act 1986, which came into operation on 1 July 1986, the provisions of the Companies Act 1981 of the Commonwealth (with certain immaterial exceptions) apply as laws of the Territory.	In an earlier matter concerning this company ((1987) 12 ACLR 457), I held that the scheme continued and had the same status, operation and effect as if the new legislative regime had not come into operation, but that the provisions of the Commonwealth Act applied to it.	That decision was not called in question in this application.

It is common ground, subject to what follows, that pursuant to the terms of the scheme it came to an end at the expiry of two years after it commenced, that is, in March 1988.

During the term of the scheme, and as envisaged by it, the administrator subdivided land of the company and

contracted to sell subdivided parcels.	The proceeds from completed contracts sufficed to pay out the secured and unsecured creditors of the company.	I should add that for the purposes of the scheme the claims of shareholders were excluded.	Disputes have arisen concerning at least one of the uncompleted contracts for sale, which are the subject of proceedings presently awaiting hearing before the Court of Appeal.

There are other proceedings pending in this Court wherein a creditor, dissatisfied with the administrator's decision in respect of its claim, seeks judgment for the amount claimed by it.	The terms of the scheme provide that if the claim of a participating creditor is not wholly admitted by the administrator, the claimant may institute proceedings in respect of the claim.	If at the termination of the scheme the proceedings have not been determined, the administrator may (but is not bound to) set aside such funds as is considered necessary to satisfy any possible judgment, subject to the availability of funds for that purpose.	The administrator says he has done that.

It appears that at the expiry of the term of the scheme the administrator had not been able to resolve other aspects of the companies affairs.

It is not necessary for me to go into the detail of those disputes, proceedings and unfinished business, beyond saying that they were matters involving the administrator in his management of the affairs of the company pursuant to the scheme, at the time the term of the scheme expired.	The general background problem which this company has faced over the years lies in the inability of the directors and shareholders to resolve differences between themselves.	In the result there was no one who could effectively take over the affairs of the company when the scheme came to an end.
That led to two of the directors and shareholders applying
to have the company wound up in April 1988.		The disputes between the directors were such that they were unable to agree upon the liquidator to be appointed.	That was not resolved for some months.	The winding up order was made on
6 October 1988.

In the meantime the administrator had continued to be involved in the affairs of the company in respect of matters which arose during the term of the scheme, especially in regard to the litigation.

The liquidator, by summons filed on 14 March 1989 seeks directions as to matters which have arisen between him and the administrator.	The summons was served on the administrator and both parties appeared to assist the Court. The only sworn evidence available was that contained in an

affidavit of the administrator, filed by the solicitors for the liquidator.	Obviously the two of them have decided to act in a co-operative way with a view to having the Court resolve the issues between them concerning the affairs of this hapless company, with the minimum of expense and delay.

A liquidator may apply to the Court for directions in relation to any particular matter arising under the winding up (s. 379(3)).	A fresh summons was taken out in the proceedings  in which the winding up order was made (Rule 136 Supreme Court (Companies) Rules).	If there be any doubt that that was the proper procedure, although I think it was, I direct that the procedure adopted shall be proper
(r. 140).

I do not consider that the company is in any different position, as against the liquidator, than it would have been had the scheme not been entered into.	Nor do I think that the administrator is in any different position in that regard than the directors or other officers of the company would have been had he not been approved and given authority by the order of the Court.	The provisions of the former and present legislation relating to such arrangements provide a procedure whereby a company can reach a compromise or arrangement with its creditors, without having to secure the concurrence of all creditors or of all members.	In the circumstances of this case it appears that by reason of the

difficulties arising in relation to the conduct of the affairs of the company, a scheme was entered into under which the company had the benefit of a moratorium in respect of its debts while the administrator conducted its affairs in the place of the directors, with a view to enabling it to trade out of its financial difficulties.	When I refer to debts, I mean the secured and unsecured debts owing by the company prior to the commencement of the scheme (excluding those due to directors and members who agreed to defer their claims).	Costs, charges, expenses, debts and liabilities incurred in connection with the administration of the scheme were not the subject of the compromise, thus the company stood the risk of being wound up by a creditor who was not a scheme creditor (see Bray CJ. In re Waymouth Guarantee (1974) 10 SASR 407 at p. 442).	It was not doubted by His Honour in that case that a scheme of arrangement could not stand in the way of a winding up, and nis further comments show that priority between creditors, including scheme creditors, in the winding up are to be determined in the liquidation.	For other cases on this point see Paterson Ednie and Ford, Australian Company Law, 3rd Ed para. 315/65 and NBT Builders Pty Ltd (1984) 8 ACLR 724.	In referring to this matter I do not make any decision concerning the rights of the creditor whose claim is being presently litigated.

The rights, powers and duties of a liquidator conferred under the legislatio.n beg of no exception in

favour of a scheme administrator.	The liquidator is entitled to the custody of all the property of the company (s. 374); he may require the administrator to provide him with a report as to the company's affairs (s. 375(2) and definition of "officer"), though the administrator may be allowed his reasonable costs of so doing (s. 375(8)).	See also the powers of a liquidator, qualified or otherwise, set out ins. 377, including, to carry on the business of the company, make any compromise or arrangement with creditors, and to bring and defend legal proceedings.	It is within the power of the Court to require the administrator to pay, deliver, convey, surrender or transfer to the liquidator any money, property or books in his hands to which the company is prima facie entitled (s. 384).

I do not understand the administrator to be disputing any of the liquidator's powers, indeed he says in his affidavit that he believes that it is in the interests of the company that all of the affairs of the company be under the direct control of the liquidator.	What he seeks is an indemnity from the liquidator in respect of the proceedings in this Court, which arose in the course of his administration of the scheme, and a direction that the liquidator be entitled to pay his proper fees from the date of the termination of the scheme, for assisting the transition of the affairs of the company to the liquidator and likewise for his agent's costs.

Counsel for the liquidator resists any such direction.	Neither party has drawn my attention to any provision in the legislation touching expressly upon the issues, nor to any authority which might assist.

There is no doubt that the funds set aside by the administrator pursuant to the scheme, in respect of the disputed claim, should be paid to the liquidator forthwith. However, given that there is no certainty as to the effect of the scheme in the liquidation, the liquidator is directed to hold those monies in a separately identifiable account until further order.

I can see no basis upon which the Court could oblige the liquidator to give any indemnity to the administrator.

I consider that the administrator's reasonable costs and expenses in relation to the handing over of the company's property and affairs to the liquidator are properly payable by the liquidator as costs in the liquidation.

Whether the administrator has any right to costs, fees and expenses, including his agent's costs, incurred since the termination of the scheme, and if so, the amount thereof, are matters which should be considered in the first

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instance by the liquidator upon the administrator making a proper claim in respect of them.

Further directions may be sought by the liquidator if necessary.