Section 447A – Is there anything it can’t do?
In the matter of Habibi Waverton Pty Ltd (in liquidation) (administrator appointed) [2021] NSWSC 1443 (18 October 2021)
Rees J decides that s 447A of the Corporations Act 2001 (the Act), can be used to modify the operation of s 445GA of the Act so that an administrator, who was not yet a DOCA administrator, could transfer shares under s 445GA to effect the DOCA.
This case provides an illustration of a novel use of an order under s 447A.
A company operated a bakery on leased premised. Its two directors were each 50% shareholders. They decided that they no longer wanted to be in business together. As they could not decide who would buy out the other, they appointed Mr Billingsley as a voluntary liquidator.
Under the lease, the appointment of a liquidator was an event of default entitling the landlord to re-enter the premises.
Mr Billingsley successfully sought orders that he be appointed as an administrator of the company so that he could receive proposals for a DOCA and secure a better outcome for creditors than in an immediate winding-up. This appointment imposed a moratorium on the landlord’s ability to take possession of the leased premises: s 440 of the Act.
One director (director A) proposed a DOCA that would provide immediate funds and see the bakery continue to operate at the leased premises with existing staff. Mr Billingsley viewed this as preferable to director B’s proposed DOCA that envisaged the lease being transferred to a company associated with him.
Director A’s DOCA was conditional upon a court granting Mr Billingsly leave to transfer director B’s shares to director A for $1.00.
Under either DOCA proposal or in a liquidation scenario, there would be no residual funds available for distribution to shareholders, so Mr Billingsley considered that the company’s shares had no value anyway.
Following Mr Billingsly’s recommendation, the creditors voted to approve director A’s DOCA. But director B opposed Mr Billingsly transferring his shares to director A under that DOCA.
Mr Billingsley would have sought an order under s 444GA(1)(b) of the Corporations Act 2001, which allows a DOCA administrator to transfer company shares with the leave of the court, if the court is satisfied that the transfer would not unfairly prejudice the interests of members.
The problem was that Mr Billingsly wasn’t yet the DOCA administrator.
So Mr Billingsley sought an order under s 447A, which allows a court to make orders as it thinks appropriate about how Part 5.3A (dealing with DOCAs) is to operate in relation to a particular company. The terms of the order that he sought would permit s 444GA to apply to a voluntary administrator as opposed to a DOCA administrator and allow him to transfer director B’s shares to director A (without director B’s consent).
Rees J accepted that where the company’s shares have no residual value, director B would not be unfairly prejudiced by a compulsory transfer of his shares to director A.
Her Honour recognised that as no order had ever been made under s 447A in the terms sought, it was a matter of statutory construction. She observed that nothing quarantined s 444GA from an order under s 447A and that the purpose of s 444GA and Part 5.3A was to maximise the chances of a company either continuing in existence or ensuring the best return to creditors. She concluded that Mr Billingsley’s proposed course sought to achieve those objectives.
Director B was required to pay Mr Billingsley’s costs.
