In Yeo, in the matter of Ready Kit Cabinets Pty Ltd (in liq) v Deputy Commissioner of Taxation [2020] FCA 632 Middleton J considered the operation of the sub sectin 588FE(2B) involving the voidable transactions and whether payments were made under the administrator of a deed of company arrangement.

FACTS

On 29 October 2013, Mr Yeo and Mr Rambaldi were appointed as joint and several administrators of Ready Kit Cabinets Pty Ltd (in liq) (” the Company”) [8].

The DCT  commenced proceedings seeking to wind up the Company before the appointment of  Yeo and Rambaldi as voluntary administrators [9].  The first meeting of the Company’s creditors was convened and held on 7 November 2013 [10].  On 14 November 2013,  Yeo and Rambaldi issued a circular to creditors in which they advised that the second meeting of the Company’s creditors would be held on 22 November 2013. Yeo and Rambaldi provided creditors with a copy of a s 439A report with the circular [11].  At the second meeting of creditors  a resolution was passed that the Company should execute a deed of company arrangement [12].

On or about 11 December 2013, the DOCA was executed by:

• each of the Company (by its then administrators,  Yeo and Rambaldi),
•  Yeo and Rambaldi as deed administrators, and
• the Director [13].

His Honour identified key provisions of the DOCA as:

• Recital H. [14], that:

This Deed binds all Creditors of [the Company] pursuant to Section 444D of the Corporations Act and [the Company], all officers and members of [the Company], and the Administrators pursuant to Section 444G of the Corporations Act.

•  management and control of the Company’s day-to-day business affairs were returned to the Director;
• a fund was established and controlled by the Deed Administrators which constituted the whole of the property available for distribution to participating creditors [15];
• the Company and Director made certain covenants and undertakings, including in respect of the Company’s compliance with its taxation obligations [15]; and
•  upon default of the DOCA by the Company or the Director, the Deed Administrators were to convene a meeting of creditors to determine whether to terminate the DOCA and wind up the Company [15].

Between 11 December 2013 and 5 July 2017, the Company was returned to the management and control of the Director and continued to trade [16]. During this time the Company incurred fresh liabilities with the DCT of $403,000.76, paying totalling $304,772.15 during the administation of the deed [17].

On 5 July 2017, a meeting of creditors was convened pursuant to s 445F of the Corporations Act the DOCA was terminated and the Deed Administrators became the liquidators [18].  The estimated unsecured outstanding debts was $652,676.49 (excluding the Payments if voidable) [19].

DCT submitted that:

• the making of the Payments was specifically contemplated (and required) under the terms of the DOCA;
• pursuant to cl 6.1(d) the Company expressly covenanted to make the Payments;.
• Yeo and Rambaldi accepted that
  • they were acting as agents of the Company in carrying out their duties in accordance with the terms of the DOCA ) and
  • by the operation of s 444G of the Corporations Act both  Yeo and Rambaldi were bound by the DOCA.
• Yeo and Rambaldi were aware of the amendments that were made to the then proposed deed of company arrangement at the second meeting of the Company’s creditors on 22 November 2013 to take into account the need for the Company to comply with its taxation obligations during the life of the DOCA,
• the fact that if the Company was to continue trading under the terms of the DOCA it would necessarily accrue taxation liabilities as a result of its trading.
• as a matter of fact, the Payments were made under the authority of Mr Yeo and Mr Rambaldi [48].

DECISION

The key provision, Subsection 588FE(2B) of the Corporations Act relevantly provides:

(2B) The transaction is voidable if:

..

(d) the transaction, or the act done for the purpose of giving effect to it, was not entered into, or done, on behalf of the company by, or under the authority of:

(i) the administrator of the deed; or

(ii) the administrator of the company.

His Honour posed the question for determination as:

“… whether the Payments were in fact made by the Company to the DCT ‘under the authority of’ the Deed Administrators. The focus is not ‘under’ the DOCA, but ‘under the authority of the Deed Administrators’.”

and

This case turns on the question of whether the Payments were in fact made by the Company to the DCT ‘under the authority of’ the Deed Administrators.

His Honour noted that the fact that Yeo and Rambaldi as Deed Administrators did not make the Payments or instruct anyone to make the Payments does not determine the question of whether the relevant transactions were entered into, or done, on behalf of the Company under the authority of the Deed Administrators under section 588FE(2B)(d)(i) [47].

His Honour stated:

• that the essential point is that the Payments were made by the Company pursuant to sub-cl 6.1(d), but not through or under the authority of the Deed Administrators [49].
• the responsibility to make the Payments was upon the Company and the Director  with the consequence of default set out in sub-cl 16.2(c) [49].
• a company cannot act other than through people who act as its agents Sharp & Anor v Blake & Anor [2015] EWHC 3220 (Ch) at [9] [50]
• the powers of directors of a company, suspended upon appointment of administrators, are revived upon the entering into of a deed of company arrangement [51]
• the powers and obligations of a deed administrator are provided solely from the terms of the deed of company arrangement [51]
• a deed administrator is not an administrator under Pt 5.3A of the Corporations Act.
• while it is open to the creditors to provide in a deed of company arrangement for the deed administrator to:
  • have managerial powers
  • assume managerial obligations,
  • limit or exclude the reinstatement of a director’s authority

they are not required to do so: Cargill at [41]-[44]. [52]

• the DOCA did not empower the Deed Administrators to conduct managerial affairs of the Company, such as making of the Payments [53].
• sub-clause 4.1(a) of the DOCA expressly returns management of the day-to-day business affairs to the Director & the Payments were made by the Director from his own authority in managing the Company [54].
• cl 6 indicates the responsibility for the Payments was effectively upon the Company and the Director [55].
• it is not correct that all transactions carried out (even by a director if permitted) during the operation of the DOCA are carried out by or under the authority of the Deed Administrators [56].
• even transactions contemplated or required to be undertaken by the DOCA cannot be necessarily said to be made on behalf of the Company under the authority of the Deed Administrators, when the DOCA contemplates and requires itself the entry into of some transactions on behalf of the Company by the Director with no involvement by the Deed Administrators [56].
• Payments were not made by the Director ‘under the authority’ of the Deed Administrators [57].
• the fact that:
  • the Company had an obligation to make the Payments by operation of taxation laws and
  • the Director did make the Payments on the Company’s behalf
  • the payments were made during the DOCA

did not make the payments as being made under the authority of the Deed Administrators [59].

• the relevant task of the Court is to construe the words employed by Parliament in the context in which they have been used &  extrinsic material is secondary [62]

His Honour found that the Payments are recoverable from the DCT as unfair preferences under s 588FA of the Corporations Act. [65].

ISSUE

This case highlights the need to be very careful in how to make payments during the existence of a DOCA.   The payments made were found not to be made by an administrator of the deed or administrator of the company.  Middleton J’s  analysis was technical and forensic and rejected the more open general interpretation sought.  With insolvency cases and voidable transactions it is critical to properly analyse and understand the basis for each payment lest it be found to be voidable.