In the matter of Nahas Construction and Development Pty Limited (Subject to Deed of Company Arrangement) (ACN 083 581 257)

HIS HONOUR: On 27 December 2012, three companies in voluntary administration - namely Nahas Construction and Development Pty Limited (ACN 083 581 257), Nahas Construction (NSW) Pty Limited (ACN 124 452 786), and Nahas Construction Pty Limited (ACN 150 545 878) – entered into a deed of company arrangement within (Cth) Corporations Act 2001, Part 5.3A, under which the present applicants John Vouris and Bradley John Tonks, formerly the voluntary administrators, became the deed administrators. Other parties to the deed of company arrangement were SJYC Pty Limited, which agreed to contribute to the deed fund, and Youssef Nahas, Mounir Nahas and Fadie Nahas, who were directors of the companies. The deed established a deed fund of $1.25 million contributed by SJYC, and essentially provided for creditors to prove their debts and the fund to be distributed first in payment of administrators’ expenses and remuneration, secondly, in payment of the costs of the petitioning creditors in respect of winding up proceedings against the companies; thirdly, in payment of priority creditors’ claims; and finally, in payment of claims of the remaining creditors pro rata.

It is necessary to refer to a number of the provisions of the deed.

Clause 1.1 contained a number of definitions, including relevantly the following:

Clause 1.5 provide:

Clause 3 made provision in respect of the appointment of administrators and, relevantly Clause 3.2(2) provided:

Clause 10 provided for a moratorium on action against the companies and provided that:

This clause expressly preserved the effect of s 444E of the Act.

Clause 11 imposes a bar on “Creditors’ claims”, relevantly in the following terms:

It will be observed that the operation of Clause 11.1 was confined to debts or claims that were “admissible under this deed”, though not to debts that were actually admitted.

Clause 13 applied relevant provisions of the Act by providing:

However, the concept of admissibility of debts or claims referred to in Clause 11.1 discussed above was addressed in Clause 14 of the deed which provided that a debt payable by or claimed against the companies was not admissible to proof unless it was a “Creditors’ claim”. Clause 14.3 again provided that for the purpose of determining a creditors’ claim subdivisions A, B, C, D and E of Part 5.6 of the Act applied. Clause 14.4 excluded deferred creditors’ claims from admissibility by providing that such claims are not admissible to proof under this deed.

Clause 17.2 provided that the deed automatically terminated, inter alia, when the administrators issued a notice under Clause 17.3 that they had applied all of the proceeds of realisation of all assets available for the payment of creditors. Clause 18 provided:

Clause 19.1 provided that upon termination of the deed in accordance with Clause 17, the Companies are released from all “Creditors’ claims”, save those of the “Deferred creditors” (to the extent they have not been satisfied).

On 23 April 2013, Gisele McTear as plaintiff commenced proceedings against a company therein described as Nahas Construction Pty Limited, but which is in fact a reference to the company identified in the deed of company arrangement as Nahas Construction (NSW) Pty Limited, for damages for personal injuries said to have been occasioned when she was walking along a footpath adjacent to premises occupied by the company, and temporary fencing fell upon her occasioning injury, disability, loss and damage.

When it was ascertained that the company was the subject of a deed of company arrangement, a Notice of Motion was filed by the plaintiff in the District Court proceedings seeking to substitute HIA Insurance Services Pty Limited as defendant, and leave pursuant to the (NSW) Law Reform Miscellaneous Provisions Act 1946, s 6(4), to sue HIA Insurance Services Pty Limited. But subsequently it emerged that HIA was in fact a broker, not an insurer, the insurer being Allianz. Apparently the motion is to be amended to seek substitution and leave against Allianz rather than HIA. By doing so, Ms McTear seeks to rely on the charge on the insurance moneys that may become payable to the company in respect of its liability to her, pursuant to the Law Reform Miscellaneous Provisions Act, s 6(4).

In those circumstances the question has arisen whether, assuming that leave to sue the insurer is granted in the District Court, Ms McTear would be able to recover any amount greater than that to which she would be entitled against the company under the deed of company arrangement. It is at least arguable that the effect of the deed of company arrangement would be to limit her claim to proving pro rata with the other unsecured creditors. This, it was submitted, was not the intention of the deed of company arrangement, particularly in so far as it incorporated (Cth) Corporations Act 2001, Part 5.6, Div 6, subdiv D. Within that subdivision, s 562 provides:

So far as concerns the amendment of a deed of company arrangement, Corporations Act, s 445A, provides as follows:

Section 445B confers on the Court the power, on the application of a creditor, cancelling or confirming a variation that was approved by a meeting of creditors. The proposed amendment has not been considered by a meeting of creditors.

Section 445D confers jurisdiction on the Court to terminate a deed of company arrangement on a number of grounds. Section 445G provides that:

It is a pre-condition to the operation of s 445G that there be a doubt on a specific ground whether the deed of company arrangement was entered into in accordance with, or complies with the Part. Thus, it is only where there is doubt as to whether there has been a non-compliance with Corporations Act, Part 5.3A, in entering into a deed of company arrangement, that jurisdiction under s 445G is attracted.

No provision of Part 5.3A that might have affected the validity of what was done has been identified. There does not appear to me any doubt of the type contemplated in s 445G whether this deed of company arrangement was entered into in accordance with, or in compliance with, Part 5.3A. In my view s 445G is not enlivened.

Section 447A provides that the Court may make such order as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company. The breadth of that jurisdiction has been stated many times.

In Milankov Nominees Pty Ltd v Roycol Ltd (1994) 52 FCR 378, Lee J contemplated (at 301) that an order amending a deed might be authorised under s 447A. Those observations were approved by Branson J in Re Giga Investments Pty Ltd (admr apptd) (1995) 17 ACSR 547, 549. Her Honour then applied those observations in the subsequent case of Mulvaney v Rob Wintulich Pty Ltd (1995) 18 ACSR 384, (at 386):

In this case, the orders are sought by the administrators. Thus, to the extent that there is some analogy with s 445G(4), the requisite consent is present. The proposed amendments are either consented to, or at least not opposed, by the other parties to the deed of company arrangement, all of whom have appeared before the Court on the hearing.

There will be no prejudice to the other creditors, as excluding the claims of insured creditors from the deed fund will preserve the value of the deed fund for the other creditors, leaving the insured creditors to claim against the insurance funds only.

In those circumstances, it seems to me appropriate to order that, for the purposes of these particular companies, the deed of company arrangement may be varied also by an order of the Court on the application of the administrators.

Accordingly, the Court orders that: