FEDERAL COURT OF AUSTRALIA

Palmer and Collis and Terraplanet Limited (in liquidation), in the matter of
Terraplanet Limited (in liquidation) (No 2) [2008] FCA 582

CORPORATIONS – application by liquidators for order terminating winding up – liquidators had previously appointed themselves administrators pursuant to leave of court – deed of company arrangement (DOCA) entered into – DOCA implemented and term of DOCA expired – creditors’ trust – recapitalisation of company by third party – resolution passed by shareholders in support of third party’s recapitalisation proposal – payment of amount into a trust for benefit of participating creditors, and release of company from its obligation to pay creditors – interests of existing and future creditors, contributories and the public – relevant considerations – solvency of company recommencing its commercial life

Held: order made terminating winding up

Corporations Act 2001 (Cth) s 482

Rupert Co v Chameleon Mining (2006) 24 ACLC 635 cited

CHRISTOPHER JOHN PALMER AND BRYAN PATRICK COLLIS

AND TERRAPLANET LIMITED (IN LIQUIDATION) (ACN 088 749 008)

nsd 2445 of 2007

LINDGREN J

18 APRIL 2008

SYDNEY

IN THE MATTER OF TERRAPLANET LIMITED (IN LIQUIDATION) (ACN 088 749 008)

NOW NAMED TPL CORPORATION LIMITED

THE COURT ORDERS THAT:

1.                  The winding up of Terraplanet Limited (in liquidation) be terminated on today’s date, 18 April 2008.

2.                  Order 1 be entered forthwith.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE MATTER OF TERRAPLANET LIMITED (IN LIQUIDATION) (ACN 088 749 008)

NOW NAMED TPL CORPORATION LIMITED

REASONS FOR JUDGMENT (No 2)

Introduction

1                     On 18 April 2008 I ordered that the winding up of the second plaintiff, Terraplanet Limited (in liquidation) (Terraplanet), be terminated on that date.  These are my reasons for the making of that order.

2                     Previously on 21 December 2007, pursuant to s 436B(2) of the Corporations Act 2001 (Cth) (the Act), I granted the first plaintiffs, Christopher John Palmer and Bryan Patrick Collis (the Liquidators), the liquidators of Terraplanet, leave to appoint themselves as its administrators.  Pursuant to s 447A of the Act, I dispensed with the holding of the first meeting of creditors required to be held pursuant to s 436E of the Act.  On 28 December 2007, I published reasons for the making of those orders:  see Palmer and Collis and Terraplanet Limited (in liquidation), in the matter of Terraplanet Limited (in liquidation) [2007] FCA 2092.  Those reasons form part of my reasons for the making of the order terminating the winding up, and I will take those earlier reasons as read.

3                     As appears from the earlier reasons, Terraplanet carried on business as a publisher of magazines, graphic design and pre-press service provider, internet web site designer and developer and related businesses.  It was formerly admitted to the Official List of the Australian Stock Exchange (ASX) but its securities were suspended from trading on the ASX in November 2002.  Also, as appears from the earlier reasons, for a time the Liquidators were voluntary administrators of Terraplanet.  On 7 January 2003, at a meeting of creditors held under s 439A of the Act, the creditors resolved under s 439C(c) of the Act that Terraplanet be wound up.  The voluntary administration then came to an end and the Liquidators (in their then capacity as administrators) became the liquidators of Terraplanet.

4                     After events recounted in the earlier reasons, the position was reached that if the winding up were to be finalised, there would be no distribution to ordinary unsecured creditors, whose claims totalled approximately $1,533,000.

5                     Terraplanet received a recapitalisation proposal from Dalgety Capital Pty Ltd (Dalgety), under which Dalgety would inject $1,800,000 cash into Terraplanet in return for shares representing approximately 92.17% of Terraplanet’s issued share capital.  The proposal was conditional on the Liquidators again being appointed as administrators of Terraplanet, and the creditors of Terraplanet resolving under s 439C(a) of the Act that Terraplanet execute a deed of company arrangement (DOCA) proposed by Dalgety.

6                     It was predicted that, if the proposal was approved and the DOCA was executed:

·                    there would be sufficient funds to pay a preferential claim of the Department of Workplace Relations (DEWR) in respect of a GEERS payout to employees totalling $337,837;

·                    the ordinary unsecured creditors of Terraplanet would receive a distribution of approximately 15 cents in the dollar; and

·                    the approximately 2,500 shareholders of Terraplanet would retain one share for every eight shares currently held by them in Terraplanet, whose shares would again be traded on the ASX.

(It is noted that in the earlier reasons I referred (at [20]) to the affidavit evidence of Bryan Patrick Collis as establishing that, if the proposal was approved and the DOCA was executed, it was predicted that the ordinary unsecured creditors would receive a distribution of approximately 1.5 cents in the dollar.  While that statement was a correct reflection of the affidavit evidence before the Court, it has now come to light that there was an error in the affidavit of Bryan Patrick Collis, and that it was in fact predicted that the ordinary unsecured creditors would receive a distribution of approximately 15 cents in the dollar.)

Events since the orders made on 21 December 2007

7                     On 21 December 2007, pursuant to the leave of the Court referred to above, the Liquidators appointed themselves as joint and several administrators of Terraplanet pursuant to s 436B(2) of the Act.  I will, for the time being (see [20] below), refer to them as “Liquidators/Administrators”.

8                     The Liquidators/Administrators convened a meeting of Terraplanet’s creditors (Creditors’ Meeting) which was held on 24 January 2008.  Accompanying the notice of meeting was a report (Report) by the Liquidators/Administrators to creditors under s 439A(4) of the Act.  The Report showed that there was cash at bank of $239,804.67.  The Report also showed that if the winding up were to be finalised, the monies remaining after costs would be applied in part payment of the balance of the preferential DEWR GEERS claim, and there would be no payment to other priority creditors and known ordinary creditors whose claims totalled approximately $36,346 and $934,617 respectively.

9                     The Report explained the recapitalisation proposal and the proposed DOCA.  Annexed to the report were copies of the proposed DOCA, the “Proposal to Recapitalise” Terraplanet and a “Creditors Trust Deed”.  I will say more of these documents below.

10                  The Report noted that Dalgety had already paid a non-refundable deposit of $10,000 of the $450,000 cash advance that was to be paid into a creditors’ Trust Fund, which, together with the cash at bank of $239,804.67, less costs, would be available to Terraplanet’s creditors, subject to shareholder approval of the recapitalisation proposal.

11                  At the Creditors’ Meeting, the participating creditors unanimously resolved that Terraplanet execute a DOCA and a Creditors’ Trust Deed on terms not materially different to those contained in the drafts attached to the Report.

12                  On 7 February 2008, the Liquidators/Administrators, Terraplanet and Dalgety executed a DOCA in terms not materially different from those of the draft.

13                  The DOCA was expressed to be conditional upon certain conditions being satisfied or waived prior to or at completion.  One of these was execution of a trust deed in the form (or substantially in the form) of an attachment to the DOCA, under which the Liquidators/ Administrators, as trustees, would hold the Trust Fund, comprising, inter alia, the “Settlement Sum” of $10, the deposit previously mentioned of $10,000, the remainder of the Cash Advance of $450,000, namely, $440,000, and Terraplanet’s assets other than the “Terra Business Assets” upon the terms of the proposed trust deed.  Generally speaking, the Terra Business Assets were all intellectual property associated with certain mastheads.  Again, generally speaking, Terraplanet’s assets other than the Terra Business Assets were Cash at Bank of $239,804 and a refund of ASX listing fees of up to $17,000.

14                  At completion of the implementation of the DOCA, Terraplanet was to transfer to the trustees all of Terraplanet’s assets other than its Terra Business Assets, of which it was to remain the owner.    By reason of the recapitalisation and the associated issue of shares in Terraplanet to Dalgety, this intellectual property would enure to the benefit of Dalgety.  Terraplanet’s other assets would enure, through the trust, to the benefit of its creditors.

15                  “Completion” was defined in the DOCA as the occasion of the making of the payments and transferring of the property referred to in the preceding paragraph.

16                  The DOCA was expressed to bind all persons having a “Claim” (widely defined) against or in respect of Terraplanet.  It provided that on completion, Terraplanet would be released from all Claims, that all Claims against it would be extinguished, and that all persons having a Claim were permitted to lodge a proof of debt pursuant to the proposed trust deed. 

17                  Also annexed to the DOCA was a form of the “Proposal to Recapitalise” of Dalgety which was dated 22 October 2007.  No more need be said of it, since it has been overtaken by the orders made on 21 December 2007 and the events referred to in the earlier reasons and in these reasons.

18                  The Liquidators/Administrators convened a meeting of the shareholders of Terraplanet, which was held on 3 April 2008.  The participating shareholders unanimously passed a series of ordinary and special resolutions, the effect of which was to enable the recapitalisation proposal to be effectuated.  The resolutions included resolutions adopting a new constitution and changing Terraplanet’s name to “TPL Corporation Limited”.  Other resolutions provided for consolidation of the shares – every eight shares into one share – and the issue of new shares and options as part of the recapitalisation by Dalgety.

19                  The “Terraplanet Creditors Trust” was established on 11 April 2008.  By the Trust Deed, the Liquidators/Administrators as trustees undertook to distribute the Trust Fund (see [13] above) to pay:

·                    first, all liquidation costs and administrators’ costs;

·                    second, the trustees’ costs;

·                    third, employees’ entitlements in the order specified in s 556 of the Act; and

·                    finally, admitted creditors of Terraplanet rateably.

20                  The operation of the DOCA terminated in accordance with its terms on 11 April 2008, and “Notice that deed wholly effected” has been lodged with the Australian Securities and Investments Commission (ASIC).  In the result, the present position is that the Liquidators (they ceased to be Administrators on 11 April 2008 and I will henceforth refer to them simply as the Liquidators) in their capacity as trustees of the Terraplanet Creditors Trust, hold approximately $609,000 upon the terms of that Trust.

21                  On the making of an order under s 482 of the Act terminating the winding up, that amount will be distributed to Terraplanet’s creditors.  After priority creditors have been paid in full, it is estimated that there will be a return of approximately 17 cents in the dollar on admitted claims.

Consideration

22                  ASIC has released Regulatory Guide 82 (Guide) dated May 2005 as a guide for administrators where a proposed DOCA or variation of a DOCA involves a creditors’ trust.  The Guide recommends that administrators evaluate the proposal before submitting it to creditors, disclose all material information about the proposal to creditors, and express an opinion as to whether the proposal is one that adequately protects the interests of creditors.  The Liquidators did so, stating in the Report:

In our opinion it is in the best interests of creditors to accept the proposal for a Deed of Company Arrangement as it will provide for a greater return to creditors than if the winding up were to proceed to finalisation.

23                  I am satisfied that the DOCA and the Trust satisfy the object of Pt 5.3 of the Act of providing for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence, or results in a better return for its creditors and members than would result from an immediate winding up:  see s 435A of the Act.

24                  Rupert Co v Chameleon Mining (2006) 24 ACLC 635 presented factual circumstances somewhat similar to those of the present case.  Austin J stated in that case (at [15]) that in the exercise of its discretion whether to terminate the winding up, the Court considers the interests of creditors (including future creditors), the liquidator, contributories and the public.

25                    In the present case, the application is made by the Liquidators;  the existing creditors have voted in favour of the DOCA and the Terraplanet Creditors’ Trust;  and the contributories (that is, the shareholders) have voted in favour of the various resolutions to implement the recapitalisation proposal.

26                  Terraplanet is released from all existing debts under an arrangement that sees existing creditors better off than they would be if the winding up were to proceed to finalisation.

27                  This leaves future creditors to be considered.  In substance, Terraplanet is to commence its commercial life again.  No doubt Dalgety is of the view that its capitalisation of Terraplanet is adequate to enable it to succeed commercially.

28                  In the light of the absence of any existing debts and of the recapitalisation of the company, I infer that Terraplanet is solvent.  There is no reason to doubt, on the present evidence, that the company will be able to pay debts it will incur as and when they fall due after it recommences business.

Conclusion

29                  For the above reasons, I made the order on 18 April 2008 that the winding up of Terraplanet be terminated on that date.

Associate:

Dated:         30 April 2008