FEDERAL COURT OF AUSTRALIA

Permanent Nominees (Australia) Limited, in the matter of Momentum Mortgages Limited (Receivers and Managers Appointed) (Subject to a Deed of Company Arrangement) [2009] FCA 1576

Corporations Act 2001 (Cth) ss 283AA, 283AB, 283AC, 283DA, 283GA, 283HA. 283HB, 439A, 445A, 445F

PERMANENT NOMINEES (AUSTRALIA) LIMTED; IN THE MATTER OF MOMENTUM MORTGAGES LIMITED (RECEIVERS AND MANAGERS APPOINTED) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)

NSD 1457 of 2009

EMMETT J

21 DECEMBER 2009

SYDNEY

IN THE MATTER OF MOMENTUM MORTGAGES LIMITED (RECEIVERS AND MANAGERS APPOINTED) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)

THE COURT ORDERS THAT:

1.          Pursuant to section 283HA, or alternatively section 283HB(1), of the Corporations Act 2001 (Cth) (Act):

(a)       The resolutions passed by the holders of debentures issued by Momentum Mortgages Limited (Receivers and Managers Appointed) (Subject to a Deed of Company Arrangement) (Company) at a meeting of debenture holders held at 11:00 am on 12 November 2009 at Port Macquarie be set aside.

(b)       The Plaintiff, in its capacity as trustee for the Debenture Trust Deed made between the Company (as insurer) and the Plaintiff (as trustee) dated 30 June 2003 (Debenture Trust Deed), would be justified in voting in favour of, executing and agreeing to be bound by, the First Amended Deed of Company Arrangement substantially in the form of the document behind Tab 18 of Exhibit JDH-1 to the affidavit of Joseph David Hayes sworn 18 December 2009.

2.         Confidential Exhibit JDH-2 to the affidavit of Joseph David Hayes sworn on 18 December 2009 and filed in this proceeding be confidential, and no person is to have access to that exhibit without order of the Court.

3.          The Plaintiff’s costs of and incidental to this proceeding be paid out of the assets of the Debenture Trust Deed on a full indemnity basis.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

IN THE MATTER OF MOMENTUM MORTGAGES LIMITED (RECEIVERS AND MANAGERS APPOINTED) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)

REASONS FOR JUDGMENT

1                     The plaintiff, Permanent Nominees (Australia) Limited (the Trustee), has applied to the Court for orders under s 283HA or, alternatively, 283HB of the Corporations Act (2001) (Cth) (the Corporations Act).  To explain the application, it is desirable to say something about the relevant provisions of the Corporations Act. 

2                     Under s 283AA(1)(a), before a body makes an offer of debentures, in relevant circumstances, the body must enter into a trust deed that complies with s 283AB and must appoint a trustee that complies with s 283AC.  Under s 283DA, the trustee of trust deed entered into a s 283AA must, relevantly:

(a)        exercise reasonable diligence to ascertain whether the property of the borrower and of each guarantor that is or should be available will be sufficient to repay the amount deposited or lent when it becomes due;

(b)        exercise reasonable diligence to ascertain whether the borrower or any guarantor has committed any breach of the terms of the debentures or the provisions of the trust deed or of chapter 2L;

(c)        do everything in its power to ensure that the borrower or a guarantor remedies any breach known to the trustee, unless the trustee is satisfied that the breach will not materially prejudice the debenture holders’ interest or any security for the debentures;

(h)        comply with any directions given to it at a debenture holders meeting, unless the trustee is of the opinion that the direction is objectionable and the trustee has either obtained, or is in the process of obtaining, an order from the Court under section 283HA, setting aside or varying the direction.

3                     Section 283HA then provides, relevantly, that if the trustee applies to the Court for any direction in relation to the performance of the trustee’s functions, the Court may give any direction and make any declaration or determination in relation to the matter that the Court considers appropriate.  The Court may also make ancillary or consequential orders.  Under s 283HB(1)(g), if the trustee applies to the Court, the Court may make any order that the Court considers appropriate to protect the interests of existing or prospective debenture holders.  In deciding whether to make such an order, the Court must have regard to the ability of the borrower and each guarantor to repay the amount deposited or lent, any contravention of s 283GA by the borrower, the interests of the borrower’s members and creditors, and the interests of the members of each of the guarantors.  Section 283GA is concerned with the powers of the Australian Securities and Investments Commission (the Commission), to exempt or modify compliance with chapter 2L. 

4                     Until 13 October 2008, the primary activity of Momentum Mortgages Limited (the Company) was that of a non-bank lender to property developers.  The Company conducted its activities from Port Macquarie, New South Wales.  The Company financed its activities through the public issue of debentures pursuant to prospectuses lodged with the Commission.  Loans advanced by the Company were typically secured by mortgages over the real property that was the subject of the development, together with a charge over the assets of the borrower or developer. 

5                     On 30 June 2003, the Trustee and the Company entered into a debenture trust deed (the Trust Deed).  By the Trust Deed, the Trustee agreed to act as trustee of the Momentum Mortgages Debenture Trust (the Trust).  As security for the performance by the Company of its obligations under the Trust Deed, the Company, as charger, and the Trustee, as chargee, entered into a company charge, dated 30 June 2003 (the Company Charge).  The Company thereafter, from 4 July 2003 to 29 February 2008, lodged with the Commission and made available to members of the public, a series of prospectuses, on the basis of which it raised money on the security of debentures issued under the Trust Deed. 

6                     On 10 October 2008, the Trustee received a letter from the Company’s directors, inviting the Trustee to appoint a receiver and manager to the Company.  On 13 October 2008, the Company notified the Trustee that its directors had resolved to appoint Mr David Leigh as administrator of the Company, under Part 5.3A of the Corporations Act.  The appointment of Mr Leigh as administrator was an event of default for the purposes of the Company Charge.  Consequently, the power of the Trustee to appoint receivers and managers to the Company was enlivened.  On 13 October 2008, the Trustee took steps to accelerate the time for repayment of debentures and appointed Messrs Anthony McGrath and Joseph Hayes (the Receivers) as receivers and managers of all of the assets and undertaking of the Company. 

7                     On 23 October 2008, the first meeting of creditors of the Company was held in accordance with Part 5.3A.  However, the meeting lapsed as only one creditor of the Company attended.  On 17 November 2008, the meeting of creditors of the Company was held under s 439A of the Corporations Act, which requires a meeting of creditors to be held in order to determine whether a company should execute a deed of company arrangement, whether the administration under Part 5.3A should end, or whether the company should be wound up.  A proxy for the Trustee proposed that the meeting be adjourned and that motion was carried. 

8                     The adjourned meeting of creditors was held on 22 January 2009.  At the meeting, the creditors resolved to cause the Company to execute a deed of company arrangement pursuant to Part 5.3A and appoint Mr Leigh as deed administrator.  The Trustee, through its proxy, abstained from voting on that resolution.  Subsequently, on 13 February 2009, a deed of company arrangement was executed by the Company.  On 3 June 2009, a meeting of the creditors resolved that the deed of company arrangement be varied by extending its operation from 13 May 2009 for a period of three months.  Again, the Trustee’s proxy abstained from voting on the resolution. 

9                     At the time of the appointment of the administrator and the Receivers, various loans remained outstanding to the Company.  One of those loans was to Task Development 2 Pty Limited (Task), which was primarily secured against real property situated at Hunter Street, Newcastle.  The Hunter Street property was the subject of a development involving the construction of residential apartments.  The development had not been completed when the Receivers were appointed.  Prior to the appointment of the Receivers, the loan to Task was in default and the Company took possession of the Hunter Street property as mortgagee in February 2009.  The Company undertook the completion of that development as mortgagee.  

10                  The Company did not have sufficient funds to complete the construction of the Hunter Street development, and the Receivers formed the view that it would be beneficial to the Company to complete the development.  An offer of 9 March 2009 of a loan facility by GP Mortgage Corporation Limited (GP Mortgage) was accepted by the Receivers.  On 1 September 2009, a facility agreement was entered into between the Company as borrower and Australian Executor Trustees (SA) Limited (AET), in its capacity as custodian for the GP Mortgage fund, as lender.  The facility agreement provided a facility of $5,100,000 to be made available to the Company to be used primarily for the completion of the development of the Hunter Street property.  GP Mortgage and AET have asked that the precise terms of the facility agreement be kept confidential. 

11                  As security for the advance under the facility agreement, the Company entered into various agreements with AET on 1 September 2009, as follows:

·        The Company mortgaged its registered real property security over the Hunter Street property in favour of AET. 

·        The Company assigned by way of security to AET a number of mortgages that the Company held over real property at Warwick in the State of Queensland, as security for a loan advanced by the Company to Anna Bay Project Pty Limited (Anna Bay).  The loan to Anna Bay is unrelated to the loan secured on the Hunter Street property.  However, GP Mortgage required additional security for the facility agreement and that asset was regarded as appropriate for that purpose. 

·        The Company charged all of the debts owed by Task and Anna Bay to it, together with the securities for those debts, as security for repayment of the moneys owed under the facility agreement. 

·        The Company, AET, and the Trustee entered into a deed of priority.  By the deed of priority, the Trustee agreed that the moneys owing by the Company to AET and the securities granted in relation to those moneys would rank ahead of the Company Charge. 

12                  Moneys were drawn down under the facility agreement on 1 September 2009.  The money has been used for the purpose of completion of the development of the Hunter Street property.  The Receivers expect that the development will be completed in March 2010 and that sales of apartments on the property will commence shortly thereafter.  I have mentioned those circumstances because they are relevant to the application now before the Court. 

13                  Mr Barry Kogan is an officer of the Receivers’ firm, McGrath Nicol, and has been involved with the day to day administration of the receivership.  Mr Brett Gilbert is a director of the Company.  By an email of 17 July 2009, Mr Gilbert put forward a proposal to Mr Kogan.  The email contained requests from various debenture holders that a meeting of debenture holders be convened to consider a proposal that the debenture holders give a direction that the Trustee retire the Receivers without appointing a substitute, that the Trustee return control of the Company to its directors, and that the Trustee vote in favour of proposed amendments to the deed of company arrangement. 

14                  On 12 October 2009, following discussions between the Receivers and Mr Gilbert, Mr Gilbert wrote to debenture holders, proposing the following:

(a)        retirement of the Receivers and return of the day-to-day management of the Company to its directors, subject to the deed of company arrangement;

(b)        payment of ongoing management fees to the directors of the Company and its related entities, to a total of $450,000, together with operational expenses in priority to distributions to creditors;

(c)        payment of distributions to debenture holders of 65 cents in the dollar within 36 months;

(d)        payment of distributions to unsecured creditors of 10 cents in the dollar within 36 months;

(e)        limiting the Company’s activities to completion and sale of existing assets and realisation of its loan book;

(f)         the Company having the ability to incur debts, ranking ahead of the claims of debenture holders;

(g)        payment of distributions to debenture holders by Mr Leigh in his capacity as administrator under the deed of company arrangement;

(h)        formation of a committee of debenture holders, who would consult with directors of the Company concerning decisions on behalf of the Company.

15                  In accordance with a request by the proposers of that proposal, the Receivers, by notice of 14 October 2009, convened a meeting of debenture holders for 12 November 2009.  The Receivers provided a report to debenture holders dated 23 October 2009, in relation to the matters to be considered at the meeting.  The Receivers had a number of concerns in relation to the proposal, which they set out in their report to the debenture holders. 

16                  The Receivers’ concerns included the following:

(a)        the Receivers could not verify the existence of unconditional funding to support the proposal and the terms and conditions of any funding;

(b)        the financier proposed by the directors was a non-traditional lender and the Receivers did not have details of its financial position or its preparedness to advance funds;

(c)        the fixed amount payable to the directors of $450,000 was not insubstantial, given that it appeared to relate solely to services to be provided by the directors;

(d)        the proposed ability for the directors to encumber the Company’s assets in priority to the claims of debenture holders, exposed debenture holders to the charge or security of prior ranking mortgagees, together with loss of control of the property portfolio and loan book, should the Company subsequently default;

(e)        the responsibilities and powers of Mr Leigh, as administrator under the deed of company arrangement, were unclear;

(f)         the proposal provided no exit option for debenture holders who did not wish to have the Company returned to the control of its directors;

(g)        the proposal did not deal with the ongoing roles and responsibilities of the Trustee;

(h)        the proposal did not clearly demonstrate that a superior return would be available to debenture holders, in the event that the Company executed the proposed amendment to the deed of company arrangement, as compared with the receivership and liquidation of the Company;

(i)         the proposal did not compensate debenture holders for the loss of potential recoveries that might be realised by a liquidator pursuing the directors of the Company, for example, for insolvent trading, breach of directors duties or voidable transactions. 

17                  The Trustee also raised with the Receivers a number of concerns that it had in relation to the proposal that was to be put to debenture holders.  The Trustee’s concerns included the following:

(a)        the proposals failed to provide sufficient detail to enable debenture holders to make an informed judgment;

(b)        the proposed amended deed of company arrangement did not clearly delineate the roles, responsibilities and powers of the administrator and provided for return of the Company to the control of its directors without any supervision by independent third parties; 

(c)        the absence of funding sufficient to complete a number of construction projects.  The proposal did not seem to be capable of being implemented;

(d)        the fixed amount payable to the directors of $450,000 was substantial, given the work that was involved for it;

(e)        the proposed ability for the directors to encumber the Company’s assets in priority to the claims of debenture holders exposed debenture holders to charges of prior ranking securities;

(f)         no exit option was provided to the debenture holders who did not want the Company to be returned to the control of the directors;

(g)        the proposal did not deal with the ongoing role and responsibilities of the Trustee;

(h)        the proposal did not demonstrate that a superior return would be available to debenture holders in the event that the Company executed the amendments to the deed of company arrangement.

18                  It can be seen that the concerns expressed by the Trustee to the Receivers were mirrored in the concerns that the Receivers themselves had.  Whether one was the cause of the other perhaps does not matter, at this stage.  Prior to the meeting of debenture holders convened for 12 November 2009, discussions took place between the Receivers and the Trustee and also involved Mr Gilbert and Mr Doug Batt, a substantial debenture holder.  The discussions concerned an alternative approach to the proposal that had been put forward.  The Receivers recommended that the meeting of debenture holders be adjourned to allow for an alternative approach to be explored with relevant interested parties.  The meeting convened for 12 November 2009 was held.  Mr Hayes opened the meeting as chairman, but Mr Leigh replaced him thereafter. 

19                  Mr Kogan and Mr Hayes gave a presentation to the meeting, setting out the Receivers’ concerns with the proposal.  Mr Kogan gave an update on the progress of recovery of each of the remaining loans in the Company’s loan book.  Mr Michael Britton, General Manager (Corporate Client Services) of the Trustee also addressed the meeting in relation to the Trustee’s concerns in relation to the proposal. 

20                  In particular, the debenture holders were informed that the Trustee did not recommend that the current proposal be accepted, and that the Trustee would be required to seek court directions should the resolutions be passed.  The Trustee’s opinion was that the meeting should be adjourned for an alternative restructure proposal to be explored.  Mr Batt, who held proxies for a significant number of debenture holders, addressed the meeting and spoke in favour of the proposal.  However, Mr Batt’s address to the debenture holders did not deal with any of the concerns raised by the Receivers and the Trustee.  Following the completion of the presentations from Mr Kogan and Mr Hayes, and from Mr Batt and Mr Britten, the resolutions were put to the vote and were passed on a poll with a strong majority.

21                  The value of debentures represented at the meeting was $30,452,009 out of a total value of $35,185,313.  The votes in favour of the resolutions represented $28,096,825 being 92.27 per cent in value of the debenture holders present, in person and by proxy, who voted.  The resolutions that were passed were as follows:

(a)        The debenture holders direct the debenture Trustee to retire the Receivers without appointing a substitute;

(b)        The debenture holders direct the debenture Trustee to return the control of the Company to the directors subject to the provisions of the deed of company arrangement as amended;

(c)        The debenture holders direct the debenture Trustee to vote in favour of the amendments to the deed of company arrangement as set out in document attached to the resolution.

22                  Section 445A of the Corporations Act provides that a deed of company arrangement may be varied by a resolution passed at a meeting of the Company’s creditors convened under s 445F.  Section 445F provides that the administrator of a deed of company arrangement may at any time convene a meeting of the Company’s creditors.

23                  Notwithstanding the firm support for the proposal given at the meeting of debenture holders held on 12 November 2009, the Receivers do not consider that the resolutions are capable of implementation for the following reasons.  First, the concerns that the Receivers have, to which I have already referred, have not been addressed by the Company.  In particular, there is no evidence that the Company will be able to secure the requisite funds to progress the completion of one of its secured properties.  Secondly, the Receivers remain concerned that the governance of the Company during the period of the proposed amended deed of company arrangement is unclear, as is the ongoing role of the Trustee and the ongoing role of the administrator. 

24                  Third, GP Mortgage and AET have indicated that should control of the Company revert to its directors, that may be regarded as an event of default under the facility agreement, entitling AET to enforce its securities.  Enforcement of the securities would result in the Company losing control of the Hunter Street and Warwick properties.  Further, were AET to enforce its securities there would be substantially increased complexity and cost associated with the Company’s external administration which would be contrary to the underlying intention of the proposal approved by the debenture holders.  As a result of the concerns that the Trustee has about the proposal, the Trustee considers that the proposal is not consistent with the Corporations Act or the Trust Deed and is objectionable.

25                  The Trustee’s concerns are shared by the Company’s single largest debenture holder, Hode Pty Ltd, which holds debentures to a value of $1,003,370.  The Trustee also understands that the Commission shares its concerns in relation to the proposal.  According to the Trustee, he encouraged the Receivers to engage in discussion with the Company’s directors, Mr Leigh, the Commission and Mr Batt with a view to reaching a compromise position that would give effect to the underlying purpose of the proposal, but would overcome the concerns of the Trustee.  Those discretions have culminated in a draft amended deed of company arrangement, in the drafting of which the Trustee has been involved. 

26                  The directors, Mr Leigh, the Commission and Mr Batt have no objection to the execution by the Company, the Trustee and the Receivers of the proposed amended deed of company arrangement.  I shall say something about the position of the debenture holders shortly.  The Trustee considers that the execution of the proposed amended deed of company arrangement would be consistent with its responsibilities under the Trust Deed and under the Corporations Act, and would be in the interests of debenture holders.  The Trustee’s reasons for forming that view are as follows. 

27                  The Company’s assets will be divided into two pools, one controlled by the Company’s directors and one controlled by the Receivers.  That achieves two purposes.  First, it minimises the Receivers’ involvement in the Company’s affairs, which is the central tenet of the proposal.  Secondly, it addresses the concern that the Company would otherwise have insufficient funds to implement the proposal. 

28                  The proposed amended deed of company arrangement clearly defines the supervisory role of Mr Leigh and the other proposed deed administrator, Mr Leigh’s partner, Mr Mark Robinson.  The supervisory role of the deed administrators addresses the Trustee’s central concern that the proposal would result in a significant shortcoming in the Company’s corporate governance.  At the same time, the Company’s directors are given considerable freedom to conduct the Company’s affairs which is an important aspect of the proposal.

29                  The proposed amended deed of company arrangement provides for a structured approach to the approval of any proposed further encumbering of the Company’s assets as security for loans advanced to the Company.  That will enable funding proposals received by the Company’s directors to be considered by the deed administrators and the Trustee objectively before being accepted and implemented.  Further, the Trustee’s ongoing role and responsibilities are made clear in the proposed amended deed of company arrangement.  The Trustee will be able to continue to conduct its role in relation to the Company properly, particularly through the reporting obligations undertaken by the Company’s directors and the ability to consult on a regular basis with the deed administrators.

30                  Finally, the remuneration and expense payments to be made to the Company’s directors will be closely supervised by the administrators.  The supervision will avoid any possible leakage of cash that might otherwise occur as a return to debenture holders.  The proposed amended deed of company arrangement provides the Company’s directors with sufficient funds to go about the proper management of the Company’s affairs.  The Trustee, therefore, regards the proposed amended deed of company arrangement as representing an implementation of the proposal that gives effect to the wishes of the majority of debenture holders, but also enables the Trustee to fulfil its responsibilities and establishes effective governance mechanisms to avoid the risk of further loss to debenture holders.

31                  As I have said, the Receivers and Mr Gilbert have been involved in the negotiation of the proposed amended deed of company arrangement.  A meeting of creditors has been convened for 23 December 2009 for the purpose of considering the proposed amended deed of company arrangement.  Steps have also been taken to inform the debenture holders of the proposed amended deed of company arrangement insofar as it departs from the proposal that was the subject of the resolutions passed on 12 November 2009.  On 11 December 2009, the Receivers sent to all debenture holders a circular by Express Post. 

32                  The circular was also posted on the Receivers’ website on 11 December 2009.  Further, the circular was sent by email to about half of the debenture holders who had provided the Company with an email address.  Finally, an advertisement was lodged on 18 December 2009 in the Port Macquarie News, notifying the debenture holders that this application was to be made to the Court.  The vast majority of the Company’s debenture holders reside in the Port Macquarie area.

33                  The Receivers consider that the proposed amended deed of company arrangement is an appropriate way of implementing the proposal approved at the meeting of 12 November 2009, while at the same time addressing the concerns that had been raised by the Receivers and the Trustee.  The Receivers’ reasons for that conclusion mirror those of the Trustee.  The Receivers, therefore, see the proposed amended deed of company arrangement as giving effect to the clear desire of the majority of debenture holders to return control of the Company to its directors, while at the same time enabling the Trustee and the deed administrators to continue to provide guidance and supervision that will protect value for the debenture holders. 

34                  Mr Leigh has recommended that the Company’s creditors vote in favour of the proposed amended deed of company arrangement.  Mr David Hunter, who is the current chairman of an informal committee of debenture holders, raised some concerns with Mr Kogan and Mr Hayes, but those concerns have now been resolved.  Mr Gilbert has consulted with major debenture holders in relation to the proposed amended deed of company arrangement and he and other debenture holders support the execution of the proposed amended deed of company arrangement.  The Commission has been regularly informed of the negotiations concerning the proposed amended deed of company arrangement.  The Commission has expressed no opposition to the proposal. 

35                  The Trustee has applied to the Court for orders pursuant to s 283HA or, alternatively, 283HB(1), as I have said.  The orders sought are as follows:

(1)        An order setting aside the resolutions passed by the holders of debentures at the meeting of debenture holders held on 12 November 2009.

(2)        A direction that the Trustee, in its capacity as trustee under the Trust Deed, would be justified in voting in favour of executing and agreeing to be bound by the proposed deed of company arrangement.

(3)        A declaration that, for so long as the proposed amended deed of company arrangement is in effect, or until further order, the Trustee be excused from compliance with the requirements of sections 283DA(a), (b) and (c) insofar as they relate to a failure by the Company to pay, when due, the moneys payable to the Trustee under the Trust Deed.

36                  I have already referred to the substance of the power conferred on the Court by s 283HA of the Corporations Act.  At face value, one might have had some reservation as to whether s 283HA authorised the Court to set aside a direction given by debenture holders under a trust deed.  However, any doubt is removed by the express provisions of s 283DA(h), which, as I have said, requires a trustee to comply with directions given at a debenture holders meeting unless the trustee is of the opinion that the direction is inconsistent with the terms of the debentures or the provisions of the trust deed or the Act or is otherwise objectionable, and the trustee has either obtained or is in the process of obtaining an order from the Court under s 283HA, setting aside or varying the directions.  Thus, the Corporations Act clearly contemplates that the Court may, pursuant to s 283HA, order that a direction given by debenture holders at a meeting be set aside.

37                  Having regard to the concerns of the Trustee and the Receivers, which are, in my view, well founded, I consider that it is appropriate to make Order 1 as sought by the Trustee.  Having regard to the passing of the resolutions giving the directions, it is also desirable that the Trustee be directed that it would be justified in voting in favour of the proposed amended deed of company arrangement rather than the proposal that was put to the meeting.  I have considered the amended deed of company arrangement now proposed.  The objectives of the arrangement are stated in clause 2 to be to implement the resolutions passed on 12 November 2009 in a manner that is consistent with the debenture Trust Deed, the Corporations Act and the duties of the Trustee and the directions by the Court, to maximise the prospects that the Company may continue in existence with its business preserved, and to maximise the prospects that the creditors receive a dividend that exceeds the dividend that they would receive if the Company were wound up. 

38                  Clause 3 deals with the claims of creditors and imposes a moratorium and, ultimately, extinguishment of claims.  Clause 4.3 of the proposed deed of company arrangement binds the Trustee, on behalf of debenture holders.  The administrators and the Company each acknowledge that the Trustee and Receivers are entering into the deed in pursuance of the resolutions and in accordance with proposed directions by the court.  Nothing in the deed of company arrangement is to operate as a surrender, waiver, release or forfeiture of any of the Trustee’s rights under the Trust Deed or the Company Charge.  Clause 5 deals with the proposed fund which is to be available to pay the claims of admitted creditors.  The fund is to consist of deed of company arrangement assets and the Receivers’ surplus.  Clause 5.3 deals with the distribution of the fund and the priorities of payments. 

39                  “Deed of company arrangements assets” is defined as meaning the entire assets and undertaking of the Company, other than the receivership assets.  The receivership assets are the Anna Bay loan and the Task loan.  By clause 13, the Receivers agree to retire from the deed of company arrangement assets, but continue to be receivers and managers of the receivership assets.  The proceeds of the realisation from receivership assets are to be paid first towards repayment of the GP Mortgage advance; second in payment of certain Trustee expenses; third in payment of the debenture Trustee fee; and fourth to the administrators to form part of the fund to be distributed to creditors in accordance with the order of priority of clause 5.3.

40                  Clause 8 deals with the deed administrators and deals specifically with the inter-relationship between administrators and directors.  Clause 9 deals with the control of the Company.  Certain matters in relation to the Company must be approved by the administrators in writing before being acted upon by the directors.  In all of the circumstances I consider therefore that it is appropriate to give a direction that the Trustee would be justified in entering into the deed of company arrangement, and voting in favour of it as a creditor at the meeting convened for 23 December 2009. 

41                  I am not persuaded that the third order sought by the Trustee is necessary.  It may well be that there is no longer any work for sections 283DA (a), (b) and (c) to do so far as the Trustee is concerned.  Further, the proposed order is limited to failure by the Company to pay moneys due, bearing in mind that there is already default by the Company.  However, I do not at present see any justification for excusing the Trustee from exercising reasonable diligence to ascertain the matters referred to in 283DA (a) and (b). 

42                  Further, the Trustee, in the light of what I have already said, is satisfied that any current breach will not materially prejudice the debenture holders’ interests or any security of the debentures in the light of the Trustee’s approval of the proposed deed of company arrangement.  If, of course, circumstances change, it may be appropriate for the Trustee to seek a further order in relation to compliance with the provisions of s 283DA.  At present, however, I am not disposed to consider that it is necessary or desirable. 

43                  Subject to that reservation, I propose to accede to the Trustee’s application.  As I indicated, certain of the evidence is confidential, and I propose to make an order pursuant to s 50, that access to that material be restricted.  The Trustee has brought this proceeding in the performance of its duties and responsibilities of the trust.  In the circumstances it is appropriate that the costs of the Trustee of and incidental to the proceedings be paid out of the assets of the trust on a full indemnity basis. 

Associate:

Dated:         21 January 2010