FEDERAL COURT OF AUSTRALIA

Mentha, In the matter of Griffin Coal Mining Company Pty Ltd

(administrators appointed) [2010] FCA 764  

IN THE MATTER OF GRIFFIN COAL MINING COMPANY PTY LTD (ADMINISTRATORS APPOINTED) (ACN 008 667 285), GRIFFIN ENERGY GROUP PTY LTD (ADMINISTRATORS APPOINTED) (ACN 008 681 696), CARPENTER MINE MANAGEMENT PTY LTD (ADMINISTRATORS APPOINTED) (ACN 106 053 703), W.R. CARPENTER HOLDINGS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 008 401 796), CARPENTER MINE MANAGEMENT HOLDINGS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 122 080 684) AND W.R. CARPENTER AUSTRALIA PTY LTD (ADMINISTRATORS APPOINTED) (ACN 000 032 315)

THE COURT ORDERS THAT:

1.                  The plaintiffs have leave to file the Amended Originating Process in Court.

2.                  Pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (Corporations Act), Part 5.3A of the Corporations Act is to operate in relation to The Griffin Coal Mining Company Ltd (Administrators Appointed) (ACN 008 667 285) (Griffin Coal) and the other companies listed in the Schedule of Companies (collectively, the Companies):

            (a)        as if s 443A(1) provided that the debts and liabilities incurred by the Companies pursuant to the issue of notes referred to in paragraphs 5 and 37 to 42 of the affidavit of Brian Keith McMaster affirmed on 5 July 2010 and the documents referred to therein (Note Issue) are debts incurred by the plaintiffs in the performance and exercise of their functions and powers as administrators of the Companies and are the subject of the right of indemnity referred to in s 443D for the purposes of ss 443E and 443F;

            (b)        as if s 443A(1) provided that the debts and liabilities incurred by the Companies, other than Griffin Coal, in their capacity as guarantors of Griffin Coal’s obligations under the Note Issue are debts incurred by the plaintiffs in the performance and exercise of their functions and powers as administrators of the Companies and are the subject of the right of indemnity referred to in s 443D for the purposes of ss 443E and 443F; and

            (c)        such that, notwithstanding sub-paragraph (a) and (b) above, if the indemnity of the plaintiffs under s 443D of the Corporations Act is insufficient to meet any amount for which the plaintiffs may be liable arising out of or in connection with the Note Issue, the plaintiffs will not be personally liable to repay such amount to the extent of that insufficiency.

3.                  The exhibits marked “Confidential Exhibit BKM-2”, “Confidential Exhibit BKM-4” and “Confidential Exhibit BKM-6” be kept confidential in the court file in proceedings WAD 183 of 2010 by placing the exhibits in a sealed envelope marked “Confidential – Not to be opened by any person without further order of a Judge of this Court and giving the First and Second Plaintiffs, care of their Solicitor, Corrs Chambers Westgarth, at least 48 hours’ prior notice of any application seeking such an order”.

4.                  The costs of this application be costs in the administrations.

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 Federal Law Search on the Court’s website.

IN THE MATTER OF GRIFFIN COAL MINING COMPANY PTY LTD (ADMINISTRATORS APPOINTED) (ACN 008 667 285), GRIFFIN ENERGY GROUP PTY LTD (ADMINISTRATORS APPOINTED) (ACN 008 681 696), CARPENTER MINE MANAGEMENT PTY LTD (ADMINISTRATORS APPOINTED) (ACN 106 053 703), W.R. CARPENTER HOLDINGS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 008 401 796), CARPENTER MINE MANAGEMENT HOLDINGS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 122 080 684) AND W.R. CARPENTER AUSTRALIA PTY LTD (ADMINISTRATORS APPOINTED) (ACN 000 032 315)

REASONS FOR JUDGMENT

1                     On 6 July I made orders in this proceeding.  I now publish my reasons for so doing.

2                     The plaintiffs are administrators of various companies in the Griffin group of companies.  Each of the plaintiffs is a partner of the accounting firm KordaMentha. 

3                     The first plaintiffs are the administrators of The Griffin Coal Mining Company Pty Ltd (Griffin Coal).  The second plaintiffs are the administrators of Griffin Energy Group Pty Ltd (Griffin Energy), Carpenter Mine Management Pty Ltd (CMM) and Carpenter Mine Management Holdings Pty Ltd (CMMH). 

4                     The first and second plaintiffs are the same persons, save that Mark Mentha, the first-named first plaintiff, is an administrator of Griffin Coal but not the other companies.

5                     Their respective appointments were made on 3 January 2010 as administrators of Griffin Coal, Griffin Energy, CMM, CMMH, W R Carpenter Holdings Pty Ltd, and W R Carpenter Australia Pty Ltd.  The last two companies are not parties to the present application.

The application

6                     The plaintiffs seek orders under s 447A(1) of the Corporations Act 2001 (Cth) on an urgent basis to alter the operation of Pt 5.3A of the Corporations Act in relation to the particular companies of which they are administrators.  I am satisfied from the affidavit affirmed on 30 June 2010 by Sabrina Sue Yi Ng, a senior associate employed by the plaintiff’s solicitors, that the requisite urgency has been established. 

7                     The first proposed alteration in respect of the operation of Pt 5.3A is to ensure that the plaintiffs’ liabilities under the proposed financing transaction, as borrowers or guarantors, are treated as liabilities which they have incurred in the performance or exercise of their functions and powers as administrators, and have the same priority as liabilities which have incurred in the performance or exercise of their functions and powers. 

8                     Accordingly, paras 1(a) and (b) of the amended originating process seek orders that the operation of Pt 5.3A be:

(a)        as if s 443A(1) provided that the debts and liabilities incurred by the companies pursuant to the proposed financing are debts incurred by the plaintiffs in the performance and exercise of their functions as administrators of the companies and are the subject of the right of indemnity referred to in s 443D for the purposes of ss 443E and 443F;

(b)       as if s 443A(1) provided that the debts and liabilities incurred by the companies other than Griffin Coal, in their capacity as guarantors of Griffin Coal’s obligations under the proposed financing are debts incurred by the plaintiffs in the performance and exercise of their functions as administrators of the companies and are the subject of the right of indemnity referred to in s 443D for the purposes of ss 443E and 443F.

9                     The second proposed alteration in respect of the operation of Pt 5.3A is designed to limit the administrators’ personal liability to the extent of the assets of the companies. 

10                  Accordingly, para 1(c) of the amended originating process seeks an order that the operation of Pt 5.3A be such that, notwithstanding that the plaintiffs’ liabilities under the proposed financing transaction, as borrowers or guarantors, are treated as liabilities which they have incurred in the performance or exercise as administrators:

if the indemnity of the plaintiffs under section 443D of the Corporations Act is insufficient to meet any amount for which the plaintiffs may be liable arising out of or in connection with the [proposed financing], the plaintiffs will not be personally liable to repay such amount to the extent of that insufficiency.

11                  The effect of these proposed orders is to allow the administrators to proceed to borrow fresh funds for injection into the businesses of the companies which they are administering, in order to help maximise the value of these companies’ assets for sale, without incurring personal liability for these borrowings.  On the other hand the lender is assured that the amounts borrowed are treated as administration expenses, which rank in priority to unsecured debts and in priority to debts secured by a floating charge where the chargee consents in writing.

Background

12                  The time for holding the second creditors meeting for each of the companies under administration has twice been extended by McKerracher J, and such a meeting must now be held by midnight on 28 September 2010. 

13                  The decisions in respect of these extensions are reported as: Mentha; re Griffin Coal Mining Company Pty Ltd [2010] FCA 30 (Griffin No 1) and Mentha; re Griffin Coal Mining Company Pty Ltd (No 2) [2010] FCA 499 (Griffin No 2).  These decisions outline the facts relevant to the operation and administration of the Griffin group of companies.  In particular see Griffin No 1 at [23]-[50], Griffin No 2 at [7]-[33].

14                  Importantly, the decisions in Griffin No 1 and Griffin No 2 holdthat:

(a)        Griffin Coal, Griffin Energy, CMM and CMMH are all wholly owned subsidiaries of Devereaux Holdings Pty Ltd;

(b)       Griffin Coal is one of the largest coal producers and suppliers in Western Australia, and operates three open-cut coal mines in the Collie Basin.  CMM operates and manages the coal mines owned by Griffin Coal;

(c)        Griffin Coal, through various subsidiaries, owns two coal-fired power stations known as Bluewaters 1 and Bluewaters 2.  Bluewaters 1 is operational.  In February 2010, Bluewaters 2 was just about to become operational;

(d)       Griffin Coal, through various subsidiaries, owns a half interest in the Emu Downs Windfarm, which is the fourth largest windfarm in Australia;

(e)        there are 500 employees engaged in mining operations;

(f)        the administrators consider that the best method of maximising value for the business assets of the companies under administration is to sell or recapitalise the businesses conducted by these companies as a going concern in a competitive sale process; and

(g)        the creditors have not opposed the course proposed by the administrators, and there has been no significant opposition to the extensions of time, although a small number of creditors initially considered that the administrators should be held to a tighter timetable.

15                  These findings were based upon the affidavits of Brian McMaster, one of the administrators.  These affidavits and their exhibits are referred to in Mr McMaster’s affidavit in support of the present application, affirmed 5 July 2010.  The plaintiffs seek to rely on these affidavits as well as that of Ms Ng in the present application.  Mr McMaster is a registered liquidator and official liquidator with more than 15 years experience in corporate insolvency.  He has discussed the need for this application with each of the other administrators listed as first and second plaintiffs, each of whom has consented to the application and believes that the orders sought are in the best interests of the creditors.  Each has authorised him to affirm his affidavit. 

Circumstances giving rise to present application

16                  The companies of which the plaintiffs are administrators do not have sufficient resources to continue as a going concern without obtaining external financing in the short term.  According to Mr McMaster, if these companies cease to continue as a going concern, the ability to maximise the value of the companies’ businesses by a sale or recapitalisation on a going concern or “whole of business” basis will be lost. 

17                  Consequently, the first plaintiffs, as administrators of Griffin Coal, propose to cause Griffin Coal to borrow a significant sum of money in order to fund the ongoing operations of the companies under administration while the process of recapitalising or restructuring the companies occurs, so that their businesses may be sold on a going concern basis.  The plaintiffs (as administrators of the other companies apart from Griffin Coal) propose to cause Griffin Energy, CMM and CMMH to guarantee the borrowings of Griffin Coal.

18                  The plaintiffs seek orders to ensure that the details of the funding remain confidential for reasons explained by Mr McMaster in his affidavit.  I am satisfied from this that a proper basis exists for making the confidentiality order sought.

19                  The two secured creditors of the companies under administration have been informed by letter of the fact that external funding has been sought (although not of the terms of the funding).  They were also informed that: “It is a condition of the loan that the administrators obtain an order from a court of competent jurisdiction that the amounts due under the loan are the subject of the administrators’ right of indemnity under s 443D for the purposes of ss 443E and 443F and relieving the administrators of personal liability from amounts due under the loan to the extent that the assets of the Company or the Guarantors are insufficient to indemnify the administrators”.  Neither secured creditor has responded or advanced any opposition to the proposed funding. 

20                  The plaintiffs have disclosed the need for funding and certain details of the proposed funding to the committees of creditors for the various companies.  These details include the amount of the funding, the interest rate, the level, in comparative terms, of the fees which will be charged and the requirement that the administrators seek orders that if the administrators’ indemnity under the Corporations Act is insufficient to meet repayment of the loan, the administrators will not be personally liable to repay such loan to the extent of that insufficiency.  Against that background the various committees unanimously endorsed the proposed funding. 

Consideration

21                  Section 447A(1) is a wide power which is not to be read down only to provide a power to cure defects or remedy the consequences of some departure from the scheme set out in the other provisions of Pt 5.3A.  Section 447A was “intended to permit a much wider class of orders than those which declare what is the effect of the Part or which protect the interests that creditors no doubt have in the administration of a company being carried out in accordance with law”. It “permits the making of orders which would alter how s 439A is to apply”: Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 at 279, [17], 280, [19], 281, [24].

22                  Section 447A confers an unusual power that requires careful consideration before exercise: Sims; Re Huon Corporation Pty Ltd (Administrators appointed) (2006) 58 ACSR 620 at [11].

23                  Numerous authorities support the making of orders similar to those sought in the present case: Re Spyglass Management Group Pty Ltd (2004) 51 ACSR 432, Re Malanos [2007] NSWSC 865, Re View Gold Pty Ltd; ex parte Saker [2008] WASC 241; Re Great Southern Infrastructure Pty Ltd; ex parte Jones [2009] WASC 161; Carter; Re SFM Australasia Pty Ltd [2009] FCA 360; Re Australian Business Colleges Pty Ltd [2010] VSC 47.

24                  In deciding whether it should exercise its discretion to make the orders sought the Court will give weight to an administrator’s opinion that what is sought is in the best interests of the company as well as to the consistency of the administrator’s objectives with the operation of Pt 5.3A of the Act: Re Ansett AustraliaLtd (Administrators appointed) (No 1) (2002) 115 FCR 376 at [49] and [52].  These objects are to maximise the chances of the company, or as much as possible of its business, continuing in existence for the benefit of creditors and certainly not to their detriment or disadvantage; or if this is not possible, to obtain a better return for creditors than would result from an immediate winding up: see s 435A.

25                  In the present case, Mr McMaster on his own behalf and that of the other administrators has deposed to the fact that the benefit of external funding is to maximise the prospect of the sale or recapitalisation of the companies’ businesses. 

26                  Mr McMaster has also deposed to his opinion that:

(a)        it is in the creditors’ best interests that the companies of which the plaintiffs are administrators continue to trade with a view to realising the maximum value for the companies’ businesses and assets as a going concern;

(b)       the proposed financing represents the best funding option available to the companies  at the present time;

(c)        without the additional funding being in place shortly, it would be impossible for the companies to continue to trade as a going concern in order to pursue a deed of company arrangement or sale in the best interests of the companies; and

(d)       without the orders being sought being made, it would be impossible to obtain the additional funding required for the companies to continue to trade as a going concern.

27                  Without the immediate funding which is being sought, the companies will be unable to continue operations.  The secured creditors will not be prejudiced by the external funding, unless they consent to this funding taking priority.  The committees of unsecured creditors unanimously endorsed the external funding proposal.  There is an urgent need for the external funding to be obtained.

28                  The order limiting the administrators’ liability is not one in which the creditors have any practical interest, because they cannot be disadvantaged by it.  However, they stand to gain by it if the proposed financing goes ahead: Re Spyglass at [6].

29                  For all these reasons I am satisfied that the proposed orders should be made.

Associate:

Dated:         8 July 2010