FEDERAL COURT OF AUSTRALIA

Gothard, in the matter of Sherwin Iron Ltd (Administrators Appointed) (Receivers and Managers Appointed) (No 2) [2015] FCA 401

IN THE MATTER OF SHERWIN IRON LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 009 075 861

THE COURT ORDERS THAT:

1.    Pursuant to section 439A(6) and section 447A(1) of the Corporations Act 2001 (Cth) (Act), the period specified by section 439A of the Act for the convening of a meeting of creditors of each of Sherwin Iron Ltd (Administrators Appointed) (Receivers and Managers Appointed) ACN 009 075 861 and of the companies listed in the annexed schedule (together, the Companies) be extended to midnight on 30 October 2015.

2.    Pursuant to section 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to each of the Companies as if the meeting of creditors required by section 439A(1) of the Act may be held at any time on or before 30 October 2015 or within 5 business after that date.

3.    Liberty be granted to the plaintiffs, any director, creditor, contributory of the Companies or any other person with a sufficient interest to apply on 3 days' notice to vary or amend the order extending time.

4.    The plaintiffs’ costs of the proceedings be paid pro rata as a cost in the administration of each of the Companies.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

SCHEDULE OF COMPANIES

SHERWIN IRON (NT) PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 124 739 546

SOUTH MURCHISON MINES PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 103 103 626

REASONS FOR JUDGMENT

1    By interlocutory application filed on 8 April 2014, the plaintiffs (“administrators”) applied under ss 439A(6) and 447A(1) to extend the convening period for the second meetings of creditors of Sherwin Iron Ltd (Administrators Appointed) (Receivers and Managers Appointed) (“Sherwin Iron”), Sherwin Iron (NT) Pty Ltd (Administrator Appointed) (Receivers and Managers Appointed) and South Murchison Mines Pty Ltd (Administrator Appointed) (Receivers and Managers Appointed) (together “the companies”) to 30 October 2015 and to permit the meetings to be held on any business day during or within 5 business days after the end of the convening period as extended.

2    The matter was listed before me as Commercial and Corporations Duty Judge at 4:15 pm on Friday 10 April 2015. The matter required urgent attention because the convening period was due to expire on Tuesday 14 April 2015, having been previously extended by orders made by this Court in August 2014: Gothard, in the matter of Sherwin Iron Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2014] FCA 826. After hearing submissions from Mr Koch of counsel on behalf of the administrators, I was satisfied that the convening period should be extended. Accordingly, I made orders in the terms sought by the liquidator. What follow are my reasons for making those orders.

Background to the application

3    On 10 July 2014 the administrators were appointed as the joint and several administrators of the companies pursuant to s 436A of the Corporations Act 2001 (Cth) (“the Act”). The same day, following the administrators’ appointment, Jannamaria Robertson and Scott Kershaw were appointed by The Trust Company (Australia) Ltd (“Trust Company”) as joint and several receivers and managers of the companies (“receivers”).

Position around the time of the administrators’ appointment

4    The companies’ business was iron ore exploration and mine development at the Roper River Iron Ore Project (“project”), which is said to cover over 4,000 square kilometres near Mataranka in the Northern Territory.

5    The companies had been granted four exploration licences in respect of mining tenements and had lodged an additional six applications for exploration licences.

6    The companies had commenced actions to obtain approvals necessary to commence mining operations, including preparation of an environmental impact statement (“EIS”) and a mining management plan (“MMP”). Prior to commencement of any mining operations, the EIS is required to be assessed by the Northern Territory Environmental Protection Authority (“NTEPA”) and approved by the Commonwealth Department of Environment (“DOE”). The MMP, a comprehensive planning document setting out how the relevant mine is to operate, must be approved by the Northern Territory Department of Mines and Energy (“DME”). The documents constituting the MMP had been substantially completed prior to the appointments but not yet lodged pending approval of the EIS.

7    In May 2014, the DOE received the NTEPA’s assessment report concerning the EIS, which commenced the approval clock for assessment of “controlled action” under the Environmental Protection and Biodiversity Conservation Act 1999 (Cth).

8    In June 2014, the companies were notified by the DOE that the DOE would suspend its approval process until the DME had pre-approved certain sections of the MMP, referred to below as the “MMP pre-approval sections”.

9    The first meetings of creditors of the companies were held concurrently on 22 July 2014.

First extension of convening period for meeting of creditors

10    On 5 August 2014, the administrators applied to this Court for an extension of the convening period pursuant to s 439A(6) and 447A(1) of the Act.

11    The first extension of the convening period was sought on the basis that the companies’ primary asset, being the project, was underdeveloped and subject to various regulatory approvals before its true commercial value could be realised. The receivers were seeking to obtain the relevant approvals so that the project could be marketed and ultimately realised as an approved mining project rather than a serious of underdeveloped, unoccupied mining tenements. The realisation strategy aimed at achieving a sale, recapitalisation or restructure of the project and the companies, depending upon which parties (and on what terms they) expressed an interest during the marketing campaign.

12    The administrators supported the receivers’ initiatives on the basis that marketing the project as an approved and operational mining project seemed to offer the best chance of maximising the value of the companies’ assets, which after payment of the secured debt owing to CPPIB Credit Investments Inc (“CCPIB”) may create surplus funds available for distribution to the companies’ unsecured creditors . At the time of making the first application to extend the convening period, Mr Melluish (the second named applicant) expressed the belief that, consistent with the objectives spelled out in s 435A of the Act and his duties as administrator, he should take whatever steps he could to support the receivers’ initiatives “as the further along the Receivers get in developing the Project, the greater the prospect of sufficient value in the Project being realised with a view to secured creditors being repaid in full, and thereafter a dividend to unsecured creditors”.

13    The extension was granted to enable the receivers of the companies to develop the project for sale. At the conclusion of his reasons, Yates J said (at [30] and [31]):

It makes obvious sense that if the receivers and managers can complete the steps they envisage, the project should progress from a set of undeveloped mining tenements to an approved mining operation offering, by then, the prospect of immediate commencement. Development of the project in that way has the potential to enhance the prospects of recapitalising the project, selling the project, or providing for an arrangement with creditors, that could well lead to a greater recovery than if the companies now went into liquidation.

Although the period of the extension sought is a substantial one, there seems little point in granting an extension for a shorter period. The practicalities are that a number of approvals need to be obtained and a significant amount of work to generate those approvals needs to be done. Consideration by the relevant government agencies will take time. I have no reason to doubt the assessment of the receivers and managers that the approval process and their investigation of whether a recapitalisation of the project is possible, will take until about March 2015. A period of time will also be necessary for the plaintiffs, as administrators, to then take stock of the companies’ positions so that a considered recommendation can be made to creditors as to where their best interests lie.

Current position

14    The receivers’ strategy for the realisation of the project has not changed, albeit that its execution has been delayed for reasons explained by Mr Melluish in his affidavit dated 1 April 2015.

15    The following progress has been made:

(1)    creek crossing remediation works have been completed to the satisfaction of the DME and the NTEPA, albeit the scope of the work was significantly broader than expected following instructions received from the DME in September 2014. According to Mr Melluish, the expanded scope caused completion to be delayed from early October 2014 to December 2014. Mr Melluish’s understanding is that completion of these works was a condition precedent to obtaining approval of the EIS and MMP;

(2)    between August and December 2014, various iterations of the MMP pre-approval sections were submitted to the DME for assessment. In October 2014, the DME advised the companies and the DOE that the pre-approval sections apart from the acid mine drainage management plan were in satisfactory form;

(3)    in October 2014, the companies retained GHD, an independent mining consultant to assist in redrafting the acid mine drainage management plan. On 14 January 2015, the DME advised the companies and the DOE that this document was also in satisfactory form;

(4)    on 27 March 2015, the DOE informed the receivers that it proposed to approve the EIS (subject to certain conditions) and invited the receivers to respond to the proposal within ten business days. The receivers are presently reviewing the DOE’s proposed conditional approval.

Financial position of the companies

16    In their report to creditors dated 24 March 2015, the administrators state they do not have sufficient information to provide creditors with an opinion as to whether it is in the best interests of creditors that the companies execute a deed of company arrangement (“DOCA”), that the administration of the company end or that the companies be wound up.

17    However, they have conducted a high level investigation of the companies’ affairs and made the following preliminary findings:

(a)    10 creditors have registered 15 security interests against the companies on the Personal Property Securities Register;

(b)    At the time the administrators were appointed, the companies owed CPPIB approximately $56,986,444 pursuant to the terms of its finance documents;

(c)    To date the administrators have received proofs of debt from 46 creditors of the companies totalling $13,280,326. The companies’ largest unsecured creditor is Balmoral Mining & Construction Pty Ltd (in liquidation) (“Balmoral Mining”) which entered into voluntary administration on 4 August 2014 and is now in liquidation;

(d)    It appears that the companies became insolvent in or around July 2014 when CPPIB advised the companies that it would not release any additional funding for the project. Following insolvency, the directors of the companies appointed the administrators, with the receivers appointed shortly thereafter. Accordingly, in a liquidation scenario there is unlikely to be significant recoveries available from any insolvent trading and/or voidable transaction claims.

18    On the basis of those investigations, the administrators have concluded that the unsecured creditors of the companies will only receive a dividend if the project can be sold for its maximum realisable value.

19    The receivers have paid employee creditors all of their priority entitlements in full. Seven employees continue to be employed with their wages met in full by the receivers.

20    The companies have relinquished possession of all premises and equipment leased prior to the administrators’ appointment except for the companies’ head office in Darwin and some leased vehicles. All leases are up to date and are being conducted by the receivers on a month to month basis.

Grounds for a further extension of the convening period

21    The administrators submit that the proposed extension is in the interests of the companies’ creditors and consistent with the objectives of Part 5.3A of the Act. They consider the proposed extension of the convening period to be necessary if there is to be any prospect of a return to unsecured creditors, which can only be achieved by a continuation of the administration to the end of an orderly sale of the project by the receivers in circumstances which will maximise the sale price. The evidence of Mr Melluish is that there are no other assets available which are likely to generate a return for the unsecured creditors.

22    Mr Melluish’s evidence is that the companies have particular features which may make a DOCA an attractive vehicle for an interested purchaser to purchase the project, including accumulated tax losses of approximately $60 million since 2010. Should these tax losses be available to a prospective purchaser, they may be useful to be off-set against future profits of the companies.

23    The administrators submit the evidence reveals that:

(1)    Although the receivers had hoped to obtain all necessary regulatory approvals for the project before April 2015, they have been hindered by delays which have been outside their control;

(2)    In the time since Yates J granted the first extension, the receivers have made very substantial progress towards the achievement of the steps identified to Yates J;

(3)    The receivers’ view is that the continued administration of the companies maintains “maximum optionality” while avoiding the risk that placing the companies into liquidation will prejudice the project. The continued administration will allow the necessary approvals to be obtained for the project, which has the potential to attract substantially more interest from potential purchasers upon a sale of the project or by potential financiers upon a recapitalisation or restructuring of the companies.

24    Mr Melluish’s opinion is that no creditors of the companies will be disadvantaged or otherwise prejudiced if the convening period is extended in the manner sought.

25    The receivers have informed Mr Melluish that keeping the companies in administration will assist the receivers to maximise the realisable value of the project. By letter dated 1 April 2015, the receivers have set out in detail the receivers’ proposed plans and timetable. The receivers say that they need until September 2015 to conclude an appropriate sale campaign.

26    The administrators seek an extension of the convening period to 30 October 2015 on the basis that they expect to need a further month following completion of the sale campaign to consider and take advice on the status of the project and to negotiate with all interested parties regarding a sale of the project or potentially a DOCA for the companies.

27    The creditors of the companies have been notified of this application by the administrators. The largest unsecured creditor (the liquidator of Balmoral Mining) has confirmed that he has no objection to the extension and has expressed the view that it is in the best interests of the creditors of Balmoral Mining.

28    One creditor has expressed an objection to the extension of the convening period in correspondence with the administrators but did not seek to be heard on the application before the Court. That creditor does not allege any prejudice arising from a further extension.

Work proposed to be done during the second extension period, if granted

29    The administrators expect the EIS to be approved within the coming weeks. The receivers have expressed the view that the MMP can be completed and lodged with the DME within two months following receipt of the DOE’s final comments on the EIS.

30    The receivers propose to commence marketing the project in the coming weeks to coincide with final approval of the EIS. The receivers’ present conservative forecast is that the sales process, under which the sale, takeover or recapitalisation of the project will be explored, will be finalised by the end of September 2015.

Statutory framework

31    Section 439A of the Act provides relevantly:

(1)    The administrator of a company under administration must convene a meeting of the company's creditors within the convening period as fixed by subsection (5) or extended under subsection (6).

(2)     The meeting must be held within 5 business days before, or within 5 business days after, the end of the convening period.

(3)     The administrator must convene the meeting by:

(a)    giving written notice of the meeting to as many of the company's creditors as reasonably practicable; and

(b)     causing a notice setting out the prescribed information about the meeting to be published in the prescribed manner;

at least 5 business days before the meeting.

(4)    The notice given to a creditor under paragraph (3)(a) must be accompanied by a copy of:

(a)     a report by the administrator about the company's business, property, affairs and financial circumstances; and

(b)     a statement setting out the administrator's opinion about each of the following matters:

(i)     whether it would be in the creditors' interests for the company to execute a deed of company arrangement;

(ii)     whether it would be in the creditors' interests for the administration to end;

(iii)     whether it would be in the creditors' interests for the company to be wound up;

and also setting out:

(iv)     his or her reasons for those opinions; and

(v)     such other information known to the administrator as will enable the creditors to make an informed decision about each matter covered by subparagraph (i), (ii) or (iii); and

(c)     if a deed of company arrangement is proposed--a statement setting out details of the proposed deed.

(5)     The convening period is:

… (b)     …the period of 20 business days beginning on:

(i)     the day after the administration begins; or

(ii)     if that day is not a business day--the next business day.

(6)     The Court may extend the convening period on an application made during or after the period referred to in paragraph (5)(a) or (b), as the case requires.

(7)     If an application is made under subsection (6) after the period referred to in paragraph (5)(a) or (b), as the case may be, the Court may only extend the convening period if the Court is satisfied that it would be in the best interests of the creditors if the convening period were extended in accordance with the application.

(8)     If an application is made under subsection (6) after the period referred to in paragraph (5)(a) or (b), as the case may be, then, in making an order about the costs of the application, the Court must have regard to:

(a)     the fact that the application was made after that period; and

(b)     any other conduct engaged in by the administrator; and

(c)     any other relevant matters.

32    By s 447A(1), the Court may make such order as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company.

Relevant principles

33    Although there may be some doubt as to whether s 439A in its current form authorises a second extension of time under s 439A(6) (see Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) (ACN 008 667 285) (No 2) [2010] FCA 499 at [35] (“Re Griffin Coal”)), there is no doubt that the power to grant a subsequent extension of the convening period exists in s 447A(1): Re Griffin Coal at [36]; Chamberlain, in the matter of South Wagga Sports and Bowling Club Ltd (administrator appointed) [2009] FCA 25; Lombe, Re Australian Discount Retail Pty Ltd [2009] NSWSC 110; (2009) 27 ACLC 115 (at [32] per Barrett J).

34    In Strawbridge, in the matter of Custom Coaches (Sales) Pty Ltd (Administrators Appointed) [2014] FCA 683, Jacobson J said:

[22] The statutory and legal framework is well-known. The principles have been stated in a number of authorities. The essential principle is that the Court attempts to strike a balance between the expectation that the administration be conducted relatively quickly and the need to ensure that the speed with which it is dealt does not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders. That principle was stated by Barrett J in Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10] and has been cited on numerous occasions in decisions of this Court and in the Supreme Court of New South Wales.

[23] The matters which courts have tended to take into account in deciding whether to exercise the discretion under the Act have been usefully stated by Austin J in Re Riviera Group Pty Ltd (2009) 72 ACSR 352 at [13]. It is unnecessary to repeat his Honour’s summation of the relevant categories which inform the exercise of the power to grant an extension of time. The principles have been referred to recently by Farrell J in Re Harrison’s Pharmacy Pty Limited [2013] FCA 458 at [11] and by me in Re CMA Corporation Ltd [2013] FCA 875 at [21]. Those authorities also make it clear that the length of the extension is one in respect of which the Court must be satisfied that the extension is reasonable and appropriate in the circumstances.

35    In Re Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458 at [13], Farrell J said:

[13] Section 439A(4) of the Act requires an administrator to provide to creditors, with the notice of the second meeting, a report about the company’s business, property, affairs and financial circumstances. The administrator must also provide a statement of his or her opinion about whether it would be in the creditors’ interests for the company to execute a deed of company arrangement, or for the administration to end, or for the company to be wound up. The statement must also provide the administrator’s reasons for that opinion and any other information which is known to the administrator and would enable the creditors to make an informed decision among those alternatives. If a deed of company arrangement is proposed, the statement must set out details of the proposed deed. In order for administrators to carry out their function properly, it is necessary that they should have sufficient time to investigate the affairs of the companies under administration and to provide sensible information and advice to the creditors: see [Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) [2010] FCA 30] at [16]. See also: In the matter of Pan Pharmaceuticals Limited [2003] FCA 598, in which Lindgren J concluded at [41] that the essential issue is whether the extension is necessary to enable the administrators to arrive at an opinion so as to place creditors in the position to choose between those alternatives.

36    In Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) [2010] FCA 30 at [16] to [17], McKerracher J said:

[16] In order for the administrators to carry out their function properly, it is necessary that they should have sufficient time to investigate the affairs of the companies under administration and to provide sensible information and advice to the creditors: Hayes, in the matter of Estate Property Group Limited (Administrators Appointed) [2007] FCA 935 at [1]. That includes sufficient time to investigate and carry out a sale process in which structured ‘due diligence’ procedures are adopted: Re Diamond Press at [11], Re Hans Continental Smallgoods Pty Ltd [2008] FCA 1933 at [21]. It also includes time to pursue a possible recapitalisation. In Re Chemeq Ltd; ex parte McMaster [2007] WASC 154 an extension of six months was allowed for this purpose.

[17] What will be ‘sufficient’ will obviously depend on the complexities of the issues involved in the administration.

37    Where the company under administration is under the control of a privately appointed receiver, a receiver’s desire to have the benefit of the moratorium period to assist in allowing a sale of a business as a going concern to occur (and thereby maximise a return to creditors) is a relevant consideration: cf Lombe, re Australian Discount Retail Pty Ltd [2009] NSWSC 110; (2009) 27 ACLC 115.

38    Multiple extensions of time have been granted in other cases: see, for example, Re ABC Learning Centres (No 8) [2009] FCA 994; (2009) 73 ACSR 478, especially at [52] and [53]; In the Matter of Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 1102; Owen v Madden (No 5) [2013] FCA 1443.

Conclusion

39    I am satisfied that the convening period should be extended for each company for the further period sought because:

(1)    The companies’ receivers have been taking steps to secure approvals for large scale mining operations, and are close to finalising that process;

(2)    The administrators consider the extension to be necessary to maximise the prospects of a return for unsecured creditors. The continued administration will preserve maximum optionality for any DOCA proposal and is intended to allow the sale of a business as a going concern. This is the only scenario which offers any prospect of a return to unsecured creditors;

(3)    There is no evidence of any prejudice to creditors arising from the proposed extension. Mr Melluish’s evidence is that he does not think that any further investigations to be undertaken or actions available in a liquidation will be prejudiced by the further extension;

(4)    There is no suggestion that the administrator has delayed in the exercise of his functions;

(5)    Mr Melluish is concerned that placing the companies into liquidation immediately may be interpreted by the DME and other stakeholders that the project itself has no future which in turn has the prospect of prejudicing the approval process and the sale campaign;

(6)    The receivers support a further extension of the convening period;

(7)    The proposed orders provide for liberty to apply to any creditor or other interested party.

(8)    Taking into account these matters, I am satisfied that it would be in the best interests of the creditors if the convening periods were extended in accordance with the application.

Associate:

Dated:    30 April 2015