FEDERAL COURT OF AUSTRALIA

Lord, in the matter of WPG Resources Ltd (Administrators Appointed) [2018] FCA 1345

ORDERS

THE COURT ORDERS THAT:

1.    The originating process be made returnable instanter.

    Extension of Convening Period

2.    Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (Act), the convening period within which the plaintiffs must convene the second meeting of creditors of WPG Resources Ltd (Administrators Appointed) and each of the companies listed in the Schedule (together, including WPG Resources Ltd, the Companies) under s 439A of the Act (Second Meeting) be extended from 28 August 2018 to 28 February 2019.

3.    Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate such that the Second Meeting may be held at any time during, or within five business days after the end of, the convening period as extended by Order 2 above, notwithstanding the provisions of s 439A(2) of the Act.

Service and Notices

4.    The plaintiffs, within seven business days of making these Orders, are to take all reasonable steps to give notice of the Orders to the Companies’ creditors (including the persons claiming to be creditors), by means of a circular:

(a)    to be sent by email transmission to creditors for whom the plaintiffs have current email address; or

(b)    to be sent by ordinary post to creditors for whom the plaintiffs have only a postal address.

5.    Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate such that the requirement on the plaintiffs to issue notices under s 75-225(1) and s 75-15 of the Insolvency Practice Rules (Corporations) 2016 (Cth) be modified such that notice of the Second Meeting will be validly given to any creditors by, not less than five business days prior to the date of the proposed meeting:

(a)    giving such notice electronically by email sent to the email address of any creditor (including persons claiming to be creditors) of the Companies for whom or which the plaintiffs hold an email address;

(b)    sending such notice to the postal address or facsimile number, or otherwise as provided for by the Act or the Corporations Regulations 2001 (Cth), to any creditors not being a creditor referred to in sub-para (a); and

(c)    causing such notice to be published in The Insolvency Notices website located at: https://insolvencynotices.asic.gov.au/.

6.    The following parties have liberty to apply on giving all other interested parties not less than 3 business days’ notice:

(a)    any person who can demonstrate sufficient interest (including any creditor of the Companies) for the purpose of modifying or discharging Orders 2 and 3 above; and

(b)    the plaintiffs, for the purpose of seeking any further extension of the convening period.

Costs

7.    The plaintiffs’ costs of and incidental to this application be costs and expenses in the administration of each of the Companies, and be paid out of the assets of the Companies.

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

REASONS FOR JUDGMENT

MARKOVIC J:

1    On 23 August 2018 I made orders pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (Act) extending the convening period for the second meeting of creditors of the companies referred to at [2] below, an order pursuant to s 447A(1) of the Act allowing the second meeting of creditors to be held at any time in the extended convening period or no later than five business days after the extended period and consequential orders. These are my reasons for making those orders.

background facts

2    On 30 July 2018 Brett Stephen Lord, Adam Pauls Nikitins and Samuel John Freeman were appointed as voluntary administrators pursuant to s 436A of the Act (Administrators) of:

(1)    WPG Resources Ltd (administrators appointed) ACN 109 426 502 (WPG Resources);

(2)    Challenger Gold Operations Pty Ltd (administrators appointed) ACN 000 715 882 (Challenger Gold);

(3)    WPG Securities Pty Ltd (administrators appointed) ACN 149 062 724;

(4)    Tarcoola Gold Pty Ltd (administrators appointed) ACN 137 063 140 (Tarcoola Gold);

(5)    Tunkillia Gold Pty Ltd (administrators appointed) ACN 108 925 382;

(6)    Southern Coal Holdings Pty Ltd (administrators appointed) ACN 142 504 827; and

(7)    WPG Gawler Pty Ltd (administrators appointed) ACN 130 640 041(WPG Gawler),

(collectively, Companies).

3    On 8 August 2018 Gregory Bruce Dudley, Jonathon Kingsley Colbran and Richard Stone of RSM Australia Partners were appointed as receivers and managers (Receivers) of all of the assets and undertakings of the Companies pursuant to an All PAP Security held by Byrnecut Offshore Pty Limited (Byrnecut), one of the Companies’ main secured creditors. By letter dated 22 August 2018 (Receivers’ Letter), the Receivers expressed their support to the Administrators of the application for a six month extension of the convening period.

The Companies’ business and assets

4    WPG Resources is an Australian resources company listed on the Australian Securities Exchange (ASX). Since 2006 it has had a strong focus in mineral project exploration and development in South Australia.

5    In his affidavit affirmed on 23 August 2018, Mr Lord, one of the Administrators, described WPG Resources’ business as having the following three core aspects:

(1)    gold production and sale: WPG Resources via subsidiaries holds permits in infrastructure associated with two existing gold projects in the Gawler Craton, the “Challenger” and “Tarcoola Gold” projects. “Challenger” is the main project. It is an open cut mine and a down plunge extension into an area known as “Challenger Deeps”. “Tarcoola” is a small to medium sized conventional open pit operation where gold bearing ore is mined and then hauled for processing and refinement at the “Challenger” processing site;

(2)    coal exploration: WPG Resources via subsidiaries holds exploration licences in relation to a coal resource at Robins Rise and Perfection Well at Penrhyn. The total identified coal resource at Penrhyn is 352.4 million tonnes; and

(3)    mineral exploration: WPG Resources via subsidiaries hold a number of permits for exploration for gold and other minerals in South Australia. The most significant of these relates to the “Tunkillia” project which comprises three exploration licenses, including an identified ore deposit that is subject of further geological and metallurgical test work.

6    Mr Lord also notes that the Companies hold various mining rights (Mineral Assets) as detailed in a schedule to his affidavit.

Conduct of Administrations to date

7    At the first creditors’ meeting of the Companies held on 8 August 2018, pursuant to s 436E of the Act, committees of inspection were appointed for each of WPG Resources, Challenger Gold and Tarcoola Gold.

8    According to Mr Lord, since their appointment, the Administrators, together with their staff, have undertaken a variety of tasks in relation to the Companies including:

(1)    taking control of the Companies and trading them as a going concern from their appointment until the appointment of the Receivers;

(2)    preparing and issuing the first circular to creditors on 31 July 2018;

(3)    preparing and conducting the first creditors’ meetings;

(4)    commencing a review of the financial position of the Companies;

(5)    liaising with the Companies’ directors, management and employees;

(6)    liaising with the Department of Mineral Resources and Energy (South Australia Government) in relation to the Mineral Assets;

(7)    liaising with the Commonwealth Government in relation to access to the Mineral Assets;

(8)    commencing investigations pursuant to s 438A of the Act, including to identify potential voidable transactions, unreasonable director related transactions and insolvent trading claims which may be available to a liquidator of the Companies;

(9)    liaising with the Companies’ secured creditors;

(10)    liaising with the Receivers following their appointment in relation to various matters, including control and management of the Companies;

(11)    addressing queries from creditors and employees;

(12)    preparing for and conducting the first meeting of the committees of inspection; and

(13)    attending to other incidental matters.

The Companies’ creditors

9    The Companies have creditors in the following four categories:

(1)    secured creditors: the Companies have two main secured creditors, Byrnecut which, subject to adjudication, is owed approximately $14.1 million secured by a security interest in all present and after acquired property of the Companies; and the Minister for Mineral Resources and Energy (South Australia Government) who has claims pursuant to various environmental performance bonds and related agreements in relation to the Mineral Assets secured by a security interest in all present and after acquired property of WPG Resources, WPG Gawler, Tarcoola Gold and Challenger Gold. Based on searches undertaken by the Administrator’s solicitors, the Administrators are also aware of further security interests registered against the Companies;

(2)    employees: at the time of the Administrators’ appointment, the Companies had the following 85 employees:

(a)    WPG Resources had five employees with claims in the order of $934,000;

(b)    Challenger Gold had 76 employees. Two employees were made redundant before the Administrators’ appointment and ten were made redundant after the Administrators’ appointment; and

(c)    Tarcoola Gold had four employees with claims in the order of $145,000;

(3)    unsecured creditors: whilst the Administrators have not completed their investigations into creditors’ claims, on present information, they consider that the Companies have ordinary unsecured creditors with claims in the order of $19.9 million;

(4)    landlords: WPG Resources and Challenger Gold lease commercial premises located in Sydney and Adelaide respectively. There are no arrears owing on those leases and, since their appointment, the Receivers have continued to make payments as required by the leases.

the application for extension of the conveNing period

Basis for the extension

10    Based on their investigations and the conduct of the administrations of the Companies, the Administrators formed the view that it was in the interest of the creditors and the Companies to make the application for an extension of the convening period. Their reasons for forming that view are set out below.

11    First, while the Administrators had commenced their investigations as required by s 438A of the Act, they were not yet finalised. Mr Lord’s evidence was that the investigations were complex and included investigations in relation to potential voidable transactions, adjudication of a substantial claim made by a creditor of Challenger Gold, reconciliation of revenue from gold sales between Challenger Gold and Tarcoola Gold and reconciliation of gold assets between those companies. As a result, the Administrators do not believe they are presently in a position to provide a statement to creditors as required by r 75-225(3)(b) of the Insolvency Practice Rules (Corporations) 2016 (Cth) (Insolvency Practice Rules).

12    Secondly, since their appointment the Administrators have been investigating potential options to recapitalise and restructure the Companies through a deed of company arrangement (DOCA). Mr Lord’s evidence was that a number of potential DOCA proponents had been identified or may be identified but, at the time of making the application, negotiations were at a preliminary stage and there were a number of complex matters which would need to be resolved before a party was likely to commit to a DOCA proposal in respect of some or all of the Companies. Mr Lord anticipated that DOCA proposals may be put forward by any one or more of:

(1)    a potential purchaser of a company’s assets. In that regard the Receivers have been instructed to run an expression of interest process as part of a strategy to realise the Companies’ assets or restructure or recapitalise them, including potentially through a DOCA. The Receivers’ preliminary view is that the value of the assets, which are subject to Byrnecut’s security, are likely to be maximised if the Companies are realised via a share sale, entailing a DOCA, rather than via a more complex asset sale;

(2)    the former chairman of WPG Resources who has expressed interest to the Administrators in propounding a DOCA; and

(3)    the former chief financial officer of WPG Resources who has also expressed interest in propounding a DOCA in respect of some of the Companies.

13    The Receivers have identified a range of complexities associated with the Companies’ operations which means that a significant period of time is likely to be required to prepare the Companies and their assets for the expression of interest process which they intend to run. Because of the time it will take for the Companies’ assets to be sold or to negotiate a DOCA, the Receivers informed the Administrators that in their view an extension of the convening period of up to six months was required.

Effect of the extension on creditors

14    Concurrent meetings of the committees of inspection of WPG Resources, Tarcoola Gold and Challenger Gold were held on 22 August 2018 prior to receipt of the Receivers’ Letter. At those meetings the Administrators outlined their intention to apply for an extension of the Companies’ convening periods and indicated that the Receivers had requested that a six month extension be sought. The Administrators noted that further information had been sought from the Receivers’ solicitors as to the reasons for this request. A majority of the members of each of the committees of inspection indicated their support for a six month extension of the convening period with the balance of the members of each committee of inspection indicating their support for a three month extension of the convening period.

15    Mr Lord considered the detriment which might be occasioned to those affected by the statutory moratoria as a result of an extension of the convening periods. He gave evidence that:

(1)    he did not believe that there would be any material prejudice to any creditor;

(2)    the Administrators did not expect that any employees who were made redundant during the period of any extension of time of the convening period would suffer any prejudice because it is anticipated that their adjudicated priority entitlements would be paid in full out of circulating assets of the relevant Companies;

(3)    although the Administrators are yet to call for formal proofs of debt, they do not believe that there would be any specific prejudice to ordinary unsecured creditors as a result of the extension of time. To the contrary, the Administrators consider that it is in the interest of those creditors for an extension of time to be granted so that they are able to explore the possibility of a DOCA proposal which may provide a better return for ordinary unsecured creditors than would be the case in a liquidation of the Companies; and

(4)    he did not believe that there would be any material prejudice suffered by landlords given that the Receivers are continuing to pay rent.

16    In summary, Mr Lord was of the opinion that the application to extend time was in the interests of the Companies’ creditors and was necessary to:

(1)    provide adequate time for the Administrators to undertake and conclude negotiations with potential DOCA proponents and in that way maximise the value of the Companies’ assets available for the benefit of creditors;

(2)    avoid the value destruction that was expected to be inherent in the immediate liquidation of the Companies which would be the outcome if the application to extend the convening period was refused; and

(3)    conclude the Administrators’ statutory investigations and enable them to make the recommendation to creditors required by r 72-225(3) of the Insolvency Practice Rules.

statutory framework and legal PRINCIPLES

17    Section 439A(6) of the Act gives the Court the power to extend the convening period on an application made during or after the period relevantly referred to in s 439A(5)(b) of the Act. In Crawford, in the matter of North Queensland Heavy Haulage Services Pty Ltd (Administrators Appointed) [2017] FCA 635 at [18]-[20] I summarised the approach to be taken in considering an application to extend time under s 439A(6) as follows:

18    In exercising the jurisdiction to extend time under s 439A(6) the Court must have regard to the objects of Pt 5.3A of the Act as set out in s 435A. Those objects are to maximise the chances of the company or as much as possible of its business continuing in existence or, if that is not possible, to result in a better return for the companies' creditors and members than would result from an immediate winding-up of the company.

19    The approach taken by the Court in applications of this type is well settled. The power to extend the time for convening the second meeting is one that should not be exercised as of course. Rather, the Court must strike an appropriate balance between the expectation that administration will be a relatively speedy matter and the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders (see In the matter of Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458 (per Farrell J) at [11] and the authorities referred to therein).

20    Other relevant factors, particularly in the circumstances of this case, are:

(1)    whether the prospects of a better outcome for creditors through a longer period of administration may outweigh the general expectation of a prompt resolution of the administration: see Fincorp Group Holdings Pty Ltd (2007) 62 ACSR 192; [2007] NSWSC 363 at [18];

(2)     the fact that while the voluntary administration continues there is an embargo or moratorium on the enforcement of remedies by secured creditors, lessors and others, a factor which may militate against the too ready grant of an extension: see Fincorp at [4]; and

(3)    whether an extension is necessary to enable the administrators to prepare and provide the report and statements, and to arrive at the opinion required by s 439A(4), in order to inform creditors adequately so that they, in turn, will be in a position to decide whether to terminate the administration, execute a DOCA or place the company in liquidation: see Re Pan Pharmaceuticals Ltd (admins apptd) (ACN 091 032 914) (McGrath and Honey as joint liquidators) (2003) 46 ACSR 77; [2003] FCA 598 at [41]).

See also Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636 at [18] (per Lindgren J) (Austcorp). In Austcorp Lindgren J also noted at [19] that “[l]engthy extensions had been granted where the administrator’s investigations are complex”, referring to cases where the court had granted extensions of five, almost six, and ten months.

CONSIDERATION

18    Having regard to the circumstances of the Companies, I accepted that it was appropriate that an extension of the convening period be granted.

19    In my opinion, the objects of Pt 5.3A of the Act, as set out in s 435A of the Act, were best served by making the orders sought. That is because, based on the evidence that was before me, granting the extension of the convening period may potentially lead to a better return for the Companies’ creditors than if the Companies’ administrations were to end.

20    The following factors also influenced my decision that the orders sought should be made:

(1)    the application for the extension of the convening periods was made before the expiration of the convening periods and was the first such application;

(2)    time will be required to assess any DOCA proposals propounded;

(3)    time is also required for the Administrators to further their investigations into the Companies’ affairs in order to make a recommendation to creditors;

(4)    the extension sought was for a period of six months which was a reasonable time having regard to the estimates of time required to allow campaigning for sale and/or any DOCA proposals to be made and carried out; the potential for a better return for creditors if the Companies or certain of their assets are able to be sold or restructured through a DOCA proposal; the need for the Administrators to receive further information in order to properly form an opinion about the Companies and report to creditors as required by the Act; and the need generally for the Administrators to carry out further investigation;

(5)    the fact that creditors, including employees, will not be materially prejudiced by the extension; and

(6)    the orders proposed made provision for any interested person to apply to the Court to modify or discharge them.

conclusion

21    For those reasons I made the orders sought by the Administrators in their originating process filed on 23 August 2018.

Associate:

Dated:    3 September 2018

SCHEDULE OF COMPANIES

(1)    Challenger Gold Operations Pty Ltd (administrators appointed) ACN 000 715 882

(2)    WPG Securities Pty Ltd (administrators appointed) ACN 149 062 724

(3)    Tarcoola Gold Pty Ltd (administrators appointed) ACN 137 063 140

(4)    Tunkillia Gold Pty Ltd (administrators appointed) ACN 108 925 382

(5)    Southern Coal Holdings Pty Ltd (administrators appointed) ACN 142 504 827

(6)    WPG Gawler Pty Ltd (administrators appointed) ACN 130 640 041