FEDERAL COURT OF AUSTRALIA

Bumbak (Administrator), in the matter of Duro Felguera Australia Pty Limited (Administrators Appointed) [2020] FCA 422

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiffs’ originating process filed on 20 March 2020 is returnable instanter.

2.    Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (Act), the date of the convening period as defined by s 439A(5) of the Act, for the second meeting (second meeting) of creditors of Duro Felguera Australia Pty Limited (administrators appointed) (company) is extended up to and including 27 September 2020.

3.    Pursuant to s 447A of the Act, Pt 5.3A of the Act is to operate in relation to the company as if the meeting of creditors of the company required by s 439A of the Act, may be convened and held at any time during the convening period, or within 5 business days after the end of the convening period as extended by the order made in para 2 above, notwithstanding the provisions of s 439A(2) of the Act.

4.    The plaintiffs are granted leave to apply for any further extension of the convening period referred to in para 2 above or any other matter arising in the administration of the company generally.

5.    The plaintiffs are to give notice of these orders to the creditors of the company on or before 27 March 2020 by:

(a)    placing a copy of these orders on the website maintained by the Plaintiffs at https://kordamentha.com/creditors/duro-felguera-australia; and

(b)    sending a copy of these orders by:

(i)    email to any creditor of the company for whom or which the Plaintiffs have an email address; and

(ii)    mail to all other creditors of the company for whom or which the plaintiffs do not have an email address.

6.    Liberty to apply is granted to any person who can demonstrate sufficient interest to discharge or vary these orders on the giving of reasonable notice to the Plaintiffs.

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

8.    The orders made by the Court are to be entered forthwith.

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

REASONS FOR JUDGMENT

GLEESON J:

1    By originating process filed on 20 March 2020, the plaintiffs (administrators) sought an extension of the convening period for the second meeting of creditors (convening period) of Duro Felguera Australia Pty Ltd (administrators appointed) (DFA or company) pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (Act) to 27 September 2020 (that is, a period of up to six months), and consequential orders. The convening period is due to expire on 27 March 2020.

2    The application was supported by an affidavit of Rahul Goyal sworn on 20 March 2020, an accompanying exhibit “RG-1” and by written submissions made by David Stack, counsel for the administrators.

3    In the circumstances of the COVID-19 pandemic, the application was heard on the papers.

Background facts

4    DFA was registered as a company on 24 July 2013. The company is a wholly owned subsidiary of Duro Felguera, S.A. (DFSA).

5    The administrators were appointed on 28 February 2020, pursuant to s 436A of the Act.

6    DFSA has indicated a willingness to consider putting forward a deed of company arrangement (DOCA), but says that it is not in a position to do so “[u]ntil the asset position of DFA is known”.

7    Currently, the main reason for the proposed extension of the convening period is to obtain sufficient information to elicit any DOCA from DFSA.

Financial situation of the company

8    Based on his investigations to date, Mr Goyal gave evidence of his understanding as to the following history and circumstances of DFA:

(1)    DFA was established in Western Australia in July 2013 to provide engineering and construction services at the Roy Hill Iron Ore project in the Pilbara region of Western Australia (Roy Hill Mine Project);

(2)    DFA was initially part of a consortium with Forge Group Construction Pty Ltd (Forge Group), which was engaged by Samsung C&T Corporation (Samsung), the main engineering, procurement and construction contractor for the Roy Hill Mine Project. DFA entered into a subcontract in respect of this arrangement with Samsung and the Forge Group in around August 2013;

(3)    following the insolvency of the Forge Group in February 2014, DFA entered into an interim subcontract with Samsung to manage the completion of the Roy Hill Mine Project. Under this arrangement with Samsung, DFA took on further responsibilities in relation to the Roy Hill Mine Project;

(4)    DFA engaged a number of subcontractors to provide services and equipment at the Roy Hill Mine Project;

(5)    following the completion of the Roy Hill Mine Project a dispute arose between DFA and Samsung, which resulted in extended arbitration. In those proceedings, DFA was awarded approximately $150 million, which was subsequently the subject of a settlement between Samsung and DFA;

(6)    many of the subcontractors who were engaged by DFA at the Roy Hill Mine Project made claims against DFA. The majority of these claims were settled, however, two subcontractors pursued arbitration proceedings against DFA:

(a)    Dalian Huarui Heavy Industry International Company Limited (DHHI) commenced arbitration proceedings in Singapore (DHHI arbitration). The tribunal in that arbitration made an award of approximately $45 million in favour of DHHI on 19 December 2019;

(b)    Trans Global Projects Pty Ltd (in liquidation) (TGP) commenced arbitration proceedings against DFA in Western Australia (TGP arbitration). An award is yet to be made;

(7)    the Roy Hill Mine Project has been completed; and

(8)    DFA presently has no other projects or ongoing work in Australia and has no employees.

9    Thus, the company’s only continuing business is to deal with its various disputes.

10    On the currently available material, there are approximately 11 creditors who are owed approximately $100 million. Of these, the major creditors are DHHI and TGP, with combined total claims of approximately $90 million. However, Mr Goyal anticipates that the number of creditors may change once further proofs of debt are lodged and as a result of the administrators’ continuing investigations.

11    The administrators do not believe that the company has any legitimate secured creditors. A search of the Personal Property Securities Register as at 19 March 2020 shows three registrations. However, Mr Goyal’s evidence was that two of the registrations appear to relate to specific commercial property which he does not understand to be property held by DFA, while the third registration was lodged by a party who has made a claim in the administration as an unsecured creditor.

12    Currently, DFA’s main asset is cash of approximately $15 million.

13    DFA’s assets are the subject of a freezing order made by the Supreme Court of Western Australia in proceeding ARB/5/2018 commenced by TGP against the company.

Potential recoveries

14    The administrator wishes to conduct further investigations to determine whether DFA’s assets comprise substantial additional amounts.

15    The administrators have identified the following seven amounts that are potentially recoverable for the benefit of DFA’s creditors:

16    Mr Goyal’s affidavit sets out the status of the administrators’ investigations into each of the potential recoveries. Mostly significantly, there is litigation on foot in the Supreme Court of Western Australia by which DHHI seeks payment of the $27 million allegedly held on trust by Clyde & Co ($27m fund proceeding). That litigation was listed for an expedited hearing on 23 March 2020. Judgment was reserved, with an order for the provision of further written submissions by 30 March 2020.

17    Although its precise role is not entirely clear, it seems that the administrators have been joined as a party to the $27m fund proceeding. Clyde & Co has also counter-claimed in the proceeding, seeking judicial advice in connection with its obligations under the trust. It is not clear whether the counter-claim was heard with the balance of the proceeding.

Potential DOCA

18    The administrators have received correspondence from DFSA regarding the possibility of it proposing a DOCA. Based on that correspondence, Mr Goyal’s expectation is that, unless the administrators are able to conduct further investigations for the purpose of determining the likely asset position of the company, DFSA may not propose a DOCA.

Progress of administration

19    To date, the administrators have undertaken considerable work, including work directed to determining the extent of DFA’s assets.

20    Mr Goyal’s evidence was that a large amount of work was still required before a satisfactory report to creditors could be prepared. Mr Goyal stated that the administrators do not consider that they are in a position to be able to report properly to creditors as required by r 75-225(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPR).

21    In particular, Mr Goyal’s evidence was that, without certainty as to the outcome of the $27m fund proceeding, the administrators will not have sufficient information to form the opinions that they are required to form in accordance with r 75-225(3)(b), because the amount in issue constitutes such a large proportion of the total pool that may be available to creditors. Consequently, that outcome has a significant bearing upon the administrators’ ability to form the requisite opinions and calculate the likely returns to creditors under each of the different scenarios for comparison purposes.

Interests of creditors

22    Mr Goyal’s opinion is that it is in the interests of DFA’s creditors to extend the convening period to no later than 27 September 2020 in order to:

(1)    have the best opportunity to investigate maximising returns to creditors including by:

(a)    investigating possible recovery actions and other claims which may be available to DFA or its administrators. Mr Goyal’s opinion is that further time is required to properly investigate these matters, which will likely require seeking further information from third parties and legal advice in relation to complex legal issues. Mr Goyal also foreshadowed a need for the administrators to seek directions from the Court in relation to the potential claims (particularly in relation to the funds held by SIAC and the funds held by Clyde & Co on account of future fees and the arbitrators’ fees for the TGP arbitration);

(b)    obtaining information from third parties and legal advice about the “effect of the Administrators’ appointment on freezing orders”;

(c)    investigating the circumstances of the $10 million Samsung retention and the payment to DFSA. These are significant amounts, such that the recovery of any such sums would significantly affect the likely returns to creditors in the various scenarios contemplated in s 439C of the Act; and

(d)    enabling DFSA to consider whether or not to propose a DOCA in light of the outcome of the $27m funding proceeding and, if so, on what terms;

(2)    provide the administrators with sufficient time to issue a detailed and thorough report to creditors.

23    The administrators consider that the extension of the convening period will not unduly prejudice the creditors of the company, and rather, is in the best interests of the company’s creditors. Mr Goyal’s evidence was that the administrators did not consider that there would be any specific prejudice to creditors if the convening period was extended, noting that DFA has no employees and Mr Goyal is not aware of any priority creditors (including former employees).

Positions of interested parties

24    DFSA supports the proposed extension.

25    DHHI and TGP do not object to the extension of the convening period. Mr Markey, one of the liquidators of TGP acknowledged that an extension of the convening period was required so that the administrators could obtain legal advice on matters pertaining to the asset and liability position of DFA. However, Mr Markey noted that TGP’s liquidators did not consider the administration to be complex in nature, particularly given that DFA has not traded for a number of years and the main legal disputes have been arbitrated.

26    Concerning an extension of the convening period, the minutes of the first creditors’ meeting (held on 11 March 2020) record that Mr Goyal, as chairperson:

… outlined the intention of the Administrators to apply to the Court for an extension to the convening period of up to six months, with the ability to reconvene at an earlier date if the Administrators consider it appropriate. The Chairperson explained that this was to allow sufficient time to understand the asset position of the Company such that DFSA, the parent company, can make an informed decision as to whether to propose a Deed of Company Arrangement at the Second Meeting of Creditors.

The Chairperson asked creditors in attendance if there were any questions, concerns or opposition to this course of action.

No questions, concerns or opposition was raised by those present or on the phone.

Legal framework

27    Section 439A of the Act provides relevantly:

439A    Administrator to convene meeting and inform creditors

(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.

…

  (5)    The convening period is:

(a)    if the day after the administration begins is in December, or is less than 25 business days before Good Friday—the period of 25 business days beginning on:

(i)    that day; or

(ii)    if that day is not a business day—the next business day; or

(b)    otherwise—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.

28    Requirements for the giving of notice of a meeting pursuant to s 439A are set out in r 75-15 and r 75-255 of the IPR.

29    By s 447A(1) of the Act, the Court may make such order as it thinks appropriate regarding how Pt 5.3A will operate in relation to a particular company.

30    In deciding whether to extend the convening period, the essential principle is that the Court should attempt 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: Strawbridge, in the matter of Custom Coaches (Sales) Pty Ltd (Administrators Appointed) [2014] FCA 683 at [22], citing Re Diamond Press Australia Pty Limited [2001] NSWSC 313 at [10].

31    In Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636 at [18], Lindgren J summarised the considerations affecting the exercise of the Court’s discretion whether to extend the convening period as follows (citations omitted):

(a)    the Court should recognise the objective of speed of administration that was associated with the introduction of Part 5.3A by the Corporate Law Reform Act 1992 (Cth) as from 23 June 1993. The Court should also recognise the objectives stated in para 507 of the explanatory memorandum associated with the Bill for that Act, that it was expected that the power to extend the period would be exercised infrequently since it is an important objective of Part 5.3A that creditors be fully informed about the company’s position as early as possible and have an opportunity to vote on its future as soon as possible;

(b)    the function of the Court is to strike an appropriate balance between the legislature’s expectation that the administration will be a relatively swift and summary procedure, 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;

(c)    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;

(d)    a particular consideration against the too ready grant of an extension is 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;

(e)    the application is to be assessed by reference to whether an extension is necessary to enable the administrators to prepare and provide the report and statements, and, in particular, to arrive at the opinion referred to in s 439A(4), in order to inform creditors adequately so that they will be in a position to decide whether to terminate the administration, execute a deed of company arrangement or place the company in liquidation;

(f)    it is often desirable that any extension be accompanied by an order under s 447A, permitting the meeting to be held at any time during the convening period as extended.

32    The Court should generally give weight to the considered value judgments of administrators as to what is in the interests of the creditors as a whole: Owen, in the matter of RiverCity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) v Madden (No 4) [2012] FCA 1491 at [26]; In the matter of Pinnacle Drilling Pty Ltd (admins apptd) & Ors [2015] NSWSC 1051 at [8].

Consideration and conclusion

33    I am satisfied that the Court has power to make the orders sought and that orders substantially to that effect are appropriate.

34    Six months is a lengthy extension of the convening period. I accepted that an extension is required to afford the administrators sufficient time to form the opinions required for compliance with their obligations under r 75–225(3) of the IPR, although not necessarily that six months is required for that purpose.

35    However, I am satisfied that the proposed extension is reasonable having regard to the following matters:

(1)    The main creditors, DHHI and TGP, do not object and there was no objection at the first meeting of creditors.

(2)    The administrators are likely to require information from third parties and legal advice in relation to issues which may be complex concerning the recoverability of the potential assets identified above.

(3)    The prospect of negotiating a DOCA appears to depend significantly or entirely upon a determination of DFA’s entitlement to the $27 million, which is an issue presently being litigated.

(4)    It is reasonable to assume that the current circumstances of the COVID-19 pandemic will affect the timely progress of the administration to some extent.

(5)    The administrators do not believe that the extension of time will cause any prejudice to creditors, in particular, because DFA is not conducting any business, does not have any employees and does not appear to have any secured creditors.

(6)    The orders proposed make provision for any person who can demonstrate sufficient interest to apply to the Court for a variation or discharge of the orders.

Ancillary orders

36    Notwithstanding s 439A(2), which requires the second meeting of creditors to be held within five business days before or within five business days after the end of the convening period, I accept that it may become clear before six months whether a DOCA will be proposed and the administrators may be able to comply with their obligations under r 75–225 earlier than expected. In that event, the administrators should be able to convene the second meeting of creditors without “sitting on their hands”: cf Sims, in the matter of Destra Corporation Limited [2009] FCA 1199 at [25]. The administrators will be required to inform the creditors promptly of these orders so that they can exercise the liberty to apply for a variation or discharge of these orders.

Associate:

Dated:    6 April 2020