Federal Court of Australia

Nipps (Administrator) v Remagen Lend ADA Pty Ltd, in the matter of Adaman Resources Pty Ltd (Administrators Appointed) [2021] FCA 520

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 447A of the Corporations Act 2001 (Cth) that Part 5.3A of the Act is to operate in relation to each of the fourth to eighth plaintiffs as if Mr Nipps and Mr Wight were validly appointed as joint and several administrators of each of the fourth to eighth plaintiffs on 1 May 2021 pursuant to s 436A of the Act.

2.    The plaintiffs' costs of and incidental to this application, insofar as they relate to the fourth to eighth plaintiff, are to be costs in the administration of the fourth to eighth plaintiff.

3.    The hearing of the application as set out in the originating process dated 3 May 2021 be otherwise adjourned, with liberty to apply.

4.    These orders be entered forthwith.

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

REASONS FOR JUDGMENT

BANKS-SMITH J:

1    This application was commenced on an urgent basis to seek orders affirming or validating the appointment of administrators to a group of companies by resolution of their directors.

2    The concurrent first meeting of creditors under s 436E of the Corporations Act 2001 (Cth) was held on 12 May 2021.

Parties

3    The first plaintiffs, Jeremy Nipps and Barry Wight (Administrators), both partners of insolvency specialist firm Cor Cordis, were appointed as joint and several administrators of the second plaintiff, Adaman Resources Pty Ltd (Adaman Resources) on Saturday, 1 May 2021. On the same day the Administrators were appointed administrators of the third plaintiff, Adaman Minerals Pty Ltd (Adaman Minerals).

4    The Administrators were also appointed that day as administrators of the fourth to eighth plaintiffs, being Adaman Gold Hold Co Pty Ltd, Adaman Gold Pty Ltd, Goldlake Holdings Pty Ltd, Hopstorm Pty Ltd and Kirkalocka Gold SPV Pty Ltd (Kirkalocka) respectively. Each of these entities is a subsidiary of Adaman Resources.

5    For convenience, I will refer to the fourth to eight plaintiffs collectively as the Subsidiaries.

6    The defendant, Remagen Lend ADA Pty Ltd (Remagen) is a shareholder of Adaman Resources. Remagen was joined to these proceedings on its application, originally on the basis that it contests the appointment of the Administrators to Adaman Resources and Adaman Minerals. Its director, Simon Raftery, filed an affidavit on behalf of Remagen.

Procedural background

7    The Administrators' application first came before me for an urgent hearing on 6 May 2021. Shortly before the hearing, Remagen filed papers seeking to be joined and contesting the validation orders sought, insofar as they related to the first, second and third plaintiffs.

8    Counsel for Remagen stated at the hearing that Remagen did not challenge the appointment of the Administrators to the Subsidiaries.

9    However, Remagen sought an adjournment of the hearing to allow it to file and serve any further application relating to the first to third plaintiffs.

10    It was apparent from Mr Raftery's affidavit that the issues Remagen seeks to pursue relate to:

(1)    whether the removal of Simon Raftery as a director of Adaman Resources on 30 April 2021 and a dilution of his shareholding was invalid;

(2)    whether the incumbent directors of Adaman Resources were entitled to rely upon an emergency power in the constitution to resolve to appoint the Administrators;

(3)    whether the board of Adaman Resources was entitled to resolve to appoint administrators to Adaman Resources in the absence of a resolution of its shareholders, having regard to the terms of a shareholders' agreement dated 18 November 2019 between itself and its shareholders on incorporation (Shareholders' Agreement);

(4)    whether the board of Adaman Resources acted bona fide in exercising their powers to pass the resolution in that they relied upon a demand made by a related company, SMS Innovative Mining Pty Ltd (SMS) as the catalyst for the appointment in circumstances where (Remagen contends) the debt to SMS was not owed;

(5)    whether Adaman Resources and Adaman Minerals were insolvent; and

(6)    whether the independence of the Administrators was compromised in some manner.

11    Remagen also sought an order adjourning the first creditors' meeting until after its questions as to the validity of the appointment of the Administrators to the second and third plaintiffs were resolved. It also sought discovery of documents.

12    In order to facilitate the creditors' meeting proceeding on 12 May 2021, I listed the matter for hearing on 11 May 2021. I indicated that the Administrators should informally provide documents relevant to the events that saw Mr Raftery's shareholding diluted and resulted in his removal as a director, amongst other things. Through their counsel, the plaintiffs agreed to move quickly to provide such documents to Remagen's solicitors.

13    I received correspondence over the following days that indicated that the informal document production was not completed as anticipated and that, further, the incumbent directors of Adaman Resources sought to limit inspection of some of the documents by Remagen on the basis of legal professional privilege. The directors sought and obtained separate legal representation in that regard.

14    Remagen indicated to the Court that without access to all of the requested documents, it had been delayed in finalising its anticipated application in the matter.

15    Accordingly, I convened an urgent case management hearing on 10 May 2021. The directors were represented at the hearing. The parties agreed that it was not feasible to proceed with the hearing on 11 May 2021, and accordingly it was vacated, with the intention that it would be relisted as soon as realistic (which may or may not be in a number of weeks).

16    However, the defendant's counsel reiterated that the defendant took no issue with the appointment of the Administrators to the Subsidiaries and that there may be some ability to grant relief separately with respect to those companies. Counsel for the plaintiffs indicated that on that basis it did not seem necessary to defer the hearing of the application insofar as it relates to the Subsidiaries in the same manner that the balance of the application might need to be deferred.

17    Later that day Remagen and Mr Raftery lodged an originating process by way of an oppression action, seeking mandatory injunctive relief relating to the issue of shares in Adaman Resources, the dilution of Mr Raftery's shareholding and his removal as a director of Adaman Resources, and certain other alternative relief. The defendants to that action are the shareholders, directors and chief financial officer of Adaman Resources. Importantly, no relief is sought in those proceedings against the Administrators as administrators of the Subsidiaries, or against the Subsidiaries.

18    On 12 May 2021 at the creditors' meeting, the appointment of the Administrators was confirmed with respect to the second to fourth plaintiffs and the eighth plaintiff. There was no quorum present with respect to the fifth to seventh plaintiffs.

19    The Administrators now seek relief on an urgent basis, in order to provide certainty as to the conduct of the administrations and their personal liability, with respect to the Subsidiaries only, with the balance of the application for relief being deferred.

20    In particular, the Administrators seek an order pursuant to s 447A of the Corporations Act that Part 5.3A of the Corporations Act is to operate in relation to each of the Subsidiaries as if the Administrators were validly appointed as joint and several administrators of each of the Subsidiaries on 1 May 2021 pursuant to s 436A of the Corporations Act.

21    Whilst the application is not opposed with respect to the Subsidiaries, it is necessary for the Court to address matters relevant to the exercise of the power under s 447A.

The Adaman Group

22    The Adaman Group is a privately-owned resource investment group of companies. Adaman Resources was incorporated in July 2017, and the Subsidiaries were incorporated between July 2017 and September 2019. The Adaman Group's current operations include:

(a)    the Corinthia underground gold mine, located near Southern Cross in Western Australia;

(b)    the Kirkalocka Gold Project, located near Mt Magnet in Western Australia; and

(c)    the Snakewell Gold Project located in the Murchison region of Western Australia.

23    I was informed that those three projects are currently operating.

24    Since their appointment, the Administrators have undertaken a significant amount of work to secure and maintain operations at the Kirkalocka Gold Project, including arranging a gold delivery to the Perth Mint that was scheduled for 6 May 2021. They have also undertaken extensive inquiries and supervised Head Office responsibilities. They have undertaken the usual tasks that follow the appointment of an administrator such as preparation of the Declaration of Independence, Relevant Relationships and Indemnities (DIRRI) and a Report on Company Activities and Property, convening the first meeting of creditors, reviewing all operations and cash flow, undertaking a preliminary insolvency review and dealing with all stakeholders. They have also commenced an advertising campaign for proposals for the sale or restructure of the Adaman Group; commenced preparation of a data room and information memorandum; sought quotes and proposals from valuers; engaged a plant and equipment valuer and issued non-disclosure agreements to interested parties. According to the Administrators, since their appointment the work undertaken has meant that operations have now largely stabilised.

25    Unsurprisingly where administrators are appointed to entities with operating mines, they have incurred significant fees since their appointment. Mr Nipps' evidence was that as at 13 May 2021, the Administrators have incurred in excess of $9 million in personal liabilities since their appointment. I accept that having regard to the nature of the assets, the Administrators continue to incur significant personal liability and are subject to substantial personal exposure.

Principles - s 447A of the Corporations Act

26    For ease of reference, I will include the relevant statutory provision relied upon by the plaintiffs.

27    Section 447A relevantly provides:

General power to make orders

(1)    The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.

(2)    For example, if the Court is satisfied that the administration of a company should end:

(a)    because the company is solvent; or

(b)    because provisions of this Part are being abused; or

(c)    for some other reason;

the Court may order under subsection (1) that the administration is to end.

(3)    An order may be made subject to conditions.

28    Orders under s 447C of the Corporations Act, which is also frequently relied upon in this context, are declaratory rather than curative: Smolarek v McMaster (as administrator of Eznut Pty Ltd) [2006] WASCA 216 at [25]. Orders under s 447A are curative.

29    The relevant principles in relation to the exercise of the power conferred by s 447A to cure defects in administrator appointments were considered and usefully collected in Hayes v Doran (No 2) [2012] WASC 486 at [406] (Kenneth Martin J), adopting numbered paragraphs from submissions accepted by the parties:

264.    The discretion the court has under s 447A(1) is wide. There is nothing on the face of the subsection that suggests that it should be read down: Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 [17],[20].

265.    The reference in the provision to 'this Part' (ie Part 5.3A) is not a reference to the Part as a whole but is to be understood as a reference to each of the provisions within it: Australasian Memory at [18].

266.    It is clear from the examples given in s 447A(2) that the orders that may be made by the court under s 447A go beyond a curial determination of what is the effect of existing provisions of Part 5.3A on a particular company and assumes that under s 447A(1) the court may alter the operation of other provisions of the Part. The orders contemplated are orders that alter how a particular provision within Part 5.3A is to operate in relation to a particular company, not how it does operate: Australasian Memory at [18].

267.    The power of the court under s 447A(1) to make an order about how Part 5.3A 'is to operate' in relation to a particular company does not preclude the making of an order with future effect, but in respect of past matters or events: Australasian Memory at [26].

268.    This includes making an order that Part 5.3A of the Act is to operate in relation to the company as if the original administrators had been validly appointed: Re Wintech Group Ltd [2011] VSC 273 at [9].

269.    Section 447A permits the court to make orders to cure defects or to remedy the consequences of some departure from the scheme set out in Part 5.3A: Australasian Memory at [17].

270.    There are numerous instances where courts have invoked the section to cure the defective or invalid appointment of an administrator: Re Australian Art Investment Pty Ltd [2012] VSC 18 at [5] per Davies J citing Calabretta v Redpen Developments Pty Ltd (in liq) (2010) 183 FCR 47, 53 [36] and other decisions.

271.    Courts have made orders pursuant to s 447A with respect to the operation of Part 5.3A where an administrator has not been validly appointed under s 436A because the purported appointment was made:

(a)    after the death of the sole director of the company on the basis of documents of appointment previously executed: Re Pasdonnay Pty Ltd (ACN 009 131 622) (admins apptd); McDonald (2005) 53 ACSR 717;

(b)    by the apparent sole director of the company at a time when he was an undischarged bankrupt and therefore had ceased to be a director;

(c)    by de facto directors of the company who were determined by the court not to be directors for the purposes of s 436A; Xie v Crisp (2011) 248 FLR 265;

(d)    by the sole director of the company when the company's constitution fixed the minimum number of directors as two and, accordingly, the sole director could not pass a resolution under s 436A: Re Australian Art Investment Pty Ltd.

272.    It is clear that the court has power to alter how s 436C is to operate in relation to a company by ordering that Part 5.3A is to operate as though the purported (but invalid) appointment of the administrator pursuant to that section was valid: National Australia Bank Ltd v Horne (2011) 253 FLR 205 at [33]. In National Australia Bank v Horne, s 436C did not engage because the charge relied upon was not over the whole, or substantially the whole, of the company's property.

273.    Section 447A was also invoked in Re Wintech Group Ltd to cure a defective appointment under s 436C of the Act in circumstances where the charge was granted to a group of chargees collectively, not jointly and severally, and therefore it was not open to one of the chargees alone to appoint the administrator.

274.    An invalidly appointed administrator who has acted on the basis of the purported appointment has standing to make an application for an order under s 447A(1) because they are an 'interested person' within the meaning of s 447A(4)(f): Re Pasdonnay Pty Ltd at [17].

275.    The broad discretion conferred by s 447A(1) is to be exercised having regard to all of the circumstances of the case that have been brought to the court's attention by the applicant for relief and by those who have an interest in the matter and who may be affected by the granting of that relief: Calabretta v Redpen Developments at [37].

276.    One relevant consideration is whether the purposes of Part 5.3A would be best served by the making of an order: Re Pasdonnay Pty Ltd at [20]. The apparent purpose and object of Part 5.3A is to provide a constructive approach to corporate insolvency by focussing on the possibility of saving a business (as distinct from the company itself) and preserving employment prospects: see the discussion in Re RiverCity Motorway Pty Ltd v Madden [No 3] (2012) FCR 360 at [42] - [44].

277.    Another consideration is whether substantial injustice would be caused by effectively validating an otherwise invalid appointment: Calabretta v Redpen Developments at [37].

278.    The focus of the court when making an order under s 447A is the position of the company at the time of making the order and what is best for the company in the future: Re Australian Art Investment at [6].

Relevant matters

30    In the circumstances of this application, there are a number of matters relevant to the exercise of discretion with respect to s 447A, including the following.

31    First, there is evidence that the Subsidiaries were insolvent as at 1 May 2021 and continue to be insolvent. In particular, Mr Nipps has given the following evidence (affidavit of 4 May 2021) based on his preliminary solvency analysis and having regard to books and records of the companies:

(a)    Kirkalocka had $2,525 cash at bank as at 1 May 2021. It had creditors that were immediately due and payable of approximately:

(i)    $10 million in trade creditors (excluding related parties);

(ii)    approximately $29 million owing to SMS (as referred to at paragraph 32(a) of the Fitzgerald Affidavit) and $12 million owing to Rivet Mining Services Pty Ltd (Rivet Mining) (as referred to at paragraph 32(b) of the Fitzgerald Affidavit); and

(iii)    $0.9 million in secured debt;

(b)    Kirkalocka did not have sufficient cash to meet its debts that were immediately due and payable as at 1 May 2021 with a deficiency of $51.9 million;

(c)    Hopstorm had nil cash at bank as at 1 May 2021. It had creditors that were immediately due and payable of approximately $0.9 million in secured debt;

(d)    Hopstorm did not have sufficient cash to meet its debts that were immediately due and payable as at 1 May 2021 with a deficiency of $0.9 million;

(e)    Adaman Gold had $1,534 cash at bank as at 1 May 2021. It had creditors that were immediately due and payable of approximately:

(i)    $0.1 million in trade creditors (excluding related parties); and

(ii)    $0.9 million in secured debt;

(f)    Adaman Gold did not have sufficient cash to meet its debts that were immediately due and payable as at 1 May 2021 with a deficiency of $1 million;

…

(k)    Goldlake Holdings had $2,394 cash at bank as at 1 May 2021. It had creditors that were immediately due and payable of approximately:

(i)    $0.004 million in trade creditors (excluding related parties); and

(ii)    $0.9 million in secured debt;

(l)    Goldlake Holdings did not have sufficient cash to meet its debts that were immediately due and payable as at 1 May 2021 with a deficiency of $0.9015 million;

(m)    Adaman Gold Holdco had nil cash at bank as at 1 May 2021. It had creditors that were immediately due and payable of approximately $0.9 million in secured debt;

(n)    Adaman Gold Holdco did not have sufficient cash to meet its debts that were immediately due and payable as at 1 May 2021 with a deficiency of $0.9 million;

(o)    there was approximately $70 million of secured debt owing by Adaman Gold (Borrower) to Rivet Finco Pty Ltd (ACN 628 595 568) (Rivet Finco) under a Syndicated Loan Note Subscription Agreement (SLNSA). The secured debt was guaranteed by Adaman Gold Holdco, Kirkalocka, Goldlake Holdings and Hopstorm (Guarantors) and registered against the Borrower and the Guarantors on the Personal Properties Securities Register (PPSR). On 30 April 2021, an interest payment of $897,000 was due and payable to Rivet Finco and was not made. As a result, an Event of Default is subsisting under the SLNSA pursuant to clause 11.1 (a) and all amounts owing to Rivet Finco can be accelerated and declared immediately due and payable pursuant to clause 11.2(a) of the SLSNA.

32    Further, Mr Nipps deposed on 13 May 2021 to a demand having now been made by Global Loan Agency Services Australia Nominees Pty Ltd and Global Loan Agency Services Australia Nominees Pty Ltd as agent and security trustee under the Syndicated Loan Note Subscription Agreement (referred to at [31(o)] above) to the effect that Adaman Gold must pay the sum of approximately $897,000 within two business days, failing which they are entitled to declare the whole of the principal outstanding due and payable. The principal outstanding is guaranteed by the other Subsidiaries.

33    Mr Nipps stated that he had reviewed financial records, and the books and records, on a preliminary basis and had conducted a preliminary solvency analysis, and formed the opinion that each of the Subsidiaries (relevantly) was likely to have been insolvent immediately prior to the Administrators' appointment on 1 May 2021.

34    To my mind, there can be little doubt that on the basis of the evidence before me the Subsidiaries are insolvent. That is a compelling reason in favour of relief being granted to the Administrators.

35    Secondly, I consider that the continued administration of the Subsidiaries is in the best interests of the creditors as a whole and in furtherance of the objects of Part 5.3A. Having regard to the nature of the assets there is potential for the administration process to allow for these entities, or part of their businesses, to continue in existence and provide a better return for creditors than a liquidation. There are of course many investigations to be carried out before any more concrete opinion could be proffered in that regard, but having regard to the information currently before me, I am satisfied that such potential should not be circumscribed at this point.

36    Thirdly, the creditors have confirmed the appointment of the Administrators at the first meeting of creditors in respect of those entities for which a quorum was reached and not sought to replace them.

37    Fourthly, the validation of the Administrators' appointment is desirable from the point of view of the Administrators who might otherwise be exposed to potential liabilities in respect of the continued conduct of the Subsidiaries, as already discussed.

38    Fifthly, if s 447A orders are not granted and the Administrators are unprepared to continue given their potential exposure, then there is likely to be potential prejudice to the Subsidiaries and their creditors. The appointment of any new administrators would create delay and uncertainty.

39    Sixthly, the court must be satisfied that no substantial injustice has been or is likely to be caused to any person. I do not consider substantial injustice is likely to be caused by the making of an order under s 447A given that the creditors of the Subsidiaries have not sought to replace the Administrators at the first meeting of creditors and that, importantly, creditors continue to have the right to apply to replace the Administrators.

40    Seventhly (and finally), I do not consider the issues raised with respect to Adaman Resources and Adaman Minerals that I have referred to above impact upon the appointment of the Administrators to the Subsidiaries, or the solvency position of the Subsidiaries, in a manner that weighs against all of the other matters to which I have referred.

41    For example, there are no quorum issues with respect to the resolutions by which the Administrators were appointed to the Subsidiaries. Based on the evidence before me, the relevant quorum requirement for the fifth and seventh to eighth plaintiffs under their respective constitutions was two directors, unless there was only one director, in which case the quorum was that director. That requirement was satisfied.

42    The fourth and sixth plaintiffs are both sole director companies and do not have constitutions. However, by s 248B(1) of the Corporations Act, a director of a proprietary company that has only one director may pass a resolution by recording it and signing the record. That requirement was satisfied.

43    I acknowledge that a question remains as to whether the Shareholders' Agreement was complied with.

44    Clause 7.2(d)(xii) of the Shareholders' Agreement provides that taking steps to dissolve or wind up Adaman Resources or any related body corporation (including, relevantly, appointing an administrator) requires a unanimous resolution of the shareholders before being implemented or becoming effective.

45    Clause 8.1(a) of the Shareholders' Agreement provides that the shareholders of Adaman Resources note that the Subsidiaries cannot take any action without a decision of the board and that certain decision making thresholds applicable to Adaman Resources will apply to approving the proposed business of any subsidiary.

46    The evidence as presently before the Court indicates that there was non-compliance with the Shareholders' Agreement. However, this remains a live issue between the other parties to the litigation. It is not necessary for me to reach a concluded view as to the effect of any non-compliance with the Shareholders' Agreement for the purpose of the application for relief before me today. I note, however, that the Subsidiaries and their directors are not parties to the Shareholders' Agreement, and nor are they bound by it. Further, there is authority that supports the view that regardless of the terms of a shareholders' agreement, the directors remain bound to comply with their duties and obligations to the company: Lesso Building Material Trading (Sydney) Pty Limited (administrators appointed) [2018] NSWSC 1486. Their duties include, relevantly, a duty to prevent insolvent trading by the company.

47    Although I have considered the nature of the argument as to the Shareholders' Agreement as propounded separately by Remagen, I am not persuaded that insofar as the Subsidiaries are concerned, a concluded view is required before I could properly exercise my discretion under s 447A, having regard to the overwhelming reasons for otherwise making the orders sought. The balance falls in favour of granting relief.

Orders

48    There will be orders in the terms sought by the Administrators in their minute dated 14 May 2021.

Associate:

Dated: 17 May 2021

SCHEDULE OF PARTIES