Federal Court of Australia

Nipps (Administrator) v Remagen Lend ADA Pty Ltd, in the matter of Adaman Resources Pty Ltd (Administrators Appointed) (No 2) [2021] FCA 577

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 439A(6) and s 447A(1) of the Corporations Act 2001 (Cth) (Act), the period within which the first plaintiffs must convene the second meetings of creditors in respect of each of the second to eighth plaintiffs (Companies) under s 439A of the Act (the Second Meetings) be extended to midnight on 28 July 2021.

2.    Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to each of the Companies such that, notwithstanding s 439A(2) of the Act, the Second Meetings may be held together or separately at any time during the period during, or within five business days after the end of, the convening period as extended in paragraph 1 above, provided that the first plaintiffs give notice of the meeting in accordance with r 75-225(1) and r 75-15 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (Insolvency Rules).

3.    Pursuant to s 447A(1) of the Act, Part 5.3A of the Act operates in relation to each of the Companies such that the notice of the Second Meetings required to be given pursuant to r 75-225(1) and r 75-15 of the Insolvency Rules will be validly given to creditors of the Companies 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 each 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 Insolvency Rules, to any creditors not being a creditor referred to in sub-paragraph 3(a) above; and

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

4.    Within two business days of these orders being made, the first plaintiffs are to give notice of these orders to creditors of each of the Companies (including persons claiming to be creditors) by means of a circular:

(a)    to be published on the website maintained by the first plaintiffs in respect of the administration of the Companies; and

(b)    to be sent by email or by post to all known creditors.

5.    Liberty be granted to any person who can demonstrate sufficient interest to discharge or modify the orders (in relation to the extension of the convening period) on the giving of three business days' written notice to the plaintiffs and this Court.

6.    Subject to further order, determination of the application with respect to the costs, expenses and reasonable remuneration of the first plaintiffs be adjourned to not before 4.30 pm on Tuesday 1 June 2021.

7.    Costs of today's hearing be reserved.

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

REASONS FOR JUDGMENT

BANKS-SMITH J:

1    By interlocutory application in the broader proceedings compromising WAD 95 of 2021 (Main Proceedings), the first plaintiffs (Administrators) seek a two month extension of the period for convening the meeting of creditors of the second to eighth plaintiffs (Companies) under s 439A of the Corporations Act 2001 (Cth) (Act). An extension to 28 July 2021 is sought. The application was heard on the last day for the convening of the meeting, absent an extension, and accordingly I made orders on that day and now publish my reasons.

2    For convenience, the Companies are from time to time referred to as the Adaman Group, consistent with the approach in the relevant evidence.

3    The Administrators rely (principally) upon the evidence of one of the joint Administrators, Jeremy Nipps, given by affidavit sworn 26 May 2021 (Fourth Nipps Affidavit), and also rely upon three affidavits Mr Nipps provided in support of an application brought previously by the Administrators in the Main Proceedings, in which they seek relief as to the circumstances of their appointment as administrators of the Adaman Group.

4    These reasons should be read in the context of the matters set out in my reasons in Nipps (Administrator) v Remagen Lend ADA Pty Ltd, in the matter of Adaman Resources Pty Ltd (Administrators Appointed) [2021] FCA 520 (Adaman 1), in which I determined an application as to the validation of the appointment of the Administrators, insofar as it concerned the fourth to eighth plaintiffs.

5    In the Main Proceedings there remain issues for determination as to the validity of the appointment of the Administrators to the second and third plaintiffs, being respectively Adaman Resources Pty Ltd (Adaman Resources) and Adaman Minerals Pty Ltd (Adaman Minerals).

6    As indicated in my previous reasons (at [17]), Mr Simon Raftery and Remagen Lend ADA Pty Ltd (Remagen), a shareholder of Adaman Resources (together the Remagen Interests), have commenced separate proceedings against the plaintiffs in this matter and others (WAD 106 of 2021 - Separate Proceedings). The Remagen Interests are represented by King & Wood Mallesons in the Separate Proceedings. Amongst other complaints, the Remagen Interests have expressed concern as to the manner in which the Administrators were appointed to the Companies.

7    Mr Nathan Mitchell, on behalf of the Adaman Resources shareholders Mitchell Group Holdings Pty Ltd and Mitchel Family Investments (Qld) Pty Ltd (together the Mitchell Interests), has also expressed concern as to the manner in which the Administrators were appointed to the Adaman Group. Mitchell Group Holdings Pty Ltd is also a defendant in the Separate Proceedings in which it is represented by Johnson, Winter & Slattery.

8    Neither the Remagen Interests nor the Mitchell Interests have moved to injunct the Administrators from continuing in their current roles.

9    In Adaman 1 I summarised the nature of the projects currently operated by the Adaman Group. Those projects are significant. In particular, 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.

10    The Administrators sought the two month extension of time for the following reasons:

(a)    to allow them time to complete an expressions of interest campaign (EOI campaign) for the various projects, which is scheduled so as to require binding offers by 16 June 2021;

(b)    to allow them time to form a view as to the matters necessary to be included in the Administrators' Report so that creditors may make a more fully informed decision as to the future of each of the Companies;

(c)    to complete various outstanding tasks referred to in the Fourth Nipps Affidavit, including completing investigations in respect of the causes of failure, any director breaches, insolvency, and voidable transactions;

(d)    so as not to interfere with the status and position of Adaman Resources and Adaman Minerals any more than is necessary pending the determination of the issues surrounding the validity of the Administrators' appointment over those entities; and

(e)    to avoid the additional cost to creditors of an adjourned second meeting.

11    The question of an extension of time was raised with the creditors and interested parties prior to the hearing.

12    The first meetings of creditors were held concurrently on 12 May 2021. The meetings were informed that, given the likely timeframe involved in achieving successful sales, the Administrators would probably need to apply to the Court for an extension of the convening period.

13    Mr Nipps also attached evidence to his Fourth Affidavit that indicated that the Remagen Interests supported the application for an extension of time, save that they considered it should be (in effect) for three months, rather than two, to allow for a longer EOI campaign, as discussed below. The Mitchell Interests neither consented to nor opposed the extension of time.

14    Neither the Remagen Interests nor the Mitchell Interests sought to be heard on the application for the extension of time.

Principles

15    The convening period in respect of the Companies is the period of 20 business days beginning on the day after the administration began: s 439A(5). That periods ends on 28 May 2021. The meeting must be held within five business days before, or within five business days after, that date: s 439A(2).

16    The Court has power to make orders extending the convening period (fixed by s 439A(5)) under s 439A(6) and s 447A of the Act.

17    When considering an application to extend the convening period, the Court must have regard to the objects of Part 5.3A set out in s 435A and reach an appropriate balance between the expectation that an administration will be undertaken in a relatively speedy and summary manner with the need to ensure that the administration is not concluded without consideration of sensible and constructive options directed towards maximising the returns for creditors and any return for shareholders: Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 (Barrett J) at [10].

18    The administrator's view on such an application is significant and, particularly where the administration is complex, it should carry weight: Re Renex Holdings (Dandenong) 1 Pty Ltd (Administrators Appointed) [2015] NSWSC 2002 (Black J) at [9].

19    In considering an application for an extension, the court must take into account the detriment to third parties, including the suspension of rights and remedies of secured creditors, lessors, and others: Shaw and Albarran (Joint and Several Administrators of Home Art Building Group Pty Ltd) v Home Art Building Group Pty Ltd (Administrators Appointed) [2016] WASC 274 (Beech J), where the principles are summarised at [18].

20    The court has recognised that interests of creditors can be prejudiced not only by delay but also by the convening of premature meetings, where the administrator has been unable to obtain adequate information for the preparation of the Administrators' Report in a form enabling creditors to make an informed decision: In the matter of Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458 (Farrell J) at [13] and the cases there cited.

21    In Re Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2009] NSWSC 585, Austin J at [13] identified the following relevant categories of cases in which an extension had been granted:

(a)    where the extension will allow the sale of the business as a going concern;

(b)    where the size and scope of the business in administration is substantial; and

(c)    more generally, where additional time is likely to enhance the return for unsecured creditors.

22    In Mighty River International Ltd v Hughes [2018] HCA 38; (2018) 265 CLR 480, Nettle and Gordon JJ (in dissent, but not relevantly in this respect) cited many of the authorities in the area and observed:

[73]    Generally speaking, courts have been disposed to grant substantial extensions in cases where the administration has been complicated by, for example, the size and scope of the business, substantial offshore activities, large numbers of employees with complex entitlements, complex corporate structures and intercompany loans, and complex recovery proceedings, and, more generally, where the additional time is likely to enhance the return to unsecured creditors. Provided the evidentiary case for extension has been properly prepared, there has been no evidence of material prejudice to those affected by the moratorium imposed by the administration, and the administrator's estimate of time has had a reasonable basis, the courts have tended to grant extensions for the periods sought by administrators.

(footnote omitted)

Update on financial position since Adaman 1

23    The Court already been provided with a significant amount of information supporting the Administrators' preliminary assessment of the financial position of the Companies. Mr Nipps in the Fourth Nipps Affidavit has updated that information. Mr Nipps also provided an update as to attempts being made to finance the administrations, including assessments of further amounts that will be needed to facilitate the continued operation of the various projects of the Adaman Group. It is not necessary to detail that evidence in order to determine this application. But the Court notes the appropriate disclosure that has been made by the Administrators.

Work undertaken since Adaman 1

24    It is relevant in assessing whether an extension of time should be granted to have some regard to the nature and intensity of work that it has been necessary for the Administrators to undertake during the limited period prescribed by the legislation. Mr Nipps said that his analysis of the Adaman Group and his experience as an insolvency practitioner led him to believe that the ability to continue to trade the Adaman Group is the only way to maximise the value to be achieved for the assets, and therefore, the value to be returned to creditors.

25    The Fourth Nipps Affidavit sets out in some detail the many tasks that the Administrators and their staff have been attending to, including in order to ensure that the Adaman Group continues to trade. They include, in summary:

(a)    continuing to maintain a constant presence at the Kirkalocka Gold Project to deal with all issues such as contact with staff, contractors and suppliers, attending daily management meetings, liaising with and reporting to the appropriate government departments, maintaining the current mine operation and reviewing all capital expenditure;

(b)    maintaining head office operations, including dealing with creditors, suppliers and employees;

(c)    continuing investigations into the affairs of the Adaman Group;

(d)    dealing with and negotiating funding from the secured creditor; and

(e)    undertaking all tasks necessary with respect to the EOI campaign, including retaining sale advisors and valuers, issuing non-disclosure agreements, issuing revised information memoranda and allowing access to a data room.

26    In addition, the Administrators have been involved in the Main Proceedings and the Separate Proceedings.

Reasons for extension

27    The convening period in respect of the Companies is the period of 20 business days beginning on the day after the administration began: s 439A(5). That periods ended on 28 May 2021. Absent an extension, it was necessary that the meeting be held within five business days before, or within five business days after, that date: s 439A(2).

28    The Administrators sought orders pursuant to s 439A(6) and s 447A that the convening period be extended to 28 July 2021. The Administrators also sought a 'Daisytek' order (following the approach taken in In the matter of Daisytek Australia Pty Limited [2003] FCA 575) permitting them to hold the meeting at any time during the extended convening period, or within five business days after it.

29    Mr Nipps explained that since the hearing on 14 May 2021, the Administrators have continued to trade the business of the Companies and progress the EOI campaign to explore a restructure, or sale of the assets, of the Companies.

30    The current timeline of the EOI campaign is as follows:

(a)    advertisements in relation to the assets of the Adaman Group were released on 8, 13, 15 and 22 May 2021;

(b)    the data room in respect of the sales process has been open since 16 May 2021;

(c)    non-indicative binding offers are due by 31 May 2021 (with a number of non-binding indicative proposals having already been received at the date of the Fourth Nipps Affidavit); and

(d)    binding offers capable of acceptance are due by 16 June 2021.

31    The Administrators have then allowed for a period of up to six weeks in order to:

(a)    negotiate with the preferred party and finalising the terms of any DOCA proposal or asset sale agreement; and

(b)    enable completion and satisfaction of any conditions precedent.

32    Mr Nipps disclosed that the Remagen Interests have criticised the EOI campaign on the basis that a three month timeline into the middle of August 2021 would be more appropriate. Mr Nipps annexed communications passing between the Administrators' solicitors, Gilbert + Tobin, and King & Wood Mallesons. I have read the communications. It is fair to say each 'side' portrays its position in a forthright manner.

33    In summary, King & Wood Mallesons record various complaints on behalf of the Remagen Interests as to the manner in which the EOI campaign is being conducted and also request that the Administrators consent to the appointment of an additional independent administrator pursuant to s 447A and s 447B of the Act for the purpose of, amongst other matters, overseeing 'the restructuring and/or recapitalisation process relating to the assets of Adaman Resources and Adaman Minerals' and reporting to creditors on the 'conduct' of the Administrators. The Remagen Parties offer to discontinue these Main Proceedings and the Separate Proceedings if that course is agreed to (an offer not accepted by the Administrators). The Remagen Interests also indicate that they intend to put forward a proposal under the EOI regime. I note that the Remagen Parties have not applied to court for the appointment of a special purpose administrator, and did not appear on this application. I also note that the Administrators, through their solicitors, have responded to the complaints made by the Remagen Interests and have provided explanations for their decision-making processes, explanations that although not tested appear on their face to be reasonable and measured. In particular, the Administrators must strike a balance between the time taken for the EOI campaign and the need to ensure that the assets remain operational, and so with sufficient and suitable funding in place.

34    In the circumstances, and on the basis of the matters in evidence before me, I have no reason to doubt that the Administrators have carefully and properly assessed an appropriate period for the extension of the convening period. The Administrators are experienced insolvency practitioners.

35    Mr Nipps concluded in his evidence that:

The Administrators are of the view that the structure of the EOI Campaign is appropriate in the circumstances, having regard to the cash flow position of the Adaman Group, Trading Analysis and limitations presented by the funding arrangements currently in place. In my view, it is in the best interests of creditors to progress the EOI Campaign along that timeline, having regard to the limited alternatives available.

I am of the view that the EOI Campaign is progressing well, by reference to the level of interest and number of non-binding indicative proposals which have been received to date.

The Administrators anticipate, and allow for, some flexibility in the dates for the EOI Campaign should a genuinely interested party express its difficulty in meeting those dates. As at the date of swearing this affidavit, none of the proponents of those nonbinding indicative proposals have advised that they are unable to meet the approximate timeline for the EOI Campaign.

36    I note that according to a letter from Gilbert + Tobin to King & Wood Mallesons that was in evidence, there have been no complaints about the EOI campaign timeline from entities other than the Remagen Interests.

37    I accept that, firstly, the EOI campaign cannot sensibly be completed within the current convening period. This is the primary reason why I determined that the extension was appropriate. But there are other matters that favoured the extension.

38    Secondly, Mr Nipps, an experienced insolvency practitioner, considers that a restructure, or sale of the assets, of the Adaman Group (outside of a liquidation scenario) is likely to lead to a significantly better outcome for creditors because if successful it will:

(a)    maximise the prospects of employees retaining their employment; and

(b)    enhance the return for the general body of unsecured creditors by permitting the assets of the Companies to be realised in the greatest possible sum.

39    I give significant weight to Mr Nipps' opinion, having regard to the evidence before me.

40    Thirdly, while there will be additional trading costs incurred during an extended convening period (if granted), I accept Mr Nipps' view is that those additional costs are justifiable due to the likely better return to the creditors from the sale of the assets of the Adaman Group over their sale in a liquidation scenario.

41    Fourthly, there is unlikely to be any substantial prejudice to creditors from a continuation of the administrations. There was no evidence before me that supported any contrary view.

42    Fifthly, I accept that any Administrators' Report completed by the Administrators within the current convening period would be inadequate to fully inform the creditors as to the options for the future of the Adaman Group.

43    Sixthly, leaving aside the contention by the Remagen Interests (with which I have already dealt) there was no opposition by creditors to the anticipated extension of time application.

44    Seventhly, the two month extension sought is not excessive, having regard to the scope and complexity of the of the administration tasks.

45    Eighthly, if the convening period is not extended and the second meeting of creditors is held, the Administrators would recommend that the meeting be adjourned. It is appropriate to avoid the additional cost to creditors in issuing two reports and holding two meetings.

46    Finally, in relation to the Daisytek order, it is desirable to grant this to provide flexibility to the Administrators and not prolong the administrations if that is unnecessary.

Orders

47    For those reasons, I largely accepted the submissions of the Administrators in support of the application and made orders as sought.

Associate:

Dated:    31 May 2021

SCHEDULE OF PARTIES