Federal Court of Australia

Colwell (Deed Administrator), in the matter of Wealth Mining Pty Ltd (Subject to Deed of Company Arrangement) v Wealth Resources Pty Ltd [2021] FCA 857

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 447A of the Corporations Act 2001 (Cth) (the Act):

(a)    s 444GA(1) of Part 5.3A of the Act is to operate in relation to Wealth Mining Pty Ltd (Subject to a Deed of Company Arrangement) ACN 162 884 068 (Wealth Mining) and these proceedings as if s 444GA(1) were to read as follows:

(1)     [Who must approve transfer] The administrator of a deed of company arrangement may transfer shares in the company if the administrator, or MACA Ltd ACN 144 745 782 for and on behalf of the administrator, has obtained:

(a) the written consent of the owner of the shares; or

(b) the leave of the Court.

(b)    the Sunset Date in the Wealth Mining Deed of Company Arrangement, a copy of which is annexed to the affidavit of Timothy James Michael of 11 June 2021 filed in these proceedings, be extended to 31 January 2022.

2.    Subject to any further order of this Court:

(a)    the first plaintiffs are excused from further participation in the proceedings; and

(b)    the first plaintiffs submit to the making of all orders sought in the originating process filed on 12 June 2021, and the giving or entry of judgment in respect of all claims made in that originating process, save as to costs.

3.    Each party’s costs of the interlocutory application dated 19 July 2021 be their costs in the cause.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    In these proceedings, the administrators of a deed of company arrangement, Timothy James Michael, William Martin Colwell and Peter James Gothard (the Deed Administrators), have sought leave pursuant to s 444GA of the Corporations Act 2001 (Cth) (the Act) to transfer 100% of the existing fully paid shares in Wealth Mining Pty Ltd (subject to a deed of company arrangement) (Wealth Mining) to MACA Ltd (MACA) in accordance with a deed of company arrangement dated 13 April 2021 (the DOCA). The application is opposed by the defendant, Wealth Resources Pty Ltd (Wealth Resources), which owns all of the shares in Wealth Mining.

2    Directions have previously been made for the purpose of bringing the substantive application on for a final hearing and the parties are presently attending to the relevant matters. However, an issue has arisen in relation to the costs of the Deed Administrators’ application and their costs in the administration more generally. To date, those costs have been funded by MACA, the major secured creditor of Wealth Mining. It has become cautious about providing further funding to the Deed Administrators in relation to the proceedings and by the present interlocutory application seeks, inter alia, orders which will facilitate it conducting the substantive application for leave.

The facts

3    There is no dispute as to the factual circumstances in which the present interlocutory application is made.

4    Wealth Mining was placed into administration on or about 23 November 2020.

5    MACA, along with its subsidiary, MACA Mining Pty Ltd, is a secured creditor of Wealth Mining. On present estimates, it is owed approximately $89,250,000 and the pool of unsecured creditors of Wealth Mining totals approximately $2,600,000.

6    On 19 March 2021, the creditors resolved that Wealth Mining execute the DOCA and it was entered into on 13 April 2021.

7    There is no need to refer to the terms of the DOCA in any detail and it suffices to observe that the key proposal is that the Deed Administrators transfer all of Wealth Resources’ shares in Wealth Mining to MACA or its nominee in return for which MACA will contribute $450,000 into a Deed Fund and will release and forgive $25,000,000 of its debt claim against Wealth Mining. Further, if Wealth Resources consents to the share transfer, MACA will release all debts owing to Wealth Mining by the latter’s related parties. Finally, the DOCA provides for all creditor claims against Wealth Mining to be released and extinguished in full following the final distribution from the Deed Fund.

8    Prior to the DOCA being entered into, the Deed Administrators sought interim funding from MACA for the purposes of prosecuting the application under s 444GA. MACA agreed to provide funding in an amount of $250,000 to the Deed Administrators in respect of their costs, expenses and remuneration relating to the s 444GA application. That amount was advanced on the basis that any balance of that amount which was not used in the litigation would be applied to the Deed Fund. Further, the payment of that amount was to form part of MACA’s contribution of $450,000 to the fund.

9    On 28 April 2021, MACA made the payment of $250,000 to the Deed Administrators.

10    Relevantly, the DOCA is conditional upon Wealth Resources consenting to the share transfer or the Deed Administrators obtaining leave to transfer the shares prior to the Sunset Date. That date was defined in the DOCA as being 21 May 2021 or such other date as agreed in writing between the Deed Administrators and MACA. On 20 May 2021, the date was extended by agreement until 13 August 2021. By the present interlocutory application, the parties seek an order further extending the date to allow the Deed Administrators’ s 444GA application to be heard and determined. By clause 5.3 of the DOCA, if the conditions precedent are not met by the Sunset Date, the DOCA shall be terminated and Wealth Mining will be wound up.

11    As Wealth Resources did not provide its consent to the transfer of its shares in Wealth Mining to MACA, the Deed Administrators commenced the present proceedings on 12 June 2021.

12    By an email from the Deed Administrators to MACA’s advisors on 7 July 2021, it was asserted that the Deed Administrators held insufficient funds to further progress the s 444GA application. It appears that the Deed Administrators’ costs of the administration exceeded the amount of $250,000 previously paid by MACA. It was also asserted that the total amount of those costs was then in excess of $450,000. That amount exceeds MACA’s total contribution to the Deed Fund as contemplated by the DOCA.

13    After the Deed Administrators had provided what they claimed to be an explanation for the difference between their earlier estimate of costs and their actual costs, MACA requested that it be afforded seven days’ notice if they intended to discontinue to the s 444GA application. Somewhat surprisingly, that apparently reasonable request was rejected. The legal representatives for the Deed Administrators did confirm that no step would be taken for a brief period, but also reserved their clients’ right to discontinue the application and/or resign their office if a further $150,000 were not deposited to the Deed Fund by 11.00am on Friday, 16 July 2021.

14    Further correspondence then passed between MACA and the Deed Administrators indicating that the latter were not prepared to proceed with the s 444GA application in the absence of further funding and, indeed, they again threatened to discontinue it.

15    As a result, MACA has made the present application for orders which will effectively allow it to prosecute the s 444GA application on behalf of the Deed Administrators and obtain orders granting them leave to transfer the shares in Wealth Mining.

The power to grant relief under s 447A of the Act

16    MACA relies on the broad power of the Court under s 447A(1) of the Act as the foundation of the Court’s authority to make the orders sought. That section provides:

447A    General power to make orders

(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.

17    The words of s 447A(1) are obviously wide and they ought to be given a construction appropriate to provisions conferring jurisdiction on or granting powers to a court; that is, avoiding any implication or imposition of a limitation not expressly found in the words: Snowside Pty Ltd (as trustee for the Snowside Trust) v Boart Longyear Ltd (2017) 122 ACSR 291. Nevertheless, the scope of the power must be consistent with achieving the object and purpose of Pt 5.3A of the Act which is stipulated in s 435A as follows:

435A    Object of Part

The object of this Part, and Schedule 2 to the extent that it relates to this Part, is to provide for the business, property and affairs of an insolvent company to be administered in a way that:

(a)    maximises the chances of the company, or as much as possible of its business, continuing in existence; or

(b)    if it is not possible for the company or its business to continue in existence — results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.

18    Justice Banks-Smith discussed the scope of s 447A in Re Tucker, Black Oak Minerals Ltd (Subject to a Deed of Co Arrangement) (In Liq) (2019) 134 ACSR 472 where her Honour said (at [39]):

The Court’s powers under this section have been described as ‘plenary powers to do whatever it thinks is just in all the circumstances’, but the Court must bear in mind the rights of the various groups of people affected: Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607 at 611; 13 ACSR 337 at 341 (Young J). In Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; 172 ALR 28; 34 ACSR 250; [2000] HCA 30 at [17], the High Court (Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ) noted that the section is not confined to cases where it is necessary to cure defects or to remedy the consequences of some departure from the scheme set out in the other provisions of Pt 5.3A, and that there is no cogent reason to read down the application of s 447A.

19    In his written submissions, Mr McKinnon for MACA referred to the decision in Commonwealth Bank of Australia v Fernandez (2010) 81 ACSR 262 where s 447A was used to vary the operation of s 449E such that the administrator’s remuneration would be determined by the Court as opposed to creditors. He also referred to the decision of Brereton J in Re THO Services Ltd [2016] NSWSC 509 where his Honour considered the breadth of the power and, in the course of doing so, observed that it authorised the making of orders which would affect the rights of unsecured creditors (at [31]), or which would enlarge the scope of the operation of Pt 5.3A, and was sufficient to warrant the making of orders that s 440D(1), relating to the stay of proceedings during administration, operate as if a “proceeding in a court” included an arbitral proceeding (at [32] and [35]).

20    The orders sought in the present case relate to the manner in which s 444GA is to operate, and in particular, would have the effect that any application for leave may be made by MACA for and on behalf of the Deed Administrators. This proposed alteration to Pt 5.3A of the Act is minor. It does not affect the rights of Wealth Mining, Wealth Resources, or other creditors. All that is sought to be achieved is to permit a secured creditor to fund and prosecute the Deed Administrators’ s 444GA application. In this respect, it should be accepted that the orders proposed by MACA do not attempt to negate any essential feature of Pt 5.3A: Honest Remark Pty Ltd v Allstate Explorations NL (2006) 234 ALR 765. Nor can it be said that the orders will frustrate the object of the speedy resolution of a company’s position which is a central feature of Pt 5.3A: Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607. Rather, the contrary is true as the orders sought will enable a final resolution of the administration to occur in one way or another.

21    Mr McKinnon’s submissions to the effect that the proposed order advances the object of Pt 5.3A should also be accepted. The evidence before the Court demonstrates that:

(1)    The Deed Administrators have prepared a report dated 11 June 2021 in which they have identified the potential return to creditors under the two scenarios of the administration of the DOCA and winding up. In the former scenario, unsecured creditors will receive between 6.73 cents to 2.02 cents in the dollar and, on a winding up, if the security held by MACA is not successfully challenged there will be a nil return. If that security is successfully challenged, the unsecured creditors will receive between 16.5 cents and 4.44 cents in the dollar. There was no evidence before this Court that MACA’s security could or might be successfully challenged.

(2)    On the material as it currently stands, Wealth Resources would not receive any return from a winding up under any scenario or on the administration of the DOCA.

(3)    In the Deed Administrators’ opinion, on a winding up of Wealth Mining there would be a deficiency in assets to liabilities of between $246,912,419 and $92,469,214 and, in that sense, there is no possibility of there being any recovery by Wealth Resources as shareholder.

(4)    In his affidavit, one of the Deed Administrators, Mr Michael deposed:

Because a material deficit of assets and liquidation recoveries to liabilities arises in both the high and low scenarios, there is no residual value in Wealth Mining for its shareholder. As a result, it is the Deed Administrators’ opinion that Wealth Resources will not be unfairly prejudiced by an order of the Court pursuant to section 444GA of the Act to transfer all of the shares in Wealth Mining to MACA.

(5)    In these circumstances, the fulfilment of the DOCA will have a beneficial outcome for the Wealth Mining’s creditors and the company will not suffer detriment. On the other hand, a winding up would result in the company’s creditors recovering nothing.

(6)    If the orders sought on the present interlocutory application are not made, it is likely that the Deed Administrators will resign and will not pursue the s 444GA application (with the probable consequence that Wealth Mining will be wound up).

(7)    It is possible that alternative Deed Administrators might be appointed who may be prepared to advance the s 444GA application. However, at this late stage of the administration, that will result in substantially greater costs with the inevitable reduction in any return to creditors.

(8)    On the other hand, MACA is prepared to undertake and fund the further prosecution of the s 444GA application for the purpose of obtaining leave for the Deed Administrators to transfer the shares in Wealth Mining to it. If successful, that will allow the DOCA to be completed, resulting in a better outcome for creditors.

22    It follows that the making of the orders sought by MACA by the present interlocutory application will increase the potential for a better return for the company’s creditors than would result from Wealth Mining’s immediate winding up. The sole member, being Wealth Resources, will be in no worse position. The necessary conclusion is that the making of the orders would promote the object of Part 5.3A and, as such, they are within the scope of s 447A.

23    It is relevant to the exercise of the discretion to ascertain whether any creditor will be prejudiced by the making of the order pursuant to s 447A: Australasian Memory Pty Ltd v Brien (1998) 45 NSWLR 111 at 151 – 152. Here, no such prejudice exists. Rather, it is in the creditors’ interests that the order ought to be made.

24    On this application, Mr Coveney of Counsel appeared for the Deed Administrators and informed the Court that his clients supported MACA’s application and the orders which it sought. That is a further significant factor weighing in favour of the exercise of the discretion.

25    In the course of the hearing, Mr McKinnon accepted that it would not be inappropriate to amend the form of the relief sought so as to make it clear that the leave to be granted by the Court under the altered s 444GA is granted to the Deed Administrators to transfer the shares in question. That being so, it is appropriate to make the orders about how the section is operate in a manner which ensures that the s 444GA application remains one made in the name of the Deed Administrators for the granting of leave in their favour.

26    From the foregoing, it can be accepted that the order sought under s 447A altering the operation of s 444GA sought should be made. The appropriate form of order is that:

s 444GA(1) of Part 5.3A of the Corporations Act 2001 (Cth) is to operate in relation to Wealth Mining Pty Ltd (Subject to a Deed of Company Arrangement) ACN 162 884 068 and these proceedings as if s 444GA(1) were to read as follows:

(1)     [Who must approve transfer] The administrator of a deed of company arrangement may transfer shares in the company if the administrator, or MACA Ltd ACN 144 745 782 for and on behalf of the administrator, has obtained:

(a) the written consent of the owner of the shares; or

(b) the leave of the Court.

Extension of the Sunset Date

27    As mentioned previously, the Sunset Date under the DOCA is due to expire on 13 August 2021. No doubt it was expected that the s 444GA application would have been completed by that date. That is no longer the case and the main protagonists, MACA and Wealth Resources, are preparing to contest it. Although, at present, the issues surrounding the dispute are not fully known, Wealth Resources appears to wish to raise the issue of the value of Wealth Mining. It is possible that Wealth Resources will allege that the mining tenements held by Wealth Mining have substantially greater value than the Deed Administrators have attributed to them. Despite Wealth Mining’s significant indebtedness, it is likely that it will be suggested that, if the tenements are correctly valued, Wealth Resources’ shares in Wealth Mining will have a value greater than nil such that it would be prejudiced by their transfer to MACA. In these circumstances, it is appropriate to extend the Sunset Date under the DOCA to allow the litigation of this issue to be completed.

28    Again, it is relevant that the Deed Administrators support the making of this order. Moreover, Mr Karam for Wealth Resources accepted that it was appropriate in the circumstances. That being so, an extension until 31 January 2022 would afford sufficient time to enable the application to be heard and determined and an order should be made to that effect.

Participation of the Deed Administrators in the proceedings

29    MACA, with the concurrence of the Deed Administrators, sought a further order that the latter be excused from further participation in the s 444GA application. That is appropriate in this case where they have already prepared and filed the necessary evidence required of them relevant to the issues in dispute. Further, they have no funds with which to continue the application which will now be funded and conducted by MACA, and it would impose an unnecessary expense on them to require their active participation where the real issues are between MACA and Wealth Resources. The order sought should be subject to the making of any further order should the circumstances change in the future.

30    This Court undoubtedly has the power in its management of the cases before it to make such an order and, if necessary, it can be found in the general power in r 5.04 of the Federal Court of Australia Rules 2011 (Cth).

31    The orders which should be made are that, subject to any further order of the Court:

(a)    the Deed Administrators be excused from further participation in the proceedings; and

(b)    the Deed Administrators submit to the making of all orders sought in the originating process filed on 12 June 2021, and the giving or entry of judgment in respect of all claims made in that originating process, save as to costs.

32    As was mentioned above, the Deed Administrators also agreed to the making of these orders.

Costs

33    MACA did not seek any order as to costs from any party and no submission was made against the proposition that the appropriate costs order was that each party’s costs be their costs in the cause. That order ought to be made.

Associate:

Dated:    27 July 2021