Federal Court of Australia
Lord, in the matter of Invigor Group Limited (administrators appointed) [2022] FCA 1064
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
Interim orders
1. The Originating Process be made returnable instanter.
Orders regarding the external administration
2. Pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (the Act) and s 90-15 of the Insolvency Practice Schedule (Schedule 2 to the Act) (IPSC), Pt 5.3A of the Act is to operate as if s 443A(1) of the Act provides that:
(a) the liabilities of the first plaintiffs in their capacities as joint and several administrators of the second plaintiff incurred under the funding agreement in, or substantially in, the form of Annexure BSL4 to the affidavit of Brett Stephen Lord made 1 September 2022 (Funding Agreement) will be limited in the manner provided for by the Funding Agreement; and
(b) if the property of the second plaintiff is insufficient to satisfy the debts and liabilities incurred by the first plaintiffs under the Funding Agreement for which the right of indemnity exists under s 443D of the Act, the first plaintiffs will not be personally liable to repay such debts and liabilities to the extent of that insufficiency.
3. Pursuant to s 90-15 of the IPSC, the first plaintiffs in their capacities as administrators of the second plaintiff are justified in causing the second plaintiff to enter into the Funding Agreement and in drawing down funds pursuant to the Funding Agreement.
4. The costs of the application be treated as costs in the administration of the second plaintiff.
5. The first plaintiffs, within 2 business days of these orders, take all reasonable steps to give notice of these orders to:
(a) the creditors of the second plaintiff (including the persons claiming to be creditors) by means of a circular:
(i) to be sent by email transmission to creditors for whom the first plaintiffs currently have an email address; or
(ii) to be sent by ordinary post to creditors for whom the first plaintiffs currently only have a postal address; and
(b) the Australian Securities and Investments Commission, by its street address, or email address.
6. Liberty to apply be granted to any person, including any creditor of the second plaintiff or the Australian Securities and Investments Commission, who can demonstrate sufficient interest to vary these orders, on 3 business days’ notice to the first plaintiffs and the Court.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
YATES J:
Introduction
1 The first plaintiffs (the administrators) are the joint and several administrators of the second plaintiff, Invigor Group Ltd (administrators appointed) (Invigor or the company). They were appointed on 24 August 2022.
2 The administrators seek an order pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (the Act) and s 90-15 of the Insolvency Practice Schedule (Corporations) (Sch 2 to the Act) (IPSC) relieving them of personal liability under s 443A of the Act in relation to debts incurred arising from a funding agreement entered into between them, the company, and one of the company’s secured creditors, Allectus Capital Limited (Bermuda Company No 47196) (Allectus) by deed on 31 August 2022 (the Funding Deed).
3 They also seek an order pursuant to s 90-15 of the IPSC to the effect that they are justified in causing the company to enter into the Funding Deed and in drawing down the funds provided for therein.
Background
4 Invigor is a public company listed on the Australian Securities Exchange. It operates a data analytics business. It is based in Sydney. It operates Australia-wide and has 14 employees.
5 Invigor’s key assets are customer contracts which, most likely, will be terminated in the event that the company is unable to continue to trade and deliver the required services in accordance with those contracts.
6 Invigor has debts totalling $3,564,354, which it owes to 40 known creditors, secured and unsecured. The secured creditors are owed approximately $2,473,415. Allectus is the largest secured creditor. As at 31 July 2022, Allectus was owed $1,416,877.
7 In order to trade the Invigor’s business as a going concern in the immediate future, the administrators have projected that $859,199.53 will be required to be paid over the next five weeks to 3 October 2022 for wages and wage-related liabilities, and anticipated critical trade creditor costs. Without funding, Invigor has insufficient liquidity to enable it to continue trading. Its cash account with National Australia Bank Limited is substantially overdrawn. There is no cash on hand.
8 The administrators and Allectus have had discussions about Allectus proposing a deed of company arrangement (DOCA) that would see Invigor continuing to trade as a going concern and, ultimately, recapitalised with a potential change in shareholding to facilitate such recapitalisation. Such a proposal would likely see the majority of the company’s employees retain ongoing employment. It would also likely achieve continuity of supply by key suppliers and creditors.
9 The administrators have required Allectus to provide an outline of a DOCA proposal by 7 September 2022 with a view to that proposal being negotiated, drafted and settled in the period 14 to 21 September 2022. One of Invigor’s directors is also investigating the possibility of recapitalising or restructuring the company. However, to the administrators’ knowledge, this prospect has not progressed significantly.
10 In order to provide immediate funding for the company, and in order to allow sufficient time for Allectus, or another party, to formulate a DOCA, the administrators and Allectus entered into the Funding Deed, under which Allectus will provide up to $860,000 to cover the costs of Invigor continuing to trade. These funds will be provided on a staged basis, with limited recourse. Specifically, Allectus will not seek recourse against the administrators in respect of the funds advanced. Further, Allectus will not seek recourse against the company in respect of the funds advanced until the administrators satisfy all other liabilities in accordance with s 443A(1) of the Act. The company’s obligation to repay the funds advanced will be limited to the assets which the administrators actually receive pursuant to their indemnity against the company’s assets under s 443D of the Act. No interest is payable.
11 Clause 2.1 of the Funding Deed provides:
The obligations of [Invigor] and any obligations of the [administrators] under or by reference to this Deed are subject to and conditional upon the making of an Order pursuant to section 447A of the Corporations Act to the effect that they are not personally liable under or in connection with this Deed or in respect of [Invigor’s] receipt of any of the Funding Amount.
12 In an affidavit made on 1 September 2022, Mr Lord, who is one of the first plaintiffs, expressed the view that it is highly unlikely that more attractive funding could have been obtained in the circumstances.
13 He also expressed his commercial judgment that it is in the best interests of the company’s creditors for the company to obtain this funding, because:
(a) it will enable the administrators to operate the company’s business and permit them to make urgent payments, and receive income from services, until a decision is made regarding Allectus’ proposed DOCA, or an alternative DOCA;
(b) continuing to operate the company’s business will lead to an increased pool of funds being available to creditors than if the company were to be immediately wound up;
(c) continuing to operate the company’s business will maximise the value of that business and the chance that the company, or part of its business, will continue after the administration;
(d) continuing to operate the company’s business will allow the company’s employees to remain in employment and will avoid the crystallisation of employment termination entitlements;
(e) continuing to operate the company’s business will avoid the crystallisation of claims under the company’s current service contracts; and
(f) if the company ceases to operate, its value as a going concern would be lost and any remaining components of the business would be of lesser value, reducing significantly the return to creditors.
14 Mr Lord also expressed his opinion that the rights of creditors will not be adversely affected by the company obtaining funding under the Funding Deed.
15 On 31 August 2022, the administrators received the first payment under the Funding Deed.
16 I should add that, separately, Allectus has advanced the sum of $150,000 on account of the administrators’ remuneration and disbursements. The creditors have been informed that this advance has been made.
17 The first meeting of creditors has been convened for 5 September 2022.
18 The administrators have informed the secured creditors and the Australian Securities and Investments Commission of the present application. The administrators have not been able to inform the unsecured creditors, although the unsecured creditors were informed that the administrators were intending to have discussions with Allectus in relation to the provision of funds for the company’s operational and trading expenses in addition to the sum of $150,000 already advanced.
Consideration
19 Section 443A of the Act provides:
(1) The administrator of a company under administration is liable for debts he or she incurs, in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers as administrator, for:
(a) services rendered; or
(b) goods bought; or
(c) property hired, leased, used or occupied, including property consisting of goods that is subject to a lease that gives rise to a PPSA security interest in the goods; or
(d) the repayment of money borrowed; or
(e) interest in respect of money borrowed; or
(f) borrowing costs.
(2) Subsection (1) has effect despite any agreement to the contrary, but without prejudice to the administrator's rights against the company or anyone else.
20 The present application is necessary because of the operation of s 443A(2).
21 Section 447A(1) empowers the Court to make such orders as it thinks appropriate about how Pt 5.3A of the Act, including s 443A, is to operate in relation to a particular company.
22 It has become common for relief to be sought, and granted, in relation to modifying the operation of s 443A to relieve administrators from liability in respect of funding obtained to facilitate trading in the administration period. It is not expected that administrators should expose themselves to substantial personal liabilities on account of such funding: Mentha, in the matter of Griffin Coal Mining Company Pty Ltd (Administrators Appointed) [2010] FCA 1469; 82 ACSR 142; Secatore, in the matter of Fletcher Jones and Staff Pty Ltd (Administrators Appointed) [2011] FCA 1493; In the matter of Renex Holdings (Dandenong) 1 Pty Ltd (Administrators Appointed) [2015] NSWSC 2003; Preston, in the matter of Hughes Drilling Ltd (Administrators Appointed) [2016] FCA 1175 (Preston); In the matter of Unlockd Limited (Administrators Appointed) [2018] VSC 345; Strawbridge, in the matter of Virgin Australia Holdings Ltd (Administrators Appointed) (No 2) [2020] FCA 717; 144 ACSR 347; Hill, in the matter of Ovato Limited (Administrators Appointed) [2022] FCA 903 (Ovato); Birch, in the matter of Geelong Fire Services Pty Ltd (Administrators Appointed) [2022] FCA 963.
23 I am satisfied that such relief should be granted in the present case.
24 I note that the unsecured creditors have not been given notice of the present application but, as I observed in Preston at [19], this does not stand as a substantial reason either to refuse or to delay the granting of the relief that is sought. Indeed, it has been said that the creditors have no interest in an order that seeks to limit an administrator’s personal liability under such funding arrangements: Mentha, in the matter of Spyglass Management Group Pty Ltd (Administrators Appointed) [2004] FCA 1469; 51 ACSR 432 at [6]; Strawbridge, in the matter of Retail Adventures Pty Limited (Administrators Appointed) v Retail Adventures Pty Limited (Administrators Appointed) (No 2) [2012] FCA 1368 at [8].
25 As I have noted, the administrators also seek an order pursuant to s 90-15 of the IPSC to the effect that they are justified in causing the company to enter into the Funding Deed and in drawing down the funds provided for therein.
26 In Ovato, Stewart J said (at [16] – [18]):
16 The Court is empowered under s 90-15 of the IPS to make such orders as it sees fit in respect of the administration of the group. The function of such orders, or judicial directions, is not to determine the rights and liabilities associated with a particular transaction, but rather to confer a level of protection on the administrator: Krejci, in the matter of Union Standard International Group Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 1111 at [9].
17 The fact that a s 90-15 direction may relate to a decision or action of a “commercial character” does not prevent such a direction being made: In the matter of RCR Tomlinson Ltd (administrators appointed) & Ors [2018] NSWSC 1859 at [14]. In that case, where the administrators sought a direction that they be justified in procuring the borrowing of loan funds by the companies in administration, Black J explained:
“The Court’s preparedness to grant such a direction in those circumstances reflects the intrinsic unfairness of leaving a voluntary administrator to be at risk of liability, in respect of a complex decision of that kind, where any decision that is made, including making no decision, will have inevitable risks for some or all of the affected constituencies.”
18 Similarly, in Niccol, in the matter of Fly365 Pty Ltd (in liq) [2020] FCA 1303, there was a direction that the liquidators were justified in entering into a funding agreement and were authorised to carry its terms into effect. Relevant to that decision was the conduct and purpose of the external administrators in seeking the funding, including that it be for the benefit of creditors.
27 I am prepared to make the order that the administrators seek in this regard. There is, plainly, an urgent need for funding, which Allectus is willing to provide. Without that funding, it will be necessary for the administrators to take immediate steps to cease operating the company’s business. The evidence before me is that such a step would not be in the interests of the company’s creditors, including its employee creditors. On the other hand, continuing to operate the company’s business will be in the creditors’ interests, bringing the advantages I have noted above. Allectus will, of course, retain its security (which will cover the funding), but the provision of the funding will not disturb the pre-existing priorities of pre-appointment debts.
28 I accept Mr Lord’s evidence that it is unlikely that more attractive funding could be obtained in the circumstances.
29 Orders will be made accordingly.
I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates. |
Associate:
