Federal Court of Australia

Sparks (Administrator), in the matter of IG Energy Holdings (Australia) Pty Ltd (Administrators Appointed) [2023] FCA 403

ORDERS

THE COURT ORDERS THAT:

1.    The originating process dated 21 April 2023 be made returnable instanter.

2.    Pursuant to s 439A(6) and s 447A(1) of the Corporations Act 2001 (Cth) (the Act), the period within which the administrators must convene the second meeting of creditors of each of the companies under s 439A of the Act (second meetings) be extended to 11:59 pm on Friday, 1 September 2023.

3.    Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate in relation to each of the companies so that, notwithstanding s 439A(2) of the Act, the second meetings may be held together or separately at any time during the period up to, or within 5 business days after the end of, the convening period as extended in paragraph 2 above provided that the administrators give notice of the meeting in accordance with r 75-225(1) and r 75-15 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPR).

4.    Within two business days of these orders being made, the administrators 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 administrators in respect of the administration of the companies; and

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

5.    Pursuant to s 447A(1) of the Act and s 90-15 of the Insolvency Practice Schedule (Corporations) (IPSC) (being Schedule 2 to the Act), Pt 5.3A of the Act is to operate in relation to the companies such that if, pursuant to any provision in any of Part 5.3A of the Act, the IPSC, or the IPR, the administrators are required to provide any other notification to creditors during the administration of the companies, such notice will be validly given to creditors of the companies by:

(a)    giving such notice electronically by email sent to the email address of any creditor (including persons claiming to be creditors) of the companies for whom or which the administrators 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 IPR, to any creditors not being a creditor referred to in sub-paragraph 5(a) above; and

(c)    to the extent that the matter relates to a meeting that is the subject of rule 75-40(4) of the IPR, causing such notice to be published in the Insolvency Notices website located at: https://publishednotices.asic.gov.au/

6.    Until further order, pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) (FCA Act) and on the ground that it is necessary to prevent prejudice to the proper administration of justice for the purpose of s 37AG of the FCA Act, the unredacted affidavit of Richard John Hughes affirmed on 27 April 2023 is not to be disclosed or made available for inspection by any person, other than any Judge of the Court, any member of any Judge’s staff or any officer of the Court, the Plaintiffs, their staff and their legal representatives and any other person who signs an undertaking as to confidentiality in a form acceptable to the administrators.

7.    Liberty be granted to any person who can demonstrate sufficient interest to discharge or modify these orders on the giving of three business days' written notice to the Plaintiffs and the Court.

8.    The administrators' costs of and incidental to this application be costs in the administration of the companies.

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

REASONS FOR JUDGMENT

SARAH C DERRINGTON J:

Introduction

1    This application is brought by the administrators of four related companies, IG Energy Holdings (Australia) Pty Ltd (Administrators Appointed), IG Power Holdings Limited Pty Ltd (Administrators Appointed), IG Power Marketing Pty Ltd (Administrators Appointed), and IG Power (Callide) Ltd (Administrators Appointed) (the companies). The administrators, Mr Grant Sparks and Mr Richard Hughes, seek an extension of the convening period of the second meeting of creditors in respect of each of the companies under s 439A(6) of the Corporations Act 2001 (Cth). They also seek ancillary orders under s 447A(1) of the Corporations Act.

2    The companies are part of the Australian corporate group known as the Genuity Group which is in the business of developing, operating and owning interests in power stations in Queensland. One of those power stations, the Callide C Power Station, is operated by the Genuity Group as a 50/50 joint venture between IG Power (Callide) and Callide Energy Pty Ltd (Callide Power Project). An explosion at the Callide C Power Station on 25 May 2021 caused a kinetic disintegration and, on 31 October 2022, a further structural failure occurred in certain cooling towers causing a loss of connectivity to the grid. This in turn has resulted in the suspension of the Callide Power Project, causing significant financial loss and additional expenses for IG Power (Callide).

3    The purpose of the extension is to allow the administrators to pursue an expression of interest process through which interested parties can make proposals to acquire the assets or business of the companies, or to restructure the companies by a deed of company arrangement or otherwise. The administrators are of the opinion that if the convening period is not extended, a resolution to place the companies into liquidation at the second meeting of creditors is likely. The administrators consider that such an outcome is likely to be worse for creditors than if the administrators had more time to pursue their proposed course of action.

Background

4    Messrs Sparks and Hughes were appointed as joint and several administrator of the companies on 24 March 2023. The first meetings of creditors of each company were held on 5 April 2023.

5    In his affidavit dated 27 April 2023 (Aff-Hughes), Mr Hughes sets out the relevant affairs of the companies prior to administration, the conduct of the administration to date, the reasons which in the administrators’ view based on their investigations to date led to their appointment, and the proposed strategy to procure a sale or restructure of the companies. I set out below some of the detail of the more significant elements of the administration to date.

6    In the course of their administration to date, the administrators have ascertained the financial positions of the companies on a preliminary basis. They are as follows:

IG Power (Callide) (Aff-Hughes at [59])

(a)     Creditors: 13 creditors with claims of $384,322,418.91, comprising of:

(i)     One (1) secured claim from [Callide Power Management Pty Ltd] of $1,150,000.00;

(ii)     Nine (9) external unsecured claims of $225,220,455.00; and

(iii)     Three (3) related-party unsecured claims of $157,951,963.91.

(b)     Asset and liability position: as per IG Power Callide’s draft financial report for the year ended 31 December 2022:

(i)     Net assets were $135,872,340;

(ii)     Total assets were $409,379,298 largely comprising of property, plant and equipment, derivative financial instruments, and cash and cash equivalents;

(iii)    Total liabilities were $273,506,958 largely comprising of borrowings, derivative financial instruments, and provisions; and

(iv)    Working capital (current assets less current liabilities) was a deficit of $(65,857,649).

(c)     Cash at appointment: Cash at bank on appointment was $24, 434,545.36.

IG Power Marketing (Aff-Hughes at [62])

(a)     Creditors: four (4) creditors with claims of $17,000,724.32, comprising of:

(i)     Three (3) external unsecured claims of $16,999,577.32; and

(ii)     One (1) related-party unsecured claims of $1,147.00.

(b)     Asset and liability position: as per IG Power Marketing’s draft financial report for the year ended 31 December 2022:

(i)     Total assets of $487,854 comprising of loans receivable;

(ii)    Total liabilities of $1,343 comprising of loans payable;

(iii)    Working capital was $486,511; and

(iv)    Net assets were $486,511.

(c)     Cash at appointment: nil.

IG Power Holdings (Aff-Hughes at [64])

Neither IG Power (Callide) nor IG Power Marketing were forecast to make any distribution during 2023, and accordingly IG Power Holdings was not going to receive any income;

(a)     Creditors: two (2) related-party unsecured claims of $487,904.40.

(b)    Asset and liability position: as per IG Power Holdings’ draft financial report for the year ended 31 December 2022:

(i)     Total assets were $409,379,249 largely comprising of property, plant and equipment, derivative financial instruments and deferred tax assets;

(ii)    Total liabilities were $273,514,453 largely comprising of borrowings, derivative financial instruments, and provisions;

(iii)    There was a working capital deficit of $(65,865,195); and

(iv)    Net assets were $135,864,796.

These are the consolidated figures for IG Power Holdings which include the assets and liabilities of IG Power (Callide) and IG Power Marketing.

(c)     Cash at appointment: nil.

IG Energy Holdings (Aff-Hughes at [65])

(a)     Creditors: three (3) creditors with claims of $88,460,711.43, comprised of:

(i)     One (1) secured claim by Sev.en of $88,428,433.00. We note that the security position of this claim is subject to the outcome of the Credit Agreement Proceeding;

(ii)     Two (2) related-party unsecured claims of $32,278.43.

(b)     Asset and liability position: as per IG Energy Holdings’ draft financial report for the year ended 31 December 2022:

(i)     Total assets were $392,644,199 largely comprising of property, plant and equipment, derivative financial instruments, and deferred tax assets;

(ii)    Total liabilities were $265,355,774 largely comprising of borrowings, derivative financial instruments, and provisions;

(iii)    There was a working capital deficit of $(77,455,425); and

(iv)    Net assets were $127,288,425.

These are the consolidated figures for IG Energy Holdings which include the assets and liabilities of IG Power (Callide), IG Power Marketing and IG Power Holdings.

(c)     Cash at appointment: $10,476.66.

7    The administrators have ascertained that the costs for the staged return to service of the Callide C Power Station, for which IG Power (Callide) is 50% responsible, are about $390.1 million. There is a claim against the insurers for about $173.5 million, for which proceedings have been commenced in the Supreme Court of Queensland. The administrators have liaised with interested stakeholders associated with the Callide Power Project including the insurers: Aff-Hughes at [70]-[74].

8    There is also litigation on foot in the Supreme Court of New South Wales between the companies and Sev.en (the 50% beneficial shareholder of Intergen, being the parent company which wholly owns Genuity Group), with whom the administrators have engaged: Aff-Hughes at [75].

9    The administrators have considered the companies’ funding requirements to fund IG Power (Callide)’s share of the rebuild costs under the joint venture agreement to pay called sums in accordance with that agreement. Negotiations with key stakeholders are ongoing: Aff-Hughes at [79] and [82].

Power to extend the convening period

10    The power to extend the convening period arises under s 439A of the Corporations Act.

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.

(7)    If an application is made under subsection (6) after the period referred to in paragraph (5)(a) or (b), as the case may be, the Court may only extend the convening period if the Court is satisfied that it would be in the best interests of the creditors if the convening period were extended in accordance with the application.

(8)    If an application is made under subsection (6) after the period referred to in paragraph (5)(a) or (b), as the case may be, then, in making an order about the costs of the application, the Court must have regard to:

(a)    the fact that the application was made after that period; and

(b)    any other conduct engaged in by the administrator; and

(c)    any other relevant matters.

11    The Corporations Act requires an administrator to convene a second meeting of creditors within the period fixed by s 439A(5), unless extended under s 439A(6). As such, the second meeting of creditors must be held within five business days before or after the end of the convening period.

12    Pursuant to s 439A(6) of the Corporations Act, the Court is empowered to extend the convening period under s 439A on the making of an application during or after the convening period.

13    In this case, the application has been made within the convening period.

14    The principles and authorities governing applications of this nature were set out at length by Middleton J in Strawbridge, in the matter of Virgin Australia Holdings Limited (administrators appointed) (No 2) [2020] FCA 717 (Strawbridge) at [64] – [68]:

[64]     The circumstances in which the Court will extend a convening period are well established. In making such an order, the Court must reach an appropriate balance between an expectation that the administration will be relatively speedy and summary, and the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 (Young J); Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10] (Barrett J).

[65]     The approach to be adopted was recently set out by Thawley J in Farnsworth v About Life Pty Limited (Administrator Appointed), in the matter of About Life Pty Ltd [2019] FCA 11 at [3]-[8], where his Honour endorsed the comments of Austin J in In the matter of Riviera Group Pty Ltd (admins apptd) (recrs & mgrs. apptd) [2009] NSWSC 585 (‘Re Riviera’) at [13] as to the categories of cases in which an extension is granted including, relevantly:

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

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

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

    (Citations omitted.)

[66]     An extension of the administration period to facilitate either (or both) of: (a) the sale of the business of the company as a going concern, so as to maximise the value of the company’s assets; or (b) the progression and assessment of a DOCA proposal that may provide a better return to creditors than a winding up, are well-recognised examples of situations where the Court has extended the convening period.

    (Citations omitted.)

[67]     In Mighty River International Ltd v Hughes (as deed administrators of Mesa Minerals Ltd) (2018) 359 ALR 181 at 201-202, [73], Nettle and Gordon JJ (in dissent, but not relevantly in this respect) referred to a number of cases including Re Riviera and concluded:

… 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. …

(Emphasis in the original.)

[68]     Finally, the administrator’s own opinion as to the need for an extension will be given weight in an application of this kind.

    (Citations omitted.)

15    Further, as observed by Austin J in In the matter of Riviera Group Pty Ltd (admins apptd) (recs & mgrs apptd) [2009] NSWSC 585 at [14], when one of the matters or outcomes identified in Strawbridge at [65] is established, and even more so when the facts fit into multiple categories, an extension will generally be granted to the convening period, provided the Court can be satisfied that there will be no material prejudice to those affected by the administration and the Court is satisfied that the administrators’ estimate of time has a reasonable basis.

Exercise of the power

16    In the present case, the administrators seek an extension of the convening period of approximately four months in order to pursue the expression of interest process. It is accepted that administrations should be of relatively short duration and the sale of companies or their businesses or corporate rearrangements can and should occur with expedition: In the matter of Oventus Medical Limited (Administrators Appointed) [2022] FCA 840 at [32]. Mr Hughes has, however, deposed to the size and complexity of the administration. He has had over 20 years’ experience in all types of insolvency appointments and it is his assessment that the better course to secure a return to creditors is to pursue the expression of interest process: Aff-Hughes at [1] and [138]-[139]. I accept that evidence.

17    Accepting the necessity for some delay must, however, be weighed against the inevitable impact on interested stakeholders. Additional costs will be incurred which, if the administrators’ preferred process does not come to fruition as they intend, may reduce the pool of assets available to creditors. The administrators submit that any prejudice likely to be suffered in this case is not material. For the following reasons, I agree.

18    First, key creditors and shareholders, in particular Callide Energy and Sev.en, respectively consent to and do not oppose the extension sought: Aff-Hughes at [126]-[127]. Further, Mr Hughes deposes to having caused letters to be circulated to the creditors of the companies, and to CHG (one of the ultimate beneficial shareholders in the Genuity Group) on 14 April 2023 and 26 April 2023 informing them of this proceeding Aff-Hughes at [128]-[133]. The administrators have not received any notice of opposition: Aff-Hughes at [132].

19    Secondly, the companies do not employ any staff who will be prejudiced by the delay: Aff-Hughes at [118].

20    Thirdly, while the moratorium on litigation will inevitably impact the counterparties to the litigation, the inference to be drawn from the material before the Court is that the impact is likely to be minimal. Further, as observed above, the party to one piece of litigation, Sev.en, does not oppose the extension of time.

21    Fourthly, any secured creditor can exercise its rights notwithstanding the administration. As the holder of a security interest, which is currently enforceable, under the terms of the joint venture agreement between it and IG Power (Callide) (Aff-Hughes at [121]), Callide Energy is unlikely to suffer any material prejudice and has, in any event, consented to the extension.

22    A further matter to be weighed in the balance in the present case is the public interest. As deposed to by Mr Hughes, the Callide C Power Station is currently not operational and this is putting strain on the energy grid for Queensland. The administrators consider that an extension of the convening period will maximise the prospects of the staged return to service progressing as scheduled: Aff-Hughes at [119]-[120].

Confidentiality orders

23    The administrators seek an order that certain parts of Mr Hughes’ affidavit concerned with settlement negotiations with the insurers and the Shareholders Agreement annexed to the affidavit be redacted and that those parts of his affidavit be kept confidential. The power to make such suppression orders arises pursuant to ss 37AF and 37AG of the Federal Court of Australia Act 1976 (Cth).

24    The order is sought on the basis that those parts of Mr Hughes’ affidavit that are proposed to be excluded from public view are confidential because:

(a)    of the privilege attaching to the settlement negotiations (without prejudice communications): and

(b)    of the express terms of the Shareholders’ Agreement which the administrators should properly maintain having come into possession of the Agreement on the basis of an implied undertaking to maintain its confidentiality.

25    The information sought to be kept confidential is readily identifiable as privileged and/or confidential. It is unnecessary to consider the principles that would apply were the information merely commercial in confidence: Hill, in the matter of Autocare Services Pty Ltd (administrators appointed) [2021] FCA 167; Killer, in the matter of Scooter Group Pty Ltd (Receivers and Managers Appointed)(Administrators Appointed) [2023] FCA 320.

26    In those circumstances, the order for the confidentiality of Mr Hughes’ affidavit should be made.

Disposition

27    Given the foregoing and the fact that it has been established that the proposed extension of the convening period will not materially prejudice any creditors, employees or other stakeholders, and that the extension will provide administrators with the best opportunity to maximise returns to creditors and shareholders, the extension should be granted. The convening period for the second meeting of the creditors of each of the companies is to be extended until 11:59pm on Friday, 1 September 2023.

28    It is also appropriate to make ancillary orders pursuant to s 447A that Part 5.3 of the Corporations Act is to operate in relation to each of the companies so that the second meetings of creditors required by s 439 may be held together or separately at any time during the period up to, or within 5 business days after the end of, the convening period notwithstanding s 439A(2) of the Corporations Act, provided that the administrators give the appropriate notice in accordance with r 75-225(1) and r 75-15 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPR). Orders of this nature have been considered “sensible and now almost routine”: Byrnes, in the matter of Murray River Organics Proprietary Limited (Administrators Appointed)(Receivers and Managers appointed) [2022] FCA 232 at [33] referring to Re LED Builders Pty Ltd (administrators appointed) [2008] NSWSC 633 at [2].

29    Further, orders should be made requiring the administrators to give notice of these orders to creditors of the companies and to make ancillary orders pursuant to s 447A of the Corporations Act and s 90-15 of the Insolvency Practice Schedule (Corporations) (IPSC) as to the validity of the form of any required notice to be given to creditors pursuant to Pt 5.3A of the Corporations Act, the IPSC or the IPR during the administration of the companies.

30    The administrators have sought and should be entitled to an order that their costs of this application be their costs in the administration.

Associate:

Dated:    3 May 2023