Federal Court of Australia

Ford, in the matter of Ten Sixty Four Limited [2023] FCA 862

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to ss 439A(6) and 447A(1) of the Corporations Act 2001 (Cth) (Act), the period within which the plaintiffs (Administrators) must convene the second meeting of creditors of Ten Sixty Four Limited (Administrators Appointed) (Company) under s 439A of the Act (Second Meeting) be extended to 11.59 pm on 29 January 2024.

2.    Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate in relation to the Company so that, notwithstanding s 439A(2) of the Act, the Second Meeting may be held at any time during, or within five business days after the end of, the convening period as extended by paragraph 1 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).

3.    Within three business days of these orders being made, the Administrators are to give notice of these orders to each of the known creditors of the Company (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 Company; and

(b)    to be sent by email or by post to all known creditors to the email or physical address held by the Administrators or recorded in the Company’s books and records.

4.    Pursuant to s 447A(1) of the Act and s 90-15 of the Insolvency Practice Schedule (Corporations) (being Sch 2 to the Act) (IPSC), Pt 5.3A of the Act is to operate in relation to the Company such that if, pursuant to any provision in any of Pt 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 Company, such notice will be validly given to creditors of the Company by:

(a)    giving such notice electronically by email sent to the email address of any creditor (including persons claiming to be creditors) of the Company 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 IPRC, to any creditors not being a creditor referred to in sub-paragraph 4(a) above; and

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

5.    There be liberty to apply 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 Administrators and the Court.

6.    The Administrators’ costs of and incidental to this application be costs in the administration of the Company.

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

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    The plaintiffs (the Administrators) bring this application in their capacity as joint and several administrators of Ten Sixty Four Limited (Administrators Appointed) (the Company). By originating process dated 20 July 2023, the Administrators apply for an order under s 439A(6) of the Corporations Act 2001 (Cth) (the Act) extending the convening period for the second meeting of the creditors of the Company until 29 January 2024. The Administrators also seek certain ancillary orders.

2    The Administrators rely upon two affidavits of Martin Francis Ford, sworn on 20 July 2023 (the First Ford Affidavit) and 23 July 2023.

3    For the reasons that follow, which are substantially based on the Administrators’ outline of submissions, I consider it appropriate to make the orders sought.

Factual background

4    On 2 July 2023, the Administrators were appointed as administrators of the Company in accordance with s 436A of the Act, pursuant to a resolution by the board of directors of the Company.

5    The Company was incorporated in 2002. It is a public company listed on the Australian Stock Exchange (the ASX). It is a member of a group of eight companies with operations across Australia and South East Asia in gold mining and exploration activities (the Group). The Company has direct and indirect shareholding interests in the other companies within the Group (Subsidiaries).

Key operations of the Group

6    One aspect of the Group’s operations is the mining, processing and sale of gold mined from the “Co-O Mine” (the Co-O Mine) in the Philippines:

(a)    The Co-O mine is owned and operated by a Philippines-incorporated Subsidiary, Philsaga Mining Corporation (the Mine Owner).

(b)    Gold mined from the Co-O Mine is processed in the nearby Co-O Mill. That mill is owned by a Philippines-incorporated Subsidiary, Mindanao Mineral Processing & Refining Corporation (the Mill Owner).

(c)    Once processed, the gold is sold to a Hong Kong-incorporated Subsidiary, Komo Diti Traders Limited (KDTL). KDTL, partly through the services of a third party, finally refines the gold and sells it.

7    Another aspect of the Group’s operations involves exploratory works at tenements in central Queensland. An Australian-incorporated Subsidiary, CQ22 Pty Ltd (CQ22) owns the tenements and is undertaking the exploratory work.

8    The Company’s own operating activities have involved incurring certain corporate overhead costs of the Group (for which it has historically charged KDTL a management fee) and the entry into certain intercompany loans.

Shareholdings in Subsidiaries

9    Shareholdings of Subsidiaries are set out in an organisational chart in the First Ford Affidavit (Structure Chart).

10    The Company owns all of the issued shares in CQ22.

11    The situation is more complicated as regards interests in Subsidiaries associated with the “Co-O gold” aspect of operations. It appears uncontentious that:

(a)    The Company is the registered owner of 40% of the issued shares in Philsaga Management and Holdings Inc (PMHI), a Philippines-incorporated Subsidiary.

(b)    PMHI controls (via an intermediate Subsidiary) 100% of the issued shares in the Mine Owner.

(c)    The Company is the registered owner of 80% of the issued shares in the Mill Owner. The remaining 20% of issued shares is held by the Mine Owner.

(d)    The Company owns all of KDTL’s issued shares.

12    The remaining 60% shareholding in PMHI (60% Shareholding) is contentious, or at least potentially contentious, in at least several respects.

13    First, there is a dispute as to the identity of the legal owner of the 60% Shareholding (and relatedly, the identity of the current directors of PMHI) (the Ownership Dispute). The dispute is the subject of court proceedings in the Philippines and orders (preserving the status quo, pending final resolution of the dispute) by the Filipino Securities and Exchange Commission (the SEC). The dispute relates in part to various documents which purport to effect a transfer of the shareholding.

14    Secondly, there is at least a potential dispute as to whether the 60% Shareholding is held on trust for the Company (the Beneficial Ownership Question). In this regard:

(a)    The Company prepared its financial statements for the financial year ending 30 June 2022 on a consolidated basis for the Group. The consolidation was based on the company holding its registered 40% shareholding in PMHI, and there being various agreements in place giving the Company “effective sole rights to the economic returns of [PMHI] and its subsidiary companies”.

(b)    The Administrators are currently investigating any trusts over the 60% Shareholding. The Administrators have obtained copies of various documents dated 5 or 8 April 2022, which purportedly provide (among other things) for a Filipino individual, Mr Villanueva, to hold most of the shares comprising the 60% Shareholding on trust for the Company. Mr Villanueva has since purported to revoke that declaration of trust and denies that the shares are held on trust for the Company.

15    Thirdly, there is a related question as to whether any trust over the 60% Shareholding complies with Filipino law.

16    The determination of the above questions may have ramifications for PMHI’s “downstream” shareholding interests, including its indirect 20% interest in the Mill Owner.

Events leading to the appointment of the Administrators

17    The events leading to the appointment of the Administrators are in some respects contentious and currently being investigated. Without repeating all the detail set out in the First Ford Affidavit in this regard, several observations may be made.

18    In around March 2023, the Ownership Dispute emerged. Around this time, the Company made an announcement to the ASX, among other things, (1) raising various concerns and issues about the Co-O Mine; and (2) stating that Mr Villanueva had been given six months’ notice by the Company and had been replaced as president and director of the Mine Owner.

19    It appears that as a result of the Ownership Dispute, in around March 2023 the Mine Owner ceased to deliver gold to KDTL and ceased to pay tolling fees to the Mill Owner. This then had the consequence that the Company ceased to receive revenue from management fees it had historically charged to KDTL.

20    The above events occurred against the backdrop of instability in the Company’s Australian management and board. In July 2022, the Company announced to the ASX that it had terminated the services of its (then) Managing Director, due to alleged undisclosed conflicts of interest. Shareholders associated with that Managing Director then made several attempts to replace the (then) directors of the Company. Eventually, on 19 June 2023, the Company announced to the ASX that all of its directors had resigned, and that nominees associated with the former Managing Director would be appointed with effect that day.

21    On 2 July 2023, some two weeks after the new directors had been appointed, the Administrators were appointed. The recent turnover at the board and management level has the practical consequence that it is more difficult for the Administrators to obtain historical information about the Company.

Financial position of the Company

22    The Administrators’ investigations of the Company’s financial position are ongoing.

23    At this stage, Mr Ford considers that at the time of the appointment as Administrators, the Company was likely to become insolvent by the end of November 2023 on the basis that the Company would no longer be receiving funds from the Philippines. This is principally on the basis that by no later than November 2023, had the Company continued trading, the Company would have exhausted its available cash. For example, the Company would have had insufficient cash to pay expected premiums for insurance to be paid by 30 November 2023.

24    There is a separate question as to its asset position as compared with what assets may be available to it. That question requires further investigation, but based on unverified information, being a balance sheet (the Balance Sheet) prepared prior to the appointment:

(a)    The Company’s principal asset that is immediately realisable is its cash of around $8.6 million.

(b)    The Administrators have identified creditors of the Company with estimated claims of at least $17 million. The Company’s largest liabilities comprise intercompany loans owed to KDTL and the Mill Owner. There is some uncertainty about whether the recorded intercompany loans are, in truth, current liabilities.

(c)    Based on the above, the Company’s cash alone would be insufficient to meet its currently estimated liabilities – there would be a shortfall of around $9.86 million.

(d)    To enable the current estimated creditors to be paid in full, the Company would therefore need to take additional steps to realise value from its remaining assets. The Company’s investments in Subsidiaries have a recorded book value of around $20.89 million (which figures do not necessarily reflect current market values). The value of the Company’s offshore interests will plainly be affected by the Ownership Dispute, the Beneficial Ownership Question and associated issues discussed above.

Applicable principles

25    The principles and authorities concerning an application to extend a convening period were set out by Middleton J in Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717; 144 ACSR 347 (Strawbridge) at [64]-[68]. There are well-established categories of cases in which extensions have been granted, as surveyed by Austin J in In the matter of Riviera Group Pty Ltd (administrators appointed) (receivers & managers appointed) [2009] NSWSC 585; 72 ACSR 352 (Riviera) at [13]. As regards the balancing exercise to be undertaken, see Algeri, in the matter of WBHO Australia Pty Ltd (Administrators Appointed) (No 2) [2022] FCA 234 at [16] per Beach J.

26    As regards the length of any extension, the authorities indicate that courts are generally willing to tailor the timeframe in Pt 5.3A to suit the needs and circumstances of the particular company, having regard to the achievement of the objects of Pt 5.3A: see Longley, in the matter of Dixon Advisory & Superannuation Services Pty Ltd (Administrators Appointed) (No 2) [2022] FCA 950 (Dixon Advisory) at [23]; see also Algeri (Administrator), in the matter of Murray & Roberts Pty Ltd (Administrators Appointed) (No 2) [2022] FCA 1563 (Murray & Roberts) at [10]; Kaso, in the matter of Speedpanel Australia Ltd (Administrators Appointed) (No 2) [2017] FCA 862 at [17].

27    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: Murray & Roberts at [10]. An absence of any such prejudice may support a longer extension: Dixon Advisory at [25]. Likewise, the extent of any objections from any affected parties is relevant.

28    Where an order extending the convening period is made, the Court has power under s 447A to make orders of the kind initiated in Re Daisytek Australia Pty Ltd [2003] FCA 575; 45 ACSR 446 (Daisytek). Such orders have been described as “sensible” and “almost routine”: Re LED Builders Pty Ltd [2008] NSWSC 633 at [2] per Austin J.

29    The Administrators seek orders permitting notice to be provided electronically in certain circumstances. The orders sought here are in the same terms as those made in Strawbridge. It is now commonplace for orders to be made, with a view to saving costs and time, to permit administrators to give notices to creditors by email and other electronic publication: Strawbridge at [26]; see also Re BBY Limited [2015] NSWSC 974 at [7] per Brereton J.

Consideration

30    Unless an extension is granted, the convening period for the second meeting pursuant to s 439(5) of the Act will end on 28 July 2023, such that the second meeting of creditors will need to be held by no later than 4 August 2023. The Administrators seek an extension of approximately six months.

31    It is submitted, and I accept, that the proposed extension is appropriate for the following reasons.

(a)    There is a realistic prospect of a transaction which avoids liquidation consistently with the objectives of Pt 5.3A. The Company cannot be said to be irredeemably insolvent. Although it currently has insufficient cash to meet its liabilities, the Company has interests in Subsidiaries which plainly have some value. Those interests have been recorded (at book value) at substantial values. It is therefore unsurprising that, based on preliminary inbound queries they have received, the Administrators consider that there will be genuine interest in sales, restructures and recapitalisations of the Company or Group. Moreover, the Administrators are separately holding discussions as to whether agreements can be struck in the Philippines so as to enable the Company’s cash flows from Co-O-mined gold to resume, and ultimately to enable the Company to operate on a solvent basis going forward. It is consistent with the objectives of Pt 5.3A to enable the Administrators sufficient opportunity to explore such potential transactions prior to the second meeting of the Company’s creditors.

(b)    The Administrators need to investigate the Company’s rights in respect of its offshore Subsidiaries. The Administrators require further time to obtain foreign legal advice about the extent, and enforceability, of its interests in offshore Subsidiaries, particularly those in the Philippines, which are the subject of the Ownership Dispute and Beneficial Interest Question. Such issues will significantly affect what asset sales or other strategies might be available, and impact on the Administrators’ ability to form opinions to report to creditors for the purposes of resolutions to be made at a second creditors’ meeting. The Administrators are currently seeking foreign law advice, but estimate that it may be four to six weeks before they have obtained comprehensive advice.

(c)    The Administrators may need to take further steps overseas to enforce the Company’s interests in offshore Subsidiaries. Depending on advice received as to the Company’s interests in offshore Subsidiaries, it is possible that the Administrators could seek cross-border recognition or foreign court assistance. The Administrators consider that it is more realistic that it would be a matter of months, rather than weeks, to seek and obtain such assistance.

(d)    The process for exploring sales or restructures will take several months. Even if no enforcement steps are required overseas, the Administrators consider that it may take four to six months to complete the various processes associated with exploring potential sales or restructures, as explained in Mr Ford’s detailed breakdown of the steps and timeframes associated with those processes. As he notes, additional time will likely be required to deal with complications created by various assets being held overseas.

(e)    The Administrators require more time to formulate final opinions and report to creditors. The Administrators consider that they require extra time to formulate their report to creditors. This is partly because extra time is required to consider the position overseas and explore potential sales or restructures. More generally, the Administrators face complications with investigations due to the very recent replacement of the board of directors of the Company, and in “untangling” the intercompany affairs of the Group. The Administrators estimate that it will realistically require at least two to three months to undertake the necessary investigations. If the Administrators have had insufficient time to formulate their opinions and report to creditors, there would likely be an adjournment of the second creditors’ meeting – an outcome which is likely to achieve nothing more that wasted costs at the expense of creditors.

(f)    Costs that may be incurred during a “trade on” might be incurred in any event during a liquidation, but with reduced prospects of maximising returns to the Company’s creditors and shareholders. The Administrators contemplate operating the Company in a “business as usual” manner for the time being, and for so long as is appropriate, to preserve options for sales or restructures. This will likely entail monthly cash expenditure averaging around $647,000 per month, subject to potential cost cutting. The Administrators, in their commercial judgment and based on their experience, consider that such expenditure is justifiable to facilitate the possibility of a transaction which achieves a superior return to creditors. Importantly, if the Company were hypothetically to be wound up in the near future, a liquidator would likely take similar steps to those the Administrators are contemplating: to understand, and realise value from, the Company’s interests in Subsidiaries. As such, there may be no cost savings for creditors from an early liquidation. While a liquidation might involve similar costs, it would not have similar prospects of achieving a favourable outcome for creditors. In Mr Ford’s opinion, administration maximises the possibility of a favourable outcome, in part because of the greater flexibility in terms of available options, and in part because for any given option, there is a better prospect of realising more value outside of a liquidation.

(g)    Third parties would not be prejudiced. The Administrators submit, and I accept (on the basis of the material before the Court) that, the third parties associated with the Company will not be prejudiced by the proposed extension, in that:

(i)    employees of the Company would be made redundant if the Company enters liquidation; a sale or restructure explored in administration may allow the employee to retain their employment; the Administrators are effectively quarantining cash to meet employee entitlements if the Company were to proceed to liquidation;

(ii)    the Company will continue to make rental payments for the leased premises it continues to occupy;

(iii)    the Company's sole secured creditor will continue to receive rental payments under its printer lease; and

(iv)    if (contrary to the above) any interested third party suffers prejudice, the proposed orders provide for liberty to apply in the usual way.

(h)    No objections have been raised. The Administrators notified creditors of their intention to seek the proposed extension, both at the first creditors’ meeting and in a circular to creditors. As at the time of Mr Ford swearing his affidavit, the Administrators are not aware of any opposition to the extension.

(i)    The six-month timeframe is realistic, but ultimately may not be required. Having regard to the various steps outlined above and their associated timeframes, and given the potential for overruns (particularly having regard to the Christmas and New Year period), the Administrators submit, and I accept, that the six month duration of the extension is realistic and appropriate. Importantly, however, the Administrators would convene a second creditors’ meeting earlier than anticipated if it was appropriate to do so (such as if there were no longer a prospect or sale or restructure). They intend to convene the meeting before the end of the proposed extended convening period if possible.

(j)    Presence of Riviera factors. Ultimately, the various matters set out above are manifestations of Riviera factors, which conventionally justify extension of a convening period:

(i)    the Company is head entity of an integrated group – the Group – with considerable size and scope of activities;

(ii)    the Group undertakes substantial offshore activities;

(iii)    the Company has, on the available information, entered into complex and contentious transactions;

(iv)    the Group has a corporate structure with some complexity (particularly as to the interest in Philippines Subsidiaries);

(v)    the Group has considerable intercompany transactions which substantially impact on the Company’s financial position;

(vi)    more time is required to execute an orderly disposal of the Company’s assets, and to allow a potential sale of the business on a going concern basis; and

(vii)    more generally, for the reasons set out above, the additional time is likely to enhance the return to unsecured creditors.

32    As noted above, Daisytek orders and electronic communication orders of the kind sought here are commonly made, for well-established reasons of saving costs and time. Those reasons apply equally in the present case.

33    The Administrators also seek, and it is appropriate to make, the usual orders as to costs and liberty to apply in relation to any further extension of the convening period at any time prior to 29 January 2024. The proposed orders also accommodate any person who can demonstrate a sufficient interest by way of liberty to apply.

Conclusion

34    I will therefore make orders substantially in the terms sought by the Administrators in the originating process.

Associate:

Dated:    27 July 2023