Federal Court of Australia

Shiny (Trustee), in the matter of Navigate Global Payments Pty Ltd (Receivers and Managers Appointed) [2023] FCA 1089

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to:

(a)    s 445D(1)(a), (b), (c), (f) and/or (g) of the Corporations Act 2001 (Cth), that the deed of company arrangement dated 17 August 2023 (DOCA) be terminated; or

(b)    s 447A of the Corporations Act, that Pt 5.3A of the Corporations Act is to operate in relation to the first defendant such that the DOCA is terminated.

2.    John Sheahan and Oliver John Donaldson Sheahan of Sheahan Lock Partners be appointed as liquidators of the first defendant in place of the second defendant.

3.    Leave be granted to David Hardy, Ryan Eagle and Emily Seeckts in their capacity as joint and several receivers and managers of Navigate Global Payments Pty Ltd (in liquidation) (receivers and managers appointed) and DCF Asset Management Pty Ltd as manager of the DCF Australian Private Debt Fund to file an interlocutory application and an amended interlocutory application both dated 1 September 2023, such applications to be filed electronically by midday on 4 September 2023.

4.    The interlocutory applications referred to in Order 3 above be made returnable instanter.

5.    The amended interlocutory application be dismissed.

6.    Costs of the amended interlocutory application be reserved.

7.    Costs otherwise reserved.

8.    The plaintiff is to serve a copy of these Orders on the second defendant.

THE COURT NOTES THAT:

9.    The second defendant withdraws his affidavit sworn on 28 August 2023.

10.    The plaintiff seeks an order for its costs of and incidental to the relief sought in the originating process, given its success in obtaining the principal relief in the application. The basis upon which that order is to be framed is a matter to be determined after hearing further from the parties.

11.    The plaintiff also intends to seek an order that the administrator not be entitled to his costs of the administration which is a matter to be determined after hearing further from the parties.

12.    Mr Combis does not seek to be appointed as the first defendants’ liquidator or its administrator, in the event that an order be made, and consents to the appointment of an alternate person in either of those roles.

13.    The parties are to contact the Associate to Markovic J in relation to the proposal for resolving the outstanding questions of costs referred to in Orders 6 and 7 and notations 9 and 10 above.

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

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

MARKOVIC J:

1    By its originating process filed on 23 August 2023, the plaintiff, Shiny Pty Ltd in its capacity as trustee for Shiny Trust sought orders, among others, that a deed of company arrangement dated 17 August 2023 (DOCA) in respect of the first defendant, Navigate Global Payments Pty Ltd (subject to deed of company arrangement) (receivers and managers appointed), be terminated. That order was sought in the either pursuant to s 445D of the Corporations Act 2001 (Cth) or, in the alternative, s 447A of that Act.

2    The proceeding first came before Lee J, in his Honour’s capacity as Commercial and Corporations Duty Judge, on 25 August 2023 at which time his Honour made orders, among others, that, to the extent necessary, leave be granted nunc pro tunc to Shiny pursuant to s 440D(1)(b) of the Corporations Act for it to proceed with the proceeding against Navigate and for the abridgement of the time for service of the originating process on the third and fourth defendants, Timothy John Connors and Wade Dilks, the directors of Navigate.

3    The originating process was next returnable before me in my capacity as Commercial and Corporations Duty Judge for hearing at 2.15 pm on 29 August 2023. By that time, it had been served on Messrs Connors and Dilks as well as Navigate and DCF Asset Management Pty Limited as the manager of the DCF Australian Private Debt Fund, the secured creditor of Navigate, which had caused the appointment of Ryan Eagle, David Hardy and Sarah Emily Seeckts of KPMG as receivers and managers of Navigate pursuant to its security interest over Navigate’s property.

4    The receivers and DCF were granted leave to appear as interested persons without becoming parties to the proceeding. Other creditors of Navigate had also become aware of the proceeding and leave was granted to two such creditors, namely, Rosmech Sales & Service Pty Ltd and FEx Trading Co Pty Ltd, to appear at the hearing without becoming parties to it.

5    The hearing did not complete on 29 August 2023 and the proceeding was adjourned for further hearing today.

6    This morning, when the matter came on for hearing, I was informed by counsel for the first and second defendants, Navigate and its administrator, Nick Combis, that they no longer opposed Shiny’s application for termination of the DOCA and that they sought to withdraw Mr Combis’ affidavit and to be excused from further appearing in the proceeding. As a result, and because no other party opposed the order sought by Shiny for termination of the DOCA and I was otherwise satisfied that the DOCA ought to be terminated, I made an order to that effect. I reserved on the questions of costs related to that relief.

7    The effect of termination of the DOCA is that pursuant to s 446AA(2) of the Corporations Act, Navigate is taken to have passed a resolution that it be wound up.

8    At the time of, in effect, withdrawing from the proceeding Mr Combis also informed the Court that he did not wish to act further in relation to Navigate either as liquidator or, if the company was returned to administration, as referred to below, as its administrator.

Relief sought by the receivers and DCF

9    Upon the making of the order referred to at [6] above, the receivers and DCF sought, and were granted, leave to file an interlocutory application which was subsequently amended.

10    In their amended interlocutory application those parties seek orders the effect of which would be to put Navigate back into administration and permit the new administrators to convene a second meeting of creditors to consider: whether Navigate ought to enter into an alternative deed of company arrangement (alternative DOCA), if proposed; if the administration should end; or if Navigate should be wound up.

11    The Court’s power to make such orders, which were supported by Mr Connors, was not in issue. However, those orders were opposed both by Shiny and Rosmech and FEx Trading, who I will refer to as the supporting creditors.

Background

12    Before proceeding to consider whether such orders should be made, it is convenient to set out some of the background to the proceeding.

Navigate

13    The first defendant’s, Navigate’s, business consisted of providing foreign exchange and currency hedging services to its clients. It traded between 3 November 2016 and 30 June 2023. Navigate held an Australian Financial Services Licence (AFSL).

14    On 28 June 2023 Mr Connors closed out all of Navigate’s positions, which meant that it ceased trading on behalf of its clients.

15    On 30 June 2023 Navigate ceased trading, Mr Combis of Vincents was appointed as its administrator and DCF appointed the receivers.

Shiny

16    Shiny is a supplier of promotional clothing and apparel to a number of industries in Australia. It carries on its business as trustee of the Shiny Trust and trades under three brand names.

17    Shiny regularly imports goods from China and other countries as part of its promotional clothing and apparel business, selling the products to customers in Australia. Because of that, Shiny is required to pay its suppliers in China and other countries in US dollars (USD) and is paid by its customers in Australian dollars. Thus, Shiny has a foreign exchange requirement to buy USD for the purpose of paying its suppliers in China and other countries.

18    For that reason, in April 2020 Shiny completed an application form with Navigate for the provision of services and products in relation to its foreign exchange and payment needs and entered into a contractual arrangement with Navigate to provide those services.

Navigate enters into administration and receivership

19    As I have already mentioned, on 30 June 2023 Mr Combis was appointed pursuant to s 436A of the Corporations Act as voluntary administrator of Navigate by resolution of its directors and DCF appointed the receivers by DCF.

20    It is not necessary for me to set out the details of the administration save in relation to the second meeting of creditors of Navigate.

21    On 27 July 2023, prior to the second meeting, Mr Combis issued a report to creditors. Once again, given the events which have transpired, it is not necessary to set out the details of that report, save to note that it conveniently provides a list of the assets of Navigate. The report noted that they comprised:

(1)    cash at bank of approximately $5.2 million, although there was subsequent evidence from Stephen Vaughan, a director of KPMG in its turnaround and restructuring department who gave evidence on behalf of the receivers, that the amount of cash at bank in fact received was approximately $3 million;

(2)    debtors of just in excess of $30 million;

(3)    related party loans of approximately $5.16 million;

(4)    plant, equipment and other furniture valued at $664,288; and

(5)    motor vehicles valued at approximately $358,000.

22    On 4 August 2023 the second meeting was held. At that meeting a majority of creditors resolved that the DOCA, which had been proposed by Mr Connors as deed proponent, should be accepted.

23    Issues have been raised by Shiny in relation to the voting at the second meeting. At this stage it is not necessary to set out the detail of those issues save to note that DCF did not vote in favour of the DOCA. I pause to observe that that was not surprising given that if DCF had voted in favour of the DOCA, it would, by the terms of the DOCA and operation of s 444D(2) of the Corporations Act, be precluded from realising its security.

24    Mr Vaughan, who has been working on the receivership of Navigate, gave evidence that he held a special proxy on behalf of DCF for the purposes of adjourning the second meeting which was not exercised. That proxy was to vote to seek an adjournment of the second meeting in the event that it became apparent that the resolution to accept the DOCA would not pass. That is, as the evidence demonstrated, what DCF did not wish to happen was for Navigate to go into liquidation.

25    The DOCA, which came into being as a result of the resolution passed at the second meeting, has now been terminated.

26    Adam Robert Howell, the director and head of risk at DCF, also gave evidence about the second meeting. Mr Howell said, among other things, that had it appeared at the second meeting that the DOCA would not have passed and that DCF’s vote could have caused it to pass, he would have exercised that vote in favour of the DOCA. While Mr Howell was not cross-examined, Mr Vaughan’s evidence was clear. The receivers’ preference was for the meeting to be adjourned in those circumstances.

27    Mr Howell also gave evidence that, in those circumstances and as an alternative, he would have caused DCF to seek an adjournment of the second meeting so that it could have proposed an alternative deed of company arrangement.

Steps taken by the receivers

28    In the meantime, as part of their role in realising all of the assets secured by DCF’s security in order to repay the debt owing to DCF, the receivers were taking steps to sell the business of Navigate.

29    The evidence before me is that DCF is owed $23.25 million. Mr Vaughan gave evidence, set out below, about the sale process undertaken by the receivers as at 28 August 2023.

30    The receivers were attempting to sell the Navigate group of companies. Mr Vaughan explained that this included a company called NaviHedge Pty Ltd, about which there does not appear to be any evidence before me, and Navigate to interested third parties. As I have already said, the purpose of the sale is to recoup sufficient funds to satisfy the debt owing to DCF.

31    In order to effect that sale:

(1)    in July 2023 the receivers sent a letter to interested third parties outlining that the sale process would be conducted in two stages; and

(2)    in August 2023 the receivers sent a second letter to interested third parties informing them that the date for prospective bidders to make final offers was extended to 30 August 2023.

32    Mr Vaughan explained that between 10 and 11 August 2023 the receivers received a total of nine non-binding indicative bids from interested parties and on 18 August 2023 five of those prospective bidders were short-listed to continue into stage two of the sale process. Those bidders’ final offers were due on or by 30 August 2023. While Mr Vaughan gave evidence that final offers were in fact received, there was no detail of those final offers in evidence, on a confidential basis or otherwise.

33    As I have already noted, Navigate holds an AFSL. Mr Vaughan gave evidence about the status of the AFSL. In particular, the receivers have corresponded with the Australian Securities and Investments Commission (ASIC) in relation to the AFSL, including setting out why it should not be suspended and why its status ought to be preserved. That was necessary because of the effect of s 915B(3) of the Corporations Act. That section provides that ASIC may suspend or cancel an AFSL held by a body corporate if the body ceases to carry on the financial services business, as was the case with Navigate, or the body becomes a Chapter 5 body corporate. A Chapter 5 body corporate includes one that is in administration.

34    On 18 August 2023 ASIC determined that the AFSL held by Navigate was to be suspended. That suspension is in effect until 18 October 2023.

35    Mr Vaughan gave evidence that, in undertaking the sale process for the Navigate group of companies, the receivers have formed the view that the AFSL is one of Navigate’s most valuable assets. That is because either the receivers or Mr Vaughan have had a number of interactions with potential bidders in which they have stated that the AFSL is a “key driver” for them. Mr Vaughan could not recall the precise conversations he had but recalls that in a conversation with one bidder, the bidder informed him that:

(1)    it considered the AFSL to be an extremely attractive element of the sale because it would be quicker to obtain the entity that held the AFSL and change its responsible manager, rather than seeking to apply for an AFSL in a fresh application for a different entity;

(2)    if it purchased the shares in Navigate and changed the responsible manager of the AFSL Navigate could resume its operations much sooner and thus generate revenue; and

(3)    without the AFSL, the purchase price would be significantly less.

36    Mr Vaughan said that he had similar conversations with other bidders and, as a result of those conversations, formed the view that a key driver for those bidders who had been shortlisted and were continuing into the second stage of the sale process was acquiring the entity holding the AFSL, namely Navigate. If the AFSL was not a component of the sale, the sale price would decrease significantly or certain bidders would not proceed with the sale process. Mr Vaughan was also of the view that the winding up of Navigate would adversely affect the sale process.

Alternative DOCA

37    Mr Howell gave evidence that if the Court was to terminate the DOCA, as it has, then DCF’s position is that Navigate should not be liquidated, but returned to administration. Mr Howell said that DCF was prepared to fund any newly appointed administrator up to $20,000 to undertake certain steps in the administration.

38    Mr Howell also gave evidence that if the Court terminates the DOCA and another creditors’ meeting is convened for the purposes of voting on a deed of company arrangement, DCF will propose an alternative DOCA for the creditors of Navigate to vote on which would contain the following terms:

(1)    a sale of the shares in Navigate, which includes the AFSL, and will allow the purchaser to restart the business and utilise the AFSL. Mr Howell said this would be to the chosen purchaser of the Navigate group of companies;

(2)    a creditors’ trust be established with the following being available for the benefit of the creditors of Navigate:

(a)    any surplus funds realised from the sale, debtor recoveries or any other realisations made by the receivers after repayment of DCF’s secured creditor claim;

(b)    an additional amount of $20,000 or such other amount that DCF considers is required for the DOCA to be accepted by creditors; and

(c)    any claims that can be brought by the deed administrators, including claims against the former directors of Navigate for a breach of their duties and/or uncommercial transactions.

Consideration

39    The issue to be resolved is: whether Navigate ought to be returned to administration; or whether it should remain as it is, consequent on the termination of the DOCA, in liquidation.

40    The receivers and DCF, who are proponents of the application for Navigate to be returned to administration, submitted that there could be no prejudice to Shiny, and, it follows, to any other creditor, in returning the company to administration. They made the following further submissions in support of that principal submission.

41    First, they submitted that DCF is owed just over $23 million and that its proposal to return Navigate to administration is consistent with the objectives of Pt 5.3A of the Corporations Act. Those objectives include that the process of administration should be an efficient and quick way of dealing with a company and that, where possible, a company should be assisted to continue to trade. They submitted that creditors should have an opportunity to vote on a new DOCA proposal fully informed by all available information.

42    Secondly, the receivers and DCF submitted that DCF is asking for a second chance to put a deed of company arrangement in circumstances where any surplus recoveries it makes will flow to unsecured creditors. They submitted that a liquidation will affect their proposed sale of the assets of the Navigate Group and will add to the complexity of that sale.

43    Thirdly, they submitted that DCF is a secured creditor, while the plaintiff is at best a contingent creditor and may be found in the future not to be a creditor. This is said to be particularly so given the complexity of Shiny’s claim against Navigate.

44    Fourthly, the receivers and DCF pointed to the fact that they wish to appoint an independent administrator and that DCF was prepared to fund the administrator in an amount of up to $20,000 and to put up an alternative DOCA for consideration by the creditors. As to the latter, the receivers and DCF submitted that, while the outline and Mr Howell’s evidence in relation to the alternative DOCA was not detailed, with time, a more developed proposal could be put forward and that returning Navigate to administration will allow any other creditor to put forward an alternative deed of company arrangement proposal.

45    Finally, the receivers and DCF submitted that creditors should be given an opportunity to consider a new deed of company arrangement, particularly given the criticism raised by Shiny about the incomplete information that supported the first DOCA proposal and on which the creditors were asked to vote.

46    The question of how to proceed and what is in the best interests of Navigate is, in some respects, finely balanced in this matter. However, having regard to all of the evidence before me and the scheme of the Corporations Act as it applies to insolvent companies, in my view, the better course is to refuse the receivers’ and DCF’s application and for Navigate to remain in liquidation which is the position propounded by Shiny and supported by the supporting creditors. That is for the following reasons.

47    First, Navigate was first placed into administration on 30 June 2023. I have already referred to the object of Pt 5.3A of the Corporations Act including that the business and property of an insolvent company be administered in a way that maximises the chance of the company, or as much as possible of its business, continuing in existence or, if that is not possible, results in a better return for the company’s creditors and members than would result from an immediate winding up: see s 435A of the Corporations Act. The scheme of Pt 5.3A also prescribes a procedure to be undertaken in an efficient and timely manner.

48    There has already been a complete process in accordance with the scheme set out in Pt 5.3A of the Corporations Act undertaken in the administration of Navigate. Creditors were given an opportunity to put up a proposal for a deed of company arrangement at the second meeting, a proposal was put by Mr Connors and information was provided in relation to that proposal. In the circumstances of this case, the DOCA has been terminated. However, the process that has been undertaken has already given an opportunity to each and every creditor to put up a proposal for a deed of company arrangement.

49    In other words, DCF could have put up a competing proposal at the time of the second meeting. It chose not to do so. In fact, it made a strategic decision not to adjourn the meeting but to allow the proposal put up by Mr Connors to proceed and, as the evidence clearly demonstrates, it understood at the time that Mr Connors’ proposal would succeed. It is not necessary to set out the voting that took place at the second meeting and the criticisms that have been raised in relation to it. It is sufficient to observe that there was evidence before me that substantiated a number of those criticisms. That said, the reality is that DCF took a gamble. It does not get a “second bite of the cherry” in those circumstances.

50    Secondly, the terms of DCF’s alternative DOCA that would be put up if Navigate was returned to administration (see [38] above) are scant in their detail. I accept that if time was given, more “meat may be put on the bones” of the proposal but, given the nature of this application, I also proceed on the basis that Mr Howell’s evidence sets out the nature of the alternative DOCA that DCF would propose should the company be returned to administration.

51    An analysis of those terms does not lead to a conclusion that they are of any great attraction to the creditors of Navigate. Although, I cannot speculate about how creditors would vote, it seems to me that: the amount of $20,000, or any other amount, though not nominated, to be contributed by DCF to the administration is not sufficiently attractive nor is there is any explanation about how the proposed deed administrators might fund the claims that they could bring against the directors of Navigate; and there is certainly no evidence about what surplus, if any, would be realised from the sale of Navigate’s assets or debtor recoveries.

52    Thirdly, I turn to the sale process. Mr Vaughan’s evidence was that putting Navigate into liquidation would affect that sale process because of the AFSL. As I understood the evidence, there was a risk to the amount that could be obtained on a sale of the Navigate group if the AFSL was not available. However, there is no evidence before me that putting Navigate into liquidation will have any negative effect on the AFSL. It has been suspended because Navigate is no longer trading and was, until today, in administration. A suspension would also follow if the company was in liquidation. That is evident from s 915B(3) of the Corporations Act. There was no evidence before me by or on behalf of the receivers or DCF of any further discussions with ASIC and whether the present situation would change if Navigate went into liquidation.

53    In any event, an AFSL cannot be assigned as part of a sale. As I understand it, a share sale is proposed such that the shares in Navigate would be sold as part of the sale of the Navigate group. Those shares are held by a company called Navigate Trading Holdings Pty Ltd (NTH). It would thus be that company that would receive payment for the shares in Navigate. The evidence before me also disclosed that the receivers are not appointed to NTH, but that NTH has guaranteed the debts owed by Navigate, and potentially other companies in the Navigate group of companies, to DCF. Thus, as I understand the position, DCF would have access to any sale proceeds attributed to the shares in Navigate by calling on its guarantee. That, in turn, is likely to lead to NTH being subrogated to the rights of DCF and standing in its shoes as a creditor of Navigate.

54    I set out this complexity, to the extent I understand it based on the evidence before me, simply to illustrate that a share sale will be of no assistance to the creditors of Navigate. That is, it will not add to the value of funds ultimately available to them, to the extent there is any surplus.

55    A further unknown is how, on a sale of the assets of the Navigate group, values will be assigned to particular assets. It is not known what value will be assigned to the shares in Navigate nor what value would be assigned to the few assets set out at [21] above that Navigate seems to own. In short, there is simply no evidence of the likely, if any, surplus funds that would flow to unsecured creditors of Navigate in the event of DCF putting up its alternative DOCA proposal.

56    Fourthly, and as I have already said, the assets in fact held by Navigate, other than its debtors, are minimal.

57    Fifthly, a liquidator, once appointed, can, if the circumstances arise, appoint an administrator to Navigate: see s 436B of the Corporations Act. That is, the ability to appoint an administrator and to put a proposal for a deed of company arrangement to the creditors is not precluded by Navigate remaining in liquidation.

58    For those reasons, I would not accede to the application made by the receivers and DCF to put Navigate back into administration. As I have said, Navigate should remain in liquidation which was the effect of the order terminating the DOCA made earlier today.

59    The remaining question is who should be appointed as liquidators. That question arises because given Mr Combis’ position stated to the Court that office is or will be vacant. There was a contest on that issue between the parties.

60    The receivers and DCF seek to appoint two partners of HLB Mann Judd while Shiny seeks to appoint two partners of Sheahan Lock Partners, John Sheahan and Oliver Sheahan. There is no clear statement of principle as to how one might proceed where there is such a competition. Those nominees are all registered liquidators and, therefore, officers of the court.

61    Shiny pointed me to the decision of In the matter of El Zorro Transport Pty Ltd [2013] NSWSC 1082 where Brereton J noted at [5] that, all things being equal, it was the practice of the Supreme Court of New South Wales to appoint the plaintiff’s nominee as liquidator where there is a contest as to the identity of the appropriate appointee and there is nothing to be said between the competing nominees about their respective fitness, qualifications or cost.

62    That is also the case here. That is, there is a contest but there is nothing to be said between the competing nominees as to their respective fitness, qualifications or cost. Counsel for the receivers and DCF suggested that their proposed appointees may be more neutral but there is no evidence of that, one way or the other. Accordingly, I propose to follow the practice adopted in relation to a national scheme law by another court and to appoint the nominees of the plaintiff as liquidators.

63    For those reasons, I will make orders appointing Messrs Sheahan and Sheahan of Sheahan Lock Partners as liquidators in place of Mr Combis and that the amended interlocutory application be dismissed. I will also reserve on the questions of costs related to the amended interlocutory application.

Associate:

Dated:    14 September 2023

SCHEDULE OF PARTIES