Federal Court of Australia

Nikitins, in the matter of Western Hospital Pty Ltd (Administrators Appointed) [2024] FCA 472

ORDERS

THE COURT ORDERS THAT:

Extension of convening period

1.    Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act), the convening period defined in s 439A(5)(b) of the Act in respect of second plaintiff (the Company) be extended up to and including 26 August 2024.

2.    Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to the Company such that the second meeting of the creditors of the Company required by s 439A(1) of the Act may be held at any time before, or within five business days after the end of, the convening period as extended by Order 1 above, notwithstanding s 439A(2) of the Act.

Funding Agreement

3.    Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to the administration of the Company as if s 443A(1) provides that:

(a)    liabilities of the first plaintiffs (the Administrators) incurred, or to be incurred, with respect to any obligations arising out of, or in connection with, the funding deed entered into by the plaintiffs (Funding Liabilities), which is at Annexure APN-11 to the affidavit sworn by Adams Pauls Nikitins on 19 February 2024 (the Funding Deed), are in the nature of debts or liabilities incurred in the performance or exercise, or purported performance or exercise, of their powers as administrator;

(b)    notwithstanding that the Funding Liabilities are debts incurred by the Administrators in the performance and exercise of their functions as joint and several administrators of the Company, the Administrators will not be personally liable to repay such debts or satisfy such liabilities to the extent that the indemnity under s 443D of the Act out of the property of the Company is insufficient to satisfy the Funding Liabilities; and

(c)    as to the repayment of such debts under the Funding Deed, the debts are given the same priority in the payment of any debts of the Company during the Company's administration as if it had been in liquidation and the debts had the priority governed and provided for under s 556(1)(a) of the Act.

4.    Subject to order 5 below, pursuant to section 447A(1) of the Act and/or section 90-15 of the Insolvency Practice Schedule (Corporations), being schedule 2 to the Act (IPS), Part 5.3A of the Act is to operate in relation to the administration of the Company as if section 443E(5) provides that, to the extent that the right of indemnity under section 443D relates to Funding Liabilities, it will have priority over debts of the Company that are secured by:

(a)    the security interest held by Perpetual Nominees Limited as custodian of the Australian Unity Healthcare Property Trust, registered on the Personal Property Securities Register (PPSR) with the registration number 202307200043145; and

(b)    the security interest held by D&D Finance Company Pty Ltd (D&D) and registered on the PPSR with the registration number 202105060053329.

5.    In the event that:

(a)    the Administrators cease causing the Company to make payments to D&D under the arrangements described in paragraphs 36 and 37 of the affidavit sworn by Adams Pauls Nikitins on 19 February 2024; and

(b)    thereafter D&D gives notice that it opposes the continuing operation of order 4 above, order 4 will thereafter no longer operate with respect to any debts incurred under the Funding Deed after the receipt by the Administrators of such notice.

6.    Pursuant to s 90–15 of the IPS, the Administrators were justified, and were otherwise acting reasonably in:

(a)    entering into the Funding Deed and procuring the Company to enter into the Funding Deed; and

(b)    drawing down under the Funding Deed.

Notice and liberty to apply

7.    The Administrators (or their solicitors) must inform the creditors of the Company of these orders by means of a circular forwarded by post or e-mail (as the case may be) within seven days after the making of these orders.

8.    Any person who can demonstrate sufficient interest to vary or discharge order 1 or order 2 above has liberty to apply on not less than 72 hours' notice to the Administrators.

9.    The Administrators have liberty to apply prior to 26 August 2024 for any purpose connected with the administration of the Company, including but not limited to seeking a further extension of the convening period.

10.    The costs of and incidental to this application be costs and expenses in the administration of the Company and be paid out of the assets of the Company.

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

REASONS FOR JUDGMENT

BESANKO J:

1    On 22 February 2024, I made the following orders:

Extension of convening period

1.    Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act), the convening period defined in s 439A(5)(b) of the Act in respect of second plaintiff (the Company) be extended up to and including 26 August 2024.

2.    Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to the Company such that the second meeting of the creditors of the Company required by s 439A(1) of the Act may be held at any time before, or within five business days after the end of, the convening period as extended by Order 1 above, notwithstanding s 439A(2) of the Act.

Funding Agreement

3.    Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to the administration of the Company as if s 443A(1) provides that:

(a)    liabilities of the first plaintiffs (the Administrators) incurred, or to be incurred, with respect to any obligations arising out of, or in connection with, the funding deed entered into by the plaintiffs (Funding Liabilities), which is at Annexure APN-11 to the affidavit sworn by Adams Pauls Nikitins on 19 February 2024 (the Funding Deed), are in the nature of debts or liabilities incurred in the performance or exercise, or purported performance or exercise, of their powers as administrator;

(b)    notwithstanding that the Funding Liabilities are debts incurred by the Administrators in the performance and exercise of their functions as joint and several administrators of the Company, the Administrators will not be personally liable to repay such debts or satisfy such liabilities to the extent that the indemnity under s 443D of the Act out of the property of the Company is insufficient to satisfy the Funding Liabilities; and

(c)    as to the repayment of such debts under the Funding Deed, the debts are given the same priority in the payment of any debts of the Company during the Company's administration as if it had been in liquidation and the debts had the priority governed and provided for under s 556(1)(a) of the Act.

4.    Subject to order 5 below, pursuant to section 447A(1) of the Act and/or section 90-15 of the Insolvency Practice Schedule (Corporations), being schedule 2 to the Act (IPS), Part 5.3A of the Act is to operate in relation to the administration of the Company as if section 443E(5) provides that, to the extent that the right of indemnity under section 443D relates to Funding Liabilities, it will have priority over debts of the Company that are secured by:

(a)    the security interest held by Perpetual Nominees Limited as custodian of the Australian Unity Healthcare Property Trust, registered on the Personal Property Securities Register (PPSR) with the registration number 202307200043145; and

(b)    the security interest held by D&D Finance Company Pty Ltd (D&D) and registered on the PPSR with the registration number 202105060053329.

5.    In the event that:

(a)    the Administrators cease causing the Company to make payments to D&D under the arrangements described in paragraphs 36 and 37 of the affidavit sworn by Adams Pauls Nikitins on 19 February 2024; and

(b)    thereafter D&D gives notice that it opposes the continuing operation of order 4 above, order 4 will thereafter no longer operate with respect to any debts incurred under the Funding Deed after the receipt by the Administrators of such notice.

6.    Pursuant to s 90–15 of the IPS, the Administrators were justified, and were otherwise acting reasonably in:

(a)    entering into the Funding Deed and procuring the Company to enter into the Funding Deed; and

(b)    drawing down under the Funding Deed.

Notice and liberty to apply

7.    The Administrators (or their solicitors) must inform the creditors of the Company of these orders by means of a circular forwarded by post or e-mail (as the case may be) within seven days after the making of these orders.

8.    Any person who can demonstrate sufficient interest to vary or discharge order 1 or order 2 above has liberty to apply on not less than 72 hours' notice to the Administrators.

9.    The Administrators have liberty to apply prior to 26 August 2024 for any purpose connected with the administration of the Company, including but not limited to seeking a further extension of the convening period.

10.    The costs of and incidental to this application be costs and expenses in the administration of the Company and be paid out of the assets of the Company.

These are my reasons for making those orders.

2    For the reasons I will give, Orders 1 and 2 were justified on the evidence. The same evidence supported Orders 3 and 6. Orders 4 and 5 fell into a different category. They were supported by the consent of Perpetual Nominees Limited as custodian of the Australian Unit Healthcare Property Trust (AUHPT) and the absence of objection form D&D Finance Company Pty Ltd (D&D).

3    The parties with an interest were served with the Originating Process and accompanying documents and none of them sought to appear on the hearing of the application. Only the plaintiffs appeared. The plaintiffs are Adams Pauls Nikitins, Robyn Louise Duggan and Colby Rhys O’Brien in their capacity as Joint and Several Administrators of Western Hospital Pty Ltd (Administrators Appointed) and Western Hospital Pty Ltd (Administrators Appointed).

4    In the circumstances as I have outlined them, the evidence adduced by the plaintiffs was unchallenged. In the statement of facts which follows, I have relied on the evidence of Mr Nikitins who sets out the facts in some detail.

5    The plaintiffs, Adams Pauls Nikitins, Robyn Louise Duggan and Colby Rhys O’Brien, are the administrators of Western Hospital Pty Ltd (administrators appointed) (the company). The company operates Western Hospital, which is a private hospital, located at Henley Beach in the State of South Australia. The administrators were appointed to the company on 29 January 2024. Western Hospital is situated less than 13 kilometres from the Adelaide central business district at 168 Cudmore Terrace, Henley Beach in the State of South Australia (the premises). The hospital is an acute surgical and medical hospital that provides services, including orthopaedic surgery, an integrated GP clinic, ICU, vascular, urology, oncology, pathology, pharmacy, radiology and allied health services. The evidence establishes that there were over 40,000 annual visits to the hospital’s GP clinic and over 10,000 annual patient admissions to the hospital in recent years.

6    The first meeting of creditors was held on 8 February 2024. By reason of the provisions of s 439A of the Corporations Act 2001 (Cth) (the Act), unless extended, the convening period for the second meeting of creditors of the company will end on 26 February 2024. The administrators sought orders under s 439A(6) of the Act and/or s 90-15 of the Insolvency Practice Schedule (Corporations), which is Schedule 2 to the Act (IPS) extending the convening period to 26 August 2024. The extension, therefore, is sought for a period of up to six months. Under s 439A(6), the Court may extend the convening period on an application, but by reason of s 439A(7), 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 was extended in accordance with the application.

7    The other category of orders sought relates to the administrators’ entry into a Funding Deed designed to permit the ongoing operation of Western Hospital until the company’s business or assets can be sold. The orders sought in connection with the Funding Deed are sought pursuant to s 447A(1) of the Act and/or s 90-15 of the IPS. A summary of the orders is as follows. First, the administrators seek an order that they will not be personally liable to repay debts or liabilities incurred by them under or in connection with the Funding Deed to the extent that the property of the company is insufficient to satisfy those debts or liabilities. Secondly, the administrators seek an order that to the extent their right of indemnity under s 443D relates to those debts or liabilities, it will have priority over debts of the company that are secured by a General Security Agreement (GSA) and the D&D security interest.

8    The evidence establishes that the administrators are in the process of seeking to sell the company’s business, or to effect a restructure, with a view to keeping the hospital operating, and to maximise the return for creditors. As I will explain, there are complexities attending such a sale or a restructure and the extension sought in relation to the convening period would permit the sale or restructure and enable the administrators to make an informed recommendation in advance of the creditors meetings which will deal with the fate of the company.

9    The administrators contend that the order extending the convening period has routinely been made where a voluntary administrator enters into a funding arrangement to enable the administrators to trade on during the administration, where such terms of limited recourse are acceded to by the lender. The second group of orders which would have the effect that the repayment in connection with the Funding Deed is to have priority over the debts of the company that are secured by the GSA and the D&D security interest is supported by the consent or non-opposition from the secured creditors that are affected by the orders.

10    The evidence in support of the orders consists of the following: (1) two affidavits of Adams Pauls Nikitins filed on 19 February 2024 and 21 February 2024 respectively; (2) an affidavit of Matthew Simon McCarthy, who is a solicitor, filed on 21 February 2024; and (3) an affidavit of Brenton Elliott Glaister filed on 21 February 2024.

11    As I have said, the evidence is not challenged.

12    The senior secured creditor and landlord of the company is AUHPT. AUHPT has also made available a funding line to the administrators in connection with the administration.

13    AUHPT leases the premises to the company under a lease originally entered into between the company and Western Hospital Properties Pty Ltd as trustee for the Western Hospital Property Trust on or about 12 November 2018 which was assigned to AUHPT. The administrators are making lease payments under the lease during the administration. The assignment of the lease was completed on or about 13 November 2018 and the lease was assigned to AUHPT on the same day.

14    AUHPT has taken an assignment of the rights, title and interest of the Treasurer of South Australia on behalf of the Crown in Right of the State of South Australia (the Treasurer) in a loan facility provided to the company, the GSA granted in favour of the Treasurer and a Priority Deed. The GSA is registered on the Personal Property Securities Register (PPSR) and the secured party in respect of the GSA is now AUHPT.

15    There is a further security interest over all of the real and personal property of the company. That security interest is in favour of D&D and certain other parties. That security secures the company’s obligation under a Memorandum of Understanding with those parties (MOU). The MOU provides that D&D supplies equipment to the company for use at the Western Hospital. In return, the company agrees to pay the costs associated with related finance facilities in addition to a procurement fee. The security is registered on the PPSR. The administrators are continuing to meet the company’s payment obligations to D&D during the administration. Those obligations relate to leased equipment used in the operations of Western Hospital.

16    On or about 20 July 2023, the Treasurer, the company and D&D entered into a Priority Deed whereby the parties agreed to regulate the priorities of the security interest granted by the company to the Treasurer and D&D. The effect of the Priority Deed is to provide that the GSA has priority over the D&D security interest. The Priority Deed also contains a payment waterfall which requires that any proceeds of enforcement of a “Security” be first applied to all losses, liabilities and expenses incurred by a “Secured Party” or a “Receiver” in relation to the enforcement. Those three terms are defined in the Priority Deed.

17    AUHPT undertook to be bound by the Priority Deed as part of the assignment of the Treasurer’s rights and interest to AUHPT.

18    The evidence of Mr Nikitins is that as at 19 February 2024, the company was in the following position. First, it had 567 creditors who were collectively owed debts exceeding $27.3 million. Those creditors included secured lenders, the landlord, employees, asset financiers, suppliers and other unsecured creditors, including doctors. Secondly, the administrators had been engaging with the relevant asset financiers and suppliers in an effort to ensure a continued ability to use key assets and equipment and are continuing to make required payments in relation to those assets. Thirdly, the company has approximately 325 employees who are owed in the order of $1.55 million in respect of unpaid entitlements. As at 19 February 2024, only one employee had been made redundant. Fourthly, the company has approximately 242 unsecured creditors who are owed debts totalling an estimated $24.4 million. The creditors include a number of doctors or entities controlled by doctors who are owed debts in excess of $4.5 million. The Australian Taxation Office may also be a creditor in respect of $1.7 million in outstanding Pay-As-You-Go tax.

19    Mr Nikitins states that the administrators will ensure that all employees and doctors are paid in accordance with their contractual arrangements and applicable statutory entitlements in respect of work performed during the administration period (at [45]).

20    Mr Nikitins presided at the first meeting of creditors and he provided creditors with information about the administration. That information included information as to the context surrounding and leading to the administrators’ appointment, the impact of the administration, the potential return to creditors and the potential outcomes of the administration. The administrators advised the creditors meeting that they intended to apply to the Court for an extension of the convening period for the second meeting of creditors for a period of up to six months. Mr Nikitins as chair of the meeting told the creditors that an extension “would come at a cost”, including the cost of operations, the possible delay in creditors receiving a distribution and the impact on employees and lessors in particular. Mr Nikitins told the meeting that the lessors would generally continue to receive lease payments during the administration. At the time of the meeting, the company was incurring losses. Mr Nikitins was asked questions by the creditors about the proposed extension and he provided an explanation with respect to the proposed extension. Those questions and Mr Nikitins’ response are set out in paras 55 and 56 of his affidavit and I will not set them out. Mr Nikitins deposes to the fact that the creditors did not raise any objection to the proposed extension of the convening period. They resolved to appoint a Committee of Inspection and to appoint three persons as members of that committee, including a representative of AUHPT.

21    Mr Nikitins deposes to the fact that the administrators were appointed on 29 January 2024 and that since that date, they have performed various statutory administrative and investigative tasks. They have taken steps to stabilise the company’s business and continue operating Western Hospital.

22    In addition to taking steps to stabilise the company’s business and continue operating the hospital, they have also commenced exploring the options for a sale of the company’s business and assets, and they have commenced a formal sale process. They have commenced that process by placing an advertisement in the Australian Financial Review which sought expressions of interest by no later than 5 pm on 26 February 2024.

23    The current sale process involves the following: (1) the preparation of an information memorandum which Mr Nikitins anticipates will be made available to interested parties in late March 2024; (2) a due date for non-binding indicative offers in April 2024; (3) the completion of negotiations with the preferred bidder in May 2024; and (4) the completion of a transaction, including all regulatory approvals, by July 2024.

24    Mr Nikitins anticipates that it may take additional time to address regulatory considerations relating to the sale of the company’s business and that will include addressing the transfer of the company’s private hospital licence and other licences required as part of its business operations. He considers that this will inevitably involve negotiations with the South Australian Department of Health and Wellbeing and other regulatory agencies. He considers that, depending on the identity and market position of the purchaser, there may also be a need to engage with the Australian Competition and Consumer Commission in relation to a potential sale. This, in turn, may lead to further delays.

25    Mr Nikitins gives the following evidence:

I have not disclosed any details of our dealings with interested parties in this affidavit, to avoid jeopardising the sale process, particularly given its early stage. However, based on our dealings with interested parties to date, I believe that a going concern sale for the Company’s business is achievable.

26    Mr Nikitins states that he believes that the company continues to be loss-making and requires additional funding to continue to trade. Mr Nikitins’ evidence is that on a weekly cashflow forecast, the administrators estimate that they will require a total of approximately $4.3 million, inclusive of the administrators’ fees and legal costs, to the completion of the sale of the company’s business or assets.

27    For this reason, AUHPT, the company and the administrators entered into an administration Funding Deed on 29 February 2024. Mr Nikitins states that pursuant to the Funding Deed, AUHPT agreed to make funds available to the administrators for the purposes of funding the administration. As at 19 February 2024, the administrators had drawn down $1 million.

28    Counsel for the administrators referred to ss 439A(6) and 447A of the Act. These sections are in Part 5.3A of the Act and s 435A states that the overall object of Part 5.3A is to maximise the chances of the company involved, or as much as possible of its business, continuing in existence or achieving a better result for the company’s creditors and members than would otherwise be achieved in an immediate winding up. At the second meeting of creditors, the creditors may resolve that either the company execute the deed of company arrangement or that the administration end or that the company be wound up. An administrator must provide a report to the creditors about the company’s business, property, affairs and financial circumstances to assist the creditors in the making of their decision at the second meeting of creditors.

29    Counsel for the plaintiffs referred to Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717; (2020) 144 ACSR 347 (Virgin (No 2)) in which Middleton J set out the relevant principles (at [64]–[68]). I have considered Middleton J’s statement of the relevant principles, but there is no need to set them out.

30    Those principles have recently been followed in Ford, re Ten Sixty Four Limited [2023] FCA 862 at [25] per Moshinsky J; and Sparks (Administrator) in the matter of IG Energy Holdings (Australia) Pty Ltd (Administrators Appointed) [2023] FCA 403 at [14] per S Derrington J.

31    As the plaintiffs submitted, it has been recognised that the interest of creditors can be prejudiced by delay. Equally, the convening of a premature meeting in circumstances where the administrator has not been able to obtain information for the preparation of the report and statements required by s 439A upon which creditors can make an informed decision, can also result in prejudice.

32    The administrators submit that three matters are relevant to the exercise of the discretion to extend the convening period in this case.

33    First, it is the case that more time is needed by the administrators to report to creditors so that they can make an informed decision. Mr Nikitins states that the administrators’ belief is that it is in the best interests of the creditors of the company that the convening period be extended for a period of six months. The administrators believe that, notwithstanding the statutory moratorium imposed by Part 5.3A of the Act and its impact on the ability of creditors to enforce their rights, the proposed extension will not unduly prejudice the company’s creditors. Mr Nikitins gives evidence that the administration of the company is complex, having regard to the nature of the company’s business and the importance of Western Hospital to both its patients and the local community. As counsel for the plaintiffs submitted, the sale process is anticipated to be complete by July 2024, but there may well be slippage in the timeframe depending on the level of interest and engagement by interested parties, as well as the additional complicating factors to which he referred.

34    The administrators believe that they do not yet have sufficient information to enable them to prepare and circulate a report to creditors regarding the business, property, affairs and circumstances in accordance with the requirements of s 75-225(3) of the IPS. That belief of the administrators is based on their assessment that the administration is a complex one.

35    Mr Nikitins is of the view that there will be a number of benefits to the creditors and the general public if a successful sale business is achieved on a going concern basis. The first benefit he identified is that the value of the company will be preserved and this is likely to result in a better return to creditors. The second benefit identified by Mr Nikitins is that it is more likely that many (if not all) of the existing employees and doctors will retain their employment. The third benefit identified by Mr Nikitins is that it is likely that many (if not all) of the company’s third party suppliers may be retained. The fourth benefit identified by Mr Nikitins is that, as far as AUHPT is concerned and as landlord, it is likely that the existing lease will be assigned to the purchaser of the business or that new leases will be entered into with the purchaser. Mr Nikitins is of the view that the final benefit is that the company will be able to continue to provide uninterrupted high quality healthcare to the community.

36    The administrators believe that the proposed extension is in the interests of company creditors, notwithstanding that this will require funding to cover losses incurred during the administration. The administrators have formed the view that there is no, or minimal, ability to restructure the company without additional investment from third parties. Furthermore, the fact is that if the second meeting was held on or before 4 March 2024, it is likely that the administrators would be required to recommend that the company be placed in liquidation. This is the case, having regard to the administrators’ indicative timetable for the sale process. This would have an adverse impact on creditors.

37    The second matter relevant to the exercise of the discretion whether to extend the convening period is the fact that the creditors support the extension of the convening period. At the meeting of creditors, the creditors asked a number of questions, but none of them objected to the proposed extension. In addition, AUHPT, as landlord secured creditor and one of the three members of the Committee of Inspection, has expressed support for an extension of the convening period as has the Treasurer and D&D.

38    The administrators have stated that they will inform creditors of the company if the extension is granted. The orders sought by the administrators include liberty to apply to any affected party to seek to vary or discharge the orders relating to the extension of the convening period.

39    Finally, the administrators submitted that the period of the proposed extension was appropriate. Counsel for the administrators submitted that the authorities are to the effect that Courts are generally willing to tailor the timeframe in Part 5.3A to suit the needs and circumstances of the particular company, having regard to the achievement of the objects of Part 5.3A.

40    In my opinion, the discretionary factors support an extension of the convening period and I accept the plaintiffs’ submission that the proposed extension strikes an appropriate balance in that it will enable the administrators to pursue diligently the outstanding tasks, including the stabilisation of the operation of the hospital and the sale process, and at the same time, to ensure that the creditors exercise their right to determine the future of the company at a time when they are apprised of all relevant information. The administrators have indicated that if the circumstances enable them to do so, they will convene a second meeting of creditors before 26 August 2024.

41    The second category of orders relate to the funding agreement. They are Orders 4 to 6 inclusive and they are set out above.

42    It is convenient at this point to set out the terms of the relevant legislation.

43    Section 447A(1) in Part 5.3A of the Act provides as follows:

(1)    The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.

44    Section 443A provides, relevantly:

(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: …

(d)    the repayment of money borrowed; or

(e)    interest in respect of money borrowed; or

(f)    borrowing costs.

Subsection (2) provides that subsection (1) has effect despite any agreement to the contrary.

45    Section 443D provides for the administrator’s right of indemnity. The section is in the following terms:

The administrator of a company under administration is entitled to be indemnified out of the company’s property (other than any PPSA retention of title property subject to a PPSA security interest that is perfected within the meaning of the Personal Property Securities Act 2009) for:

…

(aa)    any other debts or liabilities incurred, or damages or losses sustained, in good faith and without negligence, by the administrator in the performance or exercise, or purported performance or exercise, of any of his or her functions or powers as administrator; and …

46    Section 443E deals with the priority of the administrator’s right of indemnity over unsecured debts and other interests. Subsection (5) provides as follows:

(5)    A right of indemnity under section 443D does not have priority over debts of the company under administration that are secured by a circulating security interest in property of the company, except so far as the secured party consents in writing, to the extent that the right of indemnity relates to debts incurred for:

(a)    the repayment of money borrowed; or

(b)    interest in respect of money borrowed; or

(c)    borrowing costs.

47    Section 90-15 of the IPS is in the following terms, relevantly:

90‑15 Court may make orders in relation to external administration

Court may make orders

(1)    The Court may make such orders as it thinks fit in relation to the external administration of a company.

48    Absent the orders sought by the administrators, the following would be the position: (1) the administrators would be personally liable for all liabilities under the Funding Deed; (2) the administrators would have a right of indemnity secured by a lien against the assets and property of the company, but to the extent that the assets and property were insufficient to satisfy the right of indemnity, the administrators would be left to satisfy the obligations themselves; and (3) the administrators’ right of indemnity would rank below the secured interests of AUHPT and D&D. Order 3 is designed to deal with (1) and (2), and Orders 4 and 5 are designed to deal with (3).

49    The administrators believe that it is in the best interests of the company to enter into the Funding Deed, but are not prepared to accept personal liability under it.

50    In Mentha, in the matter of Griffin Coal Mining Company Pty Ltd (administrators appointed) [2010] FCA 1469; (2010) 82 ACSR 142, Gilmour J said (at [30]):

The principles governing the granting of an application for orders under s 447A to vary the liability of administrators under s 443A can be summarised as follows:

(a)    the proposed arrangements are in the interests of the company's creditors and consistent with the objectives of Part 5.3A of the Corporations Act: Re Great Southern at [13].

(b)    typically the arrangements proposed are to enable the company's business to continue to trade for the benefit of the company's creditors: Re Malanos at [9] and Re View at [17].

(c)    the creditors of the company are not prejudiced or disadvantaged by the types of orders sought and stand to benefit from the administrators entering into the arrangement: Re View at [18], and also Re Application of Fincorp Group Holdings Pty Ltd [2007] NSWSC 628 at [17].

(d)    notice has been given to those who may be affected by the order: Re Great Southern at [12].

(see also Re Unlocked Limited (Administrators Appointed) [2018] VSC 345 at [60]–[64] per Sloss J; Birch, in the matter of Geelong Fire Services Pty Ltd (Administrators Appointed) [2022] FCA 963 at [26] per Moshinsky J; Virgin (No 2) at [90]–[91]).

51    I am satisfied that it is in the interests of creditors for the company to continue trading pending a sale of the company or its business. It needs funding to do that and this is the purpose and note of the Funding Deed. I am satisfied, based on the evidence of the administrators, that without funding, the company cannot continue to trade and that the terms of the Funding Deed are reasonable commercial terms. The administrators cannot be expected to fund personally the continued operations of the company. The priority under s 556(1)(a) of the Act is part of the arrangement which will enable the company to continue to trade with a view to the sale of the company or its business and that is in the best interests of creditors.

52    It is both necessary and reasonable that the administrators have their entry into the Funding Deed and drawing down under the Funding Deed approved. That order, which is in Order 6, was made under s 90-15 of the IPS.

53    That left for consideration Orders 4 and 5.

54    These orders seek a variation of what would otherwise be the operation of s 443E(5) of the Act. The variation is sought under s 447A(1) of the Act and s 90-15 of the IPS. AUHPT consents to the making of the order and D&D does not object providing, in my view quite reasonably, that the plaintiffs continue to meet their payment obligations to D&D and in the circumstance where they do not do that, Order 5 is engaged.

55    These are the reasons I made the orders I did on 22 February 2024.

Associate:

Dated:    7 May 2024