FEDERAL COURT OF AUSTRALIA

Anderson (administrator), in the matter of S&W Holdings Australia Pty Ltd (administrators appointed) [2024] FCA 878

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 447A(1) and s 443B(8) of the Corporations Act 2001 (Cth) (Corporations Act), Pt 5.3A of the Corporations Act is to operate in relation to each of the second plaintiff and third plaintiff (Companies) as if:

(a)    the first plaintiff’s (Administrators) personal liability under s 443A(1)(c) and s 443B(2) of the Corporations Act begins on 26 August 2024, such that the Administrators are not personally liable for any debts or other liability with respect to any property hired, leased, used or occupied, by any of the Companies (including the amounts payable pursuant to any leases entered into by any of the Companies) in the period from 24 July 2024 to 26 August 2024 inclusive; and

(b)    the words “within five business days after the beginning of the administration” in s 443B(3) of the Corporations Act instead read “on or before 26 August 2024”.

2.    Pursuant to s 447A(1) of the Corporations Act, Pt 5.3A of the Corporations Act is to operate in relation to the plaintiffs as if s 443A(1) of the Corporations Act provides that:

(a)    the liabilities of the Administrators arising out of, or in connection with:

(i)    the overdraft arrangement between National Australia Bank Limited (NAB) and the Companies; and

(ii)    the finance agreement between NAB and the Companies (as amended from time to time, including an amendment and restatement on 2 November 2023 and a further amendment on 21 December 2023),

including monies borrowed, interest incurred in respect of monies borrowed and borrowing costs, are in the nature of debts incurred by the Administrators in the performance and exercise of their functions as joint and several administrators of each of the Companies; and

(b)    notwithstanding that the liabilities in sub-paragraph 2(a) above are debts incurred by the Administrators in the performance and exercise of their functions as joint and several administrators of each of the Companies, the Administrators will not be personally liable to repay such debts or satisfy such liabilities to the extent that the assets of the Companies (or either of them) are insufficient to satisfy the debts and liabilities incurred by the Administrators arising out of, or in connection with, the agreements described at sub-paragraph 2(a) above.

3.    Within 3 business days of the making of these orders, the plaintiffs are to take all reasonable steps to give notice of these orders to the creditors of the Companies (including persons claiming to be creditors):

(a)    to be sent by email transmission to creditors for whom the Administrators have a current email address; or

(b)    to be sent by ordinary post to creditors for whom the Administrators have only a postal address (or where notification is received of non-delivery of a notice sent by email in accordance with sub-paragraph 3(a) above); and

(c)    in addition, by publishing notice of the relevant matter on the website of the Administrators at https://aurestructuring.deloittehalo.com/service/website/SWSeed.

4.    Any person who can demonstrate a sufficient interest to vary or discharge these orders has liberty to apply on 3 business days’ written notice to the plaintiffs and to the Commercial and Corporations Duty Judge of the Court.

5.    The plaintiffs have liberty to apply on 1 business day’s written notice to the Commercial and Corporations Duty Judge of the Court in relation to any other matter generally arising in the administrations of the Companies.

6.    The plaintiffs’ costs of the application are to be treated as costs in the administrations of each of the Companies, jointly and severally, and be paid out of the assets of the Companies.

7.    The plaintiffs are to notify the creditors at the first meeting of creditors of the Companies to be held in accordance with s 436E of the Corporations Act on Monday, 5 August 2024, of the making of these orders.

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

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

HALLEY J:

A.     INTRODUCTION

1    By an originating process filed on 30 July 2024, the first plaintiff, Travis Anderson and Glen Kanevsky (Administrators), in their capacity as joint and several administrators of each of the second plaintiff, S&W Holdings Australia Pty Limited (Administrators Appointed) (S&W Holdings), and the third plaintiff, S&W Seed Company Australia Pty Limited (Administrators Appointed) (S&W Seed) (together, Companies), seek orders:

(a)    pursuant to s 443B(8) and s 447A(1) of the Corporations Act 2001 (Cth) (Act), for a four week extension of the time, in s 443B of the Act, in which the Administrators are to give notice to lessors of property leased by the Companies as to whether to retain or give up possession of that property, together with the corresponding extension of the period in which the Administrators do not have personal liability for obligations under those leases; and

(b)    pursuant to s 447A(1) of the Act, limiting the Administrators’ personal liability with respect to the obligations under an existing finance facility that the Companies have with National Australia Bank Limited (NAB).

2    The Administrators rely upon an affidavit of Travis Adrian Anderson, affirmed on 30 July 2024, together with Exhibit TAA-1 to that affidavit, and an affidavit of Ashleigh Jannece Tang, affirmed on 1 August 2024, together with Exhibit AJT-1 to that affidavit.

3    The Administrators’ application today, which was made before me as the Commercial and Corporations Duty Judge, is supported by detailed written submissions prepared by Mr D Krochmalik, counsel for the plaintiffs, which have been supplemented by detailed oral submissions today. I found those submissions of considerable assistance in resolving this matter in an expeditious manner.

B.     BACKGROUND

4    On 24 July 2024, the Administrators were appointed, jointly and severally, as Administrators of each of the Companies by resolution of directors of those Companies pursuant to s 436A of the Act.

5    The Companies are part of a broader corporate group which is based in the United States. S&W Holdings is the holding company of the Australian arm of the group, and wholly owns the shares of S&W Seed, and indirectly through its shareholding in S&W Seed, all other downstream Australian companies in the group.

6    The Companies conduct a business of processing high quality seeds for Australian agriculture and international distribution. S&W Seed purchases various types of seeds from a network of over 100 Australian based farmers. S&W Seed then coats and treats those seeds using a specialised process that is undertaken at particular seed processing facilities that are either owned or leased by S&W Seed (Facilities). After the seeds have been coated and treated, S&W Seed then distributes them to customers in both Australia and internationally.

7    Mr Anderson gives evidence that the catalyst for the appointment of the Administrators appears to be that the Companies faced significant trading challenges primarily due to the imposition of import sanctions in Saudi Arabia that prevented S&W Seed’s key customers in that country from purchasing certain seeds.

8    Prior to the appointment of the Administrators, S&W Seed, which was the trading entity, employed approximately 56 employees. The business has continued to trade since the appointment of the Administrators, and to date, those employees have been retained.

9    The creditors of S&W Seed include:

(a)    lenders under secured corporate debt financing facilities, including NAB, who together are owed approximately $50 million;

(b)    trade creditors owed approximately $9.8 million; and

(c)    employees with respect to leave entitlements totalling approximately $1.15 million.

10    NAB is a secured creditor under the terms of a finance agreement between NAB, S&W Seed (as borrower), and S&W Holdings (as a guarantor and security provider) dated 29 June 2023 (subsequently amended and re-stated) (Finance Agreement).

11    Since the appointment of the Administrators, NAB has not taken any steps to enforce its security interest over the property of the Companies.

12    Mr Anderson gives evidence that the Companies presently have no cash on hand, and the administrations are currently being funded by way of an interim funding arrangement with NAB pursuant to which the bank has provided the Administrators with access to a temporary $400,000 overdraft (Overdraft Arrangement).

13    Mr Anderson gives evidence that a more comprehensive funding agreement with NAB is in the process of being negotiated. It is envisaged that that funding agreement will provide funding of up to $1.8 million, which would then permit the Administrators to meet ongoing trading expenses during the administrations, including importantly, payment of employee wages.

14    The terms of the Overdraft Arrangement are in accordance with the existing Finance Agreement which was agreed between NAB and the Companies well prior to the commencement of the administrations. The amount that the Administrators have currently caused the Companies to draw down on the overdraft in accordance with the Overdraft Arrangement is presently in an amount of $155,362.42 for the purpose of making payments of wages to employees.

15    Of particular relevance for present purposes is that S&W Seed is a lessee in respect of certain lease arrangements of premises forming part of the Facilities where the business of the Companies has been conducted.

16    The Administrators have identified seven leases, six of which are in different parts of Australia and one of which is in Jordan (Leases).

17    Prior to the appointment of the Administrators, the Companies were in the process of undertaking an internal restructure in respect of several of the Leases, including whether the Facilities in respect of those leasehold premises were required.

18    Mr Anderson gives evidence that the Administrators have had initial discussions with the officers of the Companies about those matters, but they are still gathering information, and the Administrators do not yet have a full understanding of the status of the restructure, and what, if anything, has been agreed with the lessors of the various premises.

19    In addition, the Administrators have not yet formed a view as to whether any of those Leases are essential for the business as part of any sale or restructure that might be undertaken in the course of the process of the administrations.

20    Further, the Administrators are working to identify any additional leasehold arrangements to identify whether any other leasehold property, including motor vehicles and equipment, may be critical for the business of the Companies.

21    In these circumstances, Mr Anderson gives evidence that the Administrators consider a further period of almost four weeks, that is up until 26 August 2024, is necessary in order to enable them to consider fully the Leases and any other property hired, leased, used, or occupied by the Companies, in order to develop a complete understanding of those arrangements and whether they are required for the continued operations of the business.

C.     EXTENSION OF TIME AND ASSOCIATED RELIEF

C.1.     Statutory provisions and legal principles

22    Section 443B of the Act provides that, absent an extension of time, administrators are personally liable for property of which someone else is the owner or lessor for a period from five business days after the commencement of an administration, unless a notice is issued by the administrators under s 443B(3) of the Act stating that the company does not propose to exercise rights in relation to the property.

23    The Court has the power to extend that starting point pursuant to s 443B(8) or s 447A of the Act. The principles with respect to the making of orders pursuant to those sections of the Act are well established. For present purposes, it is sufficient to provide the following summary.

24    Section 447A of the Act confers a broad power on the Court to make orders limiting the liability of an administrator where to make orders would advance the objects of Pt 5.3A of the Act: Algeri, in the matter of WBHO Australia Pty Ltd (Administrators Appointed) [2022] FCA 169 at [16] (Beach J).

25    Further, s 447A(1) of the Act gives the Court ample power to alter the operation of ss 443B(2) and (3) of the Act: In the matter of Mothercare Australia Limited (administrators appointed) [2013] NSWSC 263 at [6] (Black J).

26    The usual rationale behind the extension of the five business day period in ss 443B(2) and (3) or the exercise of the power in s 443B(8) is because an administrator has had insufficient time to conduct necessary investigations to determine whether they consider it best to retain or give up possession of leased property: Strawbridge (Administrator), in the matter of CBCH Group Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 472 at [39] (Markovic J).

27    The Court’s discretion under s 443B(8) of the Act is wide, but it must be exercised judicially and always having regard to the impact of the exercise of the discretion on creditors: Wells Fargo Trust Company, National Association (trustee) v VB Leaseco Pty Ltd (administrators appointed) [2020] FCA 1269 at [169] (Middleton J).

28    The five business day period provided in s 443B assumes that in the usual course an administrator will be in a position with an appropriate exercise of diligence to form a view as to whether the company should continue to occupy premises, and whether or not to assume personal liability for the rent of the premises within that period, but there are many examples in which, due to complexity, or for other good reasons, the period stipulated in s 443B have been extended: Tucker, in the matter of Quintis Leasing Pty Ltd [2023] FCA 1673 at [26] (Feutrill J), and the cases cited therein.

C.2.     Consideration

29    Mr Anderson, who I am satisfied is an experienced insolvency practitioner, gives evidence that:

(a)    the Administrators consider that further time is required to consider the ongoing value to the Companies of the properties the subject of the leasehold interests and the status of the restructuring negotiations with landlords that have been undertaken prior to the appointment of the Administrators; and

(b)    the extension of time sought by the Administrators is for the purpose of identifying and retaining assets necessary to preserve and enhance the value of the operations of the Companies as part of a viable restructure of the business.

30    In these circumstances, I am satisfied that the Court should make the orders sought by the Administrators in relation to the Companies’ leasehold property for the following reasons.

31    First, the internal restructure that was in the process of being implemented prior to the appointment of the Administrators has given rise to significant complexity in relation to the administrations and the particular status of each of the Leases.

32    Second, the lack of funding for the administrations has given rise to understandable concerns for the Administrators that they wish to make decisions on whether it is necessary or desirable to maintain the existing Leases, unclouded by any concern that might arise as to their own personal liability, if those decisions with respect to the Leases are not made within the five business day statutory period.

33    Third, an extension of the five business day statutory period will provide the Administrators with further time to identify and retain assets that are necessary to preserve, in order to enhance and maximise the value of the Companies’ operations as part of any potential restructure, and to that extent it will be in the best interests of the Companies’ creditors as a whole, including the lessors, to the extent that the Leases, ultimately, remain on foot.

34    Fourth, to the extent that any lessors might be adversely affected, the orders sought by the Administrators are framed in a manner that would permit the lessors and any other persons affected by the orders to apply to the Court for a variation of those orders.

D.     EXCUSAL FROM PERSONAL LIABILITY AND ASSOCIATED RELIEF

D.1.     Statutory provisions and legal principles

35    Section 443A of the Act, which forms part of Pt 5.3A, relevantly provides:

(1)    The administrator of a company under administration is liable for debts he or she incurs, in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers as administrator, for:

…

(d)     the repayment of money borrowed; or

(e)     interest in respect of money borrowed; or

(f)     borrowing costs.

(2) Subsection (1) has effect despite any agreement to the contrary, but without prejudice to the administrator’s rights against the company or anyone else.

36    Administrators are provided with a right of indemnity out of the company’s property (other than property not presently relevant for present purposes) for debts for which administrators become liable under s 443A of the Act. It is a right that is secured by a statutory lien over the company’s property (as well as an equitable lien that operates in addition to the statutory regime): s 443D, s 443E and s 443F of the Act.

37    This has the consequence that administrators are entitled to be reimbursed out of the assets of a company (secured out of the assets of the company) to meet debts for which they are personally liable.

38    It is well established that the Court has power under s 447A of the Act to make orders limiting an administrator’s personal liability under s 443A: Re Mentha (in their capacities as joint and several administrators of the Griffin Coal Mining Company Pty Ltd (administrators appointed)) (2010) 82 ACSR 142; [2010] FCA 1469 at [28]–[30] (Gilmour J).

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

(a)    the Court will consider whether the proposed arrangements are in the interests of the company’s creditors and consistent with the objectives of Pt 5.3A of the Act: Griffin Coal at [30];

(b)    in appropriate circumstances, personal liability can be excluded with respect to any arrangement where it enables the company’s business to continue to trade for the benefit of the company’s creditors: Strawbridge, in the matter of Virgin Australia Holdings Limited (administrators appointed) (No 2) (2020) 144 ACSR 347; [2020] FCA 717 at [87]-[91] (Middleton J);

(c)    the Court will consider whether the creditors of the company are not prejudiced or disadvantaged by the orders sought and stand to benefit from the administrators entering into the arrangement and whether notice has been given to those who may be affected by the orders: Griffin Coal at [30];

(d)    orders limiting the personal liability of administrators for funding arrangements have commonly been made, including recently in Lord, in the matter of Invigor Group Limited (administrators appointed) [2022] FCA 1064 at [22]-[24] (Yates J) and Hill, in the matter of Ovato Limited (Administrators Appointed) [2022] FCA 903 at [14] (Stewart J).

D.2.     Consideration

40    I am satisfied for the following reasons that orders should be made limiting the personal liability of the Administrators with respect to their obligations under the Finance Agreement, including insofar as it governs the Overdraft Arrangement.

41    First, I am satisfied that the Administrators have reasonably formed a view that the ongoing trade of the Companies’ business is in the best interests of creditors. In that context, I am satisfied that the Administrators should not be expected to incur personal liability for finance obtained for the specific purpose of enabling the Companies to continue to trade in the interests of creditors and customers.

42    Second, I am satisfied that the funding arrangements offer the best chance of a continuation of the business, which, in turn, then maximises the prospects of preserving the business of the Companies with a view to their sale or recapitalisation, consistently with the objectives of Pt 5.3A of the Act.

43    Third, given the funding arrangements are advanced in accordance with pre-administration arrangements, I am satisfied, without reviewing the specific details, that the terms of the arrangements are commercially reasonable.

44    Fourth, the only lender that could arguably be prejudiced by any limitation of the Administrators’ personal liability to their lien over the assets of the Companies is NAB, but NAB has not opposed the proposed limitation of the Administrators’ personal liability and has been informed of the application by the Administrators today, but has not appeared or otherwise expressed any opposition to that application.

45    Fifth, I am satisfied that the orders are necessary to provide a level of protection to the Administrators with respect to their decision to draw down on the overdraft in order to secure the ongoing operation of the business of the Companies, including significantly a preservation of the current employment of the employees of S&W Seed while a sale or restructure of the business continues to be actively explored for the benefit of creditors.

46    Sixth, I am satisfied that there is no immediate disadvantage or prejudice to the Companies’ unsecured creditors from relieving the Administrators from personal liability in the particular circumstances, and that the general body of creditors stands to gain from the ability of the Administrators to continue to trade the business with a view to its sale or restructure as a going concern.

47    Seventh, to the extent that any unsecured creditor may seek a variation of any of the orders sought by the Administrators today, their interests are adequately preserved through an order permitting creditors to apply to vary or discharge the orders, consistently with the approach generally taken by the Court, see by way of example, Tucker, in the matter of Aurora Metals Limited (Administrators Appointed) [2023] FCA 761 at [24(4)] (Feutrill J).

E.     DISPOSITION

48    For the foregoing reasons, I am satisfied that orders substantially in the form sought by the Administrators in the originating process should be made.

Associate:

Dated:    7 August 2024