Aquila Resources Limited v Spark

REASONS FOR JUDGMENT 1 This is an application for interlocutory relief. It arises in connection with an application which is brought to the Court by the applicant in reliance on ss 445A, 447A, 447E and 1324 of the Corporations Act 2001(Cth) ("the Act"). The claim itself is one which seeks termination of the administration of each of the third and fourth respondents and a declaration that the Deed of Company Arrangement for each of them was void ab initio and, further, that purported resolutions of the second meeting of creditors dated 30 August 2002 for each of them in purported compliance with s 439C of that Act are void. In the application, the interlocutory relief seeks to restrain the first and second respondents from putting forward any resolution to the creditors of the third and fourth respondents, as proposed in par 2 of the notice of meeting dated 14 March 2003, to vary each of the Deeds of Company Arrangements to permit entry into a deed of cross‑assumption so as to bind the third and fourth respondents. 2 The notice of meeting itself does not specify the resolution but, rather, states as an agenda item that the creditors will be asked to consider a resolution to vary the Deeds of Company Arrangement of certain of the abovenamed companies referred to in the notice pursuant to s 445A of the Act. The resolution itself appears, in its form proposed to go to the meeting, in the Deed Administrators' report to creditors at p 17 and it is in the following terms: "If, prior to 23 April 2003, the company is, in the opinion of the deed administrators, subject to the ASIC Deed of Cross-Guarantee (whether under its terms or by operation of law or principles of equity or otherwise), deed creditors acknowledge and agree that on or before 23 April 2003 the deed administrators will execute for and on behalf of the company and each deed company that is, prior to 23 April 2003, also subject to the ASIC Deed of Cross-Guarantee in the opinion of the deed administrators, the deed titled "Deed of Cross‑Assumption of Claims" in the form annexed or in such other form as the deed administrators determine." That resolution is followed in the first report to creditors by the statement from the administrators that they consider the proposed variation to each deed is in the best interests of creditors of the companies, as the amendments maintain the position of creditors of having their claims against each cross‑deed company guaranteed by the other cross‑deed companies prior to a float or other restructure option occurring. 3 This interlocutory application has brought to the Court an affidavit from Mr Anthony Poli filed on behalf of the applicants, to which are annexed a range of what are described as exhibits. On behalf of the respondents there is brought to the Court the affidavit of Mr Ian Walker, so far as it contains par 15 of the draft before the Court. In addition, counsel for the respondents has undertaken to file an affidavit supporting various other factual assertions made in the course of his argument. 4 In further explanation of the terms of the proposed resolution, it is necessary to sketch a little more of the background. The applicants are preparing claims against what are described as the Savage Companies for substantial damages, which they say will be in excess of $150 million, for misleading and deceptive conduct arising from contravention of s 52 of the Trade Practices Act 1974 (Cth) and/or breach of contract. The claim is said to be based on a denial of opportunity in March 2001 to the applicants to acquire the interests of the Savage Companies in the Ernest Henry Mine in North Queensland. 5 So far as the Deed of Cross-Guarantee is concerned, it is the applicants' contention that the directors of the Savage Companies thought they were or would likely become insolvent on the basis that those companies were liable for the debts of the other Pasminco Group, pursuant to the deed dated 23 April 1997. Clause 3 of that deed made each company in the Pasminco Group (which the Savage companies subsequently became) at the date of execution of the deed liable for the debts of other companies in the group. It is asserted for the applicants that the Savage Companies are not and have never been parties to the Deed of Cross-Guarantee. While cl 5 of the deed provided a means by which the Savage Companies could have become subject to the deed, the applicants' case is that that did not occur. The means provided was for the execution of an Assumption Deed. It is supported now by the evidence of Mr Walker that the Savage Companies executed the necessary Assumption, evidencing their intention to be joined as a party to the Deed of Cross-Guarantee. However, that document was never lodged at the Australian Securities and Investments Commission ("ASIC"). While it may therefore provide an arguable basis for estoppel, it is not a document which took effect in relation to the execution by the Savage Companies. 6 The result was therefore that the directors of the Savage Companies proceeded on the erroneous understanding that the contingent liabilities of those companies had been assumed pursuant to the Deed of Cross-Guarantee. It is contended for the applicants that it follows there could not therefore have been a proper basis for resolving to place the Savage Companies in voluntary administration. Indeed, it is further contended that it is highly probable that at the time of being placed into administration, each of the Savage Companies was solvent. 7 The applicants have submitted a proof of debt to the administrators of the Savage Companies in the amount of $153 million, which reflects the claim for damages. The administrators have admitted the applicants as a creditor to that nominal value for voting purposes. 8 At the first meeting of creditors the administrators resolved to afford group voting rights to each creditor of the companies in the Pasminco Group of companies, including the Savage Companies, on what is said by the applicants to be an unsupported and unsupportable basis, namely as though the Savage Companies were party to or bound by the Deed of Cross-Guarantee. 9 A second meeting of creditors was held on 30 August 2002. At that meeting it was resolved that each of the companies in the Pasminco Group, including the Savage Companies, would enter into Deeds of Company Arrangement so as to give effect to restructure of the Pasminco Group. In a report to creditors dated 19 August 2002, tabled at that meeting, the administrators acknowledged that the Savage Companies were not contractually bound by the Deed of Cross-Guarantee but made reference to some kind of estoppel possibly existing for the benefit of creditors of cross‑deed companies as against the Savage Companies. At that meeting the applicants via their representative invited the administrators to seek a court declaration in effect as to whether or not the Savage Companies were subject to the Deed of Cross-Guarantee but that did not occur. 10 On 4 October 2002, the Deeds of Company Arrangement approved at the second meeting were executed by the relevant parties, including the Savage Companies. The Savage deeds formed part of the proposed restructure of the group and amongst other things the effect of that restructure as the applicant contends is that the assets of what is described as the ongoing group will form part of the assets of a public company and the creditors of the Pasminco Group, including the Savage Companies, will receive a combination of equity and cash in settlement of their claims. In these circumstances, the applicants contend that both the placement of the Savage Companies into voluntary administration and committing of those companies to the deeds of administration in the context of overall reconstruction of the Pasminco Group is unlawful and seriously prejudicial to the applicants. 11 It is necessary also to know that on 21 October 2002 a Revocation Deed was executed and lodged with ASIC, with the lodgement being on 23 October. Clause 5.1 of that deed contemplated that the Savage group companies may not be a party to or bound by the Deed of Cross-Guarantee. By its terms the deed revokes the Deed of Cross-Guarantee and will terminate the Deed of Cross-Guarantee on 23 April 2003. I do not consider that effect is seriously in challenge. 12 That brings us then to the notice of meeting and the proposed resolution which I have previously described. In relation to the proposed meeting to be held tomorrow morning, the deed administrators, it is said, are proposing to have a concurrent vote of all creditors. This, say the applicants, repeats the erroneous position that existed in relation to voting at meeting of creditors whilst the Pasminco Group of companies were under administration. 13 The focus of the applicants' application for interlocutory relief lies in these matters which follow: namely that under the terms of the proposed Deed of Cross-Assumption of Claims referred to in the resolution I have previously read, the Savage Companies will bind themselves contractually to be liable for the debts of the other Pasminco companies. This is in the context where cl 5 of the Deed of Revocation to which I have referred provides for the possibilities that the Savage Companies may not be party to or bound by the Deed of Cross-Guarantee. This means that the contractual liability will be imposed on the Savage Companies where, it is said, none presently exists. This therefore, it is contended, does more than merely maintain the present position of creditors in the Pasminco Group. The concern of the applicants is that rights which they may have against the Savage Companies and the assets of those companies will be diluted by the creation of contractual rights in others. 14 For the applicants it is therefore contended that there are serious questions to be tried and these should be seen on this occasion of application for interlocutory relief. The serious questions are those which lie behind the preservation of what is said to be the status quo; namely (a) whether the Savage Companies were lawfully placed into administration and whether the respective administration should be terminated; (b) whether the administrators wrongfully permitted cross-deed company creditors to vote to authorise the administrators to execute the Deed of Company Arrangement for each of the companies; and (c) whether in those circumstances the deeds for each of the third and fourth respondents should be set aside. The third and fourth respondent are, of course, the Savage Companies to which I have referred by that description. 15 It is said for the applicants that in this situation damages are not adequate compensation and the applicants will suffer irreparable injury. If the reconstruction proceeds as planned all of the Savage Company assets will be transferred to the proposed new company to be floated later this year and therein, says the case for the applicants, lies the prejudice. 16 Turning to the balance of convenience the applicants contend that there is no corresponding prejudice to those creditors of the Pasminco Group who are parties to and bound by the Deed of Cross-Guarantee and in relation to whom the estoppel, if it can be made out, will continue. In those situations it is said that the balance of convenience favours the granting of interlocutory relief. 17 Against those contentions for the applicants in the circumstances of their case there are some serious considerations raised for the respondents. The first is that no harm to the applicants will be irreparable because s 445D of the Act provides the power for the Court on application to cancel a variation to a deed of company arrangement when it is varied under s 445A, the application being by a creditor. The powers of the Court, as provided for in s 445D(2), include in par (a) the making of an order cancelling the variation. In those circumstances it is said that the application for equitable intervention does not exist because the matter can be addressed through that statutory means. 18 Secondly, it is said for the respondents the other parties, the other creditors, will be affected if the resolutions cannot go forward. That is because the Deed of Resolution will take effect and unless this resolution is passed the substituted system of dealing with their position will not come into effect. It is accepted for the applicants that a resolution affecting them is open. The applicants confined their submissions to a resolution which extends to the third and fourth respondents, the Savage Companies. 19 Thirdly, it is said for the respondents that what is offered by the scheme which the resolution would implement is not the substitution for a weak estoppel, but the preservation of liabilities which were in existence at 23 April 2003. 20 Of course on any application for interlocutory relief it is necessary for the Court to examine two questions: the first being whether there is a serious question to be tried. I have already outlined the legal issues which lie behind the search for interlocutory relief. In my view they are serious questions to be tried and they should be accepted as such. I therefore do not see any obstacle by that element to the making of an order of interlocutory relief. 21 Turning to the second element, the balance of convenience, the matter is by no means clear‑cut. The critical matter seems to me to be the existence of the statutory remedy provided for in s 445B. The established law - for instance as evidenced by Meagher, Gummow and Lehane, Equity, Doctrines and Remedies, 4th ed, at par 21-375, is that: "If alternative remedies of equal efficacy are available maybe they will be employed in lieu of interlocutory injunction, but a plaintiff should not too readily be deprived of his right to an injunction."(footnotes omitted) Further, at par 21-380 it is stated that: "What is meant by saying that the court must take into account the balance of convenience and the question of hardship is that it must consider carefully what effects the granting of an injunction will have on both parties and, in particular, whether to grant one would cause hardship to the defendant or to refuse one would cause hardship to the plaintiff." It seems to me also that a critical consideration is what effect the new resolution may have. As I understand it, whatever effect it has in preserving liabilities at 23 April as they were, the issue is so far as the applicants are concerned that the passage of the resolution in relation to the Savage Companies would create new rights. That is the essence of the applicants' application. That arguably is to the applicants a hardship because of the serious questions to be tried in relation to those rights and the appropriateness of them. 22 It was said in relation to the fact that s 445B exists that an application could be brought by the applicants immediately following the passage of the resolution, if it is passed. However, I think that overlooks the fact that if there are serious questions to be tried in relation to the creation of the rights which the applicants are focusing on, then that element of serious question is entitled to be weighed also in the balance of convenience. The passage of the resolutions would create hardship to the applicants because it would bring into existence those rights where rights do not exist at the moment, or arguably so. 23 Therefore I have concluded that despite the difficulty of balancing the considerations in the balance of convenience, taking into account the various issues to be tried in the balance of convenience, the balance is one which should be weighed in favour of the applicants, despite the existence of the statutory remedy. 24 However, it may be that the orders can be formulated in a way which would permit, if it were desirable and appropriate to do so, for the resolution to be put to the meeting so that it was related to the other parties in relation to whom the applicants seek no prejudicial effect, and I will hear from counsel as to whether that remains a possibility and follows, as it would appear to do, from the submissions which I have received. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice RD Nicholson.