[2008] HCA 42
- Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198
Re Australian Pipeline Ltd (2006) 60 ACSR 625
[2014] NSWCA 367
- Re Estate Late Chow Cho-Poon
Source
Original judgment source is linked above.
Catchwords
(2008) 249 ALR 250[2008] HCA 42
- Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198
Re Australian Pipeline Ltd (2006) 60 ACSR 625[2014] NSWCA 367
- Re Estate Late Chow Cho-Poon
By Amended Originating Process filed on 1 April 2021 the Plaintiffs, Messrs Algeri, Hughes, Grieg and Strawbridge ("Trustees") in their capacity as joint and several trustees of The Project Volar Creditors' Trust ("Trust") established in the administration of Virgin Australia Holdings Ltd and other companies seek orders and judicial advice under ss 63 and 81 of the Trustee Act 1925 (NSW). Those orders were refined and restructured in the course of their oral submissions.
The Trustees rely on s 63 of the Trustee Act which relevantly provides that:
"(1) A trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument.
(2) If the trustee acts in accordance with the opinion advice or direction, the trustee shall be deemed, so far as regards the trustee's own responsibility, to have discharged the trustee's duty as trustee in the subject matter of the application, provided that the trustee has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion advice or direction."
In Re Australian Pipeline Ltd (2006) 60 ACSR 625; [2006] NSWSC 1316 at [17], Barrett J noted the role of such advice in providing guidance for the future and referred to Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 at 201 where Lord Oliver of Aylmerton observed that:
"A trustee who is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions is always entitled to seek proper professional advice and, if so advised, to protect his position by seeking the guidance of the court."
Dr Higgins, with whom Mr Hutton and Mr Krochmalik appear for the Trustees, also refers to the decision of the High Court of Australia in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42, where the plurality of the High Court observed (at [56]-[59]) that there are no express words and no implications from the express words of s 63 of the Trustee Act limiting the power to give advice or on the discretionary factors relevant to the giving of advice, but that the discretion is confined only by the subject matter, scope and purpose of the Trustee Act. The plurality also noted (at [64]) that the procedure operates as "an exception to the Court's ordinary function of deciding disputes between competing litigants" and affords a facility for providing "private advice" to trustees although the Court is not bound to give such advice. Kiefel J (as the Chief Justice then was) also observed (at [196]) that:
"The principal purpose of the section, and the opinion, advice or direction given under it, is the protection of the interests of the trust. Another purpose is the protection of a trustee who is acting in that regard and upon advice. Securing the latter purpose may ensure the attainment of the principal purpose, by removing the concern of a trustee about exposure beyond their usual indemnity."
As Dr Higgins points out, in Re Estate Late Chow Cho-Poon; Application for Judicial Advice [2013] NSWSC 844 at [23], Lindsay J similarly observed that:
"Section 63 provides a flexible means (and not the only means) by which the Court's jurisdiction relating to trusts can be enlivened. That jurisdiction includes as one of its purposes the due administration of trusts, including the protection of trust property and, incidentally, protection of trustees who, on the other side of the ledger, are subject to obligations enforceable by the Court."
In Equititrust Ltd (in liq) (rec apptd) (recs and mgrs apptd) v Equititrust Ltd (in liq) (rec apptd) (recs and mgrs apptd) (No 4) [2017] FCA 1133 at [7], Jagot J summarised the applicable principles as including, inter alia, that (1) the jurisdiction or power to give judicial advice is not constrained by any implications or limitations not found in the express words of the section; (2) the Court's discretion is confined only by the subject matter, scope and purpose of the legislation, and there are no implied limitations on the discretionary factors that may arise or rules governing the relative importance of such factors; (3) the judicial advice procedure is intended to be summary in character; (4) a judicial advice application is in the nature of "private advice" and a departure from usual Court proceedings in which there are multiple, adversarial parties and a person served with documents in respect of a judicial advice application is not thereby a "party" to the application; (5) the right to obtain judicial advice protects the trustee, but it thereby also protects the interests of the trust, by enabling the trustee to act in the interests of the trust without fear of being personally liable for costs; (6) the function of the Court in a judicial advice application is to determine what should be done in the best interests of the trust; and (7) the usual form of order is that the trustee "would be justified" in taking the relevant course of action. I have summarised the applicable principles in Re Go Energy Group Ltd [2019] NSWSC 558 at [18]ff.
Dr Higgins rightly points out that applications for judicial advice are from time to time made by trustees of a trust that has been formed for the purpose of making payments to creditors following an administration of a company where the administrators are subsequently appointed as trustees of the trust: Re Creditors' Trust of Jackgreen (International) Pty Ltd [2011] NSWSC 748; Application of Solomons and Tayeh [2012] NSWSC 923; Re Bevillesta Creditors' Trust [2013] NSWSC 162; Re Creditors' Trust Deed established in the administration of Bevillesta Pty Ltd [2013] NSWSC 1258. She also fairly acknowledges that it is usually inappropriate for the Court to give judicial advice where the only matter concerns a commercial decision to be taken by a trustee: Application by Perpetual Trust Services Limited [2012] NSWSC 758 at [48]-[51].
The Trustees also rely on s 81 of the Trustee Act which provides that:
(1) Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law, the Court--
(a) may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, including adjustment of the respective rights of the beneficiaries, as the Court may think fit
…
(2) The provisions of subsection (1) shall be deemed to empower the Court, where it is satisfied that an alteration whether by extension or otherwise of the trusts or powers conferred on the trustees by the trust instrument, if any, creating the trust, or by law is expedient, to authorise the trustees to do or abstain from doing any act or thing which if done or omitted by them without the authorisation of the Court or the consent of the beneficiaries would be a breach of trust…"
In Riddle v Riddle (1952) 85 CLR 202, Dixon J (as his Honour then was) noted (at 214) that the power conferred by this section is also not to be restricted by any implications and that the term "expedient" in the section is "a criterion of the widest flexible kind" and means expedient "in the interests of the beneficiaries" and Williams J (at 220) noted that the provision "is couched in the widest possible terms" and the term "expedient" refers to a course that is "advantageous", "desirable" or "suitable to the circumstances of the case". Williams J also there observed (at 223-224) that:
"Section 81 authorises the Court to step in whenever it is of opinion that sound practical business considerations make it expedient that trustees should have administrative powers in addition to or overriding the powers derived from the trust instrument or the general law…Section 81 recognizes that trust instruments and the general law may often prove inadequate to clothe trustees with the requisite powers to manage and administer trust estates over a period of years to the best advantage and authorizes the Court to supplement or override these powers so far as may be expedient."
In Ku-ring-gai Municipal Council v Attorney-General (1954) 55 SR (NSW) 65 at 74, the Full Court noted that the power conferred by this section is available where:
"[A] question has arisen in the management or administration of property vested in a trustee and that the making of an order such as the section authorizes is expedient - that is, expedient in the management or administration of the property."
In Arakella Pty Ltd v Paton (2004) 60 NSWLR 334; [2004] NSWSC 13 at [81]-[82], to which Dr Higgins refers, Austin J observed that:
"Section 81(1) imposes two conditions upon the exercise by the Court of its statutory jurisdiction to make an order conferring power on trustees to enter into a transaction. They are:
(i) the Court is of the opinion that the proposed transaction is expedient in the management or administration of any property vested in the trustees; and
(ii) the transaction cannot be effected by reason of the absence of any power for that purpose vested in the trustees.
In its terms, s 81 does not impose any other limitation upon the exercise of the Court's power. The Court may make any order it thinks fit, to confer upon the trustees, either generally or in any particular instance, the necessary power to implement the transaction."
His Honour also observed (at [88]) that:
"…The words "management or administration", in a context such as appears in s 81, refer to both the manner in which trust property is managed, administered, handled, directed or controlled and the actual carrying out of those functions. In Re Downshire Settled Estates [1953] Ch 218, 247, Evershed MR and Romer LJ said that "the application of both words is confined to the managerial supervision and control of trust property on behalf of beneficiaries". Those observations, made about s 57 of the Trustee Act 1925 (UK), were applied to s 81 of the New South Wales Act by Rath J in Perpetual Trustee Limited v Godsall [1979] 2 NSWLR 785, 791."
Dr Higgins also refers to Re Dion Investments Pty Ltd (2014) 87 NSWLR 753; [2014] NSWCA 367 at [92] as authority that the concept of expediency is tied to the management or administration of trust property. That case is also authority that s 81 does not confer a power on the Court to vary the trust instrument, but rather to override or supplement its provisions in respect of a particular transaction or class of transactions. Barrett JA there observed (at [96]-[97]) (Beazley P and Gleeson JA agreeing) that:
"…When the court, acting under s 81(1), confers on a trustee power to undertake a particular dealing (or dealings of a particular kind), "it must be taken to have done it as though the power which is being put into operation had been inserted in the trust instrument as an overriding power": Re Mair [1935] Ch 562 at 565 per Farwell J. The substantive power that the court gives comes into existence by virtue of the court's order. It does not have its source in the terms of the trust. There is no addition to the content of the trust instrument. That content is supplemented and overridden "as though" some addition had been made to it. The terms of the trust are reshaped accordingly.
Conferral of specific new powers pursuant to s 81(1) should not be by way of purported grant of authority to amend the trust instrument so that it provides for the new powers. Rather, the court's order should directly confer (and be the sole and direct source of) the powers which then supplement and, as necessary, override the content of the trust instrument. And, of course, the only specific powers that can be conferred in that direct way are those that fall within the s 81(1) description concerned with management and administration of trust property…"
In Hancock v Rinehart (2015) 106 ACSR 207; [2015] NSWSC 646 at [183], Brereton J observed that:
"[W]hat the section authorises is an order conferring upon the trustee, either generally or in any particular instance, the necessary power for the purpose of effecting "the disposition or transaction". The Court's order does not amend the trust instrument, but confers the requisite power on the trustee despite the terms of the trust instrument."
Dr Higgins submits, and I accept, that the power under s 81 of the Trustee Act may here be exercised to assist, or permit, the Trustees to administer the assets of the Trust in the interests of creditors of the Virgin companies and beneficiaries of the Trust ("Trust Creditors") in a more practical manner than provided in the Trust Deed.
[3]
Affidavit evidence
The Plaintiffs rely on the affidavit dated 25 March 2021 of Mr Richard Hughes, who is one of the Trustees. Mr Hughes notes that that Trust was established by the Project Volar Creditors' Trust Deed dated 17 November 2000 ("Trust Deed") in the deed administration of Virgin Australia Holdings Limited ("VAH") and certain of its subsidiaries. Mr Hughes sets out the history of the administration and deed administration of the Virgin companies, commencing with the appointment of Mr Hughes and others as voluntary administrators of a number of the Virgin companies on 20 April 2021. Mr Hughes notes that, prior to that appointment, the Virgin Group comprised VAH, which was its ultimate parent company, the shares in which were listed on the Australian Securities Exchange, four main trading entities and nine special purpose entities used for holding and financing aircraft assets.
Mr Hughes notes that, from an initial review of the Virgin companies' books and records, the administrators identified that the Virgin companies had approximately 10,247 creditors (including 9,020 employees), and owed approximately $7,145.4 million to unrelated third party creditors, including secured and unsecured aircraft financiers and unsecured bondholders. Mr Hughes also noted that different creditor groups had different rights and priorities under provisions of the Corporations Act 2001 (Cth) and agreements with the Virgin companies. Mr Hughes also addressed the financial position of the Virgin companies, as set out in a report to creditors issued on 25 August 2020, and steps taken in subsequent proceedings in the Federal Court of Australia in which several orders and directions were made to facilitate the conduct of the administration and subsequent deed administrations.
Mr Hughes also referred to the use of a communications platform known as the "Halo Platform" to assist the administration, including for communication with creditors, managing the lodgement and adjudication of proofs of debts or claims and permitting creditors to vote on resolutions at or in advance of the second meetings of creditors in the voluntary administration. Mr Hughes also referred to orders made by the Federal Court of Australia in that respect, for the reasons set out in the judgment of Middleton J in Strawbridge, In the Matter of Virgin Australia Holdings Ltd (Admins Apptd) (No 6) [2020] FCA 1172, to which I refer below. Mr Hughes also describes the purpose of seeking orders relating to the use of the Halo Platform as an electronic means of communication and, where meetings are held, to hold meetings electronically without Trust Creditors being permitted to attend the offices of the Trustees in person, and to expedite the adjudication process.
Mr Hughes also sets out the steps which were subsequently taken for the sale of the business and assets of the Virgin companies and to the subsequent entry into 10 Deeds of Company Arrangement with BC Hart Aggregator LP ("Bain Capital") and to the completion of those arrangements. Mr Hughes noted that the DOCAs provided for a trust fund ("Trust Fund") to be established to meet the claims of unsecured creditors (including secured creditors to the extent of any deficiency in the value of their security) of the Virgin companies, other than specified excluded claims. He noted that, under the terms of the Trust Deed, the Trust Fund comprises three separate pools of money, with different eligibility criteria to be applied to meet claims of different creditors. Pool A is available for all creditors other than critical suppliers; Pool B is available for certain creditors of the IG DOCA Companies (as defined) who or which also have claims against the primary DOCA Companies (as defined); and Pool C is available for suppliers who or which have been determined as critical to the continuing operation of the Virgin companies' business. Mr Hughes in turn sets out the terms of the Trust Deed, including provisions dealing with the Trustee's powers, unclaimed monies, the Trustee's discretion, determination of claims and the giving of notices.
Mr Hughes in turn sets out the reasons for the Trustees' application for the orders sought, which largely relate to the scale and complexity of the Trust and the number of former creditors of the Virgin companies who are Trust Creditors. Mr Hughes indicates the Trustees' view that the orders sought in the application will allow substantial benefits to Trust Creditors, in efficiencies of administration and distribution of the Trust Fund, and will not prejudice them. Mr Hughes identifies several factors which support that view, including his view that most or all Trust Creditors are registered with the Halo Platform and Trust Creditors are already familiar with that platform by its use for the second meetings in the administration. Mr Hughes also identifies the likelihood of additional time delays if the Halo Platform could not be used in the administration of the Trust, and fairly recognises that Trust Creditors would need access to an internet connection to access that platform.
The Trustees also rely on the affidavit dated 25 March 2021 of Mr Orr, who is a partner in the Restructuring Services practice of Deloitte and has been assisting the Trustees in relation to the adjudication of debts and claims of creditors as a result of the administration of the Virgin companies. Mr Orr also describes the development and implementation of the Halo Platform, which was originally developed for a different purpose, but has been used for the external administration of the Virgin companies and further adapted for use in the adjudication of claims of trust creditors in payment of dividends by the Trustees from the Trust Fund, by adding additional capabilities. Mr Orr notes that the administrators did not become aware of any adverse issues with the use of the Halo Platform in the voluntary administration, and refers to the use of that Platform for communications with creditors in the course of the voluntary administration. He also refers to orders made by the Federal Court to facilitate the use of the Halo Platform in the voluntary administration and, to the registration of creditors on that Platform in the course of the voluntary administration, and to the facility for Trust Creditors to update and lodge a formal proof of debt or claim for adjudication under cl 7.2 of the Trust Deed prior to the payment of any dividend under the terms of the Trust Deed. He outlines the steps which the Trustees propose to take in relation to the adjudication of trust debts in that process including steps which would be taken where a Trust Creditor's claim had been rejected or partially admitted, to advise creditors of their ability to appeal the adjudication of their proof of debt.
Mr Orr also identifies several efficiencies which he expects will be derived from the use of the Halo Platform and identifies the steps taken to ensure security and privacy in respect of that platform and to maintain bank account details for the purposes of paying any dividend payable under the Trust Deed. Mr Orr expresses the view that, for the reasons set out in his affidavit he use of that Platform by the Trustees in exercising their powers under the Trust Deed, including in relation to the adjudication of Trust Creditors' claims, would benefit Trust Creditors by achieving time and cost saving and improving the efficiency and accuracy of the adjudication of proofs of debt and payment of dividends from the Trust Fund.
By a further affidavit dated 6 April 2021, Ms Adams, a solicitor acting for the Trustees, refers to steps taken to give notice of the application to the Australian Securities and Investments Commission ("ASIC"), which has advised that it would not appear at the hearing, and to Trust Creditors by notice given on the Halo Platform. No Trust Creditors sought to be heard in respect of the application.
[4]
Orders 1, 3-4 and 16 - Use of the Halo system and conduct of meetings
Before turning to the particular orders that are sought, I should note Dr Higgins' submission, which I accept, that the primary task of trustees of a trust such as the Trust is to determine for whom the trust fund is held and in what amounts the participating creditors are entitled to the trust fund: Application of Solomons and Tayeh above at [32]. She points out that the fund held in the Trust is large and there are also a large number of Trust Creditors and that the Trustees seek the orders and directions concerning the use of the Halo Platform and dealing with claims payable in a foreign currency or to a bank account in another currency to assist them in managing and adjudicating the large number of Trust Creditors' claims efficiently and effectively. Dr Higgins also submits, and I accept, that the orders sought under ss 63 and 81 of the Trustee Act are directed to the management and administration of the Trust Fund and the process for determining the amounts payable to Trust Creditors.
Turning now to the relief that is sought in respect of the Halo Platform, by paragraphs 2(b)-(m) and 4 and 4A of the Amended Originating Process, which were reformulated to some extent in draft orders 1(a)-(l), 3-4 and 16, the Liquidators seek directions and orders under ss 63 and 81 of the Trustee Act as to the use of that platform in aspects of the administration of the Creditors Trust. By proposed order 1(a), the Trustees seek orders directed, broadly, to their requesting creditors to register on the Halo Platform, if they have not already done so, in order to vote at or participate in meetings convened under the terms of the Trust Deed and/or lodge any proof of debt or claim in the Trust. The Trustees also seek authority under s 81 of the Trustee Act permitting them to take that course. By proposed orders 1(b)-1(c), the Trustees also seek a direction concerning their use of the Halo Platform to communicate with Trust Creditors who have registered on that platform in respect of specified matters and their providing notices required under the terms of the Trust Deed by taking specified steps including, if a Trust Creditor is a registered user on the Halo Platform, by publishing a notice by that platform. Orders 4 and 16 are also sought under s 81 of the Trustee Act in this regard. Dr Higgins submits, and I accept, that these orders relate to the administration of the Trust and, where the Trust Deed does not empower the Trustees to take this course, the orders should be made having regard to the benefits of the use of that platform.
By proposed orders 1(f) and 5, the Trustees seek directions that, broadly, they are justified in requesting that all formal proofs of debt or claim be lodged by the Halo Platform by the date specified in a notice issued by the Trustees in a form equivalent to a notice issued under reg 5.6.48(1) of the Corporations Regulations, with that date to be no less than 14 days from the date on which the notice is served ("POD Lodgement Date") and, with a qualification, disregarding any formal proofs of debt or claim not lodged by the Halo Platform by the POD Lodgement Date. An order is also sought under s 81 of the Trustee Act in this regard. By proposed order 1(g), the Trustees seek a direction that, with respect to any particulars of a debt or claim submitted by a Trust Creditor (including a person or entity claiming to be a Trust Creditor) prior to the POD Lodgement Date, they are justified in entering the information provided by the Trust Creditor onto the Halo Platform and registering the relevant Trust Creditor's details on, or with, that platform. By proposed order 1(h), the Trustees seek a direction that they are justified in treating any proofs of debt or claim that were lodged on, or with, the Halo Platform by a creditor of any one or more of the Virgin companies in the administration or deed administration of the Virgin companies, as a formal proof of debt or claim in the Trust (notwithstanding that no such formal proof of debt or claim has been lodged by the Trust Creditor prior to the POD Lodgement Date); and recording the information previously provided (including the creditor's details) on the Halo Platform. By proposed order 1(i), the Trustees seek a direction that they are justified in proceeding on the basis that Trust Creditors may not, at any time after the POD Lodgement Date, without the express written consent of the Trustees, amend or replace any formal proof of debt or claim lodged on, or with, the Halo Platform.
Dr Higgins submits that, because of the significant costs of managing the process of adjudicating the claims of Trust Creditors, the Trustees seek to establish a regime that essentially utilises the Halo Platform as an exclusive means by which to process and adjudicate on those claims. She outlines the steps involved in the process to be adopted by the Trustees, by reference to Mr Orr's evidence, of:
first issuing a circular to creditors to all Halo Platform users that will give notice of the Trustees' intention to declare any (interim or final) dividend ("Notice"); then calling for formal proofs of debt to be lodged by the POD Lodgement Date; providing a proposed timeline for the adjudication process and payment of any dividends; and providing details on how to lodge or amend any previously lodged proofs of debt on the Halo Platform (including the ability to "convert" an informal proof of debt to a formal proof of debt);
publishing the Notice and the call for proofs of debt in a national newspaper;
requiring that Trust Creditors lodge their proof of debt or claim on the Halo Platform, either by generating a new claim on Halo; or by formalising an existing proof of debt or claim on Halo lodged in the course of the administrations (which is treated as an informal proof pending its formalisation);
if, by the POD Lodgement Date, a beneficiary does not convert his, her or its existing informal proof of debt (lodged in the course of the administrations) to a formal proof of debt or claim (for the purposes of the Trust), any such informal proof of debt will automatically be formalised as a proof of debt after the POD Lodgement Date and the Trustees will then proceed to adjudicate that beneficiary's claim;
accepting formal proofs of debt or claim which are lodged by Trust Creditors other than by the Halo Platform (for example, claims sent to the Trustees via email or post) up to the POD Lodgement Date, in which case the Trustees will manually enter this data into the Halo Platform and the relevant beneficiaries will then be sent a link to that platform by email asking them to confirm their registration (as occurred in the course of the external administrations);
setting a deadline of the POD Lodgement Date to lodge or amend any formal proof of debt;
requesting that Trust Creditors provide bank account details for the payment of any dividend by entering that information on the Halo Platform, securing that information (and limiting the number of persons able to access it), and then paying dividends to Trust Creditors by the nominated accounts;
de-duplicating possible double-claims;
adjudicating on the Trust Creditors' claims having regard to the proof of debt or claim lodged by the creditor in the administrations; the previous amount in which such proof of debt or claim was admitted for voting purposes at the Second Meetings (and the Administrators' reasons for that decision); all documents uploaded by the creditor to support the amounts claimed in their proof of debt or claim lodged for voting purposes for the Second Meetings; any further documentation that has been lodged by the Trust Creditors and/or changes that have been made to any proof of debt or claim since the Second Meetings; and the books and records of the Virgin companies to validate amounts claimed by creditors;
once a beneficiary's debt or claim is adjudicated, updating the beneficiary's account on the Halo Platform and notifying the beneficiary of the outcome by email (including with information as to how to appeal the outcome of the adjudication process); and
Dr Higgins submits, and I accept, that requiring the use of the Halo Platform is a practical way of assisting the Trustees to manage dealings with the significant number of creditors in the Trust. She points out that almost 13,000 identified creditors of the Virgin companies (and Trust Creditors) have already been registered as users on Halo, and have already been provided with numerous communications regarding Halo and with assistance such as the Halo FAQs and the "Halo Help" form and have a level of familiarity with it from its use in the voluntary administrations of the Virgin companies and that there has been no complaint about the practical operation of the system. She also submits that "it would be impractical and significantly time consuming and costly to require the Trustees: (a) to allow [Trust Creditors] to lodge proofs of debt and claim; and (b) to communicate with [Trust Creditors], other than via the Halo Platform" and points to Mr Orr's evidence that the use of the Halo Platform as an exclusive means of lodgement and adjudication of Trust Creditors' claims is likely to involve an estimated cost saving of $3.8 million and a time saving of 8 weeks, to the advantage of Trust Creditors as a whole.
Dr Higgins also points out that the Corporations Regulations (as applied to the Trust) contemplate that notices can be given to or by creditors by electronic means (see reg 5.6.11A) and many cases have permitted external administrators to communicate with creditors solely in that fashion where email addresses are available and otherwise by publication on a website or by newspaper advertisement; that existing Trust Creditors who have already lodged informal proofs of debt or claim in the course of the external administrations will not be disadvantaged because, in the absence of lodgement of a formal proof by any such a beneficiary, these informal proofs will be converted into a formal proof in the Trust on the Halo Platform; and this approach has an analogy with the use of online portals (sometimes combined with other mechanisms) where an external service provider is retained in a large administration to assist in verifying, adjudicating and processing claims. That analogy, and the practical difficulty in utilising other mechanisms in an insolvency of this scale, were recognised by Middleton J Strawbridge, In the Matter of Virgin Australia Holdings Ltd (Admins Apptd) (No 6) above at [38]. So far as the Trustees propose to set the POD Lodgement Date, Dr Higgins points out that the Corporations Regulations (as applied to the Trust) contemplate that proofs of debt must be lodged by particular dates.
Dr Higgins also points to Mr Hughes' evidence that he does not anticipate that any beneficiary of the Creditors Trust will be prejudiced by the implementation of the regime proposed by the Trustees, other than potentially a very small class of persons who do not have an internet connection available to them or are unable to use the internet; and to his observation that Trust Creditors are already registered on the Halo Platform and that email communications in accordance with the Trust Deed would in any event require access to the internet. It is also relevant, as Dr Higgins points out, that Trust Creditors and ASIC were notified of the application and neither Trust Creditors nor ASIC opposed the orders or sought to be heard on the application.
[5]
Order 1 (d) - Conduct of meetings
By proposed order 1(d), the Trustees also seek a direction that they are justified in holding any meetings of Trust Creditors, convened pursuant to cl 9 of the Trust Deed, by telephone or audio-visual conference only at the place of the Trustees' offices, without the Trust Creditors or their representatives being permitted to attend physically at that place. By proposed order 1(e), the Trustees seek directions that, broadly, they are justified in requesting that any Trust Creditors who wish to participate at any meetings held by telephone or audio-visual conference, lodge their vote on the Halo Platform by a specified date and not permitting any Trust Creditor to vote at any meetings if they do not lodge a vote in accordance with that mechanism. I accept that these directions should be given, at least by reason of uncertainty caused by the COVID-19 pandemic, the absence of any express power in cl 9 of the Trust Deed for the Trustees to hold meetings of Trust Creditors remotely (that is, only by telephone or audio-visual conference, rather than in person), the large number of Trust Creditors, and the need for a cut-off date for voting in order to manage such a meeting and preserve the integrity and efficacy of the voting process.
[6]
Order 1(j) - Collection and storage of bank account details
By proposed order 1(j), the Trustees seek a direction that they are justified in collecting and storing bank account details of Trust Creditors for the purposes of paying any dividend that may be payable to any Trust Creditor pursuant to the terms of the Trust. Dr Higgins submits, and I accept, that this order should be made to ensure that the Trustees can collect information to assist them to make distributions from the Trust Fund to Trust Creditors in the quickest and most efficient manner.
[7]
Orders 1(k)-1(l) - Payment of claims in foreign currencies
By proposed orders 1(k)-1(l), the Trustees also seek a direction that if, for the purposes of s 554C of the Corporations Act 2001 (Cth) as applied to the Trust, one or more of the Virgin companies and a Trust Creditor have not previously agreed on a method to be applied for the purpose of converting the relevant Virgin company's liability in respect of the Trust Creditor's debt or claim into Australian currency; and the opening carded on demand airmail buying rate available at the Commonwealth Bank of Australia ("CBA Carded Rates") does not list a particular foreign currency for the debt or claim of the Trust Creditor, then they are justified in using the exchange rate for the particular foreign currency recorded with the Reserve Bank of Australia as at the relevant date (as that term is defined in s 9 of the Corporations Act); or otherwise as determined in a specified manner. They also seek a direction that they are justified in proceeding on the basis of using the best available Australian Dollar (AUD) exchange rate available to them on the date of payment of any dividend into any foreign nominated account. In his affidavit dated 25 March 2021, Mr Hughes identifies the purpose of seeking this order and also refers to the purpose of the order relating to the date of the exchange rate that is to be used where a dividend is to be paid into a foreign bank account. Dr Higgins in turn submits, by reference to that evidence, that the nature of the business and operations of the Virgin companies was such that a number of the Trust Creditors have claims in a foreign currency or may nominate a foreign currency denominated bank account to receive payment of dividends declared by the Trustees.
Dr Higgins points out that, under s 554C of the Corporations Act, as applied by cl 7.3 of the Trust Deed, the Trustees are required to use the CBA Carded Rates, as at the date of the administrators' appointment, for the calculation of claims of the Trust Creditors in a foreign currency. However, CBA Carded Rates are not listed for all foreign currencies that apply to the claims of certain Trust Creditors (such as the Fijian dollar or the Tongan Pa'anga) and the Trustees propose to use the historical conversion rates for those currencies maintained by the Reserve Bank of Australia or, in the absence of that information being available, the historical rates listed on a third party website. That approach is expedient in the circumstances and the Court should confer the necessary power to take it on the Trustees and, given the potentially large number of creditors affected by it, direct the Trustees that they are justified in taking it.
Dr Higgins also notes, by reference to Mr Hughes' evidence that, where dividends are payable to Trust Creditors who have listed foreign currency bank accounts, the Trustees propose to identify the best available exchange rate available from different financial institutions on the day of proposed payment (noting that the exchange rate as at the day of payment of the dividend will likely differ from the exchange rate as at the date when the dividend is declared, where there would otherwise be a loss of value to those Trust Creditors from using an inferior exchange rate. In the course of oral submissions, I noted the possibility that this approach involves a commercial judgment, and is arguably so obviously advantageous to the affected creditor that the relevant decision was not likely to be controversial and did not warrant a direction by the Court. With a degree of hesitation, I made that direction, since it may not be possible to forecast the impact of a particular approach to this issue with certainty, even if a small number of creditors are affected by it, in dealing with a very large of claims in total.
[8]
Order 2 - Storage of information on the Halo system
By paragraph 3 of the Amended Originating Process and proposed order 2, the Trustees seek an orders conferring additional powers on them under s 81 of the Trustee Act, that, with respect to material and information concerning a Trust Creditor's debt or claim that has been provided by that Trust Creditor to the Trustees, they are empowered and authorised to store that material and information on the Halo Platform in an accessible form in the relevant Trust Creditor's Halo Platform account; and, if a Trust Creditor (including a person or entity claiming to be a Trust Creditor) notifies the Trustees that he, she or it disputes a decision, notice or adjudication by the Trustees about the Trust Creditor's debt or claim, they are empowered and authorised (to the extent that they had not previously been) to provide that person or entity with all relevant material and information used or relied upon by the Trustees in making their decision, notification or adjudication not already provided to or by the Trust Creditor (subject to any obligations of confidentiality relating to information or documentation of third parties). Dr Higgins submits, and I accept, that this order relates to the administration of the Trust and it should be made in circumstances where neither the Trust Deed nor the application Corporations Regulations (as applied to the Trust) explicitly empower the Trustees to take these steps.
[9]
Order 5 - 7 - Lodgement of proofs of debt and processing of claims
Paragraph 5 of the Amended Originating Process seeks several orders conferring powers on the Trustees in addition to those conferred under cl 7.3(b) of the Trust Deed, which applies various provisions from the Corporations Regulations as if references to the liquidator in that paragraph were references to the Trustees, references to winding up were references to the Trust Deed and with "such other modifications as are necessary to give effect to this Deed". Dr Higgins points out that the additional powers sought in paragraphs 5(1)-(3) concern further modifications to the Corporations Regulations to authorise the use of the Halo Platform in the manner proposed by the Trustees.
Specifically, by paragraphs 5(1)-(2) of the Amended Originating Process and proposed order 5, the Trustees seek further power, under s 81 of the Trustee Act, for lodgement of proofs of debt or claims by the Halo system. By paragraph 5(3) of the Amended Originating Process and proposed order 6, the Trustees seek further power, under s 81 of the Trustee Act, in processing and adjudicating on the claims of Trust Creditors, to proceed on the basis that, for the purposes of the application of regs 5.6.48 and 5.6.53(1) by cl 7.3(b) of the Trust Deed (and notwithstanding reg 5.6.53(1)), they may admit all or part of the formal proofs of debt or claim, reject all or part of the proof of debt or claim or require further evidence in support of it, within 28 business days after the POD Lodgement Date. By proposed order 7, they also seek a corresponding direction, under s 63 of the Trustee Act, that they are justified in admitting all or part of the formal proofs of debt or claim, rejecting all or part of the proof of debt or claim, or requiring further evidence in support of it, within 28 business days after the POD Lodgement Date. Dr Higgins submits, and I accept, that the Court should confer the additional powers on the Trustees referred to in these orders, given the advantages of the use of the Halo Platform to which I have referred above, and the doubts that might otherwise attend its use unless specifically authorised by the Trust Deed.
By paragraphs 5(4) - 5(5) of the Amended Originating Process and proposed orders 8 and 10, the Trustees seek an order, under s 81 of the Trustee Act, that they are empowered and authorised, in processing and adjudicating on the claims of Trust Creditors, to proceed on the basis that:
for the purposes of the application of reg 5.6.65(1) by clause 7.3(b) of the Trust Deed (and notwithstanding reg 5.6.65(1)), they may give notice of their intention to declare a dividend not more than 4 months before the intended date; and
for the purposes of the application of reg 5.6.66(1) by cl 7.3(b) of the Trust Deed (and notwithstanding reg 5.6.66(1)), and if notice has been given in accordance with reg 5.6.65(1), they may take specified steps within 28 business days of that notice, namely to admit a formal proof of debt or claim received by the Trustees; or reject it; or admit part of it and reject part of it; or require further evidence in support of it; and in each case, give notice of the Trustees' decision to the Trust Creditor who submitted the proof.
By proposed orders 9 and 11, the Trustees seek corresponding directions, under s 63 of the Trustee Act. I am satisfied that these orders and directions should be made to confirm a timing for the process that recognises both the need for reasonable expedition and the complexity of the process.
[10]
Orders 12 and 13 - Discount rate
By paragraph 5(6) of the Amended Originating Process and proposed order 12, the Trustees seek an order, under s 81 of the Act, that they are empowered and authorised, in processing and adjudicating on the claims of Trust Creditors, to proceed on the basis that, for the purposes of the application of reg 5.6.44 by cl 7.3(b) of the Trust Deed (and notwithstanding reg 5.6.44), the Trustees may apply a discount by which the amount payable on the future date is to be reduced under s 554B of the Corporations Act, of 4% a year calculated from the declaration of the dividend to the time when the debt would be payable according to the terms on which it was contracted. By paragraph 13, they seek a direction under s 63 of the Trustee Act that they are justified in taking that course.
Dr Higgins points out that s 554B of the Corporations Act and reg 5.6.44 of the Corporations Regulations set the percentage discount to be applied to debts that are admissible to proof but that, as at the relevant date, are not payable until an ascertained or ascertainable date in the future. Mr Hughes' evidence is that the Trustees wish to align the percentage discount more closely with the rates set by the Reserve Bank of Australia, where interest rates have reduced substantially in recent years, by reducing the percentage discount from 8% per year to 4% per year, calculated for the period from the declaration of the dividend to the time when the debt would be payable according to the terms on which it was contracted. Dr Higgins submits, and I accept, that the order sought will prevent unfair prejudice to Trust Creditors who have future debts, by ensuring that the discount that is applied to such debts reflects more closely the true use value of money over time. I am satisfied that the Court should exercise its discretion in s 81 of the Trustee Act to confer an additional power on the Trustees in this form.
[11]
Orders 14 and 15 - notices given on the Halo platform
By paragraph 6 of the Amended Originating Process and proposed order 14, the Trustees seek an order, under s 81 of the Trustee Act, that they are empowered and authorised, in processing and adjudicating on the claims of Trust Creditors, to proceed on the basis that, for the purposes of cl 18.2 of the Trust Deed (and notwithstanding cl 18.2), they may issue a notice by means of the Halo Platform. By proposed order 15, they seek a corresponding direction under s 63 of the Trustee Act that they are justified in taking that course.
Dr Higgins notes that this order seeks to override a limitation in cll 18.2 and 18.3 of the Trust Deed to permit notices by the Halo Platform. Dr Higgins recognises that there is a question whether cll 18.2 and 18.3 apply to communications by or on behalf of the Trustees with Trust Creditors, who are generally not party to the Trust Deed, although they will at least apply to several Deed Companies that are party to the Trust Deed. She recognises that, if they do not, this order may not be necessary, save to the extent that the Deed Companies are also Trust Creditors, but that matter itself provides sufficient basis for the order. She points out that the effect of this order is to ensure that, to the extent that communications with Trust Creditors are subject to cll 18.2 and 18.3, communications via the Halo Platform are permitted by reason of the additional powers conferred on the Trustees. I am satisfied that power should be expressly conferred, to avoid uncertainty and the costs of any potential dispute as to this matter, given the scale and complexity of processing and adjudicating on claims, and because of the benefits of using the Halo Platform to which I have referred above.
[12]
Orders
For these reasons, I made the amended orders sought by the Trustees at the conclusion of the hearing on 6 April 2021.
[13]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 28 April 2021
otherwise providing detail as to the process for appealing a rejection or partial admission of a beneficiary's claim.
Several aspects of Dr Higgins' submissions generally parallel the observations of Middleton J in Strawbridge, In the Matter of Virgin Australia Holdings Ltd (Admins Apptd) (No 6) above (at [32]-[39]) in respect of the similar advantages of the use of that platform in the administrations, as follows:
"First, mandating the use of the Halo Platform is a practical way of assisting the Administrators to manage the extraordinarily large number of creditors in the administrations. In circumstances where Customers may also seek to lodge claims or proofs in the administrations, the Administrators are faced with a situation where there may be hundreds of thousands of creditors in total. In order to manage a creditor pool of that size, the Halo Platform provides a practical, user-friendly and secure process and it is appropriate that it be the exclusive system in which creditors' claims be lodged and adjudicated.
Secondly, a large number of the total creditors (other than Customers) are already registered on the Halo Platform (10,945 creditors as at the time of Mr Orr's affidavit).
Thirdly, the Administrators have provided numerous communications to creditors regarding Halo (with appropriate assistance such as the Halo FAQs and the 'Halo Help' form) and also intend to establish a 'web chat support function' and telephone service to respond to enquiries and to assist creditors to register and lodge claims on Halo.
Fourthly, it would be impractical, significantly time consuming and unduly costly to require the Administrators to permit creditors to lodge claims other than on the Halo Platform. Mr Orr estimates a cost saving of over $3 million will be obtained from implementing Halo as the exclusive means by which to manage dealings with the adjudication of creditors' claims and the voting process. That will be a benefit that will accrue to the creditors as a whole by reducing the costs of the administrations.
Fifthly, the Halo Platform is likely to be used by the Administrators (subject to appropriate orders of the Court) as the mechanism by which votes for the purposes of the Second Meetings are recorded. Such an electronic platform will be necessary in the light of the current COVID-19 pandemic which will preclude the possibility of a physical meeting.
Sixthly, creditors who have thus far not lodged claims on Halo will not be disadvantaged as the Administrators have manually inputted this information into Halo.
Seventhly, it is not uncommon in large administrations for an external service provider to assist in verifying, adjudicating and processing claims. For example, in In the matter of BBY Limited (Receivers and Managers appointed) (in liquidation) (No 3) [2018] NSWSC 1718 ('Re BBY'), Brereton J (as his Honour then was) acknowledged that the liquidators of BBY Ltd (which was a large stockbroking firm in liquidation) would be justified in retaining Link Market Services and creating an online portal managed by Link Market Services as part of adopting a particular process for the verification and adjudication of claims of BBY clients: see [64], [74], [108]-[109]. In that case, the online portal was not the only mechanism and clients who were unable to access the internet were permitted to proceed by hard copy documentation: Re BBY at [64(1)]. However, for the reasons explained above, the size of the creditor pool in the current administrations makes that impractical as an available option moving forward at all times up to the Second Meetings.
In the current case, the Administrators are not seeking to outsource that process altogether to a third party. Rather, they are simply seeking to implement a regime whereby the Halo software provides an exclusive basis for managing the process."
His Honour also referred to making an order of the kind proposed by the creditor which had appeared in that application as follows (at [40]):
"Eighthly, as to the Creditor Information Order, I will make an order in substance proposed by Mr Lazarides. Creditors should be entitled to information about them and their position, but should not be entitled to confidential information concerning anyone else. This position is consistent with the adjudication process, which is undertaken on the basis of the information a creditor has provided to support her, his or its debt or claim. That information, together with any adjudication decision (and further correspondence between the Administrators and creditor as to the decision, including additional information or documentation lodged by the creditor), I expect will, primarily, be stored on the Halo Platform and will be accessible in the individual creditor's account. Nevertheless, if there is other material or information relied upon by the Administrators, I do not consider that the Creditor Information Order will place an unjustifiable burden on the Administrators to require all of the relevant information to be made available to a particular creditor."
It seems to me this approach is expedient in the circumstances and that the Court should confer the necessary power to take it on the Trustees and, given the potentially large number of creditors affected by it, direct the Trustees that they are justified in taking it. I accept that an order under s 81 of the Trustee Act is appropriate, in the circumstances, where several Deed Companies are also Trust Creditors and party to the Trust Deed which limits notices to email and would not permit such notification through the Halo Platform and for the other reasons noted in dealing with proposed orders 14 and 15 below.