Aron & Company v Newmont Yandal Operations [2003] NSWSC 835 | Case summary

What happened

Newmont Yandal Operations Pty Ltd (NYOL) was in voluntary administration. Administrators proposed a deed of company arrangement (DOCA) that would, if implemented, inject substantial cash from Newmont Australia and reorganise a number of related or "secondary" companies so they could continue trading under an "Admin Co", with a distribution fund established for creditors. Most creditors holding hedge contract exposures had earlier accepted buyout offers and their receivables were transferred to Yandal Bond Co, a related entity. J Aron & Company, a creditor who did not accept the buyout, remained exposed and would be dealt with under the DOCA at a proposed settlement of around 40 cents in the dollar.

At the second creditors' meeting the resolution approving the DOCA was passed, carried largely by votes of related parties. J Aron commenced proceedings under s 600A (and prospectively s 445D) to set aside the resolution and obtained an ex parte interlocutory injunction that restrained implementation of the DOCA. At the hearing of the return application (8 September 2003), Barrett J considered whether to continue the interlocutory injunction pending the substantive challenge. He refused to renew or extend the interim order and released the defendants to proceed (paras 1–2, 4–7, 21).

Key practical features that shaped the decision were: the DOCA sponsor's timing provisions (clause 2.4 requiring certain steps within five business days post-resolution and statutory 21-day execution period), the substantial new money promised by Newmont Australia, the likely inferior recoveries on a winding up compared with the DOCA, and the plaintiff's lack of demonstrable presence or assets in Australia and absence of any offered undertaking in damages (paras 5–12, 16–20).

Why the court decided this way

Barrett J proceeded on two broad axes: first, the ordinary interlocutory question of balance of convenience; second, the specific onus upon a foreign plaintiff seeking interlocutory relief to demonstrate capacity to support the usual undertaking in damages.

Serious question to be tried: The plaintiff relied on s 600A (unreasonable prejudice to dissenting creditors) and s 445D (oppressive or unfairly prejudicial DOCA). The defendants accepted that the DOCA differentiated the plaintiff but submitted, relying on Lam Soon, that differentiation alone does not establish the necessary unreasonable prejudice or unfairness (para 9). Barrett J did not resolve whether there was a strong serious question; he accepted the defendants' contention for the purpose of argument and advanced to the balance of convenience (para 9).
Balance of convenience: The court emphasised the commercial reality that the DOCA was the only credible restructuring mechanism on the table and that it would inject significant new funds. Without the DOCA, Barrett J concluded that creditors were likely to be worse off in a winding up than under the DOCA (para 12). At the hearing date there was a real prospect that the DOCA could not operate if implementation were delayed because clause 2.4's five-business-day deadline effectively expired the day of hearing and statutory execution timeframes ran quickly thereafter (paras 10–11). Given that the DOCA benefited the general body of creditors and the risk that delaying it might destroy the rescue, the balance favoured permitting the DOCA to proceed (para 12).
Onus as to undertaking in damages: J Aron was a foreign company that, on the evidence, had no presence in Australia, no clear proof of incorporation, no evidence as to assets or financial position, and no guarantee from its alleged US parent (paras 16, 19). Citing Warren J in Hotline Communications, Barrett J observed that a foreign plaintiff bears an onus to produce specific evidence of capacity to meet an undertaking for damages; that onus here was heavy and remained unmet (paras 17–18). The practical effect was that an interlocutory injunction without adequate security would impose risk on third parties (the general body of creditors) and the administrators.
Availability of s 447A relief: Barrett J also treated the flexibility of s 447A (as framed by the High Court decision in Australasian Memory Pty Ltd v Brien) as an important factor. If J Aron ultimately succeeded on a substantive challenge, s 447A provided sufficient remedial power to frame orders to vindicate the plaintiff's position, including potentially varying or undoing elements of the DOCA (paras 13–15). This mitigated the plaintiff's argument that interim relief was essential to prevent irreversible prejudice.

Taking these considerations together, Barrett J concluded the balance of convenience, the plaintiff's failure to meet the onus as a foreign plaintiff, and the availability of s 447A remedies favoured refusal of the interim injunction (paras 12–20, 21).

Before and after state of the law

Before this decision, the legal principles on interlocutory relief in the companies/administration context were well established: courts would consider whether a serious question existed and then weigh the balance of convenience; if a foreign plaintiff sought injunctive relief, authorities required evidence as to capacity to satisfy undertakings in damages (see Hotline Communications, and English authorities referred to therein) (para 17).

This judgment applies and clarifies those principles in the DOCA context by:

Reaffirming that differentiation of treatment of creditors (alone) does not automatically satisfy the substantive tests in s 600A or s 445D; the court will look for unreasonable prejudice or unfairness (para 9).
Stressing the importance of the balance of convenience where a DOCA offers the only practicable rescue and brings fresh capital, particularly where tight timing clauses mean interim relief may preclude the DOCA's operation (paras 10–12).
Underscoring the heavy evidentiary burden on a foreign plaintiff with no domestic presence to show capacity to meet an undertaking in damages, and that failure on this point may be decisive where the injunction would adversely affect third parties (paras 16–19).
Recording that the flexibility of s 447A is a material factor when assessing interim relief because the court can potentially remedy unfairness post-implementation (paras 13–15).

After Aron v Newmont Yandal, practitioners should expect courts to treat DOCA implementation as having strong public interest where it is the only credible rescue and to require foreign creditors to be particularly robust in demonstrating security for undertakings if they seek to restrain such a restructuring.

Key passages with plain-English translation

Para 12: "I consider the balance of convenience to be against the plaintiff."
Plain English: After weighing harms, the judge decided that the likely damage to many creditors from stopping the DOCA outweighed the potential harm to J Aron if the DOCA proceeded.
Para 16: "There is thus no evidence that the plaintiff has a presence within the jurisdiction..."
Plain English: The plaintiff did not show it had offices, assets, or legal registration in Australia, which matters because it makes enforcement of any damages award uncertain.
Para 18: "The onus of the foreign plaintiff without a presence in the jurisdiction is accordingly a heavy one."
Plain English: If you are a foreign company with no Australian footprint and you ask for an injunction that could harm local parties, the court expects strong proof that you can pay damages if you're wrong.
Para 14: "I believe ... that s 447A ... provides a vehicle by which that could be done."
Plain English: Even if the plaintiff later wins, the court has wide powers to fix things after the DOCA is implemented.
Para 10: Discussion on clause 2.4 timing.
Plain English: The DOCA had strict deadlines that risked being missed if the court intervened; if those deadlines were missed the DOCA might not be able to proceed at all.

What fact patterns trigger this precedent

This decision is most directly applicable where:

A DOCA or other creditors' restructuring is approved and a dissenting creditor seeks interlocutory relief to restrain implementation; and
The DOCA is the only realistic rescue available, offers material new funding that benefits the general body of creditors, and contains tight timing clauses so that any delay risks destroying the restructure; and
The applicant is a foreign creditor with no established presence or assets in Australia and cannot credibly support an undertaking as to damages; and/or
There is an available statutory remedial route (s 447A) to remedy any wrongs should the applicant later succeed.

In such circumstances, courts will scrutinise the applicant's evidence of capacity to meet undertakings, assess the risk to third parties and the possibility of later remedial orders, and will likely refuse interlocutory relief if the balance of convenience disfavors interruption of the DOCA.

How later courts have treated it

Barrett J relied upon earlier authorities (such as Hotline Communications and Lam Soon) and key appellate authority on remedial powers (Australasian Memory). The decision manifests how NSW Supreme Court judges apply those authorities in administration contexts: they combine commercial realism (harm to many creditors from stalling a DOCA), procedural safeguards (onus on foreign plaintiffs), and statutory flexibility (s 447A) in balancing interim relief. The reasoning provides a practical template cited in subsequent interlocutory contexts where creditor applicants lack local presence or where timing imperatives are decisive. Practitioners should check later appellate authority for any refinement, but Aron is a useful trial-level statement of the weight courts place on these factors.

Still-open questions

The judgment did not determine whether a serious question to be tried existed on the substantive statutory grounds (s 600A/s 445D). Future cases will need to elaborate the precise content of "unreasonable prejudice" or "unfair discrimination" in closely analogous creditor-voting and related-party-voting circumstances; Barton J's and appellate treatments remain important for that analysis (para 9).
The extent to which s 447A can be used to unwind or vary material commercial commitments in a DOCA after implementation remains fact-specific. Aron underscores its availability as a remedial device but does not catalogue limits to the exercise of that power; higher court guidance remains important for predicting outcomes of post-DOCA remedies (paras 13–15).
The judgment leaves open the question of what specific evidence will suffice for various classes of foreign plaintiffs to meet the heavy onus about undertakings in damages. Whether provision of parent company guarantees, bank guarantees, or identifiable asset declarations will be routinely required will depend on context and the potential scale of damage to third parties (paras 16–20).
Finally, when the sponsor has unilaterally set tight DOCA timing clauses, the extent to which the sponsor can be required to extend or relax those deadlines in the exercise of the court's equitable discretion at interlocutory stages has not been definitively resolved; Aron treats the clauses as fixed for interim assessment but acknowledges arguments that the sponsor could change them (para 11).

Practitioners should use Aron as a caution: where a creditor seeks to enjoin a DOCA, present strong evidence of a serious question on the merits, demonstrate capacity to satisfy undertakings, and anticipate that courts will weigh the rescue's benefits and timing risks heavily in assessing interim relief.

4666/03 - J ARON & COMPANY v NEWMONT YANDAL OPERATIONS PTY LTD (ADMINISTRATORS APPOINTED) & 2 ORS JUDGMENT 1 By its originating process filed in court on Wednesday last, 3 September, the plaintiff claims an order pursuant to s.600A of the Corporations Act 2001 (Cth) setting aside a resolution passed at the second meeting of creditors of the first defendant, Newmont Yandal Operations Pty Limited (or "NYOL"), held under the provisions of Pt 5.3A of the Act. As an interim measure, the plaintiff seeks continuation pending trial of an interlocutory order made by McDougall J ex parte on 3 September restraining execution of a deed of company arrangement in accordance with that resolution. That order imposed a restraint expiring at 4pm today. In the course of the hearing this afternoon, I extended the order to 7pm. 2 The defendants are NYOL and its administrators, Mr Korda and Mr Mentha. They were represented before me by Mr Beach QC and Mr Dick of counsel. In accordance with leave previously granted, Mr Whelan QC and Mr Crutchfield of counsel appeared for Newmont Australia Limited (the holding company of NYOL) and Yandal Bond Co Limited (a related entity of NYOL and Newmont Australia). I granted leave under Corporations Act Rule 2.13 for certain additional persons to be heard, being two unrelated creditors represented by Mr Gleeson SC and Mr Howard of counsel and 313 employee creditors represented by Mr Johnson of counsel. The defendants and the persons given leave to be heard all oppose the grant of the relief the plaintiff seeks. 3 The plaintiff, J Aron & Company, was represented by Mr Macfarlan QC and Mr V R W Gray of counsel. It is a creditor of NYOL in respect of a certain crystallised sum resulting from close out of certain hedge contracts in respect of gold, NYOL (the former Great Central Mines) being a goldminer and the plaintiff being a participant in commodities markets. The plaintiff is also said to be a member of the Goldman Sachs Group. I shall say more in due course about its connection with Australia (or lack thereof). 4 As a preliminary to the deed of company arrangement proposal I am about to mention, all parties standing in relation to NYOL in a position corresponding with that of the plaintiff were, at the behest of Newmont Australia, offered a price of some 50 cents in the dollar for their debts. On acceptance of the offer by those who accepted it, the receivables were transferred to Yandal Bond Co which, as I have said, is a related party of NYOL and Newmont Australia. Most of the parties in that position accepted this offer. The plaintiff did not. There was a similar offer in relation to certain debentures or notes of NYOL, with a similar result in that one holder did not accept. As a result of these offers, most of the hedge contract and debenture liabilities of NYOL became owed to Yandal Bond Co, the major exception being the liability to the plaintiff. 5 In accordance with the decision made at the second meeting of creditors, the administrators propose to have NYOL enter into the deed of company arrangement. As far as the plaintiff is concerned, that will involve another opportunity for it to sell its debt, but this time for only something of the order of 40 cents in the dollar. In addition, the deed of company arrangement proposal will see the liquid assets of each of a number of secondary companies also in administration and proposed to be subject to their own deeds transferred to a company designated "Admin Co" which will also assume their liabilities, so that each secondary company then continues its business with what might be termed a new lease of life. Creditors of NYOL (excluding those in respect of liabilities still owed by NYOL under of the hedge contracts and debentures acquired by Yandal Bond Co) will participate in the benefits of a distribution fund. That fund will consist of three and perhaps four elements. The first element will be the liquid assets of all the affected companies including those transferred from the secondary companies. The second element will be a specific cash contribution by Newmont Australia sufficient to meet the claims of employees and trade creditors in full, subject to an upper limit of US$21 million. The third element of the distribution fund will be a further contribution by Newmont Australia (called the general contribution) in the sum of US$22,981,060 less the amounts, if any, absorbed by acceptance by the plaintiff and the one outstanding noteholder of offers to buy out their debts (in the plaintiff's case, at approximately 40 cents in the dollar and, in the noteholder's case, for some US$81,000). The final element, if necessary, will be a further contribution by Newmont Australia sufficient to bring returns to ordinary creditors, including the plaintiff (if it does not accept the offer of approximately 40 cents in the dollar), up to what they would have received in a winding up if the value of the NYOL Group was US$150 million. 6 Under the fall back position under the proposed deed, creditors, including the plaintiff will thus be dealt with on the basis of a value for the NYOL Group of US$150 million on an assumed winding up. There are, needless to say, different views about what the value is or may be and various pieces of evidence referring to those views. It is sufficient to say that no reliable findings on that matter can be made at this stage. 7 The plaintiff's challenge to the resolution approving the deed of company arrangement is based on the pattern of voting that occurred at the second meeting of creditors. The position accepted for the purposes of this application is that the resolution was carried by the votes of related parties of NYOL. If those votes had been excluded, the twofold majority required by regulation 5.6.21 would not have been achieved, in that positive votes would have represented a majority of creditors in number but a minority by value. As a result, the chairman, being one of the administrators, would have been entitled to exercise a casting vote. He would have exercised such a vote in circumstances where the substantial bulk of the majority in value against was represented by the present plaintiff. 8 The plaintiff's claim and the serious question to be tried on which it relies in seeking interlocutory relief is based on s.600A and, in a prospective sense, s.445D. The aspect of s.600A upon which the plaintiff would place principal reliance is that based on unreasonable prejudice to creditors voting against the resolution (s.600A(1)(c)(ii)). In the s.445D context, the claim would be founded mainly on the proposition that the deed operated oppressively or in a way that was unfairly prejudicial to or unfairly discriminatory against the plaintiff as a creditor (s.445D(1)(f)). 9 The defendants say that there is no serious question to be tried or, if there is, that it is thin. They accept that the proposed deed puts the plaintiff on a special footing and that there is discrimination in the ordinary sense of the word, meaning differentiation or distinction. However, they point to the decision of the Full Federal Court in Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (1996) 70 FCR 34 as authority for the proposition that distinction or differentiation alone is by no means enough to trigger these sections. For s.600A purposes, however, a plaintiff needs to show something that is both prejudicial and unreasonable, while in the s.445D context the criterion is one that entails unfairness in a broad sense. I find it hard to discern elements of those kinds in the present case at this stage, but I am content for the moment to follow the approach of the defendants and to pass over the serious question issue and to go to the balance of convenience or balance of hardship. 10 In doing so I must first say that this deed of company arrangement proposal is the only proposal that has come forward to the administrators although the plaintiff did at one stage indicate that it might advance a deed of company arrangement proposal. I must also say something about timing aspects under the proposed deed. The deed is, by its terms, expressed to take effect on its commencement date which is effectively when all the related deeds of the secondary companies have been executed. Clause 2.4 says that various things must happen within five business days after the passing of the approval resolution under s.439C and it is, I think, common ground that, according to the way in which the days are to be counted under the deed, that period of five business days expires at the end of today. There is a question as to what happens under the deed if the clause 2.4 deadline is missed. It seems to me that, in that event, what is arguably a central condition of the deed will not have been satisfied, with the result that there must be a serious question as to whether anything tangible will then be capable of happening under the deed. Other timing factors are that, under the Corporations Act, a deed of company arrangement must be executed within 21 days from the relevant resolution and that the deed itself provides that, if it is not executed by 22 September, Newmont Australia's obligation to inject funds does not arise. 11 Mr Macfarlan QC submitted on behalf of the plaintiff that the matters of timing are really the unilateral creation of Newmont Australia and that, just as Newmont Australia fixed the timings in the first place, so it may change them and should do so. Newmont Australia, for its part, says in effect that all this has gone on long enough and that it will not extend time. I think I am in a position where I must take these matters as I find them, so that there is, as I see it, a substantial doubt as to whether the deed will operate effectively or at all if the things that are contemplated as happening by today do not happen. 12 In light of that, I must say that I consider the balance of convenience to be against the plaintiff. Under the deed proposal, a substantial amount of new money will be injected by Newmont. The plaintiff will be a beneficiary of that, as will other creditors. Without the deed and the cash injection, there are perhaps theoretical alternatives to winding up but, on the evidence, no tangible possibility has been shown. The evidence at this point suggests that, on just about any view, I think, creditors are likely to be worse off under a winding up than under the proposed deed. 13 The plaintiffs, if they believe the deed will operate in the oppressive or unfair way they fear, can and no doubt will pursue their s.600A application in the first instance and in due course a s.445D application. The problem with that, they say, is that the horse will have bolted and, even if they are successful in those applications, s.600E and s.445H will have the effect of leaving in place what has already happened under the resolution or deed before the successful challenge to it. The submission made by Mr Beach against that is that this is not necessarily so and, in particular, that if the plaintiff could show in connection with a successful application under either section that something should be undone properly to vindicate the position the plaintiff had thereby achieved, s.447A is a vehicle by which that could be done. 14 I must say that, having regard to the extreme flexibility of s.447A as confirmed by the High Court in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270, I believe that submission to be well founded. Reference was made to the case of Re Ansett Australia Ltd (2002) 41 ACSR 598, where there is reference by Warren J to the capacity of s.447A actually to vary a deed of company arrangement. Reference may also be made to a judgment of Austin J in Gibbons v LibertyOne Ltd (2002) 41 ACSR 442 where there is a detailed analysis of the extreme breadth of the principles enunciated in Australasian Memory Pty Ltd v Brien. 15 In short, the court has at its disposal sufficient power under s.447A to frame remedial orders in the interests of justice in connection with any successful s.600A or s.445D application by the plaintiff in due course. This is, of course, another factor favouring the defendants on the balance of convenience. 16 A further aspect of the balance of convenience must also be dealt with. The plaintiff is a foreign company which does not appear to have any presence in the jurisdiction (by which I mean not only New South Wales but Australia as a whole). An affidavit of its solicitor filed on its behalf suggested that it maintained a place of business in Sydney. When Mr Gleeson tendered material showing that there was no foreign company registration as required by s.601CD, Mr Macfarlan was given leave to adduce oral evidence from the solicitor who then testified that what he had said in his affidavit was a misapprehension or misunderstanding. There is thus no evidence that the plaintiff has a presence within the jurisdiction and no evidence as to the place of the plaintiff's incorporation. Nor is there any evidence as to its financial position, although there is hearsay evidence of its solicitor that it is wholly owned by Goldman Sachs Group Inc of the United States. No guarantee by that purported ultimate holding company or by anyone else in respect of any undertaking as to damages the plaintiff would give has been foreshadowed. 17 In Hotline Communications Ltd v Hinkley & Ors [1999] VSC 74, Warren J said: "There is no evidence whatsoever as to the financial position of the second to sixth plaintiffs. So far as all of the plaintiffs are concerned there is no evidence of any assets within the State of Victoria that can be looked to in the event that any undertaking as to damages is called upon. The English authorities state the position clearly that a foreign plaintiff bears an onus to produce specific evidence as to its capacity to meet an undertaking for damages if called upon to do so (see Vapormatic Co Ltd v Sparex Ltd (1976) 1 WLR 939; also, LockInternational v Beswick (1989) 1 WLR 1268). 18 Given the benefits that the general body of creditors of NYOL will apparently derive from successful implementation of the deed of company arrangement proposal and the likelihood (to which I have referred) that the proposal will not be capable of proceeding if the clause 2.4 deadline of today is missed, coupled with the operation that the "usual undertaking as to damages" has under Pt 28 r 7(2) of the Supreme Court Rules in favour of "any person" affected by the operation of the interlocutory order, that undertaking has particular significance in this case. The onus of the foreign plaintiff without a presence in the jurisdiction is accordingly a heavy one. 19 It was submitted on behalf of the plaintiff that, as a short interim measure, an injunction might be granted without security for the undertaking for damages, and the matter then re-visited. However, in view of the importance of today in the scheme of the proposed deed, the fact that this hearing was scheduled several days ago and the expectation that any applicant for an interlocutory injunction will come to court with all preparations duly made so far as the fundamental matter of the undertaking as to damages is concerned, I do not consider that to be an acceptable approach. There was an eleventh hour attempt before I began to give judgment to bolster matters by reference to a letter from the co-chairman of Goldman Sachs Australia Pty Ltd referring to the source of his instructions and making unsupported assertions about who has authority to speak for J Aron & Company, but that does not take matters beyond the unsubstantiated and essentially uninformative version of matters that was given by the solicitor. 20 The plaintiff's inability to show that it has in fact instructed its counsel to offer the undertaking as to damages and its failure to address the related onus arising from its lack of connection with the jurisdiction is another matter operating against it on the balance of convenience. 21 In the result and for the reasons I have given, the balance of convenience favours the defendants upon this application in several ways which together mean that the injunction granted ex parte by McDougall J on 3 September (and extended by me during this afternoon to 7 o'clock tonight) will not be renewed or extended.

Aron & Company v Newmont Yandal Operations

At a glance

Result

Key principles

Issues before the court

Plain English Summary

Cited legislation

Deep Dive

What happened

Why the court decided this way

Before and after state of the law

Key passages with plain-English translation

What fact patterns trigger this precedent

How later courts have treated it

Still-open questions

Judgment (8 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (3)

AI Analysis