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.