Australian Securities and Investments Commission v Continental Coal Limited

BARKER J: 1 On 27 May 2016, I ordered that the defendant, Continental Coal Limited (ACN 009 125 651) be wound up and made related orders. These are the reasons for so doing. 2 When the application for the winding up order came on for hearing, counsel for the defendant formally read an affidavit made 27 May 2016 by Mr Peter Neil Landau, Executive Director of the defendant, and applied for an adjournment of the hearing for the period of one month. 3 Mr Landau referred to emails that he had sent to a number of creditors and also referred to various communications that indicated a range of entities agreed to a one month adjournment of the winding up application. 4 Mr Landau indicated that the adjournment was sought to allow time to progress the proposed recapitalisation plan, referred to in the Court's earlier decision, ordering the appointment of the provisional liquidator to the defendant. See Australian Securities and Investments Commission v Continental Coal Limited [2016] FCA 416. 5 In the result, after considering the matter, the Court refused the application for the adjournment, essentially on the basis that the recapitalisation proposal did not appear to be any further advanced than it had previously been at the time the Court ordered that the provisional liquidator be appointed. 6 Upon refusal of the adjournment, counsel for the defendant and Mr Landau withdrew from the Court. I then heard submissions on behalf of the plaintiff, ASIC (the Australian Securities and Investments Commission), as to why the defendant should finally be wound up. 7 In moving for a winding up order, ASIC relied on materials already filed in relation to the application to appoint the provisional liquidator and submitted that nothing provided to the Court since that appointment had displaced or called into question any of the material previously filed. 8 ASIC noted that in a Report as to affairs (RATA) provided to the provisional liquidator by Mr Landau, it was estimated that the defendant's assets were worth in the order of $67 million but that their realisable value was under $6 million. ASIC noted that, in substance, the defendant was said to have two assets - a debt owed to it by Ivory Mint Holdings Corp, which the company had made no attempt to enforce, and an interest in a South African coal mining project which was held by an associated South African company called Continental Coal South Africa Limited (CCLSA). That latter company was in the hands of a business rescue practitioner. 9 ASIC pointed out that, in contrast, the RATA estimated that the defendant had admitted debts in excess of $32 million and did not disclose that the defendant was actively carrying on any business or generating any revenue. 10 ASIC noted that the provisional liquidator's preliminary report examined the assets and liabilities of the defendant, as to which the provisional liquidator had relevantly concluded: Total assets included in the RATA had an estimated realisable value of $5.8 million against total liabilities of $32.7 million. The $5 million ascribed to assets "held for sale" may in fact be nil, as any realisation proceeds from De Wittekrans would likely be applied against repayment of secured debt and was therefore not expected to be available to creditors of the defendant. The total assets of the defendant appeared insufficient to satisfy its total liabilities. Nine creditors with debts totalling in excess of $16.2 million considered their debt due and payable, noting the defendant had cash at bank of $7,524. 11 On this basis, the Court accepted the submission made on behalf of ASIC that the information before the Court demonstrated that the defendant was insolvent. 12 ASIC also referred to the preliminary report which, it submitted, reinforced the concerns the Court had previously expressed when appointing the provisional liquidator, concerning the defendant's management. The preliminary report noted inconsistencies in representations made to the provisional liquidator as to the security structure of the group, which would be investigated further by any official liquidator appointed. 13 ASIC also referred to the provisional liquidator's note that no evidence had been supplied to him to support assertions made by Mr Landau that $1.2 million of the $2 million owed by Ivory Mint to the defendant was actually owed to Okap Ventures Pty Ltd, a company controlled by Mr Landau. 14 Finally, ASIC noted that the provisional liquidator had commented on what might be termed an informal recapitalisation proposal submitted to him by Mr Landau in an email dated 17 May 2016. The provisional liquidator considered the broad conceptual elements of the proposal had been known since at least 21 April 2016 but no evidence had been provided to support whether the proposal had progressed or whether it had reasonable prospects of success. Also, the proposal was highly conditional with no certainty of success. And even if the proposal was successful, it would be insufficient to repay all of the defendant's creditors in full. 15 The Court accepted the substance of those submissions made on behalf of ASIC. 16 The simple fact was that, at the hearing, there was nothing to indicate there had been any improvement in the financial or management position of the defendant since the time the Court appointed the provisional liquidator to the defendant. 17 In particular, the recapitalisation proposal previously advanced on behalf of the defendant by Mr Landau had not achieved any greater definition than when it was first put. As the provisional liquidator observed, it was highly conditional and, in the Court's view, was very unlikely to succeed. 18 In all of these circumstances, the Court considered, on the just and equitable ground under s 461(1)(k) of the Corporations Act 2001 (Cth), that the defendant should be wound up. 19 In short: the defendant was demonstrated to be insolvent; the defendant had demonstrably not complied with its obligations in relation to its management, including, but not limited to, the keeping of its books and records; there was good reason to believe that the defendant had not carried on its business with the public and had repeatedly breached the law; the defendant's current management could not be trusted to manage it effectively and in accordance with the law; and if the only prospect of the defendant's creditors being paid was said to lay in the realisation of the value of its coal mining interest (leaving aside the debt owed by Ivory Mint), then that could also be achieved by the liquidator. 20 For these reasons, the above orders were made. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.