Australian Securities and Investments Commission v Diploma Group Limited

COLVIN J: 1 Mr Jarrod Villani is a liquidator of Black Oak Minerals Limited (in liq) (Black Oak). He was appointed together with Mr Hudson and Mr Winterbottom as a liquidator of Black Oak in 2006. They had previously been appointed as voluntary administrators of the company. 2 The major creditor of Black Oak is Netherlands 1 Coӧperatief V.A. (Trailstone). It is secured. Immediately following the commencement of the administration of Black Oak, Trailstone appointed receivers and managers of the property of Black Oak. 3 At the time of the report to creditors by Mr Villani, Mr Hudson and Mr Winterbottom as administrators, which was in December 2015, there was no proposal for a deed of company arrangement and liquidation was recommended. The creditors voted unanimously for liquidation. 4 Since then the receivers have sold substantially all of the assets of Black Oak and the realisation of the assets of Black Oak has been under their control. However, efforts by the receivers to sell a gold project owned by Black Oak known as the Marda Gold Project (Project), were unsuccessful. 5 In July 2018 the receivers commenced a new sales process for the Project. 6 From 31 July, the receivers retired and the liquidators of Black Oak took over the sale process for the Project. The retirement of the receivers was brought about as a result of a conflict that arose through the merger of insolvency firms. 7 On 12 September 2018, the liquidators, after supervising the bid process for the Project and reviewing all bids, entered into a deed for the proposed acquisition of the Project by Ramelius Resources Limited (Ramelius). Trailstone as a secured creditor has supported the sale process. 8 The deed contemplates a sale through a deed of company arrangement by which a subsidiary of Ramelius will acquire the shares in Black Oak and all debts of Black Oak will be compromised and released. 9 The Court has been provided with details of the deed of company arrangement (DOCA) proposal. Amongst other things, it will provide for the opportunity of a return to unsecured creditors that would not be available if the assets comprising the Project had been transferred to Ramelius and all the proceeds were then claimed by Trailstone under its security. The amount of any such return will be a matter in the hands of the unsecured creditors when the DOCA proposal is presented to them for consideration in accordance with the terms contemplated by the deed. 10 The proposal also provides for remuneration of the deed administrators according to KordaMentha's standard hourly rates but subject to statutory oversight requirements. Although the deed proposal refers to the provisions of s 449E of the Corporations Act 2001 (Cth) as a constraint upon the amount of remuneration, that provision has been repealed. However, in context, the reference in the deed to s 449E should be taken to be a reference to cl 60(10) of Schedule 2 to the Corporations Act which is the replacement provision. So the position is that there will be the application of the relevant statutory oversight in respect of the remuneration. 11 A non-refundable deposit of $500,000 has been paid which may be applied to meet the costs associated with the implementation of the proposed DOCA. If the DOCA proposal is not accepted, then those funds will be provided to the liquidator. 12 I note that the deed also contemplates an application to terminate the liquidation upon the DOCA being put into effect. 13 Ultimately it will be a matter for the creditors of Black Oak as to whether they accept a DOCA proposal of the kind outlined in the deed. Therefore, the Court is not concerned to review its terms other than for the limited purpose of the present application. 14 Mr Winterbottom has resigned as a liquidator in the course of the liquidation of Black Oak. Mr Villani now applies for orders under s 436B(2)(g) and s 447A of the Corporations Act. 15 ASIC has been notified of the application and does not seek to appear. 16 Mr Villani seeks leave pursuant to s 436B(2)(g) to allow himself, Mr Hudson (who continues as a liquidator of Black Oak), and another partner of KordaMentha, Mr Tucker, to be appointed as administrators of Black Oak. Mr Tucker has deposed to his involvement in the assessment of proposals for the sale of the project and that he has no conflict. He is a registered liquidator. 17 As I have noted, Mr Villani and Mr Hudson were previously the administrators of Black Oak. Prior to their appointment as previous administrators and as liquidators, Mr Villani and Mr Hudson had no involvement with the directors or the affairs of Black Oak until a matter of days before their appointment. 18 Applications for leave of the kind sought in the present application were approved in similar circumstances in each of Australian Securities and Investments Commission v Diploma Group Limited (No 5) [2017] FCA 1147; Re Nardell Coal Corp Pty Ltd [2003] NSWSC 860 and Schwarz, in the matter of Gordon Smith Marketing Pty Ltd (Administrator Appointed) [2016] FCA 1378. 19 In the circumstances I have outlined, the grant of leave will facilitate the avoidance of duplication of costs and allow for efficient administration in the interest of creditors. The nature of the proposed transaction to facilitate the sale of the Project is reasonably complex and in the events which have occurred, are matters known to each of Mr Villani, Mr Hudson and Mr Tucker. They have been involved in the conduct of the sales process to this point and there is no evident conflict between their role as liquidators and their role as administrators given that to this point much of the realisation of assets, if not the entirety, has been in the hands of the receivers appointed on behalf of the secured creditor Trailstone. 20 As to Mr Tucker, on the evidence it is sensible to include him in the proposed appointment as a person who is not also a liquidator of Black Oak and a person who has familiarity with the proposed transaction. 21 As I have explained, there are arrangements in relation to remuneration that will ensure that there will not be pressure for the liquidation to bear costs associated with presentation of the proposed DOCA to creditors out of any funds that are held in the liquidation. 22 In those circumstances I am satisfied that there should be leave granted as sought. 23 In addition, three orders are sought under s 447A of the Corporations Act. I am satisfied that in the particular circumstances of this case, given that Mr Villani is a party to whom I have determined leave should be given to be appointed as administrator, that he is an interested party for the purposes of s 447A(4) who may seek orders under that provision. 24 The first order sought would dispense with the requirement for a first meeting of creditors under s 436E. I am satisfied that in the circumstances where there has been a previous administration and report to creditors, it is appropriate for the first meeting to be dispensed with, and I note that an order of that kind was made in similar circumstances in Diploma Group. 25 The second order would limit the information to be provided in the report to creditors and that is to be issued in accordance with r 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth), to the details of the proposed transaction recorded in the deed as described in the affidavit of Mr Villani in support of the application, as well as information necessary to compare the outcomes of proceeding with the proposal the subject of the deed as against other likely outcomes if that proposal did not proceed. 26 I am satisfied that an order of that kind should be made as no purpose would be served in providing a full report to creditors given that they have received such a report in the earlier administration. Further, it is apparent on the evidence that the ongoing affairs of Black Oak are now very much confined to the proposed sale and what is likely if the proposed sale did not proceed. I accept that on the evidence what is required is for a report to creditors setting out details of the sale proposal to Ramelius and the likely outcomes if the proposal does not proceed. 27 As this is an application brought ex parte by liquidators, if there are other matters relevant to be investigated that might bear upon matters relevant for report, then it is to be expected that they would be drawn to the Court's attention and no such matters have been presented in the affidavit material relied upon for the application. 28 The third order sought would amend the convening period pursuant to s 439A(5) to a period of 15 business days after the administration begins. The meeting of creditors must be held within five business days before or five business days after the end of the convening period. The statutory provisions as to notice of a meeting of creditors will apply unchanged if the order is made. Given the absence of any need to undertake all of the investigations that would otherwise pertain to an administration in the usual circumstances, I am satisfied that it is appropriate for the short adjustment to the convening period to be granted in order to move along the consideration by creditors of the DOCA proposal. 29 So for those reasons, I am satisfied that the orders sought on the application should be granted and I will grant orders in terms of the minute of orders dated 1 October 2018. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Colvin.