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[2017] FCA 914
Federal Court of Australia
2017-07-18
O'Callaghan J
Original judgment source is linked above.
Law Journal 235 Wellard and Walton, "A Comparative Analysis of Anglo-Australian Pre-Packs: can the means be made to justify the ends?" (2012) 21(3) International Insolvency Review 143 Xie, Comparative Insolvency Law: The Pre-pack Approach in Corporate Rescue (Edward Elgar Publishing, 2016)
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Counsel for the Plaintiffs: Mr L Zwier and Ms E Hilton
Solicitor for the Plaintiffs: Arnold Bloch Leibler
Solicitor for the Amicus Curiae: Australian Securities and Investments Commission
11 August 2017 The appearance of Ms Elyse Hilton has been added to the cover page and at [4]
11 August 2017 "stakeholders" has been substituted for "shareholders" in the first sentence of the quote at [35]
ORDERS VID 768 of 2017
IN THE MATTER OF TEN NETWORK HOLDINGS LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 081 327 068 AND EACH OF THE COMPANIES NAMED IN THE SCHEDULE
MARK KORDA, JARROD VILLANI AND JENNIFER NETTLETON IN THEIR CAPACITIES AS JOINT AND SEVERAL ADMINISTRATORS OF TEN NETWORK HOLDINGS LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 081 327 068 AND EACH OF THE COMPANIES NAMED IN THE SCHEDULE
TEN NETWORK HOLDINGS LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 081 327 068 AND EACH OF THE COMPANIES NAMED IN THE SCHEDULE
JUDGE: O'CALLAGHAN J DATE OF ORDER: 17 July 2017
ORDERS VID 768 of 2017
IN THE MATTER OF TEN NETWORK HOLDINGS LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 081 327 068 AND EACH OF THE COMPANIES NAMED IN THE SCHEDULE
MARK KORDA, JARROD VILLANI AND JENNIFER NETTLETON IN THEIR CAPACITIES AS JOINT AND SEVERAL ADMINISTRATORS OF TEN NETWORK HOLDINGS LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 081 327 068 AND EACH OF THE COMPANIES NAMED IN THE SCHEDULE
TEN NETWORK HOLDINGS LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 081 327 068 AND EACH OF THE COMPANIES NAMED IN THE SCHEDULE
JUDGE: O'CALLAGHAN J DATE OF ORDER: 18 july 2017
introduction 1 The principal issue arising in this proceeding concerns the terms upon which administrators appointed pursuant to s 436A of the Corporations Act 2001 (Cth) (the Act) may continue to act when, in their prior capacity as "potential" or "putative" administrators, they have had recent, long-term, substantial and remunerative involvement with the company or companies to which they are appointed. 2 The first plaintiffs bring this proceeding in their capacities as joint and several administrators of Ten Network Holdings Ltd and each of the other companies that comprise what is referred to as the Ten Group. The second plaintiffs are each of those companies, which are listed in the schedule to these reasons. 3 The Ten Group operates free-to-air television and online and digital platforms throughout Australia, including broadcasting on television channels Ten, One and Eleven. It currently employs 748 members of staff. 4 Each of the plaintiffs was represented in this proceeding by Mr Leon Zwier, a partner of the law firm Arnold Bloch Leibler, and Ms Elyse Hilton, a senior associate of that firm. The Australian Securities and Investments Commission (ASIC) was granted leave to appear as amicus curiae in relation to the principal issue set out at [1] above. Mr Stewart Maiden of counsel appeared on behalf of ASIC. 5 ASIC and the first plaintiffs agreed that the issues that arise for determination concerning the role of the administrators are important ones, because they involve the interests of creditors, Ten Group employees and shareholders and because, as counsel for ASIC put it: …the court's reasons will give guidance to the insolvency and restructuring profession, and to company directors, both as to the proper boundaries of pre-administration work that might be undertaken in complex restructuring situations, and as to the appropriate actions in the event that those boundaries are exceeded. 6 The hearing was brought on as a matter of urgency because, among other things, the limited funding necessary to continue the operation of the business of the Ten Group is available only until the end of August 2017. 7 With respect to the legal implications of the prior involvement of KordaMentha as "potential" or "putative" administrators, there was, ultimately, no issue between the plaintiffs and ASIC as to the form of the order that should be made. On 18 July 2017, I made the orders set out earlier, including most relevantly for present purposes that: Pursuant to section 447A of [the Act], Peter Gothard a registered liquidator and partner of Ferrier Hodgson is appointed to: (a) prepare a limited report for inclusion in the report required to be given to creditors of each of [the Ten Group Companies] pursuant to section 439A(4) of the Act, which considers the matters set out in regulation 5.3A.02 of the Corporations Regulations 2001 (Cth) and any other provision or law which may result in a recovery for creditors in a liquidation of [the Ten Group Companies], including, but not limited to: (i) any claims arising from the conduct of the directors, officers, advisors (including Gilbert + Tobin) and/or KordaMentha as prospective administrators of each of [the Ten Group Companies] prior to the appointment of the First Plaintiffs; and (ii) whether the remuneration received by KordaMentha in respect of work undertaken by KordaMentha prior to the appointment of the First Plaintiffs are voidable preferences; (b) supervise the First Plaintiffs' conduct so as to satisfy himself that the First Plaintiffs are acting consistently with their statutory duties and fiduciary obligations as administrators of [the Ten Group Companies], in relation to any claims which Ferrier Hodgson identify in the report prepared pursuant to this Order that the Plaintiffs may pursue or should further investigate. 8 Aside from the orders concerning the role of Mr Gothard and related orders, the first plaintiffs sought orders extending the convening period for the second meeting of creditors and orders in relation to the form of notice to be given to creditors in respect of that meeting. ASIC did not seek to be heard on those issues and I made the orders sought by the first plaintiffs in those two respects on 17 July 2017. Those orders are also set out earlier. 9 Having determined that it was appropriate to make the orders that the Court made on 17 and 18 July 2017, I said that I would give reasons for having done so at a later date. These are those reasons.
"Potential" or "putative" administrators 10 It is, and has been for some decades, commonplace for large and complex companies, or companies operating in a complex group of related companies, to engage an insolvency practitioner to undertake a contingency plan in the event that it becomes necessary to appoint administrators. Such a person is referred to as a "potential" or "putative" administrator (hereafter referred to as a potential administrator), because an assumption of their engagement is that the potential administrator can, and will, if necessary, step into the role of administrator and be able to commence that role seamlessly or, as it was agreed during oral argument, commence that role "hitting the ground running". 11 Mr Korda is one of the first plaintiffs in this proceeding. He and the other first plaintiffs, Mr Villani and Ms Nettleton (collectively, the administrators) were appointed as joint and several administrators of each of the companies in the Ten Group pursuant to s 436A of the Act, by resolutions of the directors on 14 June 2017. The administrators, with the agreement of the secured creditors, continue to operate the business of the Ten Group. Two weeks after the appointment of the administrators, receivers and managers were appointed to various assets of companies in the Ten Group (the receivers). The receivers have assumed control of the sale process in respect of the business of the Ten Group. 12 Mr Korda is a very experienced insolvency practitioner with over 30 years' experience advising "stakeholders" in complex corporate advisory, insolvency and restructuring matters. In this proceeding, Mr Korda gave evidence, with which ASIC agreed, about the nature of modern day corporate restructuring. It was important evidence because it formed the critical context in which the principal issue arose in this proceeding. Accordingly, it is appropriate to set out that evidence in full: …[I]t is now usual for a company or corporate group and/or its advisors (particularly, if that company or group is complex and large) to, at the same time as pursuing restructuring options, engage an insolvency practitioner to undertake contingency planning for a possible future administration, in case the restructuring options do not succeed. Most distressed, larger, complex corporate groups in the twilight zone of solvency broadly consider 4 options, in the following priority: (a) a work out with creditors without appointing an external administrator; (b) a solvent scheme of arrangement to restructure senior debt if a work out is not possible; (c) a 'light touch' insolvency, such as voluntary administration or receivership to maximise the chances of the business continuing and improving the return to creditors and shareholders (if possible); and (d) the impacts of a free fall insolvency. As part of assessing these options, it is critical for the directors to analyse the consequences of a voluntary administration, receivership or liquidation. While an administrator may not be appointed to the company, prudent boards now generally retain an independent potential administrator to plan for a future administration. If the company has engaged an insolvency practitioner (who is prepared to accept an appointment) to prepare with a robust, well thought out plan for administration, the likelihood that the company can achieve either the outcomes in (a) and (b) above is much higher as creditors are usually able to see that they are likely to be worse off if the company was placed into administration. When this contingency work is undertaken, it is completed on the basis that the company will not need to appoint an administrator, in the hope that the other turnaround strategies being pursued are successful. The practitioner does not know when, or if at all, the company will be put into administration. The contingency planning work can be undertaken for in excess of a year if negotiations become protracted and the proposed administrator will be required to be continually updated. One of the best chances a company has to avoid an insolvency is often to carefully plan for it and retain a proposed administrator early in that process. For complex and large corporate groups, engaging an insolvency practitioner to prepare an administration plan is also critical to enable the potential administrator to fully understand the business and its cash flow, so that if appointed, they are able to keep the business operating as usual. If an administrator is appointed and there is insufficient cash to sustain operations, the administrator may be forced to cease trading (that is what occurred when Ansett was placed into voluntary administration). It is critical for directors to make sure prior to any appointment that the proposed administrator is able to keep the business alive. Directors are usually minded to do all that is necessary to maintain the existence of the company in the best interests of all stakeholders, should other turnaround strategies fail. 13 In Commonwealth of Australia v Irving (1996) 65 FCR 291, Branson J also recognised (at 296) that: [i]t is now commonplace for a company to seek professional advice respecting actual or apprehended insolvency and for the advice received to be to appoint an administrator pursuant to Pt 5.3A of the [Act]. Not infrequently, and, in my view, not improperly, the proponent of the advice to appoint an administrator then accepts appointment as that administrator. There would, I consider, be an air of commercial unreality about any suggestion that this course of events is necessarily improper. 14 Options (a) and (b) to which Mr Korda referred in his evidence (quoted at [12] above) are referred to variously as "restructurings", "workouts" and "corporate rescue". As Mr Howard, a partner of Sullivan & Cromwell LLP, and Mr Hedger, a director of the Global Restructuring Group, Royal Bank of Scotland, explain in their work, Restructuring Law and Practice: [r]estructurings, workouts and corporate rescue are all interchangeable terms that describe the process by which the liabilities of a company in financial difficulties are restructured so as to enable the company, and therefore value, to be preserved and for its business to be carried on as a going concern. The fundamental principle is that the company is restructured on a consensual basis even if an insolvency process is occasionally used as an implementation device. (C Howard and B Hedger Restructuring Law and Practice (LexisNexis, 2013) at 1.) 15 The principal reasons advanced in favour of "undertaking an informal consensual restructuring" rather than deploying the "panoply of statutory techniques" are "the potential for improved value recovery, flexibility, lower cost and expediency of the arrangements, both as to how the rescue is planned and implemented": C Howard and B Hedger, Restructuring Law and Practice (LexisNexis 2013) at 4. 16 During the course of oral submissions, Mr Zwier referred to the use in other jurisdictions of so-called pre-packaged administrations. A "pre-pack" is "a device that has been encountered on the UK insolvency scene since the mid-1980s" and "is a process in which a troubled company and its creditors conclude an agreement in advance of statutory administration procedures": V Finch, Corporate Insolvency Law: Perspectives and Principles (2nd ed, Cambridge University Press, 2009) at 453. Mr Howard and Mr Hedger explain the three main types of schemes that have evolved - a "pre-pack" scheme, a "cram down" scheme and a "distribution" scheme - in their work: C Howard and B Hedger, Restructuring Law and Practice (LexisNexis 2013) at 445-446. 17 In the United Kingdom, at least, "the entire [pre-pack] process is dealt with outside of court with no requirement to obtain the prior consent of different classes of creditor": M N Wellard and P Walton, "A Comparative Analysis of Anglo-Australian Pre-Packs: can the means be made to justify the ends?" (2012) 21(3) International Insolvency Review 143 at 143-144. As Mr Wellard and Dr Walton explain, "the customary UK pre-pack involves no formal creditor participation or court approval and is, at its very core, a procedure which relies on the implementation of the business sale transaction immediately upon the initiation of an out of court voluntary administration process": M N Wellard and P Walton, "A Comparative Analysis of Anglo-Australian Pre-Packs: can the means be made to justify the ends?" (2012) 21(3) International Insolvency Review 143 at 146. As to the "rise of the pre-pack", both in the United Kingdom and in the United States, see V Finch, Corporate Insolvency Law: Perspectives and Principles (2nd ed, Cambridge University Press, 2009), ch 10; and see generally B Xie, Comparative Insolvency Law: The Pre-pack Approach in Corporate Rescue, (Edward Elgar Publishing, 2016), chs 1 and 2. 18 As Mr Wellard and Dr Walton also explain: …the cosmetic similarities of the UK and Australian [insolvency] legislation belie significant underlying differences in general law custom and practice. These distinguishing jurisdictional features explain why the prevalence of UK pre-packaged administrations has not been emulated in Australia. (M N Wellard and P Walton, "A Comparative Analysis of Anglo-Australian Pre-Packs: can the means be made to justify the ends?" (2012) 21(3) International Insolvency Review 143 at 156.) 19 It is not necessary in these reasons to explore the differences referred to by Mr Wellard and Dr Walton, but see generally: E Poulos and A McCunn, "Pre-pack transactions in Australia" (2011) 19 Insolvency Law Journal 235, explaining (at 243) that Australia's insolvent trading laws, the duty of care in exercising a power of sale under s 420 of the Act, ipso facto clauses and independence requirements for insolvency practitioners "impede the pursuit of a pre-pack transaction". Nor is it necessary, or desirable, for the Court to enter the debate about the merits or otherwise of pre-packed administrations, as to which see also: B Xie, Comparative Insolvency Law: The Pre-pack Approach in Corporate Rescue (Edward Elgar Publishing, 2016). 20 It is critical to understand, in this case, that the character of the work that Mr Korda described in his evidence, and which ASIC accepts describes that which a potential administrator may properly perform, bears no relevant resemblance to the work performed, and advice given, by practitioners in the United Kingdom and elsewhere engaged in concluding an agreement in advance of statutory administration. As explained below, Mr Korda swore, and I accept, that neither he nor anyone else from his firm provided advice to the board, the directors or the management of the Ten Group, or to any of its creditors or other stakeholders, in relation to the management of the Ten Group, its affairs, its insolvency, or the obligations and duties of the board, individual directors and management. 21 The United Kingdom experience with pre-packs does, however, place in sharp relief a number of the ethical issues that may, or in some cases invariably will, arise where a potential administrator assumes the role of administrator or liquidator. As Professor Finch wrote, for example, in her work Corporate Insolvency Law: Perspectives and Principles (2nd ed, Cambridge University Press, 2009) at 460: One practitioner has argued that the rapid growth of pre-packs has given rise to 'unpleasant practices' in which directors and shareholders of troubled companies are offered ways to shed their creditors and buyback their businesses at very modest cost. The danger, according to this argument, is one of fairness insofar as administrators, banks and directors have strong incentives that may not serve all creditors well: The organising administrator has a clear conflict of interest as typically he wants to get the appointment and the management can influence that - such a pre-pack is a good idea for practice development for him and for advising lawyers. It may suit a bank as it can allow it to participate in the equity going forward in a controlled way or provide it with an assured return potentially at the expense of other creditors. Administrators generally like helping banks. Steven Davies QC has raised issues of expertise alongside that of fairness in arguing that a small number of 'professional bad apples' who operate via pre-packs facilitate phoenix trading: 'not withstanding considerable antipathy of both the profession and the courts towards phoenix operations, insolvency sales to unscrupulous management still occur and the prepack is the jemmy in the burglar's jacket'. (Emphasis added, footnotes omitted.) 22 Mr Wellard and Dr Walton further venture the opinion that: …it is hard to see how any Australian insolvency practitioner who has substantively advised or assisted on the detail of the pre-packaged transaction (i.e. advice going beyond the general availability of a pre-pack as an option) can subsequently take an appointment as voluntary administrator… …[I]t is clear that an administrator implementing a 'day 1' pre-pack sale will be reasonably perceived by creditors to be endorsing a strategy ultimately controlled or inspired by a company's directors and with which the administrator has been substantively involved prior to appointment. It is contended that detailed involvement and assistance with a pre-pack proposal (particularly a proposed sale to a party connected with the directors of the subject company) would ipso facto disqualify an Australian insolvency practitioner from taking an appointment as voluntary administrator. (M N Wellard and P Walton, "A Comparative Analysis of Anglo-Australian Pre-Packs: can the means be made to justify the ends?" (2012) 21(3) International Insolvency Review 143 at 162-163.) 23 I agree that it is difficult to imagine a situation in which the taking of such an appointment in the circumstances the authors there describe, which are far removed from the circumstances of this case, would ever be countenanced.
Ten Group administration plan: Mr Korda's role as a potential administrator 24 The Ten Group has been experiencing financial difficulties for some time. For the half-year ending February 2017 it had accumulated losses of $1.5 billion and owed $73.8 million to its financiers and $215 million to its creditors. The evidence about the loan facility between Ten Network Holdings Ltd and the Commonwealth Bank of Australia, described as a $200 million "Revolving Cash Advance Facility", also showed that, as at 13 June 2017, that facility had been drawn in the amount of $96.8 million. 25 Mr Korda gave evidence that prior to the appointment of the administrators, the Ten Group had sought to address its poor financial performance in a number of ways, including renegotiating contracts with CBS and Twentieth Century Fox, from which it acquired content for broadcasting, seeking to extend and increase the loan facility with the Commonwealth Bank of Australia and preparing a "transformation" plan. 26 To assist in that work, the Ten Group retained or continued to seek advice from what counsel for ASIC described as a "legion" of competent, independent, professional advisers, including investment banks, specialist reconstruction and insolvency lawyers, management consultants and tax advisers. Unsurprisingly, key creditors, including the Commonwealth Bank of Australia and major shareholders of the Ten Group, were also advised by competent, independent and professional advisers. 27 In late February 2017, KordaMentha, the accountancy firm of which each of the administrators is a member, was retained by the law firm Gilbert + Tobin, the Ten Group's legal advisers, to provide assistance to the Ten Group in relation to assessing the Ten Group's financial position. Mr Korda deposed that he was told by Mr Emmett of Gilbert + Tobin "that the scope of [the work] was limited to ensure that KordaMentha would be in a position to accept the appointment of administrators of any or all of the companies in the Ten Group should their directors resolve to appoint administrators at a future point in time". It was thus clear that KordaMentha was retained as a potential administrator. 28 Gilbert + Tobin's engagement letter further made it clear that KordaMentha would seek instructions only from Gilbert + Tobin, that any advice arising from the engagement would be provided to that firm by KordaMentha in its capacity as a consultant to Gilbert + Tobin and that "[a]t no stage will [KordaMentha] assume any role in advising the Company's board or individual directors on their duties under the Corporations Act, the management of the Company or in managing the affairs of the Company". 29 It is important also to record in detail the nature of the work performed by KordaMentha, including Mr Korda, in respect of the firm's engagement as a potential administrator. Mr Korda deposed that personnel of KordaMentha, including himself, held meetings with the Ten Group's management to obtain an understanding of its operations, financial position, legal and contractual obligations, and cash flows. They did so in order to be satisfied that if Mr Korda, and other partners of his firm, were appointed as administrators, the Ten Group could continue to operate "on a business as usual basis". An administration plan for the Ten Group was also prepared, in the event that the efforts of the Ten Group, including, among other things, its transformation plan, were not successful. That administration plan included ensuring, in the event of an appointment, that the Ten Group would have "access to content [for the television network] and cash". 30 KordaMentha personnel, including Mr Korda, also attended meetings between the Ten Group, its financier, and their advisers in relation to all of those matters. The three shareholder guarantors also attended those meetings. Mr Korda deposed that: "When we understood that [the Commonwealth Bank of Australia] would only advance funds with the consent of the Shareholder Guarantors, we knew we had to meet them and secure their support for the provision of funding if an administration occurred". 31 The work of the administration plan also included discussing the provision of funding for any future administration with shareholder guarantors and planning for a sale process, which could be implemented in the event that the Ten Group was put into administration at a future point in time, with the aim of maximising the chances of the Ten Group continuing in existence. As Mr Korda deposed, the work of the administration plan involved "preparing an information memorandum, a data room and a financial model that would be used if the Ten Group was put into administration". He continued: KordaMentha identified that an administrator sale of the business would need to be conducted quickly given the likely adverse impact of insolvency on the Ten Group's enterprise value. Specifically, the Ten Group's business is driven by intangible assets, including viewer and advertiser confidence rather than physical assets. The value degradation due to insolvency would potentially be material for the Ten Group's business, and accordingly, I formed the view that it would likely be in the interest of all creditors to recapitalise or sell the business quickly. 32 Mr Korda also deposed that he and his colleagues attended approximately 50 meetings with Ten Group management, directors, financiers, shareholder guarantors and advisers. Those meetings took place between 28 February 2017 and 13 June 2017. A list of those meetings, including the KordaMentha attendees, the external attendees and the "agenda/discussion" for each meeting was in evidence. Mr Korda said that the number of those meetings and the time period over which they occurred "is not unusual in the context of modern restructuring of a large and complex corporate group". 33 The work described above, which Mr Korda deposed was the full extent of the work carried out, was substantially conducted by Mr Korda and other directors and employees of his firm. Neither Ms Nettleton nor Mr Villani were involved in any of the work described above. Nor did either of them meet with any of the board members or management of the Ten Group prior to their appointment. 34 It is also important to describe what KordaMentha did not do pursuant to its retainer with Gilbert + Tobin as potential administrators. In that regard, Mr Korda deposed as follows: At no time did the [a]dministrators or any personnel at KordaMentha provide advice to: (a) the board of the Ten Group companies; (b) the directors of the Ten Group companies; (c) management of the Ten Group; (d) any creditors of the Ten Group; or (e) any other stakeholders of the Ten Group (including, the Shareholder Guarantors or financiers), in relation to the management of the Ten Group, managing the affairs of the Ten Group, the Ten Group's insolvency, or the obligations and duties of the boards, individual directors and management. 35 That evidence is consistent with what a potential administrator should, and should not, do. As ASIC submitted: Directors contemplating potential insolvency should be encouraged to engage with appropriately-qualified professionals early to develop restructuring plans which will maximise the chance of rescuing a viable business or returning as much value as possible to the relevant stakeholders should a later appointment prove necessary. A reasonable fair-minded observer would appreciate that as a common characteristic of large and complex corporate distress situations. Provided that appropriate safeguards are put in place to avoid the existence or appearance of conflict should an appointment subsequently prove necessary, significant, long-term and consequently remunerative work undertaken for such purposes should not of itself preclude the practitioner from taking a formal appointment (subject of course to consideration of the facts and circumstances of each particular case). 36 The safeguards to which ASIC referred in its submissions should include that the potential administrator makes it clear to the board of directors and executives that she or he is the person who might become the actual administrator if other measures to fix the company's finances do not succeed. And as Mr Zwier submitted, and I agree, from the outset "directors, well advised by their independent advisers, ought to be saying to the board, 'you have to be careful because this person might one day be publicly examining you or might be suing you or might be taking action against you'". Putting the point slightly differently, Mr Zwier submitted, and again I agree, "[i]n other words, that person [does not] sit inside the tent, so to speak, with the advisers. The person is potentially someone who talks about what the administration involves but is not someone in the inner sanctum of…decision-making". 37 Other safeguards that a potential administrator can adopt should also include ensuring that their retainer is clearly defined, as well as ensuring from the outset that they keep a sufficient record of the nature of the tasks performed, so that, for the purposes of proceedings like this (and doubtless for other purposes) evidence can be adduced to address such issues about conflicts of interest that may arise. 38 For the reasons to which Mr Korda deposed, and which I accept, the evidence establishes that KordaMentha's role in this case was to prepare an administration contingency plan, in case the informal restructuring negotiations then being conducted by the Ten Group were unsuccessful. He was not in any sense retained to be, nor did he act as, a professional adviser to the Ten Group, the board, management or any other director.
Conduct of the administration to date 39 On 15 June 2017, the day after the appointment, the administrators sent a circular to about 346 creditors and 748 employees of the Ten Group giving notice of the first meeting of creditors of each of the companies in the Ten Group, to be held concurrently on 26 June 2017. That meeting was duly held. 40 The circular attached a Declaration of Independence, Relevant Relationships and Indemnities (or a "DIRRI", as they are commonly referred to). The content of that DIRRI (the first DIRRI), or rather its insufficient content, then gave rise to some controversy. 41 On 19 June 2017, ASIC wrote to the administrators, stating that "in our opinion, your DIRRI may not adequately describe the circumstances of your appointment to allay potential concerns about a perceived lack of independence". 42 The administrators responded on 21 June 2017, relevantly as follows: We have now correlated a list of all meetings/conference calls held in the pre-appointment period with the Ten Group's directors and/or advisers, and this list is attached as appendix 2. The list includes: • The date of each meeting • Attendees at each meeting and their relationship to the Ten Group or KordaMentha • The matters discussed at the meeting. 43 On 21 June 2017, ASIC responded to the administrators' letter of the same date, relevantly as follows: 4. Media reports indicate that the insolvency industry and ARITA professional membership body have raised queries regarding potential concerns about a perceived lack of independence. 5. In our letter of 19 June 2017, we suggested that before the creditors meeting scheduled for 26 June 2017 (which we will attend as an observer) you might consider whether you should revise your DIRRI for additional disclosures about the circumstances of your appointment. 6. ...[w]e consider that you should revise the DIRRI for the creditors meeting - notwithstanding that to date, no creditors have raised concerns with you about potential concerns about your independence. 44 At no time during the period of the administration has any creditor raised any concern about any perceived lack of independence of, or reasonable apprehension of bias by, the administrators. 45 The administrators responded the next day, informing ASIC that they would lodge an updated DIRRI on 22 June 2017, make it available to creditors and bring it to the attention of creditors at the meeting of creditors to be held on 26 June 2017. 46 On 22 June 2017, the administrators lodged an updated DIRRI (the second DIRRI). The second DIRRI amended the first DIRRI by providing a list of all meetings/conference calls held in the pre-appointment period with the Ten Group's directors and/or advisers, including the date of each meeting and the attendees of each meeting, and a general description of the matters discussed at each of the meetings. It also stated that KordaMentha's remuneration had been paid by Gilbert + Tobin in accordance with the engagement terms.
Future conduct of the administration 47 Mr Korda deposed that the future work likely to be undertaken by the administrators involves continuing to operate the business, exploring the possibility of a deed or deeds of company arrangement or a scheme of arrangement, as part of any restructure, recapitalisation or share or asset sale of the Ten Group. That much is uncontroversial. 48 He also deposed that the future work would, but for the orders sought and which I made on 18 July 2017, involve, as required under s 439A of the Act, among other things, investigating any possible claims that may be made available against directors, officers and/or advisers of the Ten Group, and investigating any KordaMentha preference payments, in the event that the creditors resolve to place any of the Ten Group companies into liquidation. 49 Mr Korda further deposed, and Mr Zwier submitted, that "the most appropriate course of action" was the making of the orders made on 18 July 2017. 50 The controversy that exists between the administrators and ASIC is not about the form of the orders that I made on 18 July 2017. As I have said, the form of the orders was agreed. The parties did not agree, however, about the reasons for making the orders. ASIC submitted that the orders were necessary to cure a reasonable apprehension of bias. The administrators, on the other hand, reject the proposition that a reasonable bystander might think that anything Mr Korda did as potential administrator could give rise to any relevant reasonable apprehension of bias, and that it is, for present purposes, sufficient, without making any finding on the apprehended bias issue, to make the order because the voluntary disclosures "cured" any apprehension of bias created by the matters concerning Gilbert + Tobin and the pre-appointment payments made by that firm to KordaMentha. 51 Save for two exceptions, to which I will return shortly, the parties agreed about the relevant principles of law applicable to the resolution of that issue. 52 In Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; 45 ACSR 612 under the heading "Application of the principles of independence and impartiality to voluntary administrators", Austin J held (at [133]): Part 5.3A does not expressly state that the administrator is required to be independent of the directors and any creditors during the administration, or that he or she must act impartially in the discharge of the statutory responsibilities. However, even a cursory review of the scope and objects of Part 5.3A would establish that voluntary administrators have implied duties of independence and impartiality, which are part of the very marrow of voluntary administration system. It has therefore been held that the principles of independence and impartiality developed and applied to liquidators are equally applicable to voluntary administrators (see eg Commonwealth v Irving (1996) 65 FCR 291 at 294; 144 ALR 172 at 175; 19 ACSR 459 at 462) - although differences in the circumstances in which they are required to work (especially the speed at which the administrator must work) may affect the standard required to be observed in particular circumstances. 53 Further, in Re Recycling Holdings Pty Ltd [2015] NSWSC 1016; 107 ACSR 406, Brereton J summarised the applicable principles as follows (at [94]): It is not in doubt that, like liquidators, administrators and deed administrators are expected to be free of actual or potential conflicts of interest and actual or apparent bias…Apprehended bias will be established if a fair-minded lay observer might reasonably apprehend that the administrators might not bring an impartial mind to the resolution of questions they may be called upon to decide…That said, the court will remove and replace an administrator only if satisfied that to do so would be "for the better conduct of the administration". (Citations omitted.) 54 There are many circumstances in which conflicts can arise in cases of this sort: see Commonwealth of Australia v Irving (1996) 65 FCR 291 at 296; Re West Australian Gem Explorers Pty Ltd (1994) 13 ACSR 104 at 106; Australian Securities and Investments Commission v Franklin (2014) 223 FCR 204; Bank of Queensland Ltd v Ross Auto Auctions Pty Ltd [2015] QSC 347; Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230. Those circumstances may include where a potential administrator has had "substantial involvement" with a company prior to its administration: Commonwealth of Australia v Irving (1996) 65 FCR 291 at 296. The diversity of circumstances in which questions of apprehended bias may arise heightens the need for administrators and liquidators to be vigilant in recognising and appropriately responding to possible conflicts of interest, whenever they arise.
Three potential grounds of apprehended bias 55 In this proceeding, ASIC identified three potential grounds on which the KordaMentha's pre-appointment work might be considered to give rise to a reasonable apprehension of bias. 56 The first identified ground was "the sheer volume of the work that was performed prior to the administrators' appointment. The fact that it went on for some three months, and the fact that [KordaMentha] was paid more than $1 million for the work". 57 The second identified ground was "the fact that the administrators were appointed by the law firm Gilbert + Tobin, have a referral relationship with that firm, were paid by that firm and may have to investigate that firm in the exercise of their…investigative and reporting functions". 58 The third identified ground was: …the fact that the administrators would have to consider, in the course of their investigations and reporting, whether…the pre-appointment fees of their firm might be voidable preferences in any subsequent liquidation when reporting to creditors about the various options available to them at the second meeting for the purposes of creditors making an informed decision about whether or not to put the company into liquidation. 59 As to the first possible ground, ASIC accepted, having had the benefit of Mr Korda's sworn evidence about the nature of the pre-administration work that, contrary to the impression created by both the first DIRRI and the second DIRRI, KordaMentha was engaged to prepare an administration contingency plan, in case the informal restructuring negotiations then being conducted by the Ten Group were unsuccessful. As counsel for ASIC submitted, "the extensive work that KordaMentha did was to describe the plan, take steps to prepare for its execution in the event that it was needed so that that could occur quickly and efficiently, and keep the board informed of the work that they were undertaking". 60 ASIC submitted, with considerable force, that if Mr Korda had made clear in the DIRRIs that which he explained in his detailed affidavit, a different view might have been taken earlier about the nature and effect of Mr Korda's pre-appointment involvement. 61 ASIC also submitted that directors contemplating potential insolvency should be encouraged to do the very thing that the Ten Group (including Gilbert + Tobin on its behalf) did, namely to engage with qualified professionals early, to develop restructuring plans that will increase the chances of rescue or maximise the amount that can be salvaged for the benefit of creditors and, if at all possible, members. 62 ASIC also submitted that, provided that safeguards are erected that guard against the existence or appearance of any conflict of interest, should an appointment subsequently prove necessary, then the fact that significant, long-term and highly-paid work is undertaken - for the purposes of planning and preparing for a prospective administration to which those planners and preparers are subsequently appointed - should not of itself cause a reasonable apprehension of bias. 63 I agree with each of those submissions. 64 ASIC submits that a fair-minded lay observer might reasonably apprehend that the administrators might not bring an impartial mind to the resolution of two issues in particular, namely the issues identified by ASIC in the second and third grounds described above. This is so, it was submitted, in light of the fact that the administrators were appointed by Gilbert + Tobin, have a referral relationship with that firm and were paid by that firm, and because the administrators: (1) may have to investigate Gilbert + Tobin (ground two); and (2) will have to consider, in the course of their investigations and reporting, whether their pre-appointment payments are voidable preferences in any subsequent liquidation (ground three). 65 Although Mr Zwier, on behalf of the administrators, urged the Court not to make such a finding, in my view, those circumstances establish two clear and distinct grounds upon which a fair-minded lay observer might reasonably apprehend that the administrators might not bring an impartial mind to the resolution of the issues identified. 66 As I said during the course of Mr Zwier's submissions, however, such a finding is not to be regarded as reflecting adversely on Mr Korda or his conduct, or the conduct of his firm. It seems to me that, in circumstances where any potential administrator engages in extensive preparatory work - by way of an administration plan or whatever it is to be called - along the lines of the work carried out by Mr Korda and his colleagues between February and June of this year (described in detail above), it will invariably follow that if administration leads to liquidation, questions will arise of the sort that I have ordered in this case should be dealt with and supervised by other experienced and wholly independent liquidators. 67 For the reasons I have given, a fair-minded lay observer might reasonably apprehend that the administrators might not bring an impartial mind to the resolution of two issues: (1) the fact that the administrators were appointed by Gilbert + Tobin, have a referral relationship with that firm, were paid by that firm and may have to investigate it; and (2) the fact that the administrators will have to consider, in the course of their investigations and reporting, whether their pre-appointment payments are voidable preferences in any subsequent liquidation. 68 ASIC did not suggest, in the circumstances of this case, that the two potential conflicts identified by ASIC should require the removal of the administrators. Removal would be disproportionate and, where an order of the type the Court has made here, handing responsibility to an experienced and wholly independent liquidator, is tailored to meet the circumstances of the case, it would be wholly unnecessary. It would also be disproportionate because Mr Korda and KordaMentha have obtained a considerable level of familiarity with the companies comprising the Ten Group, their operations, their financial circumstances and their financial arrangements, which would be lost if the administrators were removed. Mr Korda and KordaMentha have had dealings, and no doubt have established relationships with, major creditors, shareholders and advisers. They have also designed, during the pre-appointment engagement period, what ASIC agreed was "a well-developed and complex administration plan". That, after all, is the point of engaging a potential administrator. 69 I should also add that the power of the Court to "quarantine" the issues about which potential conflicts might arise, by making an order of the sort made here, is undoubted: see s 447A of the Act; Hughes v Receivers and Managers of Westgem Investments Pty Ltd (Receivers and Managers Appointed) (Administrator Appointed) (No 3) [2012] WASC 360 at [18]; and Re Obie Pty Ltd (in liq) (No 4) (1984) 8 ACLR 967 at 971. 70 As I mentioned earlier, there were two points of principle about which the administrators and ASIC disagreed, with which I should deal. 71 Firstly, the administrators submitted that the correct test to be applied was whether there would be a reasonable apprehension by any creditor, not by a reasonable fair-minded lay observer, of a lack of impartiality on the administrators' part. The administrators cited Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 at 234 per Santow J in support of the proposition that "bystanders have nothing to do with it" and that the relevant "observer" was "a fair minded lay creditor bystander". 72 The passage relied upon in Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 at 234 is as follows: …the correct balance is struck by permitting a liquidator to act as such even if there be a prior involvement with the company in liquidation, provided that involvement is not likely to impede or inhibit the liquidator from acting impartially in the interests of all creditors or be such as would give rise to a reasonable apprehension on the part of a creditor that the liquidator might be so impeded or inhibited. In short the question should be whether there would be a reasonable apprehension by any creditor of lack of impartiality on the liquidator is part in the circumstances, by reason of prior association with the company or those associated with it, including creditors, or indeed any other circumstance. (Emphasis added.) 73 Counsel for ASIC submitted that, to the extent that that passage is to be read as standing for the proposition contended for by the administrators, it is wrong. 74 ASIC submitted that the test for apprehended bias in respect of an administrator is the same as that which applies to the judiciary and to administrative decision makers, citing Australian Securities and Investments Commission v Franklin (2014) 223 FCR 204 at 218 [59]-[61] per White J, with whom Jessup and Robertson JJ agreed. The paragraphs cited by ASIC are as follows: It was common ground at first instance, and on the appeal, that the test for apprehended bias in a liquidator is the same as that which applies to the judiciary and to administrative decision makers. That is the test stated by the majority in Ebner v Official Trustee in Bankruptcy [2000] HCA 63; (2000) 205 CLR 337 at [6], namely, whether "a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question the judge is required to decide". Gleeson CJ, McHugh, Gummow and Hayne JJ went on to say (at [8]) that the application of this test requires two steps: First, it requires the identification of what it is said might lead a judge (or juror) to decide a case other than on its legal and factual merits. The second step is no less important. There must be an articulation of the logical connection between the matter and the feared deviation from the course of deciding the case on its merits. The bare assertion that a judge (or juror) has an "interest" in litigation, or an interest in a party to it, will be of no assistance until the nature of the interest, and the asserted connection with the possibility of departure from impartial decision making, is articulated. Only then can the reasonableness of the asserted apprehension of bias be assessed. The "double might" test stated in Ebner has been regarded as relatively undemanding and, on occasion, has been described as "Spartan". Nevertheless, the degree of independence and impartiality to be expected of a decision maker may differ from one statutory context to another. As Spigelman CJ observed in McGovern v Ku-ring-gai Council [2008] NSWCA 209; (2008) 72 NSWLR 504 at [11], "the judicial paradigm is not universally applicable". Similarly, this Court observed in Cabcharge Australia Ltd v Australian Competition and Consumer Commission [2010] FCAFC 111 at [27] that, "although the test for apprehended bias is ordinarily the same wherever it arises, the precise language used in applying the test has frequently varied depending on the context in which it falls to be applied". This means, in the present case, that particular regard must be had to the position of liquidators in a voluntary winding up. Liquidators are officers of the court and are, accordingly, expected to conduct themselves with independence, impartiality and integrity. However, questions of bias in relation to liquidators arise in a context which differs in material respects from that of the judiciary or administrative decision makers. Liquidators are themselves engaged in business in a competitive environment. They have to attract work. This makes it almost inevitable that they will develop contacts and relationships with those who are actual or prospective sources of referrals. Further, the success or otherwise of liquidators will depend in part on their maintaining good professional reputations. 75 ASIC contended that, because in that case the question of the appropriate test to apply was common ground, both at first instance and on appeal, I am not, strictly speaking, bound to follow it. ASIC contended, however, that the test applied by agreement of the parties is undoubtedly correct and that the apprehended bias test is not to be limited to an apprehension reasonably held by creditors of the company, as the administrators contended. 76 In support of that submission, Mr Maiden pointed to the objects clause contained in s 435A, in Pt 5.3A of the Act, which is headed "Administration of a company's affairs with a view to executing a deed of company arrangement". Section 435A relevantly provides: Object of Part The object of this Part, and Schedule 2 to the extent that it relates to this Part, is to provide for the business, property and affairs of an insolvent company to be administered in a way that: (a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or (b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company. (Emphasis added, note to s 435A omitted.) 77 Objects clauses have a role to play in statutory construction. The Full Court recently summarised the position in Australian Building and Construction Commissioner v Powell [2017] FCAFC 89, stating (at [48]): ...an "objects" provision within a statute "does not control clear statutory language" but, rather, is properly to be considered as an aid in construing the statute: Minister for Urban Affairs and Planning v Rosemount Estates Pty Ltd (1996) 91 LGERA 31 at 78 per Cole JA; CSL Australia Pty Ltd v Minister for Infrastructure and Transport (No 3) [2012] FCA 1261; 297 ALR 289 at 314 [99] per Robertson J. Such a provision does not definitively determine the meaning of the statutory text. This is not, however, to say that a statement of the legislative object is not an important assistance in interpreting the words of the statute; it is one aspect of considering the meaning and reach of the words used by Parliament. 78 For those reasons, the fact that the objects clause in question here expressly provides that the object of Pt 5.3A is, relevantly, to provide for the business, property and affairs of an insolvent company to be administered in a way that "results in a better return for the company's creditors and members" means that to exclude members from the definition of a fair-minded observer would not be consistent with that object. 79 Mr Maiden further submitted during his oral submissions on behalf of ASIC that: …the impact of the s 435A objectives is that a reasonable fair-minded observer cannot be restricted to a reasonable fair-minded creditor. Part 5.3A is a corporate rescue mechanism. And paragraph (b) of section 435A makes explicit the fact that interests of creditors and members are relevant. In that context, to require the reasonable fair-minded observer to view the world through the prism of a creditor would mean that the reasonable fair-minded observer was no longer reasonable or fair-minded because he or she would approach the question with a particular motivation, the motivation being that peculiar to the creditors of this particular company. …the reasonable fair-minded observer could be any reasonably educated and intelligent person fully apprised of the facts…that person has an interest in the independence of insolvency practitioners merely by virtue of the fact that they are participants in our market. And everyone with an interest in our market has an interest in the effective operation of our insolvency system. And the effective operation of our insolvency system relies on the trustworthiness and independence of its registered practitioners. The community puts its trust in insolvency practitioners to act objectively in investigating, in reporting, in adjudicating on proofs of debt, and where necessary, in litigating as responsible officers. 80 I agree with those submissions. Assuming that the decision in Australian Securities and Investments Commission v Franklin (2014) 223 FCR 204 is not, strictly speaking, binding on me in determining this application, then, for the reasons advanced by ASIC, the test which the parties in that case regarded as the applicable test (both at first instance and on appeal) is, in my view, the correct test to apply. The fair-minded observer is not to be understood as being restricted to a fair-minded creditor, whatever suggestion to the contrary might be found in some of the cases. 81 The second point of principle about which the administrators and ASIC did not agree was whether the voluntary nature of the disclosures made by the administrators - that is, disclosures concerning the matters that I have now ordered be carried out by Ferrier Hodgson - "cured" any reasonable apprehension of bias that would otherwise have arisen. 82 The administrators were unable to cite any authority in support of the proposition that such disclosures operate to cure any apprehension of bias. In my view, they do not operate in that way. 83 First, s 436DA of the Act, which appears under the heading "Declarations by administrators - indemnities and relevant relationships", requires administrators, as soon as practicable after being appointed, to make a declaration of relevant relationships and a declaration of indemnities. 84 The Explanatory Memorandum to the Corporations Amendment (Insolvency) Bill 2007 (Cth) contains a section headed "Part 2 - Better informing creditor decisions". The sub-heading reads: "Administrators and liquidators to make available declarations of relevant relationships and indemnities". The Explanatory Memorandum records the fact that "notwithstanding the requirements under common law and statute, concerns have been raised about the independence of administrators". The Explanatory Memorandum goes on to say (at [4.69]) as follows: For example, there may be a perception of a lack of independence where the administrator earlier acted as an adviser to the appointing Board of Directors, particularly where the administrator is subsequently required to consider the possibility of offences, negligence or breaches of duty or trust by the current and former directors. 85 The Explanatory Memorandum also notes as one of the "key changes" the new requirement obliging administrators to declare any relevant relationships and declare any indemnities that have been provided. It is said that such declarations "will allow creditors to make a more informed decision about whether to replace the administrator". Of particular relevance for current purposes is [4.7] of the Explanatory Memorandum, which provides as follows: "Including a relationship in a declaration will in no way 'cure' any conflict of interest or conflict of duties that may arise out of that relationship, even if creditors approve the appointment after the declaration is made". 86 As counsel for ASIC submitted, that is consistent with the position at common law concerning judicial impartiality. The duty of disclosure exists to give litigants the ability, if they choose to do so, to waive any apprehended bias: see Gascor v Ellicott [1997] 1 VR 332 at 361 per Ormiston JA, Brooking and Tadgell JJA agreeing. 87 In Dovade v Westpac Banking Group (1999) 46 NSWLR 168, the Court said (at [105]): We acknowledge that the statements in the preceding paragraph are categorical in form, even when confined to disclosure by judges and the facts of this present case. Nevertheless, the propositions are (we believe) correct and consistent with remarks of Ormiston JA in Gascor [v Ellicott [1997] 1 VR 332] (at 353-362) with which we respectfully agree. That case deals with the disqualification of an arbitrator and, for that reason, the views expressed by Ormiston JA apply with even greater force to a Supreme Court judge. Like Ormiston JA (see at 356) we would not see it as controversial to assert that every judicial officer should feel obliged, if he or she does not decide to withdraw of his or her own accord, to bring to the attention of the parties as soon as practicable any fact or circumstance which could lead to disqualification for apprehended bias. Disclosure would only be required if the judge thought waiver was possible, for otherwise withdrawal would be imperative. It is common sense to require such disclosure if only because ordinarily the facts are not available to the parties and it is ordinarily desirable to bring to their attention any grounds for disqualification, in order to determine if the disqualifying facts will be waived, before the parties have expended time or effort in preparing for a dispute before a tribunal which must otherwise be reconstituted. (Emphasis added.) 88 Further, in Kirby v Centro Properties Ltd (No 2) (2008) 172 FCR 376, Finkelstein J recused himself, having promptly disclosed circumstances going to the question of apprehended bias (being, in essence, that his Honour had held certain shares relevant to the proceeding, which had been sold by the time the matter came on for hearing). His Honour noted (at [12]): "When the matter came on for hearing, I advised the parties that the shares had been sold. This information did not, as I anticipated it would, appease anyone. To the contrary, it seemed to have an inflammatory [effect], although, as one would expect, counsels' submissions were restrained". 89 Subsequently, having considered counsel's submissions in support of recusal, Finkelstein J held (at [16], citing Ebner v Offıcial Trustee in Bankruptcy (2000) 205 CLR 337): In the face of these considerations, I decided in the end that I should recuse myself. I consider that in a case such as the present, where there is real doubt about the matter, the better course is to be cautious … I should make it clear that I am not at all troubled by the possibility that an appellate court might have taken a different view had I refused to recuse myself. What does concern me, however, is the delay an appeal would have caused, as well as the additional cost the parties would have incurred in what is already an expensive piece of litigation. (Citations omitted.) 90 In none of these instances, or in any decision of which I am aware, has it ever been suggested that the voluntary disclosure itself cured any reasonable apprehension of bias. 91 In any event, in the circumstances of this case, the fact that the administrators voluntarily disclosed the matters giving rise to a reasonable apprehension of bias cannot, as ASIC submitted, "change the facts that render it inherently improbable that the administrators could bring an independent mind to bear" in relation to the need to investigate payments to their own firm (that is, KordaMentha) and the conduct of the law firm that engaged and paid them to undertake the pre-appointment work.
The code of professional practice 92 I should also say something briefly about the Code of Professional Practice of The Australian Restructuring Insolvency and Turnaround Association (ARITA) (the code), because the administrators sought to rely on the code as providing an independent basis upon which they might be permitted to continue to act as administrators. In particular, submissions were made on behalf of the administrators about those parts of the code which define "exceptions" to the "rule" that, relevantly, practitioners must not take an appointment if they have had a professional relationship with the insolvent company during the previous two years: see section 6.8 of the third edition of the code. 93 There is no doubt that the code is a useful document in assisting practitioners, including with respect to questions of whether, in accepting or retaining an appointment as an administrator, the practitioner is, and is seen to be, independent: see chapter 6 of the third edition of the code. The code is intended to provide guidance on standards of practice and professional conduct expected of ARITA members. 94 In Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; 45 ACSR 612, Austin J described (at [163]) the Code of Professional Conduct published by the Insolvency Practitioners Association of Australia (as ARITA was previously known) as "a useful guide to the common practice in such matters, and to the profession's own view of proper professional standards". Accordingly, his Honour held that "[i]t is permissible for the Court to take [it] into account, to that extent, in applying the law concerning independence and impartiality to the insolvency practitioner's conduct in the case before it": see Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; 45 ACSR 612 at [163]; comparing National Roads and Motorists' Association Ltd v Geeson [2001] NSWSC 832; 39 ACSR 401 at 403 and Permanent Trustee Australia Ltd v Boulton & Lynjoe Pty Ltd (1994) 33 NSWLR 735 at 738. 95 On the other hand, the code "has no legal status", as Sanderson M stated in Monarch Gold Mining Co Ltd; Ex parte Hughes [2008] WASC 201. Relevantly, Sanderson M observed in that case, "a failure to comply with the terms of the code would not render a practitioner liable for prosecution under the Corporations Act or any other statute … Nor does a failure to comply with the provisions of the code mean that there has been a failure to comply with what is required in the DIRRI": see Re Monarch Gold Mining Co Ltd; Ex parte Hughes [2008] WASC 201 at [37]. 96 Any question relating to the appearance of impartiality must be determined according to law. It is not the Court's function in a case such as this to either apply or interpret the code.
Extension of the convening period 97 In exercising the power to extend the convening period under s 439A(6) of the Act the function of the Court is to strike an appropriate balance between the legislature's expectation that the administration will be a relatively swift and summary procedure, and the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders: see Silvia, Re Austcorp Group Ltd (Administrators Appointed) [2009] FCA 636; citing Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10]; Re Pan Pharmaceuticals Ltd [2003] FCA 598; 46 ACSR 77 at [42] per Lindgren J; and Re New Horizons Corporation; Ex parte De Vries [2004] NSWSC 253 at [5] per Austin J. See also Dixon, Re G. G. Engineering (Aust) Pty Ltd (Admins Apptd) [2017] FCA 365 at [6] per Davies J; citing with approval Re Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2009] NSWSC 585; 72 ACSR 352 at [15]; and Parbery, Re NewSat Limited (Administrators Appointed) (Receivers and Managers Appointed) [2015] FCA 435 at [59]. 98 In my view, the extension sought by the administrators strikes the appropriate balance in the circumstances. In particular, the Ten Group is a large corporate group, with 14 separate entities in voluntary administration, 748 employees and at least 346 creditors, as well as complex financing and guarantee and licensing arrangements. The administrators must, in conjunction with the receivers who have been appointed to the assets of 10 of the 14 companies in voluntary administration, carefully consider all available options to sell, recapitalise or restructure all or parts of the Ten Group in order to maximise the chances of the Ten Group continuing in existence, or, if that is not possible, for achieving a better return for the companies' creditors and members than would result from immediate winding up. This will self-evidently take some time. It is also relevant that no creditor has objected to the extension sought. 99 For those reasons, I ordered the extension sought on 17 July 2017.
Notice of second meeting and report to creditors 100 The administrators sought orders, which I also made on 17 July 2017, modifying the manner in which they were to give notice of the second meeting of creditors in the form prescribed in s 439A(4) of the Act. There is no doubt that the Court may exercise its discretion under s 447A of the Act to modify the manner in which notice of the second meeting of creditors in an administration is given, by permitting such notice to be made by publication in print media, by provision of information on a website maintained by the administrator or by emailing the notice to known creditors: see Re BBY Ltd [2015] NSWSC 974; Carson, Re Hastie Group Ltd [2012] FCA 626 at [19] per Emmett J. The orders that the administrators sought, which I considered appropriate to make, were substantially in the form of the orders made by Davies J in Mentha, Re Arruim Ltd (Administrators Appointed) [2016] FCA 487; 113 ACSR 302.
Confidentiality 101 Having made the orders set out earlier, I also considered it appropriate on 17 July 2017 to make orders to the effect that certain material exhibited to the affidavit of Mr Korda sworn and filed in this proceeding on 13 July 2017 be kept confidential pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth). That material is contained in Tabs 55, 60, 62 and 63 of Exhibit MK-1 to Mr Korda's affidavit. I certify that the preceding one hundred and one (101) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Callaghan.
SCHEDULE OF PARTIES VID 768 of 2017
Second Plaintiffs THE TEN GROUP PTY LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 057 564 708 NETWORK TEN PTY LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 052 515 250 NETWORK TEN (SYDNEY) PTY LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 008 664 962 NETWORK TEN (BRISBANE) PTY LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 050 148 537 NETWORK TEN (MELBOURNE) PTY LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 008 664 953 NETWORK TEN (PERTH) PTY LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 009 108 614 NETWORK TEN (ADELAIDE) PTY LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 007 577 666 CAPRICE PTY LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 008 655 847 CHARTREUSE PTY LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 008 655 874 TELEVISION & TELECASTERS (PROPERTIES) PTY. LIMITED (ADMINISTRATORS APPOINTED) ACN 050 690 161 TEN ONLINE PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 089 829 667 TEN VENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 089 830 759 TEN EMPLOYEE SHARE PLANS PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 082 736 150
Australian Securities and Investments Commission
Franklin
[2015] QSC 347
[2012] WASC 360
[2008] WASC 201
(2014) 223 FCR 204
(1996) 65 FCR 291
(1994) 33 NSWLR 735
(2000) 205 CLR 337
(2008) 72 NSWLR 504
(1996) 91 LGERA 31
(1999) 46 NSWLR 168
(2008) 172 FCR 376
[2000] HCA 63