Australian Securities and Investments Commission v Green Pacific Energy Limited

REASONS FOR JUDGMENT 1 On 24 May 2007, the Court made orders in connection with two companies, Green Pacific Energy Limited ACN 004 119 304 (Green Pacific) and Green Pacific Energy Capital Pty Ltd ACN 106 553 691 (Capital). The orders were made on the application of the liquidator of those two companies. The effect of the orders was that the liquidator has leave to appoint himself and his partner as administrators of the two companies. The Court also made orders, under s 447A of the Corporations Act 2001 (Cth) (the Act), concerning the operation of Part 5.3A in relation to the administration of the two companies. I indicated the purpose of making those orders in the reasons that I gave on 24 May 2007. 2 Following the making of those orders, the liquidator took the steps contemplated by them. The liquidator and his partner (the Administrators), convened and there was held, a meeting of the creditors of the companies on 14 June 2007 (the Creditors' Meeting). At the Creditors' Meeting, the creditors of each of the companies resolved to enter into a deed of company arrangement and to appoint the Administrators as the deed administrators. A deed of company arrangement, as contemplated by the Creditors' Meeting, was executed on 15 June 2007. The effect of the Deed of Company Arrangement is to establish a pooled deed fund for the two companies with contributions to be made of $510,000 by Mr Alfred Wong, and $240,000 by a company referred to in my earlier reasons as BMI 2. 3 Related Party Creditors, defined as creditors having a connection with Mr Wong, were not to prove under the Deed of Company Arrangement, but are to release and discharge the companies from their related claims. Stapylton Green Energy No 2 Pty Limited, which was referred to as BMI 1, is to become solely and exclusively responsible for the discharge of the Related Party Creditor Claims. It is entitled to pursue and receive payment of the amounts owing to Green Pacific. Richland, as defined in my earlier reasons, will be the only Related Party Creditor that will have recourse to seek payment from BMI 1. The admitted creditors of the two companies will be entitled to receive a distribution from the deed fund. 4 While the liquidator previously estimated that the return would be close to 83 cents in the dollar, he now estimates that it may be marginally under 80 cents in the dollar. On the other hand, his opinion is that, in the event that the Deed of Company Arrangement does not proceed and the companies proceed into liquidation, the creditors would be likely to receive a dividend of less than 10 cents in the dollar. The difference results from a more realistic assessment of the costs of the proposed Deed of Company Arrangement. 5 A number of subsidiary transactions are contemplated by the Deed of Company Arrangement. Pursuant to an Asset Sale Agreement, patents and other intellectual property owned by Green Pacific, will be sold to BMI 1 for $1.00. Pursuant to a Share Sale Agreement, BMI 1 will purchase from Green Pacific its shareholding in two subsidiaries for $1.00 for each share in each subsidiary. The Deed of Company Arrangement contemplates that there will be a meeting of the shareholders of Green Pacific at which certain resolutions will be put to the shareholders. The Administrators have convened a meeting of shareholders to be held on 15 October 2007 (the Shareholders' Meeting). 6 At present, there are in excess of 377 million fully paid shares on issue in the capital of Green Pacific to approximately 1900 shareholders. At the meeting, it is proposed that there will be a consolidation of the shares on a 15:1 basis, so that, after consolidation, there will be a little over 25 million issued shares in the capital of Green Pacific. Following the consolidation, the company referred to as BMI 2 will be issued with 114,527,101 shares in Green Pacific, for a consideration of $450,000, payable to the Administrators as soon as practicable after the Shareholder's Meeting takes place. 7 Of that sum, $240,000 is to be made available for creditors as part of the deed fund. The balance of $210,000 will be applied to the working capital of Green Pacific. Next, Mr Alfred Wong will arrange for the sale of shares held by various parties associated with him in Green Pacific, to BMI 2 for $5. Those shares equate to approximately 8.7% of the issued capital of Green Pacific. BMI 2 is to have an option to subscribe for a further 139,977,564 shares in Green Pacific for the sum of $550,000, which would be applied by Green Pacific towards its working capital needs. 8 Following the issue of shares, and the transfer of the shares by the Wong associates to BMI 2, BMI 2 will hold approximately 83.5% of the issued shares in Green Pacific. At the proposed Shareholders' Meeting, resolutions will be proposed apart from the consolidation, approving the share issue, approving the sale of assets by Green Pacific to BMI 1, approving the appointment of new directors, and to approving the option deeds relating to the potential subscription for further shares by BMI 2, and a right by BMI to sell to Richland its shares in BMI 2. The passing of those resolutions and the execution of all the necessary completion documents and a release by Mr Danny Au Yeung, a director of Green Pacific, are conditions precedent to the operation of the Deed of Company Arrangement. If those conditions are not satisfied, the deed will terminate and the companies will remain in liquidation. 9 It is a requirement of the Deed of Company Arrangement that the Administrators apply to the Court for whatever orders are necessary to ensure that none of the transactions that are contemplated by the Deed of Company Arrangement are avoided by s 468 of the Act. It is also contemplated that, in due course, the Administrators will apply to the Court under s 482 for the termination of the winding up of the companies. The administrators expect that the application for orders under s 482 will be made in December 2007. 10 In my reasons of 24 May 2007, I referred to a concern raised by the Australian Securities and Investments Commission (the Commission) as to the effect that the transactions may have on the creditors of Richland. After discussion with the Commission, an advertisement was placed by Richland in The Australian newspaper of 29 May 2007, and on the website conducted by the Administrators. In that advertisement, Richland observed that the Commission had expressed concerns that the proposed Deed of Company Arrangement might have an adverse impact on the financial position of Related Party Creditors, and therefore on the creditors of Related Party Creditors, including Richland. As I said previously, Richland is owed approximately $8 million by Green Pacific and the commission is of the view that that debt is a material asset of Richland. In the advertisement, the Commission was said to be concerned that, by Richland not proving its claim under the Deed of Company Arrangement, the unrelated creditors of Richland could be adversely affected. The Commission initially requested that the liquidator investigate and be satisfied as to the true number of unrelated creditors of each of the Related Party Creditors and the quantum of debt due to each of them. The liquidator discussed the problem with the Commission, and as a result of those discussions, Richland agreed to place the advertisement as I have indicated. 11 As I previously indicated in my reasons of 24 May 2007, I considered that the question of the conduct of the affairs of Richland is not a matter that is presently before the Court. It would be open to creditors of Richland to take appropriate steps if they thought that the opposition was prejudiced by the conduct of Richland in participating in the proposed deed of company arrangement in the manner that I have briefly described. The purpose of the advertisement was, it seems, to endeavour to draw to the attention of creditors of Richland, who are not Related Party Creditors, the possible consequences of the transaction. I do not at present consider that the possible adverse effect on creditors, which is speculation, is a matter that should stand in the way of any relief presently sought by the Administrators. 12 The Administrators have made clear that the present application is limited to ensuring that there is no avoidance of any of the proposed transactions by section 468 of the Act. Section 468(1) provides that any disposition of property of a company in liquidation, other than an exempt disposition, and any transfer of shares or alteration in the status of the members of the company made after the commencement of the winding up by the Court is, unless the Court otherwise orders, void. 13 An exempt disposition in relation to a company that has commenced to be wound up by the Court includes a disposition made by the liquidator pursuant to a power vested in the liquidator, and a disposition made in good faith by and with the consent of an administrator of the company, as well as a disposition under a deed of company management executed by the company. Clearly enough, the proposed transfer of shares by the Wong Associates to the company now known as Sulton Pty Ltd, being a transfer of shares in Green Pacific (in liquidation), would be void by the operation of s 468(1), unless the Court otherwise orders. 14 The Administrators were also concerned at the possibility that the issue of fully paid shares to Sulton Pty Ltd pursuant to the Deed of Company Arrangement, the transfer of assets to Stapylton Green Energy No. 2 Pty Ltd (Stapylton No. 2), pursuant to the Deed of Company Arrangement, and the transfer of shares in its subsidiaries by Green Pacific to Stapylton No. 2, pursuant to the Deed of Company Arrangement may have been avoided by the operation of s 468(1). None of those three transactions would be voided, since either they would not fall within s 468(1) or would be exempt dispositions as referred to in s 468(1). 15 In connection with the proposed meeting of shareholders, the Administrators have retained Grant Thornton Corporate Finance Pty Ltd (Grant Thornton) to prepare an independent report as to whether the matters that are to be considered by the shareholders are fair and reasonable to the non-associated shareholders of Green Pacific. Those transactions, as I have said, are as follows: (1) The proposed issue of 114,527,101 shares to Sulton Pty Ltd. (2) The potential issue of 139,977,564 shares for a consideration of $550,000 under the Share Option Deed. (3) The transfer of 2,185,832 ordinary shares in Green Pacific held by the Wong associates for $5. (4) The potential giving of a financial benefit to Richland under the share option deed between Richland and Stapylton No. 2.