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[2016] FCA 384
Federal Court of Australia
2016-04-12
Davies J
Original judgment source is linked above.
DAVIES J: 1 The first respondents ("the existing administrators") were appointed the voluntary administrators of the second respondents, Arrium Limited and 93 other companies in the Arrium Group ("the Group"), on 7 April 2016. The existing administrators have scheduled the first meetings of the companies' creditors for Tuesday, 19 April 2016 and in the meantime, continue to operate the Group's businesses. Very recently, they indicated that they intend to resign as administrators of the companies. 2 In consequence of the existing administrators' intention to resign as administrators, the applicants have made an urgent application to the Court for an order pursuant to ss 449C(6) and 447A of the Corporations Act (2001) (Cth) ("the Act") in the following terms: Pursuant to s 447A of the Act, s 449C(6) of that Act applies in the voluntary administrations of each of the Second Respondents as if it read as follows: Where a company is under administration, but for some reason no administrator is acting or the administrator proposes to resign, the court may appoint a person as administrator (in the case of a proposed resignation, to take effect upon on and from that resignation) on the application of ASIC or of an officer, member or creditor of the company. 3 The Arrium Group is a group of more than 100 Australian and foreign companies, 94 of which are in voluntary administration. The Group conducts businesses in the mining consumables, mining and steel industries. It has operations in Australia and overseas and employs around 7,000 Australians. According to its last annual report, Arrium Limited had net assets of $2.555 billion and recorded a loss of $1.866 billion. It is immediately evident that the Group conducts very substantial business operations and is a very substantial commercial enterprise employing thousands of employees. 4 The application is supported by an affidavit sworn by Mr Zwier. Mr Zwier has deposed that KordaMentha, who are proposed to replace the existing administrators as administrators of the second respondents, is an advisory and investment firm that provides restructuring, turnaround, real estate and forensic support for companies and their stakeholders. It has experience with acting in relation to large corporate insolvencies, including the Ansett, Timbercorp and Willmott external administrations. Exhibited to the affidavit is a copy of a credential pack document which sets out KordaMentha's credentials for such large and complex appointments. I accept that KordaMentha has the capabilities to act as administrators of the Arrium Group. 5 The applicants are the Australian Workers' Union ("AWU"), a group of United States private placement noteholders, and National Australia Bank as agent for 23 lenders who have made facilities available to the Group under syndicated facility agreements (five of whom also have bilateral facilities). The debts are unsecured and the total amount of the debts presently outstanding to institutional lenders is approximately $2.7 billion. The AWU represents some 2,000 of the Group's 7,000 employees. Mr Zwier has deposed that he has also been informed by Mr McDine, the national secretary of the AWU, that most, if not all, of the other employees of the Arrium Group, most of whom are members of other Australian trade unions, will vote at the first meeting of creditors consistently with the vote of the AWU. On that basis, Mr Zwier believes that the replacement of Grant Thornton with KordaMentha as administrators enjoys the overwhelming support of the majority in number and value of the creditors of the companies under administration. 6 ASIC has been given notice of this application and has not appeared or given notice that it opposes the orders sought. 7 The solicitors for the directors have advised that the directors do not object to the orders sought or to the appointment of KordaMentha as the administrators upon the resignation of the existing administrators. 8 Mr Scarcella, who appeared for the existing administrators, has also informed the Court that they consent to the orders that are sought by the applicants. 9 There is authority in this Court that the Court has the power to make the orders sought pursuant to ss 447A and 449C(6) of the Act. In Re Ansett Australia Ltd (admin apptd) (2001) 39 ACSR 296; [2001] FCA 1348, Goldberg J made a similar order in circumstances where the then administrators appointed to Ansett Australia had advised their intention to resign. His Honour stated at [6] that he: …consider[ed] it important in an administration of this nature, an administration of a very, very substantial commercial enterprise and a commercial enterprise which employs many thousands of employees, that there be no gap in the continuation of the administration which is currently in existence and which is operative. His Honour stated at [9]-[10] that: 9. The court has the power under s 449C(6), where a company is under administration and for some reason no administrator is acting, to appoint a person as administrator on the application of a creditor of the company. It seems to me that it is an appropriate order to make in those circumstances that the proposed substitute administrators be appointed with effect from the date and time that the administrators give notice in writing of their resignation as administrators of the companies. 10. If that event occurs, then the order will come into effect. If that event does not occur, then the current administrators will maintain their position as administrators. What is important is that there be no point of time where there are no administrators undertaking the administration of the company. In Re Wallace-Smith; National Express Group Australia (Bayside Trains) Pty Ltd (recs and mgrs apptd) (admins apptd) (2003) 46 ACSR 674; [2003] FCA 764, Finkelstein J determined an application by the plaintiff seeking orders that the court appoint a substitute joint administrator to the companies. The orders were sought following the resignation of one of the joint administrators. His Honour doubted whether s 449C(6) applied at least while an administrator remained in office, but his Honour found, however, that s 447A could be used to fill a gap in the legislative scheme and appoint a second administrator where one of two administrators had resigned. 10 I am satisfied that the Court does have the power to make orders of the kind that are sought and adopt the observations of Goldberg J in Re Ansett about the importance that there be no point of time where there are no administrators undertaking the administration of the company. For those reasons, the orders will be made. Given the urgency with which this application has been heard and the short notice, I propose to provide for liberty to apply to other interested parties. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies.
SCHEDULE ONE
SCHEDULE TWO Second Applicants: C.M. LIFE INSURANCE COMPANY COMPANION LIFE INSURANCE COMPANY CONNECTICUT GENERAL LIFE INSURANCE COMPANY FARM BUREAU LIFE INSURANCE COMPANY OF MICHIGAN MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY MUTUAL OF OMAHA INSURANCE COMPANY NATIONWIDE LIFE INSURANCE COMPANY OHIO NATIONAL LIFE ASSURANCE CORPORATION RELIASTAR LIFE INSURANCE COMPANY SECURITY LIFE OF DENVER INSURANCE COMPANY STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY STATE FARM LIFE INSURANCE COMPANY THE LINCOLN NATIONAL LIFE INSURANCE COMPANY THE OHIO NATIONAL LIFE INSURANCE COMPANY TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY TRANSAMERICA LIFE INSURANCE COMPANY UNITED OF OMAHA LIFE INSURANCE COMPANY VOYA INSURANCE AND ANNUITY COMPANY VOYA RETIREMENT INSURANCE AND ANNUITY COMPANY Third Applicant: NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)
Australian Workers' Union
Billingham, in the matter of Arrium Limited