Australian World-Wide Pty Limited v Palmer [2018] NSWSC 1730 | Case summary

Australian World-Wide Pty Limited v Palmer [2018] NSWSC 1730 | Case summary | Zoe

By Originating Process filed today by leave, the Plaintiff, Mr Ahmad Zeidan in his capacity as voluntary administrator of Abterra Australia Pty Ltd (admin apptd) ("Company"), applies under s 439A(6) and s 447A of the Corporations Act 2001 (Cth) for an order extending the convening period for the second meeting of creditors of the Company and for associated orders.
The application is supported by an affidavit of Mr Zeidan dated 12 September 2018, which refers to the circumstances in which he was appointed as voluntary administrator of the Company, the nature of the Company's role as lessee under a mining lease of a property situated at Cowra, NSW, where a mine that is presently under its care and maintenance is situated partly on land owned by the Company's parent company and partly on adjoining land owned by third parties. Mr Zeidan refers to subsequent developments, including an indication by NSW Resources of its intention to cancel the mining lease, by reason of a range of identified matters. Mr Zeidan notes that NSW Resources has given the Company an opportunity to make submissions in respect of that cancellation by 24 September 2018 and that he is in the process of seeking to respond to the suggested cancellation of the lease.
Mr Zeidan also refers to a further adverse matter, namely that the mine is not, as I noted above, contained solely on the property owned by the parent company, and its most convenient access is obtained through an adjoining property, which it accesses on the basis of a rural access and compensation agreement under the Mining Act 1992 (NSW). It appears that the owners of that property have refused access to the mine, on the basis they contend the Company has failed to pay amounts due to them under the compensation agreement, and they have in turn claimed a significant amount by way of proof of debt in the voluntary administration.
Mr Zeidan refers to the creditors of the Company, which are substantial, and to the Company's assets, which primarily are a security deposit for the mining lease held by NSW Resources and the mining lease itself, and he notes that the realisable value of both assets is presently unknown. Mr Zeidan notes that he has not identified any secured creditors of the Company, and that there is only one employee creditor, in a relatively modest amount, being an officer of the Company's parent company. I note that the parent company and an associated entity are, or claim to be, creditors of the Company in more substantial amounts. Mr Zeidan also refers to steps which are being taken to seek to bring about a sale of the mining lease, either for mining purposes, or for grazing purposes, although the latter would require rehabilitation of the land which may be costly. He also refers to the fact that there has been a suggestion by the Company's parent company that it will or may propose a deed of company arrangement, although the terms of that deed of company arrangement would likely depend upon what could be realised by a sale of the mining lease, either alone or in conjunction with the real property owned by the parent company.
There are plainly a significant number of complexities in the sale process, including soliciting interest from third party purchasers, as to which the voluntary administrator has obtained indications of interest from several parties, but also the need to resolve the position of access to the neighbouring land and whether NSW Resources would consent to an assignment of the mining lease to a third party, rather than continuing with the suggested cancellation of the mining lease. Mr Zeidan in turn notes that, if it is not possible to proceed with a sale of the mining lease, and in particular if the Company is placed in liquidation, then there is a risk that there will be a significant loss of value, because the security deposit held by NSW Resources may be forfeited or retained by it, and the mining lease may be terminated, so that it is no longer a source of value for the Company's creditors.
Mr Zeidan in turn expresses the view that it is desirable for the convening period to be extended to allow him to progress the proposals for potential sale of the mining lease, again potentially with the underlying property owned by the parent company, since that will avoid, or may avoid, the loss of the security deposit and the loss of value in that lease. He seeks an extension of the convening period for three months to achieve that result. It seems to me that there may be difficulties in achieving that result even if the convening period is extended, because of the complexities to which I have referred, but there would be little or no prospect of that result if the convening period is not extended. Mr Zeidan expresses the view that it is in the creditors' interests for the convening period to be extended, to allow a potentially better return to creditors, by realising the value of the Company's mining lease and security deposit in this manner.
Mr Zeidan also relies on a second, confidential affidavit, which identifies the potential purchasers with which the Company has been dealing, and confirms his evidence that a sale process is under way.
I have been assisted by submissions of Mr Anderson, who appears for Mr Zeidan in this application, who sets out the background to the application, consistent with the description which I have set out above, and refers to the Company's assets and liabilities and the developments which have occurred since the voluntary administrator's appointment. The circumstances in which the Court will extend a convening period are, of course, well established. In making such an order, the Court must reach an appropriate balance between an expectation that the administration will be relatively speedy and summary, and the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611; Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10]. The complexity of the circumstances facing a voluntary administrator is plainly relevant to whether such an extension will be granted, and the Court will give significant weight to the views expressed by an administrator in an application of this kind: Owen; Re RiverCity Motorway Pty Ltd (admins apptd) (recs and mgrs apptd) v Madden (No 4) [2012] FCA 1491; (2012) 92 ACSR 255 at [26]. Mr Anderson also draws attention to the judgment of Brereton J in Australian World-Wide Pty Limited v Palmer [2014] NSWSC 141 at [7]-[13], where his Honour also emphasised the need for a balance between efficiency and expedition on the one hand and maximisation of the return for creditors by presenting meaningful choices on the other.
It seems to me that, in the absence of an extension of the convening period, there is a significant risk that the value of the Company's assets will be lost, by termination of the mining lease and loss of the security deposit when the Company passes into voluntary liquidation. It is difficult to see that the creditors could have any alternative to allowing that to occur at a second meeting of creditors, if the convening period is not extended, where no deed of company arrangement would be proposed, and where the sale process or the mining lease would have commenced but not concluded. On the other hand, an extension of the convening period allows at least a prospect that, if the various complex matters which the voluntary administrator seeks to address can be addressed, then there may be a return to creditors, particularly if the parent company ultimately proposes a deed of company arrangement.
The possibility that such an extension of the convening period would be sought had been raised by the voluntary administrator at the first meeting of creditors, who are therefore on notice of the application. Mr Anderson submits that it is not apparent that any creditor would be prejudiced by an extension of the convening period in the present circumstances. I leave open the question, which it is not necessary to determine, whether NSW Resources would potentially be adversely affected by the extension of the administration, which may turn on a question whether the moratorium that applies in a voluntary administration would extend to mining leases, as distinct from leases of property. In any event, an order is sought which permits any creditor of the Company, or any person with a sufficient interest, to apply to vary or discharge these orders on notice to Mr Zeidan and the Court.
I am satisfied that, in the circumstances, the orders sought by the voluntary administrator should largely be made. I will make an order that the costs of and incidental to this application be costs of the voluntary administration, where the application has plainly been brought in order to progress the voluntary administration and advance creditors' interests.
I will not make a further order, as proposed by Mr Zeidan, that he be entitled to an indemnity out of the Company's assets under s 443D of the Act for his remuneration, costs, charges and expenses of and incidental to the application. I do not make such an order because it seems to me that that question, so far as it goes beyond the application of s 443D of the Act in accordance with its terms, should be dealt with when any claimed remuneration has been quantified, and at the conclusion of the voluntary administration rather than in respect of particular steps in it. I recognise, in taking that view, that Brereton J was prepared to make such an order in Australian World-Wide Pty Limited v Palmer above, but nonetheless I consider it preferable to defer that matter. I should emphasise that, in taking that view, I do not suggest Mr Zeidan would not, in fact, ultimately be entitled to such an indemnity, by the operation of s 443D of the Act or otherwise.
Accordingly, in addition to orders 3-7 which I have made previously, dealing with confidentiality, I make orders 1-2 and 8-14 (as renumbered) of the Short Minutes of Order initialled by me and placed in the file. I also make a further order that the exhibits be returned.

Australian World-Wide Pty Limited v Palmer

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