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[2024] FCA 929
Federal Court of Australia
2024-08-06
Yates J
Original judgment source is linked above.
Counsel for the Plaintiffs: Mr D Krochmalik Mr B Smith
ORDERS NSD 1050 of 2024 IN THE MATTER OF REGIONAL EXPRESS HOLDINGS LIMITED (ACN 099 57 270) (ADMINISTRATORS APPOINTED) SAMUEL FREEMAN, JUSTIN WALSH AND ADAM NIKITINS IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF EACH OF THE SECOND TO SIXTH PLAINTIFFS First Plaintiff
REGIONAL EXPRESS HOLDINGS LIMITED (ACN 099 547 270) (ADMINISTRATORS APPOINTED) Second Plaintiff
REX INVESTMENT HOLDINGS PTY LIMITED (ADMINISTRATORS APPOINTED) (ACN 101 317 677) (and others named in the Schedule) Third Plaintiff
order made by: YATES J DATE OF ORDER: 6 AUGUST 2024
Introduction 1 On 6 August 2024, I made certain orders on the application of the plaintiffs. These are my reasons for making those orders. 2 The first plaintiffs are the joint and several administrators (the administrators) appointed to each of the second to sixth plaintiffs: Regional Express Holdings Limited (administrators appointed) (Rex Holdings); Air Partners Pty Ltd (administrators appointed) (Air Partners); Rex Investment Holdings Pty Limited (administrators appointed) (Rex Investment); Regional Express Pty Limited (administrators appointed) (Regional Express); and Rex Airlines Pty Ltd (administrators appointed) (Rex Airlines) (together, the Companies) on 30 July 2024 pursuant to s 436A(1) of the Corporations Act 2001 (Cth) (the Corporations Act). 3 The Companies are part of a corporate group which includes other companies incorporated and operating in Australia (the Rex Group). They are, however, the only companies in the Rex Group to which administrators have been appointed. 4 The Rex Group provides passenger and freight airline services in Australia. These services include regional flights between major cities and regional locations, and between regional locations (regional routes); Fly-in-Fly-Out charter flights; and private charter services to corporate, tourism, and leisure clients. The Rex Group also provides training services to airline staff, including intensive training programs for those wishing to obtain a commercial pilot licence. 5 Until recently, the Rex Group, through Rex Airlines, provided domestic trunk route services between major cities (metropolitan routes). The services on these routes have been discontinued, resulting in the cancellation of all customer bookings for flights on these routes. 6 Rex Holdings is a public company whose shares are listed on the Australian Securities Exchange (ASX). It is the parent company of the Rex Group. It operates the regional routes service. Air Partners, Rex Investment, and Regional Express are investment vehicles whose investments include shareholdings in other companies. In addition, Regional Express holds the Air Operator Certificate for both the regional and metropolitan routes. 7 Since their appointment, the administrators have continued to trade the Rex Group's business other than in respect of the metropolitan routes. They are endeavouring to put in place the architecture to maximise the prospect of a sale of the business as a going concern, or its restructure.
The present application 8 The plaintiffs seek relief pursuant to s 447A of the Corporations Act and various provisions of the Insolvency Practice Schedule (Corporations) (Sch 2 to the Corporations Act) (the IPS(C)) and the Insolvency Practice Rules (Corporations) 2016 (Cth) (the IPR(C)) in relation to the following matters affecting the administrations of the Companies: (a) giving notices to creditors, including in relation to the first meeting of creditors to be held under s 436E of the Corporations Act; (b) conducting the first meeting of creditors using virtual meeting technology; (c) appointing a single committee of inspection in respect of all the Companies; (d) extending time to respond to creditor requests; and (e) limiting the administrators' personal liability arising under certain financing arrangements. 9 The plaintiffs also seek to extend the time for convening and holding a general meeting of the members of Rex Holdings as fixed by s 249D(5) of the Corporations Act, and for providing a copy of that company's register of members as fixed by s 173(3). 10 The present application is supported by affidavits made by one of the administrators, Samuel John Freeman, on 4 August 2024 and 5 August 2024. 11 It is necessary to record some details concerning the Companies' creditors before turning to the relief that is sought.
the Creditors 12 Based on presently available information, Mr Freeman has categorised the Companies' creditors as follows: (a) customers with forward bookings for flights on the metropolitan routes; (b) employees; (c) financiers of the Companies; (d) other creditors with security interests registered on the PPSR; (e) related creditors; and (f) trade and other creditors (such as statutory creditors with respect to taxes and rates). 13 The administrators have been investigating the number of customers of the Rex Group with forward bookings. However, according to Mr Freeman, system limitations within the Rex Group have not enabled the administrators to complete this task. The administrators' investigations are, however, continuing. 14 The administrators are not treating customers with bookings on the regional routes as creditors because services for those customers are continuing to be provided. The administrators are treating customers with bookings on the metropolitan routes as actual or contingent creditors of Rex Airlines on the basis that there is no certainty as to whether these bookings can be accommodated by an alternative airline. 15 In this regard, Virgin Australia Airlines Pty Ltd and its related entities (Virgin Australia) have offered to re-book some of Rex Group's customers whose flights on the metropolitan routes have been cancelled. There is, however, no guarantee that all affected customers can be re-booked on an equivalent Virgin Australia flight. 16 As at 4 August 2024, the Companies employed approximately 1,057 employees. Since their appointment, the administrators have terminated the employment of 251 employees of Rex Holdings and 343 employees of Rex Airlines. There are, therefore, a large number of employee creditors. 17 Apart from creditors affected by flight cancellations on the metropolitan routes (customer creditors), the Companies have approximately 4,450 known creditors. Rex Holdings has 3,584 known creditors (including the 251 employee creditors). Rex Airlines has 894 known creditors (including the 343 employee creditors). Air Partners has two known creditors, Rex Investment has two known creditors, and Regional Express has 10 known creditors. 18 The administrators expect that the total number of creditors is likely to increase as more information becomes available. 19 Customer creditors aside, the administrators have email addresses for approximately 3,977 of the 4,450 known creditors (i.e., approximately 89% of the known creditors). 20 The administrators have had difficulty in identifying all the customer creditors and in obtaining email addresses for them. However, as at 5 August 2024, the administrators had identified 54,013 email addresses for the customer creditors. 21 The administrators have been informed by the Companies' Information Technology and Communications management team that 185,597 text messages were sent to and received by customers whose flights have been cancelled. However, in the short time since their appointment, the administrators have not been able to identify how many unique customers received such messages (for example, duplicated messages might have been sent and received). 22 The information recorded in [20] and [21] above indicates that the pool of customer creditors is likely to be very large. 23 The Rex Group maintains a website (the Rex website). The administrators have created a link on the Rex website to a creditor portal (the creditor portal) which provides information in respect of the administrations. I mention these matters because they are relevant to the orders that the plaintiffs seek in relation to notifying creditors of meetings and providing other information during the course of the administrations.
Background 24 By operation of s 436E(2) of the Corporations Act, a first meeting of creditors of each of the Companies must be held by Friday, 9 August 2024. Under s 436E(3), those meetings must be convened at least five business days beforehand (i.e., by Friday, 2 August 2024). 25 Rule 70-30(2) of the IPR(C) requires certain information to be given to as many creditors of a company as reasonably practicable. Rule 70-30(3) provides that, in the case of a company under administration, this information must be given at the same time as notice of the first meeting of creditors is given. 26 On 31 July 2024, the administrators published a circular to creditors on the Rex website (the circular). The circular announced their appointment and, apart from other information, gave notice that concurrent first meetings of the Companies' creditors (the first meeting) would be held via a teleconference on 9 August 2024 at 12.00pm (AEST). The notice stated that creditors who had not already lodged a proof of debt should do so by email by no later than 12.00 pm (AEST) on 7 August 2024. 27 On the same day, the administrators sent the circular to the creditors referred to in [17] above (i.e., creditors other than customer creditors) either by email or by post (where email addresses were not available). 28 In addition, on 31 July 2024, Australian Securities and Investments Commission (ASIC) published a combined notice of appointment and first meeting of the Companies' creditors on its website. 29 As I have noted, as at 5 August 2024 the administrators had identified the email addresses of 54,013 customer creditors. On that day, they sent an email to each of those customers which, amongst other things, notified them of the holding of the first meeting of creditors and provided a link to the formal notice of meeting. 30 Subject to an exception as to time which I note in the next paragraph, the plaintiffs seek an order pursuant to s 447A(1) of the Corporations Act and/or s 90-15 of the IPS(C) that the notice required to be given by rr 75-15 and 75-225(1) of the IPR(C) will have been validly given in the case of the first meeting of creditors of the Companies, and will be validly given in the case of subsequent meetings of the creditors, if the notice is given five business days prior to the date of the meeting and: (a) the notice is sent by email to those creditors for whom the administrators have email addresses, irrespective of whether the creditor has nominated to receive electronic notifications; (b) the notice is sent by post to those creditors for whom the administrators do not have email addresses but do have postal addresses; (c) the notice is published on ASIC's published notices website (https://publishednotices.asic.gov.au); and (d) the notice is published on the creditor portal. 31 In relation to customer creditors, the plaintiffs seek an order that the period specified in s 436E(3)(a) of the Corporations Act and r 70-30(3)(b) of the IPR(C) be abridged from five business days to two business days in respect of the first meeting of creditors. This is because the administrators have not been able to provide notice of the first meeting of creditors to all these creditors within the prescribed five day period due to the difficulty in identifying and obtaining email addresses for them. 32 The plaintiffs also seek an order pursuant to s 447A(1) of the Corporations Act and/or s 90-15 of the IPS(C) in relation to the giving of any other notification to creditors during the administration of each of the Companies that the applicable notice requirements will be satisfied if: (a) The notice is sent by email to those creditors for whom the administrators have email addresses, irrespective of whether the creditor has nominated to receive electronic notifications; (b) the notice is sent by post to those creditors for whom the administrators do not have email addresses but do have postal addresses; (c) to the extent that the matter relates to a meeting that is the subject of r 75-40(4) of the IPR(C), the notice is published on ASIC's insolvency notices website (https://insolvencynotices.asic.gov.au); and (d) the notice is published on the creditor portal.
Consideration 33 I am satisfied that it is appropriate to make the orders that the plaintiffs seek in this regard. 34 First, I am satisfied that sending communications to creditors by email is an appropriate mode of delivery, particularly where, as here, the number of creditors is large, the timely delivery of notices is important, and electronic delivery is efficient and cost-effective. 35 Section 110D(1)(c) of the Corporations Act provides for the sending of documents in electronic form by means of an electronic communication, but this is only where the recipient has provided a nominated electronic address: s 110D(6)(b). As the plaintiffs submit, it is not readily apparent that each intended recipient of notices to be given in the administrations of the Companies has or will have "nominated" an electronic address for the purposes of this provision. It is important that the administrators not be left in doubt about this matter. Moreover, I do not think that the preference of a recipient as to the mode by which notices are to be given is a matter of significance in any event. 36 Orders for the delivery of notices by electronic means is now commonplace, including in the context of company administrations: see Re BBY Limited [2015] NSWSC 974 at [7] and the cases there cited; Quinlan, in the matter of Halifax Investment Services Pty Ltd (administrators appointed) [2018] FCA 1891 at [12] - [14]; Jahani, in the matter of Ralan Group Pty Ltd (administrators appointed) [2019] FCA 1446 at [21] - [22]; Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) [2020] FCA 571; 141 ACSR 310 (Virgin No 1) at [27] - [29]; Longley, in the matter of Dixon Advisory & Superannuation Services Pty Ltd (administrators appointed) [2022] FCA 471 at [22]. 37 Secondly, the orders that the plaintiffs seek include the added precaution of notifying creditors by publishing the notices on ASIC's published notices website and on the creditor portal which is accessible on the Rex website. 38 As to the abridgement of time that the plaintiffs seek, the position is that the known creditors, other than the customer creditors, have received notice of the first meeting within the prescribed time. The problem has been with identifying, and obtaining email addresses for, the customer creditors. But even those creditors will have known of the administrations through the text messages sent, and will have had access to, at least, the Rex website where the circular referred to in [27] above was posted from 31 July 2024. 39 I accept the plaintiffs' submission that it is preferable to abridge the notice period in respect of the customer creditors rather than delay the holding of the first meeting of creditors. Although the period of notice is relatively short, it is not unreasonable in the circumstances, particularly when the first meeting will be held using virtual meeting technology. 40 I also accept the plaintiffs' submission that the efforts that the administrators have taken is consistent with the statutory obligation in s 436E(3) of the Corporations Act to give notice of the first meeting to "as many of the company's creditors as reasonably practicable".
Background 41 This aspect of the plaintiffs' application concerns the manner of holding the first meeting of creditors. 42 It is not in doubt that virtual meeting technology can be employed for this purpose. However, r 75-75 IPR(C) requires that the technology that is employed must give all persons entitled to attend the meeting a reasonable opportunity to participate without being physically present in the same place. 43 The plaintiffs seek orders to the effect that: (a) the first meeting be conducted by a live stream format in which participation is by a written live stream chat function that is visible only to the chairperson (or his or her delegate) rather than by oral address; (b) notice be given to creditors, and the first meeting be conducted on the basis that, questions, requests for information, or comments that are to be raised, are submitted to the administrators, to the extent possible, by midday on 7 August 2024; (c) so far as is practicable, the administrators answer or address the submitted questions, requests for information, or comments for a period of not less than two hours or until the questions, requests, or comments have been responded to (whichever occurs sooner); (d) the administrators may, but are not required to, answer or address any questions, requests for information, or comments submitted after midday 7 August 2024. 44 The administrators expect that there will be a very large number of attendees at the first meeting who will likely raise a significant number of questions, especially customer creditors. They contend that, bearing this in mind, the orders they seek will ensure a structured and efficient process for managing creditor participation, which will minimise potential disruptions, maintain order, and ensure that the costs associated with the meeting are not disproportionate. They contend that, by receiving questions in advance of the first meeting, they will be able to respond to those questions more fulsomely and efficiently than if the questions were simply posed at the first meeting itself. They contend, further, that the efficiencies to be achieved will ensure that the costs associated with the first meeting do not become disproportionate. 45 Importantly, the plaintiffs also seek orders that, within five business days after the first meeting, the administrators publish on the creditor portal information that responds to all questions, requests for information, and comments received prior to the first meeting that are not, in substance, addressed at that meeting. 46 Further, the plaintiffs seek an order that Pt 5.3A of the Corporations Act is to operate as if the administrators had validly convened the first meeting by the notice they issued on 31 July 2024, even though the notice referred to the location of the meeting as "Virtual Meeting - Teleconference".
Consideration 47 I am satisfied that it is appropriate to make the orders that the plaintiffs seek in this regard. 48 First, I am satisfied that the orders that the plaintiffs seek will give all persons entitled to attend the first meeting a reasonable opportunity to participate without being physically present in the same place. I accept the plaintiffs' submission that, given the likely number of creditors attending the first meeting, it will also be important to exercise some rigour over its conduct. I am satisfied that their proposal strikes an appropriate balance. The efficient conduct of the first meeting is as much in the creditors' interests as it is in the administrators' interests. I note that similar orders were made in proceeding NSD 553/2024 by Cheeseman J on 7 May 2024 in relation to the administration of Bonza Aviation Pty Ltd (administrators appointed) (Bonza) (Order 5). 49 As to the nomination of the location of the meeting in the notice issued on 31 July 2024, r 75-75(6) of the IPR(C) requires the nomination of a physical place where the meeting is to be held, even though the meeting will be held using virtual meeting technology and even though none of the persons entitled to attend the meeting is entitled to be physically present. This, with respect, seems a curious requirement. Even so, it has not been fulfilled by the notice issued on 31 July 2024. I am satisfied that it is appropriate to dispense with that requirement in the present case. I note that a similar order was made in Virgin No 1 (Order 4A).
Background 50 One of the purposes of the first meeting of creditors is to determine whether a committee of inspection should be appointed and, if so, who the members of that committee should be: s 436E(1). Section 80-10 of the IPS(C) provides that the creditors may determine whether there should be a committee of inspection by resolution; s 80-15(1) provides that the creditors may appoint the members of the committee by resolution. 51 Section 75-40 of the IPS(C) provides a procedure whereby creditors can vote on proposals put by external administrators. Rule 75-130 IPR(C) provides for the circumstances in which the acceptance of such proposals are to be taken as passed as a resolution of creditors. This rule also recognises that, in certain circumstances, responding creditors can object to the proposal being passed as a resolution without a meeting of creditors: r 75-130(2)(c). 52 The administrators are of the view that the scale of the present administrations is such that they expect, and would encourage, the creditors to appoint a committee of inspection. However, the plaintiffs seek an order that there be one committee of inspection for all the Companies, rather than a committee of inspection for each Company. Further, they seek orders that the requirement to appoint a committee of inspection by resolution at a meeting of creditors be dispensed with and that another procedure be adopted. 53 The administrators understand that it might be possible to conduct a poll through the technology platform they have chosen to conduct the first meeting. However, they are of the view that there would be difficulties with taking a vote during the course of the meeting. These difficulties, as listed in Mr Freeman's first affidavit, include: (a) the large number of creditors (noting particularly the customer creditors) and the uncertainty associated with the contingent nature of many of these creditors' claims; (b) the time needed to reconcile the votes against admitted creditors, to ensure that only admitted creditors' votes are counted; (c) the staff resourcing needed to input data manually from proofs of debt into the creditor listing, including the name, email address, amount of the proof of debt, and the adjudication of the proof of debt; (d) the difficulty of maintaining the integrity of the voting process and the need to ensure that only creditors or their proxies cast votes; (e) the requirement that creditors use the same email address provided to the administrators to log into the meeting so that each email address can be reconciled with each creditor; (f) the difficulties with identifying a valid email address for those creditors where this information has not been provided; (g) the difficulties arising from the complexities of proxies where there is a large number of creditors; (h) the length of time that would be required to count votes cast at the meeting (noting the need to reconcile the votes cast against both the list of creditors whose debts have been admitted for the purpose of voting at the first meeting and the proxies received by the administrators, to ensure no irregularities in voting); and (i) the difficulties in the voting process where creditors seek to nominate various persons as members of the committee and voting will be required in respect of each nominee (which may require several rounds of voting in respect of several nominees which would be time-consuming and difficult to conduct in an orderly fashion in a virtual meeting). 54 The procedure the plaintiffs propose is as follows: (a) as I have noted, there be one committee of inspection in respect of all the Companies; (b) the members of the committee be persons proposed by the administrators from nominations made to them before, or by one business day after, the first meeting; (c) the administrators put the proposal to creditors no later than three business days after the first meeting; (d) the notice putting the proposal will state that the members of the committee be the persons proposed by the administrators and provide the reasons for the proposal and its likely impact on the creditors; (e) the notice putting the proposal will invite the creditors to vote "Yes", "No" or "Abstain" within five business days after the day on which the notice is given; (f) the proposal is to be treated as made under s 75-40 of the IPS(C), except that the option of objecting to the proposal being resolved without a meeting of creditors (see r 75-130(2)(c) of the IPR(C)) be dispensed with; (g) the time in r 75-130(5) of the IPR(C) be abridged from 15 business days to 5 business days; (h) in the event of a deadlock in the vote on the proposal between a majority of creditors in number and a majority of creditors in value, the administrators may (but are not obliged to) jointly exercise a casting vote in favour of the resolution, in which case the resolution will be taken to have passed, notwithstanding r 75-130(5) of the IPR(C); (i) if the resolution is taken to have passed, the members of the committee of inspection will be the persons proposed by the administrators in the proposal; (j) if the resolution is not taken to have passed, the administrators will approach the Court for further relief in relation to the appointment of a committee of inspection; and (k) the administrators must give notice to the creditors of the outcome of the vote on the proposal and, if applicable, their reason for exercising, or not exercising, as the case may be, a joint casting vote. 55 Mr Freeman has deposed that the administrators expect to propose one or two member representatives from each of the classes of creditors of the Companies, with the committee comprising between 15 and 20 people. He has said that, based on their experience as an insolvency practitioners, the administrators are of the view that the proposal will strike an appropriate balance between the prompt formation of a committee of inspection and the involvement of the creditors in selecting the members of the committee. The ordinary procedures in which creditors would be able to vote at the first meeting on the formation and members of the committee are not practicable in these administrations for the reasons listed above. 56 The plaintiffs submit that the proposal should be accepted by the Court as appropriate, substantially for the reasons set out in Mr Freeman's affidavit. They submit that, if the proposal is accepted, the appointment of the committee will be made in an orderly manner that will avoid the difficulties listed above. Further, based on Mr Freeman's evidence, the proposal will ensure an appropriately representative committee. 57 I should add that the plaintiffs also seek an order to facilitate meetings of the committee of inspection being convened and conducted by electronic and other means, such as by telephone or by audio-visual conferencing facilities.
Consideration 58 I am satisfied that it is appropriate to make the orders that the plaintiffs seek in this regard. 59 First, I accept that there will be difficulties in taking a vote on the committee of inspection at the first meeting, which will be conducted using virtual meeting technology. I accept that the plaintiffs' proposal is practical and efficient and will allow an orderly vote to occur, while at the same time avoiding these difficulties. 60 Secondly, I am persuaded that, given the structure of the Rex Group, and the role of the Companies within that group, the appointment of a single committee of inspection has merit. 61 Thirdly, I am persuaded that the proposal, as outlined in Mr Freeman's first affidavit, will likely ensure an appropriately representative committee. 62 Fourthly, although the administrators will select the members of the committee of inspection, that selection will be based on nominations by the creditors. Those nominations will be allowed even after the first meeting, at which the administrators will be able to explain the proposal and the reasons for it. 63 Fifthly, the appointments will proceed using a mechanism for which the Corporations Act and Divs 75 of the IPS(C) and IPR(C) provide, albeit (in the present case) in a slightly modified form. The modification of dispensing with the facility to object to the proposal being resolved without a meeting of creditors is understandable and reasonable given that the proposal is directed to avoiding the difficulties referred to in Mr Freeman's affidavit. 64 Sixthly, there is a precedent for making the orders that are proposed: Virgin 1 at [33] to [39] (Orders 6 and 7); Bonza (Orders 3 and 4 made on 9 May 2024). 65 Seventhly, as at the date of the hearing, the administrators have not received any notification that, at the first meeting of creditors, any creditor will seek a resolution that the administrators be removed or seek a resolution that another person be appointed as an administrator. Therefore, the proposal in respect of the appointment of the committee of inspection is being put in circumstances where, at present, no other resolution(s) will be put to the creditors at the first meeting.
An extension of time to respond to creditor requests
Background 66 Rule 70-1(2)(a) of the IPR(C) provides that if the external administrator of a company receives a request for information or a report or document under Div 70 of the IPS(C), the external administrator must send the information, report, or document within five business days after receiving the request. 67 The plaintiffs seek to modify the operation of r 70-1(2)(a) so as to permit them 10 business days, rather than five business days, to respond. Mr Freeman's evidence is that, as at 4 August 2024, the administrators had received approximately 1,294 emails and over 100 telephone calls inquiring about the administrations. These inquiries have been directed to dedicated contact points for the administrations. In addition, the administrators have received, personally, numerous emails and telephone calls from interested parties in relation to the administrations. 68 Given the large number of creditors in the administrations, the large number of inquiries that have already been received and are likely to be received, and the complexity of the administrations, the administrators believe that there is likely to be a significant delay in being able to respond to requests for information within the prescribed period of five business days. Mr Freeman's evidence is that, in his experience, information requests sometimes require the input of staff members from the companies in administration as the answer to the request is not readily or easily accessible by the administrators or their staff. 69 The plaintiffs also seek an order that the administrators may provide the information, report, or document requested by a creditor by publishing that information, report, or document on the creditor portal.
Consideration 70 I am satisfied that it is appropriate to make the orders that the plaintiffs seek in this regard. The proposal is a sensible one. Once again, there is precedent for making such orders: Virgin 1 at [40] - [43] (Order 8) ; Bonza (Order 5 made on 9 May 2024).
Limitation of the administrators' personal liability
Background 71 At the date of the administrators' appointment, the Companies had insufficient funds to continue to trade the business, even at a reduced capacity. They formed the view that it was necessary to obtain urgent additional funding to meet the costs of the administrations and other costs required to trade the business. 72 In these circumstances, they caused the Companies to enter into a loan agreement and general security deed with PAGAC Regulus Holding Pte. Ltd. (PAGAC) on 30 July 2024 (the finance agreements). The finance agreements are supplementary to pre-existing secured financing arrangements between the Rex Group and PAGAC. 73 The plaintiffs seek an order that recognises that the liabilities that the administrators have incurred in respect of the finance agreements are in the nature of debts incurred by the administrators in the performance and exercise of their functions in the administrations. The administrators are of the opinion that entering into the finance agreements were, and remain, in the best interests of the creditors of each of the Companies because this has enabled them to continue to trade a significant part of the business during the administration, which would not otherwise have been possible. Continuing a significant part of the business as a going concern maximises the chances of achieving a recapitalisation or sale outcome which they expect will result in a better return for creditors compared to winding down the business and selling it (including a liquidation scenario). 74 However, s 443A(1) of the Corporations Act relevantly provides: 443A General debts (1) The administrator of a company under administration is liable for debts he or she incurs, in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers as administrator, for: … (d) the repayment of money borrowed; or (e) interest in respect of money borrowed; or (f) borrowing costs. … 75 It is to be noted that this provision has effect despite any agreement to the contrary: s 443A(2). 76 The plaintiffs seek an order that limits their liability for debts under s 443A(1) insofar as that liability arises from the finance agreements. 77 It is to be noted that an administrator has a right of indemnity out of the company's property: s 443D. This right of indemnity has priority over other debts (s 443E), and to secure that right an administrator has a lien over the company's property: s 443F. 78 But, in the present case, due to the complexities and scale of the business in question, and the limited time since their appointment, the administrators have been unable to determine a true and accurate valuation of the Companies' property. Accordingly, without the benefit of an order limiting their liability, the administrators will be exposed to meeting, in full, their debt obligations imposed by s 443A(1) in respect of the finance agreements should there be any shortfall between the available property of the Companies and the amounts payable in respect of those agreements (and any amendments thereto). 79 Importantly, PAGAC has agreed that the administrators' liabilities to it will be limited to their right of indemnity out of the Companies' property. However, given the terms of s 443A(2) of the Corporations Act, this alone will not protect the administrators from the risk to which they are exposed.
Consideration 80 I am satisfied that it is appropriate to make the orders that the plaintiffs seek in this regard. 81 It is not in doubt that the power under s 447A of the Corporations Act extends to making orders limiting an administrator's personal liability under s 443A(1) of the Corporations Act, particularly in relation to funding arrangements to facilitate trading in the administration period. Such orders are commonplace: Re Mentha (in their capacities as joint and several administrators of the Griffin Coal Mining Company Pty Ltd) (administrators appointed) [2010] FCA 1469; 82 ACSR 142 at [29] - [31]; Re Nexus Energy Ltd [2014] NSWSC 1041 at [14]; Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717 at [90]; Hill, in the matter of Ovato Limited (administrators appointed) [2022] FCA 903 at [14]; Lord, in the matter of Invigor Group Limited (administrators appointed) [2022] FCA 1064 at [24]; Kelly (administrator), in the matter of Lutum Holdings Pty Ltd (administrators appointed) [2024] FCA 554 at [42] - [43]. 82 It is appropriate that their liability be limited in the way proposed, particularly having regard to PAGAC's agreement to that course. Limiting the administrators' liability, as proposed, will not prejudice the other creditors of the Companies.
Extensions of time in respect of ss 173(3) and 249D(5) of the Corporations act
Background 83 Section 249D of the Corporations Act provides: Calling of general meeting by directors when requested by members (1) The directors of a company must call and arrange to hold a general meeting on the request of members with at least 5% of the votes that may be cast at the general meeting. (2) The request must: (a) be in writing; and (b) state any resolution to be proposed at the meeting; and (c) be signed by the members making the request; and (d) be given to the company. (3) Separate copies of a document setting out the request may be used for signing by members if the wording of the request is identical in each copy. (4) The percentage of votes that members have is to be worked out as at the midnight before the request is given to the company. (5) The directors must call the meeting within 21 days after the request is given to the company. The meeting is to be held not later than 2 months after the request is given to the company. 84 The evidence before me suggests that, on 24 June 2024, Rex Holdings received a request from Kim Hai Lim under s 249D of the Corporations Act to hold a general meeting of the company to consider the removal of its directors (other than Mr Lim) and the appointment of new directors (the 24 June request). Mr Lim is a director of, and shareholder in, Rex Holdings. The administrators do not have a copy of this request. 85 On 8 July 2024, Rex Holdings received a second request from Mr Lim under s 249D to hold a general meeting to consider the removal and appointment of directors (the 8 July request). This request was notified to the ASX. 86 On 11 July 2024, the then solicitors for Rex Holdings informed Mr Lim's solicitors that a general meeting of the company would be convened on the basis that the 24 June request was withdrawn. On the assumption that the 8 July request is operative, a general meeting of Rex Holdings' shareholders should have been called by 29 July 2024. This has not happened. 87 On 1 August 2024, Mr Lim's solicitors wrote to the administrators stating that Mr Lim remained of the view that Rex Holdings must hold the general meeting he had requisitioned, notwithstanding that the company is in administration. The letter included a request under s 173(3) of the Corporations Act that a copy of the company's share register be provided to Mr Lim for the apparent purpose of enabling him to call and arrange a meeting of members pursuant to s 249E of the Corporations Act should the directors fail to act under s 249D. 88 Section 173 relevantly provides: Right to inspect and get copies Right to inspect (1) A company or registered scheme must allow anyone to inspect a register kept under this Chapter. If the register is not kept on a computer, the person inspects the register itself. If the register is kept on a computer, the person inspects the register by computer. Note: Other provisions that are relevant to the inspection of registers are: section 1300 (place and times for inspection) section 1301 (the location of documents that are kept on computers) section 1306 (form and evidentiary value). ... Right to get copies (3) The company or scheme must give a person a copy of the register (or a part of the register) within 7 days if the person: (a) makes an application to the company or registered scheme in accordance with subsection (3A); and (b) pays any fee (up to the prescribed amount) required by the company or scheme. ASIC may allow a longer period to comply with the request. If the register is kept on a computer, the company or registered scheme must give the copy to the person in the prescribed form. (3A) An application is in accordance with this subsection if: (a) the application states each purpose for which the person is accessing the copy; and (b) none of those purposes is a prescribed purpose; and (c) the application is in the prescribed form. Note: Sections 137.1 and 137.2 of the Criminal Code create offences for providing false or misleading information or documents. … 89 The administrators' solicitors responded to this letter on 5 August 2024. In their response, the solicitors pointed out that that there was no utility in holding the meeting that Mr Lim had requisitioned to remove and appoint directors in Rex Holdings given the prohibition in s 198G(1) of the Corporations Act - namely that, while the company is in external administration, an officer of the company must not perform or exercise a function or power of that office. 90 The solicitors also argued that such a meeting would be futile given the possible outcomes of the administration, which included the execution of a deed of company arrangement (DOCA) - which would likely see a change in the composition of the board in the event of a sale - or the liquidation of the company. In either case, the company would not be returned to the control of the present directors. 91 The solicitors advised that this proceeding had been commenced and that the plaintiffs were seeking orders pursuant to s 1322(4)(d) of the Corporations Act to the effect that, in respect of both the 24 June request and the 8 July request: (a) the time fixed by s 249D(5) be extended up to an including the day that is 20 business days after the second meeting of creditors required by s 439A of the Corporations Act (at which a resolution under s 439C is passed); and (b) the time fixed by s 249D(5) for holding the meeting be extended up to and including the day that is 28 days after the day on which the meeting is called. 92 The solicitors also advised that the plaintiffs were seeking an order pursuant to s 1322(4)(d) that the time fixed for providing the company's register of members pursuant to the request made on 1 August 2024 be extended up to and including the day that is five business days after the day on which the general meeting is called. 93 The letter enclosed a copy of the originating process and stated that the hearing was listed for 10.15 am on 6 August 2024. 94 Later on 5 August 2024, in response to a request for the same, the plaintiffs' solicitors provided Mr Lim's solicitors with a copy of Mr Freeman's affidavit of 4 August 2024, including Exhibit SJF-1 thereto, and a copy of the plaintiffs' written outline of submissions in support of their application which, amongst other things, addressed the relief presently under consideration. 95 Mr Lim did not seek to appear at the hearing on 6 August 2024. 96 The administrators estimate that the cost of calling and holding the requisitioned meeting (as a hybrid in person/online meeting) would be at least $10,265 plus GST. This amount does not include the cost of hiring space for the meeting or the administrators' fees (which may be between $300,000 and $500,000) and legal expenses (which may be between $65,000 and $100,000). These sums are ballpark figures but do indicate the level of expenditure that would be required to convene and hold the requisitioned meeting. 97 The funds which are available to the administrators under the finance agreements can only be drawn on for specified purposes which, at present, do not include holding the requisitioned meeting. The administrators have expressed the view that it is unlikely that, in all the circumstances, PAGAC would consent to the funds being used for this purpose. 98 The plaintiffs contend that the best interests of the creditors and members of Rex Holdings lie in the administration continuing without the requirement to hold the requisitioned meeting or to provide the register of members. There is no present utility in these steps being taken which will only add to the costs of the administration and reduce the return available to creditors, including priority creditors such as employees.
Consideration 99 I am satisfied that it is appropriate to make the orders that the plaintiffs seek in this regard. 100 Section 1322(4) of the Corporations Act relevantly provides: (4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: … (d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding; and may make such consequential or ancillary orders as the Court thinks fit. 101 Section 1322(6) relevantly provides: (6) The Court must not make an order under this section unless it is satisfied: … (c) in every case--that no substantial injustice has been or is likely to be caused to any person. 102 The power under s 1322(4) extends to the period referred to in s 249D(5) of the Corporations Act: Woolworths Ltd v GetUp Ltd [2012] FCA 726; 90 ACSR 670 at [18] - [26]; In the matter of Washington H Soul Pattinson & Co Ltd [2013] NSWSC 2038; Kimberley College Ltd v David [2018] FCA 1102 at [29]. I have no doubt that it applies to the period referred to in s 173(3). 103 I accept that there is no utility in holding the requisitioned meeting while Rex Holdings remains in administration. Given the prohibition in s 198G(1) of the Corporations Act, any new director appointed at such a meeting would be in no different position to any of the current directors of the company - he or she must not (and, therefore, cannot) perform or exercise any function or power in the capacity of a director. 104 The fate of the Rex Holdings presently rests in the hands of the creditors and the decision they will make at the second meeting of creditors to be held pursuant to s 439A. Should the creditors decide that the administration should end then, only at that point, will the holding of the requisitioned meeting have utility. The same conclusion follows should the creditors decide that the company should execute a DOCA which provides for the company to be returned to the control of its present directors. 105 Commonsense dictates that Rex Holdings should not be put to needless expense in the meantime. Moreover, the plaintiffs' proposal is a sensible one that will not prejudice Mr Lim or cause substantial injustice to any person. 106 It is to be borne in mind that, in the present circumstances, the interests of members - who have no voice in the administration of a company - are relegated to the interests of the creditors: Brash Holdings Ltd v Shafir (1994) 14 ACSR 192 at 196; Re Smith (as administrator of Berowra RSL Bowling and Community Club Ltd) [2006] NSWSC 780; 58 ACSR 410 at [12]. The interests of creditors will not be served if the requisitioned meeting is convened and held now. Ultimately, they would bear the costs in circumstances where the outcome of the meeting could be of no consequence, let alone benefit, to them. 107 It follows from this conclusion that there is no utility in providing Mr Lim with a copy of Rex Holdings' register of members until the fate of the company is known after the second meeting of creditors.
Non-disclosure order 108 The plaintiffs seek an order pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) limiting the disclosure of the documents exhibited to Mr Freeman's affidavit of 4 August 2024 that are described as Confidential Exhibit SJF-2. They do so on the basis that such an order is necessary to prevent prejudice to the proper administration of justice. Confidential Exhibit SJF-2 comprises copies of the finance agreements to which I have referred at [72] above. 109 For the reasons expressed in Mr Freeman's affidavit of 4 August 2024, I accept that the finance agreements contain commercially- and market-sensitive information that is not publicly available. I am satisfied that the documents would not be made publicly available in the ordinary cause of events and that the only reason for using them in this proceeding has been to support the making of the orders limiting the administrators' personal liability under s 443A(1) of the Corporations Act and to otherwise explain to the Court the current circumstances of the administrations. I am satisfied that public disclosure of the documents would be detrimental to the administrations of the Companies. 110 Given these circumstances, I am satisfied that the order that is sought is necessary to prevent prejudice to the proper administration of justice.
Ancillary orders 111 The plaintiffs seek a number of ancillary orders. I am satisfied that it is appropriate to make them. They include the usual order that any person demonstrating sufficient interest can apply to the Court to vary or discharge the substantive orders which I have discussed. I certify that the preceding one hundred and eleven (111) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates.
SCHEDULE OF PARTIES NSD 1050 of 2024 Plaintiffs Fourth Plaintiff: REGIONAL EXPRESS PTY LIMITED (ADMINISTRATORS APPOINTED) (ACN 101 325 642) Fifth Plaintiff: AIR PARTNERS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 065 221 356) Sixth Plaintiff: REX AIRLINES PTY LTD (ADMINISTRATORS APPOINTED) (ACN 642 400 048)
Brash Holdings Ltd
Shafir