Carter, in the matter of SFM Australasia Pty Ltd (Administrators Appointed) ACN 105 317 333 [2009] FCA 360

INTRODUCTION 1 This is an application by the administrators of SFM Australasia Pty Ltd (Administrators Appointed) ACN 105 317 333 (SFM) to the Court for directions and orders that the Court limit the administrators' personal liability under a Cash Facility Agreement to the extent of their right of indemnity under s 443D of the Corporations Act 2001 (Cth) (the Act), and that the Court approve the terms of that agreement. The directions are sought pursuant to ss 447A(1) and 447D(1) of the Act. 2 The administrators also seek orders pursuant to s 447A(1) of the Act that Pt 5.3A of the Act is to operate in relation to SFM as if s 443A(1) provided that: 1.1 the repayment of money borrowed, interest in respect of money borrowed and borrowing costs in respect of the loan made to the applicants (the administrators) pursuant to a Cash Facility Agreement between SFM and SFM Carbon Trading Limited (the financier) in or substantially in the form of Exhibit BJC1 to the affidavit of Bruce James Carter sworn on 31 March 2009 (the agreement) comprise debts incurred by the administrators in the performance and exercise of their functions and power as administrators of SFM; 1.2 notwithstanding paragraph 1.1: (a) if the administrators' indemnity under s 443D of the Act is insufficient to meet any such debts, the administrators will not be personally liable to repay such debts to the extent of that insufficiency; and (b) as to the repayment of such debts to the financier, the debts are given the same priority in the payment of any debts of SFM during its administration as if it had been in liquidation and the debts had the priority governed and provided for under ss 556(1)(c) and 560 of the Act. 3 The administrators secondly seek orders pursuant to s 447A(1) of the Act that s 447D(1) of the Act is to operate in relation to SFM so that in an application by the administrators for directions pursuant to s 447D(1) in relation to the agreement, the Court may give a direction that it approves the agreement and that the administrators may properly and justifiably give effect to the agreement. And, thirdly, they seek further directions pursuant to s 447D(1) of the Act, as it operates in accordance with Order 2 above, that the Court approves the agreement, and that the administrators may properly perform and give effect to the agreement. 4 The circumstances giving rise to the application are as follows. On 25 March 2009, in accordance with a resolution passed at a meeting of the directors of SFM, the applicants were appointed as administrators of SFM in accordance with the provisions of Pt 5.3A of the Act. On the same day, the applicants were also appointed as administrators of a subsidiary company of SFM, Timber Creek Pine Sawmill Pty Ltd (Timber Creek). 5 SFM has substantial rural property holdings in both South Australia and Western Australia. Its wholly owned subsidiary, SFM New Zealand Pty Ltd, holds leasehold tree plantations for the purpose of carbon sequestration. SFM's forecast turnover is approximately $14m per annum. It directly employs 8 full-time staff and 7 contractors. Timber Creek employs approximately 40 people in a timber mill operation located on Kangaroo Island in South Australia. 6 SFM has two secured creditors, namely Rabobank, which is owed approximately AU$12.905m, and National Australia Bank Ltd, which is owed approximately AU$9.5m. As at the date of the hearing of this application, each bank had notice of it and of the agreement and neither bank had exercised its rights to effect the appointment of a receiver and manager. 7 SFM has number of unsecured creditors. They include Sustainable Forestry Management Ltd (a parent entity of SFM) which is owed approximately AU$4.7m; Black Tree Management Pty Ltd which is owed approximately AU$1.6m; and PAYG owing to the Australian Taxation Office of approximately AU$100,000; as well as trade creditors owed approximately AU$1m. 8 SFM has limited current assets available to it. In particular, there are insufficient monies on hand to pay wages, incur trading expenses and to keep the company trading whilst the administrators consider what alternatives are available to the creditors of SFM in terms of a restructure involving a deed of company arrangement or any other arrangement. 9 By reason of the above circumstances, it appears that the administrators have initiated a funding arrangement to facilitate SFM's trading whilst a restructure proposal is considered. Hence, the proposed Cash Facility Agreement (the agreement). 10 The agreement into which the administrators propose to enter with an entity linked with the shareholder (via the parent entity and significant shareholder), SFM Carbon Trading Ltd (the financier), sets out the basis on which the financier would provide funding of approximately US$3.5m to facilitate SFM's interim trading. The forecasts presented by management of SFM, and reviewed by the administrators, predict that up to AU$5.8m is required for the six month period ending 30 September 2009 if SFM is to trade on, so as to protect the value of SFM's existing assets and to preserve the ability to restructure its business, so as to ensure the best return to all creditors. The administrators say that one of the preserved assets will be the retention of intellectual knowledge held by existing management in connection with the carbon sequestration rights. Over the short to medium term, there will also be the prospect of progressive realisation of non-core assets and operations in an orderly manner. That funding is the expected funding requirement for maintaining the existing operations and commitments for that period, including: · Interest payments to the two secured creditors; · An allowance for a contingency amount; · Funding costs capitalised to the financier on account of the borrowings pursuant to the agreement; and · A provision of AU$1.2m for legal, administrators and valuers fees. The cashflow forecast reflecting that assessment is said by the administrators to be a reasonable one. 11 The provision of US$3.5m equates to approximately AU$5.4m at the current exchange rates. The administrators acknowledge that creates a potential shortfall of AU$400,000 on the cashflow forecast by 30 September 2009, assuming the funding available under the agreement is taken up. However, the administrators say that there are potential cashflow savings and expect that a restructuring of SFM will be completed prior to 30 September 2009, so that the entire amount of proposed funding under the agreement would not be required. They have identified and specified the areas of potential cashflow savings. 12 The agreement provides for an advance commitment fee of 2 per cent of US$3.5m or about $108,000. On the evidence, that is a commercially acceptable fee consistent with such a fee charged by bank lenders, and achieves the commitment of the financier to provide all the funding if required. It is planned to be drawn down over time. The agreement has been executed by the administrators, and an initial advance of AU$300,000 has been made pursuant to the agreement, which is to be applied in part to the payment of wages. 13 The overall effect of the agreement is, in effect, that the financier is to make the funds available to the administrators for the purpose of continuing to trade SFM, whilst the administrators consider what options are available to the creditors of SFM pursuant to the provisions of Part 5.3A of the Act. 14 The administrators' view is that absent the advance under the agreement, the resources of SFM are insufficient to permit ongoing trading, including the payment of wages, so that the funding is necessary to permit the restructure that will yield the best outcome for creditors. The administrators are not prepared to borrow that amount without the orders sought (or, as appears below, some of them) as the available assets, after the security by floating charge to the secured creditors is brought to account, may expose them to significant personal liabilities. 15 The administrators' present "qualified" estimate is that the agreement may enable the realisation of between AU$11m, and AU$27.3m after payment of secured creditors, by the strategy they propose to adopt. 16 The agreement is expressed to be conditional upon the Court making an order as set out in [2] above. Subject to satisfaction of that condition precedent, the financier has agreed to advance the administrators the sum of US$3.5m for the purposes associated with the administration of SFM.