MATTER : Great Southern Infrastructure Pty Ltd ACN 126 069 314

JAMES STEWART As Administrators Of GREAT SOUTHERN INFRASTRUCTURE PTY LTD ACN 126 069 314 (Administrators Appointed)

Corporations Act 2001 (Cth) - Modification of the operation of s 447A so as to relieve administrators of personal liability for borrowed funds under s 443A(1)(d)­(f) - Turns on own facts

Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607

Re Ansett Ltd (administrators appointed) [2001] FCA 1806; (2001) 115 FCR 376

Re Huon Corporation Pty Ltd (administrators appointed) [2006] FCA 1201; (2006) 58 ACSR 620

Re Spyglass Management Group Pty Ltd (administrators appointed) [2004] FCA 1469; (2004) 51 ACSR 432

Re View Gold Pty Ltd [2008] WASC 241

1 MASTER SANDERSON: By originating process filed 28 May 2009, the plaintiffs sought the following orders:

1. An order that the time for hearing of the application is abridged so that the application may be heard at any time after filing of the application.
2. Orders pursuant to s 447A(1) of the Act that:

(a) the liabilities of the plaintiffs, in their capacities as joint and several administrators of Great Southern Infrastructure Pty Ltd ACN 126 069 314 (GSIPL), pursuant to the terms of the loan deed (GSIPL Loan) being attachment 'DGW5' to the affidavit sworn by Darryn Gordon Weaver on 28 May 2009 and filed herein will be limited in the manner provided for by the GSIPL Loan and by the mortgage of shares and indemnity (GSIPL Mortgage) being attachment 'DGW6' to that affidavit;

(b) the operation of s 443A(2) of the Act is modified, so far as it applies to the liability of the plaintiffs in their capacities as the joint and several administrators of GSIPL pursuant to the GSIPL Loan, so as to permit the liability of the plaintiffs to be limited in the manner provided for by the GSIPL Loan and by the GSIPL Mortgage;

(c) the operation of s 443A(1) of the Act is modified, so far as it applies to the liability of the plaintiffs in their capacities as the joint and several administrators of GSIPL pursuant to the GSIPL Loan, so that the plaintiffs will not be personally liable under s 443A(1)(d) - (f) of the Act or otherwise, for, or in connection with, the loan provided pursuant to the GSIPL Loan or the GSIPL Mortgage (including repayment of the money borrowed, interests thereon and borrowing costs).

1. Liberty to the creditors of the company to apply to the court on 2 days written notice to the plaintiffs.
2. Liberty to the plaintiffs to apply.
3. An order that costs of this application be paid from the administration of the Company.

2 The matter came on for hearing on the same day as the application was filed. After hearing submissions on behalf of the plaintiffs, I made orders in terms of the originating motion. I indicated I would publish reasons at a later date. These are those reasons.

3 The plaintiffs are the voluntary administrators of Great Southern Infrastructure Pty Ltd (the company). The company is one part of a rather complex mix of companies and managed investment schemes which are generally referred to as the Great Southern group of companies. The plaintiffs sought an order under s 447A(1) of the Corporations Act 2001 (Cth) (the Act) to relieve them from possible personal liability in respect of proposed future advances to the company under a loan deed.

4 The background facts emerge from an affidavit of Darren Gordon Weaver sworn 28 May 2009. These facts can be summarised as follows. On 16 May 2009 voluntary administrators were appointed to the Great Southern group of companies including the company. The company holds a 50% interest in Hansol PI Pty Ltd (Hansol). Hansol is the operator of a woodchip pulp mill in Bunbury (the Bunbury Mill). The other 50% of the shares in Hansol is held by Pulpwood International Pty Ltd (Pulpwood). Pulpwood is not a member of the Great Southern group of companies and stands independent and apart from the group.

5 Hansol is party to a Mill Door Timber Sale and Purchase Agreement pursuant to which it purchases timber for throughput in the Bunbury Mill. The agreement contemplates provision of a $1 million bank guarantee by Hansol. Hansol is unable to provide the $1 million bank guarantee from its own resources. Hansol has sought the support of its shareholders. The company has insufficient funds to provide its portion of the loan to Hansol necessary to fund the bank guarantee.

6 Pulpwood has agreed to advance $500,000 to the company under the terms of the loan deed to allow the company to on-loan $500,000 to Hansol to fund the bank guarantee. The loan deed provides for the loan to be made on a limited recourse basis. Liability is to be discharged from, and recourse is limited to, certain property of the company to be proffered by way of security. The security being granted is a second ranking mortgage over the company's 50% shareholding in Hansol. This security arrangement is reflected in a share mortgage to be offered by the company in favour of Pulpwood.

7 The voluntary administrators consider that the proposed transaction is in the best interests of the company's creditors. They are of the view that it will preserve the saleable value of the company's investment in Hansol. They have assessed this as being a profitable asset. I should say at this point and I will reiterate later in these reasons, that the administrators do not seek the court's acknowledgement that the investment is profitable. They have made that decision and they have acted accordingly.

8 The plaintiffs have power to cause the company to enter into the loan deed and the associated security under the share mortgage. That power is found in s 437A of the Act. However, by s 443A(1)(d) - (f) of the Act, the plaintiffs will thereby assume a personal liability to repay the money borrowed together with interest and borrowing costs. There is a right of indemnity out of the company's property supported by a lien in respect of these debts. But that will not assist the plaintiffs if the property of the company proves inadequate to meet the liability. Section 443A(2) provides that a voluntary administrator's liability for debts under s 443A(1) 'has effect despite any agreement to the contrary'. So the administrators' liability is personal and it is not possible for them to contract out of it. The plaintiffs are unwilling to accept the possible personal liability that attaches to the proposed transaction. It is for this reason that the plaintiffs have applied under s 447A(1) to modify the operation of s 443A in relation to the company.

9 Under s 447A of the Act the court may:

Make such order as it thinks appropriate about how this part is to operate in relation to a particular company.

10 This is a most unusual provision. It has been said to provide an almost 'plenary' power: see Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607, 611. However it is not a power at large. The exercise of the power must be consistent with the objects of pt 5.3A as found in s 435A: see Re Ansett Ltd (administrators appointed) [2001] FCA 1806; (2001) 115 FCR 376 [52]. The section empowers the court to make orders which may alter the operation of other provisions of pt 5.3A. In other words in an appropriate case the court can order that in respect of a particular company, another provision within pt 5.3A is to operate 'as if' it provided for something other than it does in the ordinary course.

11 It is well established that s 447A(1) empowers the court in an appropriate case to modify the operation of s 443A to exclude personal liability on the part of a voluntary administrator and to provide that a loan taken out by the company via the voluntary administrator is repayable on a limited course basis. Orders of this type have been made on numerous occasions. Goldberg J made such an order in Re Ansett Ltd (supra) [48]. I made such an order in Re View Gold Pty Ltd [2008] WASC 241 [16] - [178]. However, there is no doubt that this is 'a most unusual power which requires careful consideration before its exercise': see Re Huon Corporation Pty Ltd (administrators appointed) [2006] FCA 1201; (2006) 58 ACSR 620 [11]. This is because such an order has substantive effect. Further, it is not easy in most cases - and this is one of them - to grasp all of the ramifications of such an order in the absence of a contradicter.

12 As a general rule, it is necessary to ensure that notice is given to those affected. However, where the circumstances are urgent it may not be practical to seek the views of unsecured creditors and the court is justified in acting on the evidence of the voluntary administrator. The position is compounded in this case by the fact that there are potentially thousands of unsecured creditors and the administration itself is complex to the extent that it may take years to unravel the Great Southern group of companies' affairs. It is open to question in my view whether in any circumstances it would be practical to seek the views of the unsecured creditors in circumstances such as this.

13 The material consideration on such an application is whether the proposed arrangements are in the interests of the company's creditors and consistent with the objectives of pt 5.3A of the Act. To put that proposition positively - the question is whether the court is satisfied the proposed arrangements are for the benefit of the company's creditors. To put it negatively - the question is whether the court is satisfied the company's creditors are not disadvantaged or prejudiced by the proposed arrangement. These principles have been confirmed in a large number of cases. It was the approach that I adopted in Re View Gold Pty Ltd (supra).

14 Self evidently, Pulpwood is prepared to advance $500,000 to the company on the basis of the share mortgage and with the exclusion of personal liability on the part of the plaintiffs. Accordingly, the relevant interests to be considered are those of the company's unsecured creditors. It has been said that, practically speaking, the creditors have no interest in an order for a voluntary administrator's benefit which has the effect of converting a loan into a limited or non-recourse loan. Creditors cannot be disadvantaged by it: see Re Spyglass Management Group Pty Ltd (administrators appointed) [2004] FCA 1469; (2004) 51 ACSR 432 [6].

15 That proposition is correct when it is appreciated that the work done by the orders under s 447A is confined to relieving a voluntary administrator from personal liability as to the proposed loan. Further, to the extent that the proposed loan and security may seem a potential disadvantage to the creditor, that will be a commercial decision for the plaintiffs. It is for the plaintiffs to weigh the potential benefits and detriments to the company of the proposed loan and security to determine whether that aspect of the proposed transaction is in the interests of the company's creditors. As I have indicated above, the administrators, after careful consideration of the material available to them, and within the time constraints placed upon them, have come to the conclusion that this transaction is for the benefit of the creditors. There is nothing in the evidence that would suggest otherwise - even if it were up to me to weigh that evidence.

16 On the evidence, this is an appropriate case in which to exercise power under s 447A(1). There are three main reasons why this is so. First, the circumstances are urgent and it is not practical to seek the views of unsecured creditors or join an unsecured creditor in a representative capacity as contradicter. Second, the s 447A(1) modification order sought will not disadvantage or prejudice the company's unsecured creditors and, so far as it enables the plaintiffs to consider whether to implement the proposed transaction, is in the interests of the company's creditors. Third, it is open for the plaintiffs to conclude as they have done that the proposed transaction is overall a benefit to the company and in the interests of the company's creditors.