Commonwealth Bank of Australia v Fernandez [2010] FCA 1487 | Case summary

Federal Court of Australia|2010-12-24|Before: Finkelstein J

Finkelstein J removed the voluntary administrator Avitus Fernandez from the administration of the Willmott Forests group and appointed PPB administrators (Carson & Crosbie). The Court held the first meeting had been irregular because many growers had not been sent direct notice and the chairperson had no power to adjourn without majority consent. A reconvened meeting produced a poll where majority-in-value favoured removal but majority-in-number opposed; Fernandez used his casting vote to remain. The judge found Fernandez lacked the necessary appreciation of the scale of the task, staff, and insurance to run a large, complex administration, and his failure to address capacity in exercising the casting vote was material. PPB's prior work for the bank did not disqualify them, but the Court required safeguards (independent lawyers, undertakings) and ordered that the administrators' remuneration be fixed by the Court.

What happened

This proceeding concerns the administration of the Willmott Forests group following a loan default and receivership, the directors' appointment of Mr Avitus Fernandez as voluntary administrator, and the banks' later application to remove him and replace him with Messrs Ian Carson and Craig Crosbie (PPB Administrators).

Key chronological events in the judgment:

6 September 2010: Banks appoint receivers following default; directors appoint Mr Fernandez as voluntary administrator under s 436A (see [2]).
15 September 2010: First creditors' meeting convened by Fernandez; growers asserted many had not received direct notice; Fernandez purported to adjourn the meeting to obtain legal advice (see [22]–[24]).
17 September 2010: Fernandez wrote to creditors notifying an adjourned meeting for 28 September 2010 (see [28]).
28 September 2010: At the adjourned meeting a poll was demanded. The numerical majority voted against removing Fernandez, but a majority in value voted for removal; Fernandez exercised his casting vote against removal (see [34]–[39]).
The banks applied to the Court under s 449B (and alternatively s 600C) seeking Fernandez's removal, supported by ASIC and a growers group; he was opposed by another growers group (see [3], [41]).
The Court, on balance of the evidence and considering statutory tests and principles of independence and capacity, removed Fernandez and appointed Messrs Crosbie and Carson, and required court determination of their remuneration (orders and [104]).

The judgment addresses procedural irregularities (notice and adjournment), substantive concerns about the administrator's capacity and resources, and the appearance and reality of independence of potential replacement administrators.

Why the court decided this way

The Court's decision rests on three linked pillars: (1) compliance with statutory meeting processes and proper conduct of meetings, (2) the standard governing removal of an administrator, whether removal will conduce to better administration, and (3) the necessity for administrators to have both capacity and manifest independence.

Meeting and adjournment:

Section 436E requires written notice to as many creditors as reasonably practicable and publication in a newspaper (see [25]). Regulation 5.6.12 adds detail about which creditors are to be notified.
The Court held the first meeting, though validly constituted, could not lawfully be adjourned by the chairperson in the circumstances, because a chairperson lacks an inherent power to adjourn without the consent of the majority of creditors present except in narrow exceptions (to keep order, where accommodation is inadequate, or to enable a poll); none applied here (see [25]–[27]).
The consequence was that the first meeting's unilateral adjournment was invalid; the Court viewed notice deficiencies as serious though it did not resolve conceded statutory save-overs under s 1322 (see [25]–[26]).

Removal test:

The controlling test is that removal under s 449B should be ordered only where it is demonstrated removal would be for the better conduct of the administration (citing Network Exchange) (see [52]).
The Court emphasised that bare arithmetic majorities are insufficient; there must be an objective reason supporting removal (see [52]).

Capacity and independence:

The Court found Mr Fernandez to have underestimated the scale and complexity of the Willmott administration and to lack sufficient staffing and insurance cover to carry out the work in the near term (see [54]–[59]).
This led to the conclusion that removal would better serve the administration, not on grounds of personal impropriety but lack of resources and appreciation of the task (see [53], [54]).
With respect to the proposed replacement administrators, the Court acknowledged concerns that PPB had prepared a report for the bank pre-appointment. The Court obtained the report, found it innocuous, and imposed safeguards (requirement to appoint independent solicitors, undertakings regarding retaining panel firms) to ensure both actual and apparent independence (see [66]–[67], [88]–[93]).

Casting vote:

The Court examined the exercise of Fernandez's casting vote under s 600C principles. It held a chairperson must exercise a casting vote honestly and in what he believes to be in the best interests of those affected, considering all material and the objectives of Pt 5.3A (see [99]–[100]). Fernandez's failure to address his capacity when explaining his casting vote was a material omission; had it been necessary, the Court would have reversed the outcome under s 600C (see [101]–[103]).

On balance, removal was warranted because it would better the administration given Fernandez's lack of capacity/resources and his failure to address those concerns in his casting vote.

Before and after state of the law

Before this judgment:

The statutory framework for voluntary administrations (Pt 5.3A) permits directors to appoint administrators, with creditors able to remove and replace an administrator at the first meeting (s 436E(4)). The Harmer Report informed the design that favours private ordering by directors (see [69]–[72]).
Judicial standards for removal under s 449B required a showing that removal would better the administration (Network Exchange cited at [52]).

After this judgment (practical implications in the insolvency context):

The case reaffirms that an administrator's capacity (staffing, funding, insurance and appreciation of complexity) is material to the s 449B removal assessment (see [54]–[59]).
It reinforces strictness about meeting procedure and the limited circumstances in which a chairperson may adjourn without majority consent (see [25]–[27]).
It emphasises that courts will scrutinise perceived conflicts of interest or prior retainers of proposed replacement administrators, and will insist on disclosure and protective measures to secure both actual and apparent independence (see [62], [66]–[93]).
The Court signalled policy discomfort with private nomination and expressed openness to more structured selection mechanisms (paneling by ASIC or tendering), albeit obiter and subject to practical constraints (see [69]–[83]).

Note: The Court's policy observations about tendering or ASIC-led panels are obiter: the decision itself is driven by the statutory tests and the facts of capacity, notice and meeting conduct. The judgment does not alter statutory text; it provides guidance on application and judicial expectations.

Key passages with plain-English translation

"An order for removal should be made only if it is demonstrated that such an order would be for the better conduct of the administration." ([52]) Plain English: The court will only remove an administrator if doing so would improve how the administration is run, not simply because more creditors by value want it.
"A chairperson has no inherent power to adjourn a meeting in the absence of consent of the majority of the creditors who are present." ([27]) Plain English: The person running the meeting cannot just stop and postpone it unless most creditors present agree, unless special problems exist.
"The striking omission ... is his failure to have regard to his capacity to do the work." ([101]) Plain English: When Fernandez justified his decision to stay on, he never explained how he would actually manage the huge job. That oversight was fatal.
"An administrator must be both independent and impartial. Not only that, the independence and impartiality must 'be manifestly seen to exist'." ([62]) Plain English: The administrator must not only actually be unbiased, but creditors must be able to clearly see they are unbiased.
Obiter on tendering: "A competitive tendering process or 'auction' has many benefits both in keeping fees down and more generally. First and foremost it will secure the independence of the practitioner." ([79]) Plain English: The judge thought a bidding process for administrators could help independence and lower fees, though he recognised practical problems.

What fact patterns trigger this precedent

The judgment is most directly instructive when a voluntary administrator:

Is a small practice or otherwise lacks clear staff/resources/insurance to manage a large, complex administration (eg managed investment schemes with large land and creditor structures) (see [14], [54]–[59]).
Has convened s 436E first meetings where a substantial class of creditors (eg scheme members/growers) may not have been given direct notice, raising substantial procedural fairness concerns (see [25]–[26], [24]).
Exercises a casting vote at the first meeting without addressing material concerns (in particular the administrator's own capacity), thereby exposing the vote to reversal under s 600C (see [99]–[103]).
Prospective replacement administrators have prior retainers with major stakeholders (eg the secured lender); the Court will probe independence and may require safeguards (see [60]–[66], [88]–[93]).
Creditors/parties seek court intervention under s 449B to secure a more capable administrator where disputes between creditors, secured lenders and scheme members risk mismanagement of the administration (see [52]–[55]).

How later courts have treated it

The judgment itself does not contain subsequent judicial treatment. The decision records its reliance on prior authorities and places weight on capacity and the appearance of independence as grounds for removal and for imposition of safeguards on replacement administrators (see [52], [62], [88]–[93]). To determine how later courts have applied or distinguished this judgment, practitioners should consult a citator (eg AustLII/CaseBase/Westlaw) for post-2010 authorities citing Commonwealth Bank v Fernandez.

Still-open questions

The judgment leaves several issues with incomplete resolution or policy uncertainty:

The precise reach of s 1322(2) or (3) in validating defective notice to creditors at a first meeting under s 436E: the Court noted doubts but did not decide the point (see [26]).
The extent to which an administrator convening a meeting owes the same disclosure duties as company directors when convening shareholder meetings: the judge assumed but did not authoritatively decide parity of duties (see [45]).
The appropriate institutional mechanism for appointing administrators in large, complex cases: the judge's favourable obiter remarks on tendering or an ASIC panel highlight policy alternatives but stop short of endorsing statutory change (see [69]–[83]).
Operationalisation of a tender process: the Court expressed concerns about judicial capacity to supervise tenders and the time it takes; practical heavy-lift questions remain about criteria, quality controls and timing (see [80]–[83]).
The borderline at which prior non-substantive work for a creditor disqualifies a practitioner: here a short, non-analytical PPB report did not disqualify them, but the decision emphasises full disclosure and potentially restrictive undertakings (see [66]–[68], [88]–[93]).

Given these open questions, parties and practitioners should expect divergent outcomes in future cases depending on facts on notice, capacity, disclosure, and the nature of prior retainer.

This deep dive explains the Court's reasoning and identifies practical legal issues arising from Commonwealth Bank of Australia v Fernandez [2010] FCA 1487. It is general legal information, not legal advice. I can be wrong. Before you act on, rely on, or file anything based on this, get a qualified Australian lawyer to check it.

National Australia Bank Ltd v Market Holdings Pty Ltd (in liq) (2001) 37 ACSR 629 Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544 Parbery v ACT Superannuation Management Pty Ltd (2010) 79 ACSR 425 R v Bradford City Metropolitan Council; Ex parte Corris [1990] 2 QB 363 R v D'Oyly (1840) 12 A & E 139; 113 ER 763 Shaw v Thompson (1876) 3 Ch D 233 Smarter Way (Aust) Pty Ltd v D'Aloi (as admin of) Smarter Way (Aust) Pty Ltd (2000) 35 ACSR 595 Spencer's Settled Estates Re [1903] 1 Ch 75 Tempest, Re (1866) LR 1 Ch App 485 Waxed Papers Ltd, Re [1937] 2 All ER 481

Date of hearing: 11 & 13 October 2010

Date of last submissions: 25 October 2010

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 104

Counsel for the Plaintiffs: Mr P Crutchfield SCMr C Moller

Solicitor for the Plaintiffs: Clayton Utz

Counsel for the Defendant: Mr N Lucarelli QCMr J Kohn

Solicitor for the Defendant: Hunt & Hunt

Counsel for ASIC: Dr O Bigos

Solicitor for ASIC: Mr A Tregear

Counsel for the Willmott Growers Group Inc: Mr M Galvin

Solicitor for the Willmott Growers Group Inc: Clarendon Lawyers

Counsel for the Willmott Action Group Inc, Kay Ledson and Jokamon Pty Ltd: Mr G Slater

Solicitor for the Willmott Action Group Inc, Kay Ledson and Jokamon Pty Ltd: Lilley Dawson & Co

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 836 of 2010

IN THE MATTER OF WILLMOTT FORESTS LTD (RECEIVERS AND MANGERS APPOINTED) (ADMINISTRATORs APPOINTED) Acn 063 263 650 AND OTHERS (ACCORDING TO THE SCHEDULE) BETWEEN: COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) AND ANOTHER (ACCORDING TO THE SCHEDULE)

AND: AVITUS THOMAS FERNANDEZ AND OTHERS (ACCORDING TO THE SCHEDULE)

JUDGE: FINKELSTEIN J DATE OF ORDER: 26 OCTOBER 2010 WHERE MADE: MELBOURNE

UPON: IAN MENZIES CARSON and CRAIG DAVID CROSBIE by their Counsel undertaking that they will not, except with the leave of the Court, retain or appoint: (a) as their solicitors in their capacity as administrators of any of the second to eleventh defendants, or (b) as the solicitors for any of the second to eleventh defendants, any firm which is on the panel of solicitors of either of the plaintiffs. THE COURT ORDERS THAT:

The first respondent be removed as the administrator of each of the second to eleventh defendants and Ian Menzies Carson and Craig David Crosbie be appointed as the joint and several administrators of each of the second to eleventh defendants.
Pursuant to s 447A of the Corporations Act 2001 (Cth), Part 5.3A of the Act be varied in relation to each of the second to eleventh defendants such that the remuneration of Ian Menzies Carson and Craig David Crosbie as the administrators of the second to eleventh defendants is, subject to a contrary order, to be determined by the Court.
Ian Menzies Carson and Craig David Crosbie be added as respondents to the first defendant's interlocutory process dated 1 October 2010 and the title to the interlocutory process be amended accordingly.
The period within which the meeting of the creditors of each of the second to eleventh defendants must be convened be extended to and including 13 December 2010.
The interlocutory process dated 11 October 2010 filed by Kay Ledson and Jokamon Pty Ltd be adjourned to a date to be fixed.
The proceeding be adjourned to a date to be fixed.
There be liberty to apply.
Costs be reserved. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 836 of 2010

IN THE MATTER OF WILLMOTT FORESTS LTD (RECEIVERS AND MANGERS APPOINTED) (ADMINISTRATORs APPOINTED) acn 063 263 650 AND OTHERS (ACCORDING TO THE SCHEDULE) BETWEEN: COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) AND ANOTHER (ACCORDING TO THE SCHEDULE)

AND: AVITUS THOMAS FERNANDEZ AND OTHERS (ACCORDING TO THE SCHEDULE)

JUDGE: FINKELSTEIN J DATE: 24 December 2010 PLACE: MELBOURNE

The application 1 The Willmott Forests group is Australia's largest softwood plantation developer. According to Mr Madgwick, chairman of the listed parent, Willmott Forests Ltd (WFL), in 2009 the group "emerged as the leading timber plantation investment sector fundraiser". The group raised over $400 million from more than 6,300 investors which was then invested in managed investment schemes. The group also borrowed a large amount from banks. In particular, in March 2009 it entered into a $135 million debt syndication with the Commonwealth Bank of Australia and the St George Bank which was secured over group company assets. 2 On 6 September 2010, following a default under the syndication arrangement, the security trustee for the banks appointed receivers over the assets of WFL and several of its subsidiaries. On the same day the directors of WFL and its subsidiaries, acting under s 436A of the Corporations Act 2001 (Cth), appointed the first defendant, Mr Fernandez, as the voluntary administrator of the companies. 3 The banks apply for the removal of Mr Fernandez as administrator and for him to be replaced by Messrs Crosbie and Carson of PPB. The application is supported by the Australian Securities and Investments Commission (ASIC) and a group of investors (the Willmott Growers Group Inc). It is opposed by Mr Fernandez and another group of investors (the Willmott Action Group Inc). Each investor representative was given leave to appear as I thought it important they be given a voice. ASIC was entitled to appear by reason of s 1330.

Background 4 The principal activities of the Willmott Forests group are establishing, managing, harvesting, processing and supplying timber products from its timber plantations. The plantations are located in Queensland, New South Wales and the Northern Territory. More than 56,000 hectares are under plantation. The activities are conducted on behalf of 8 registered and 35 unregistered managed investment schemes. WFL is the responsible entity of the registered schemes and the manager of the unregistered schemes. 5 The land on which the forestry activities are undertaken is owned by a Willmott Forests group company or is leased from a third party. The principal third party lessors are Hancock Victorian Plantation Pty Ltd (HVP), Grand Ridge Plantations Pty Ltd (GRP) and the Forestry Commission of New South Wales (Forests NSW). There are around 28 third party leases covering over 100 properties. 6 The forestry operations are in constant need of maintenance to keep up the health of the forests. Mr Derham, the former Chief Executive Officer of WFL, said that only limited caretaking and maintenance work is required for the pre-2009 projects that are on land owned by the group. In the main, roads and fire breaks need to be maintained, particularly to ensure they are trafficable in the event of fire. This will require slashing the roads and constructing fire breaks. Mr Derham estimated the cost of carrying out the works during the months October through December 2010 to be in the order of $1.6 million. 7 Mr Derham said that work must be carried out on the plantations that relate to the 2009 scheme. The work is the same as that required for the pre-2009 projects, plus post-planting works (including weed control). Mr Derham did not provide an estimate of the cost involved. 8 Mr Derham said that the Willmott Forests group has a management structure and employees in place to carry out the work. The problem is that Mr Fernandez has no ready funds with which to pay the employees' wages and has little prospect of getting his hands on any in the immediate future. Companies in the group do own uncharged assets (mostly land) that could be sold. But that will take time (at least 3 to 5 months). 9 There is, in addition, work that must be undertaken in respect of the leased land. Both HVP/GRP and Forests NSW have written to the receivers in relation to the ongoing management services they provide for forestry plantations located on the land they lease to WFL. They have requested the receivers to pay the pre-receivership debt for management fees (which is in excess of $458,000) and have enquired whether the ongoing management fees will be paid. The ongoing fees are estimated to be around $2.6 million for the period to 31 December 2010. 10 HVP/GRP and Forests NSW indicated they may take steps to terminate the leases and management agreements if the amounts due to them are not paid. The receivers have informed the lessors that they are not in a position to adopt the leases and management agreements but have requested the lessors to take no action to terminate the leases for the time being. 11 In view of the difficulties confronting the continued operation of the schemes while in the hands of WFL, the investors hope to find a replacement responsible entity that will take over the running of the schemes. Mr Derham thinks this is a real possibility. He said that all the key documents that an interested person would need to look at have been reviewed, revised or developed by the receivers. The documents include a forecast income and expenditure statement. For this reason he postulated that an entity willing to take over the schemes could be found at relatively short notice. 12 There is an air of unreality about Mr Derham's views. First of all, any replacement entity would be required to assume responsibility for the liabilities of WFL. In respect of the registered managed investment schemes that obligation is imposed by statute: see s 601FS. For the unregistered schemes it would be commercially necessary to reach some accommodation with the banks. Not only is there the debt due to the banks, there are more than 600 unsecured creditors. Somehow their claims would need to be accommodated. 13 This suggests that the administrations will take some time and the administrator will have considerable work to do. The work will not be straight-forward. The Willmott Forests group and its schemes operate under a complex series of arrangements which an administrator must get on top of, if for no other reason than to meet his/her obligations under s 438A. That section requires an administrator to form an opinion about the preferred outcome of an administration. In the meantime the administrator must manage the responsible entity to ensure that it, as well as the administrator, meet their respective obligations under ss 601FC and 601FD. In brief, those provisions require a responsible entity and its officers to look after the interests of scheme members. 14 To fulfil these obligations the administrator must have (1) the staff and financial resources to carry out the necessary investigations to be able to report to creditors; (2) the financial capacity to carry work-in-progress; and (3) the staff to deal with the day-to-day issues that will arise in the management of the schemes. The issues the staff must deal with will include, but are not limited to, dealing with third party lessors and the claims of ordinary creditors, the banks and the investors/growers. At the same time the administrator must ensure that the plantations are properly maintained.

The administrator's position 15 Mr Fernandez's capacity to perform required tasks has been put in issue. He is a sole practitioner whose practice employs four accountants. He also has a small support staff. Mr Fernandez's experience in relation to managed investment schemes is limited; he has on one occasion examined a number of schemes for the purpose of determining whether the appointment of an administrator was appropriate. He has not administered a managed investment scheme and appears to know little about forestry operations. 16 The banks were concerned about Mr Fernandez's ability to perform his duties. Two days after his appointment, Mr Webster, one of the banks' receivers, telephoned Mr Bland of Clarendon Lawyers. That firm acts for the Willmott Growers Group. It also acts for grower groups in other failed forestry projects. The purpose of Mr Webster's call was to enquire whether a group of investors in the Willmott Forests schemes was being formed on whose behalf Mr Bland would act. The receivers wanted to deal with investors and if they had a representative to act on their behalf that would be a convenient point of contact. Mr Bland advised that a group was being formed. In the course of the ensuing discussions between Mr Webster and Mr Bland, the ability of Mr Fernandez to act as administrator of the Willmott Forests group was discussed. 17 At the same time as those discussions were taking place, Mr Bland raised with Mr Fernandez's staff the question whether the growers/investors would be recognised as creditors at the first meeting of creditors which was to be held on the 15 September 2010. The upshot was that Mr Fernandez said that at the meeting investors would be admitted for voting purposes for $1 each. 18 Mr Bland was not satisfied with this proposal. He was also becoming increasingly concerned about Mr Fernandez's ability to act as administrator. On 14 September 2010 Mr Bland telephoned Mr Fernandez and proposed that he (Mr Fernandez) and representatives of BRI Ferrier jointly act as administrators. The next day, just prior to the first creditors meeting, Mr Bland wrote to Mr Fernandez's solicitors, Hunt & Hunt, and made the following observations: (1) Growers do have claims against WFL and other group companies (he also explained the basis for those claims); (2) Mr Fernandez should give consideration to exercising his casting vote in favour of the growers for the reasons that (a) the growers represent the greatest pecuniary interest by value of investment in the schemes; (b) the banks have appointed receivers who are likely to exercise indirect control over the unsecured land; (c) the administrator is an important "counterbalance" to the receivers; and (d) the growers had not been served with a notice of meeting resulting in a lower number of proxies than would otherwise be the case; and (3) Mr Fernandez should accept a joint appointment with BRI Ferrier who had experience in agribusiness operations through their administration of the FEA group. 19 Also on 14 September 2010 Clayton Utz wrote to Mr Fernandez on the issue of his capacity. Mr Fernandez was asked to provide Clayton Utz with information about a variety of issues including details of: (1) Mr Fernandez's previous experience as an insolvency practitioner, in particular as an administrator of managed investment schemes; (2) Mr Fernandez's experience with large agricultural enterprises and forestry resource enterprises; and (3) the partners and employees who would assist Mr Fernandez in the administration of the Willmott companies. Clayton Utz also enquired whether growers had been given notice of the first creditors' meeting. 20 Mr Fernandez provided a written response to Clayton Utz the following day. He explained that due to time constraints he could not respond in detail to all of the issues that had been raised. As regards the notice to growers, Mr Fernandez said that "investigations were conducted and notice of the meeting of creditors together with supporting documents were forwarded to the relevant financial planners and agents who may act for clients (that is, growers) that could be classified as creditors. In the circumstances, [Mr Fernandez] believe[s] a substantial number of growers have been advised of the meeting of creditors". 21 Dissatisfied with this response, the banks obtained the consent of Messrs Crosbie and Carson of PPB to act as administrators if they were to be appointed to that office at the creditors' meeting. By reason of s 436E(4), one of the items of business that would be considered at the meeting was the position of the administrator. As a matter of courtesy Mr Crosbie telephoned Mr Fernandez to tell him that he and Mr Carson had given their consent to act as administrators.

The meeting 22 Mr Fernandez convened the first meeting of creditors of each company in administration by notices dated 7 September 2010. Each notice detailed the purpose of the meeting to be to determine "(a) whether to appoint a committee of creditors; and (b) if so, who are to be the committee's members". The notice also advised that creditors may by resolution "(a) remove the administrator from office; and (b) appoint an alternative administrator to the company". 23 A proxy form accompanied the notice. It enabled the creditor to appoint a "general" or "special" proxy. If the creditor wanted to appoint a special proxy, the authority given to the proxyholder in relation to the position of administrator was to vote as follows: "That the appointment of Avitus Thomas Fernandez as administrator of the above companies be and is hereby confirmed". (Although poorly worded, I think this proxy entitled the proxyholder to vote on any removal resolution: see Re Waxed Papers Ltd [1937] 2 All ER 481). 24 As events turned out, the meeting was a short affair. Following the formalities, Mr Bland, who held a proxy for 18 creditors, said that most growers/creditors had not received a notice of the meeting and that meant no business could validly be transacted. Four other growers and growers' representatives said that they, or the growers they represented, had not received notice. Mr Fernandez stood the meeting down to obtain legal advice. When the meeting resumed Mr Fernandez advised that the meeting should be adjourned to enable notices to be given to the growers/creditors. He asked whether anyone would propose the necessary resolution. Mr Bland queried whether this was appropriate, suggesting that Mr Fernandez should himself adjourn the meeting. Mr Fernandez, as chairman, adjourned the meeting to a date to be fixed.

Validity of the adjournment 25 Both the convening and adjourning of the meeting was irregular. Section 436E provides that the administrator must convene the first meeting of creditors by giving written notice of the meeting to as many of the company's creditors as reasonably practicable and by publishing a notice of the meeting in an appropriate newspaper. Regulation 5.6.12(1)(a) of the Corporations Regulations provides that the creditors to whom notice must be given are those appearing on the company's books or otherwise to be creditors. 26 On the assumption that growers are creditors, s 436E was not complied with. This problem is not overcome by s 1322(3) which preserves the validity of a meeting if the omission to give the required notice is "accidental". Here there was nothing "accidental" about the failure: Mr Fernandez concedes that he did not send notices to any growers directly - he only sent notices to advisors and financial planners, some of whom may have contacted their clients and told them of the meeting. Perhaps s 1322(2), which validates irregular proceedings unless it has caused or may cause substantial injustice, could be called in aid. The application of the subsection depends, first, on whether it applies to meetings and, second, on whether the failure to give the notice has caused or may cause "substantial injustice". Neither issue was explored in argument and, accordingly, it is not appropriate to express any view on the matter, save to say there must be some doubt about whether the subsection would apply. 27 There is, on the other hand, little uncertainty about Mr Fernandez's inability to adjourn the meeting. It is generally accepted that a chairperson has no inherent power to adjourn a meeting in the absence of consent of the majority of the creditors who are present: Shaw v Thompson (1876) 3 Ch D 233; John v Rees [1970] 1 Ch 345; and Byng v London Life Association Ltd [1990] Ch 170. There seem to be three exceptions to the rule. One is where the chairperson cannot maintain order: John v Rees. Another is when the place the meeting is to be held is not large enough to accommodate all those wishing to attend: Byng. The third is when a poll has been demanded and it is necessary to adjourn the meeting to enable the poll to be taken: R v D'Oyly (1840) 12 A & E 139; 113 ER 763. There may be a fourth. Shackleton asserts (without the citation of authority) that a chairperson has power to adjourn a meeting in the absence of a quorum: Shackelton on Meetings (9th ed) [6-16]. That may be so. The alternative view is that, absent a quorum, there is no meeting to adjourn. At any rate, if, in the absence of authority, a chairperson purports to adjourn a meeting, any business transacted at the adjourned meeting will be of no effect: Mulholland v St Peter [1969] 1 WLR 1842. Here, the meeting was validly constituted; it was not, however, capable of conducting the business of a first meeting of creditors because proper notice had not been given. As the meeting was validly constituted and there were no impediments to creditors voting on an adjournment resolution, Mr Fernandez had no power to adjourn the meeting.

The adjourned meeting 28 On 17 September 2010 Mr Fernandez wrote to creditors advising that the first meeting of creditors had been adjourned to 28 September 2010. Attached to the letter were several documents, including a formal notice of the adjourned first meeting. The notice described the business of the adjourned meeting in the same terms as it had been described in the original notice of meeting. 29 The validity of the adjourned meeting has not been challenged. Perhaps the view taken is that the 17 September 2010 notice had the effect of validly convening a first meeting for 28 September 2010 and that what went before should simply be ignored. 30 Anticipating that at the adjourned meeting there would be an attempt to remove Mr Fernandez, Mr Derham canvassed support for him. He wrote to financial advisers whose clients had invested in Willmott Forestry schemes advising that the first meeting of creditors would determine whether to remove Mr Fernandez and replace him with an alternative administrator. Mr Derham reiterated that the board of WFL stood by its decision to appoint Mr Fernandez. The letter stated that Mr Derham would be willing to act as proxy. 31 It was around this time that ASIC first became involved. On 23 September ASIC wrote to Mr Fernandez. Its letter stated that the administrations of the Willmott companies would be complex and lengthy. It then outlined several of ASIC's concerns. First, there was a query whether there had been compliance with reg 5.6.18 of the Corporations Regulations when Mr Fernandez adjourned the first meeting of creditors. (The regulation states that the chairperson must adjourn a meeting if directed by the meeting or with the consent of the meeting). Second, ASIC stated that it was concerned about the capacity of Fernandez partners to undertake the administrations, particularly given that 4 administrators were appointed in the collapse of each of Great Southern, Timbercorp and Forest Enterprises Australia (FEA). Third, ASIC expressed concern about Mr Fernandez's ability to fund the administrations. The fourth concern was that Mr Fernandez had inadequate insurance. The fifth was that Mr Fernandez did not disclose in his declaration of independence, relevant relationships and indemnities (DIRRI) that he met directors of Willmott in the week prior to his appointment and that his DIRRI had failed to deal with why his appointment would not create a conflict of interest. After setting out its concerns ASIC requested Mr Fernandez to advise by 10am on 27 September 2010: (1) of the circumstances surrounding the adjournment of the first meeting of creditors; (2) whether he would amend his DIRRI; and (3) whether he intended to resign at the reconvened first meeting and if not how he would ensure that he had adequate resources and expertise to conduct the administration. 32 Mr Fernandez did not reply to ASIC's letter by the deadline. This prompted ASIC to write to Mr Fernandez on 27 September 2010 requesting a response. 33 Mr Fernandez did respond later that day. He stated that it was impossible to comprehensively respond to all matters raised by ASIC in the time available but he would do his best. Mr Fernandez said: (1) he believed he had contacted as many of Willmott's creditors as was reasonably practicable; (2) his adjournment of the meeting was in accordance with the Corporations Act and the common law; (3) he had sufficient staffing levels and sufficient expertise to run the administrations and could call upon external resources if necessary; (4) funding of the administration was being considered and reviewed but that an unencumbered asset existed; (5) he believed his current insurance cover to be adequate but that insurance would be reviewed and increased if required; (6) two nominations for the appointment of administrators had been received and that he had been approached to consider a joint appointment with BRI Ferrier; (7) his legal advice was that a joint appointment was not permitted under the Corporations Act or the common law; and (8) he believed that all appropriate disclosures had been made in the DIRRI but that the issue would be dealt with at the adjourned first creditors meeting. 34 The adjourned meeting commenced shortly after 3.00pm on 28 September 2010. Mr Fernandez took the chair. Following a short introduction, a discussion about voting rights, a statement about the Willmott Forests group's trading activities by Mr Derham and an explanation of the role of the administrator, the meeting was opened for discussion and questions. At this point Mr Anderson (a grower who had proxied in favour of Mr Bland) moved that Mr Fernandez be removed as administrator and that Messrs Crosbie and Carson be appointed in his place. Mr Williams (a grower) seconded the resolution. 35 It is interesting to note that by the time of the meeting Mr Bland had decided to go along with the banks' proposed administrators. Apparently Mr Webster told Mr Bland that he (Mr Webster) was concerned about BRI Ferrier from his experience in another insolvency and believed they would not have the support of the banks. 36 The motion for removal was put. First there was a vote on the voices. Then a poll was demanded both by Mr James (acting as proxy for the banks) and Mr Derham. The outcome of the poll (as recorded in the minutes) was as follows: 561 votes totalling $123,835,125 were in favour of the resolution, 1039 votes totalling $7,407,124 were against and 4 votes totalling $12,217 were in abstention. Mr Fernandez used his special proxies to vote against the resolution except where it was apparent that the creditors had indicated how they wished him to vote. 37 According to regs 5.6.19-21 when a poll has been demanded: a resolution is carried if the majority of the creditors vote in favour of it, and the value of the debts of those voting in favour is more than half the total debts owed to all creditors voting; a resolution is not carried if the majority of the creditors voting against the resolution, and the value of the debts owing to those voting against the resolution is more than half the total debts owed to all creditors voting; and if no result is achieved by the application of those two rules, the person presiding at the meeting may exercise a casting vote in favour of or against the resolution, and the casting vote determines the outcome. See Cresvale Far East Ltd (in liq) v Cresvale Securities Ltd (2001) 37 ACSR 394, 415. 38 Accordingly, as the numerical vote was against removal and the majority in value of the creditors' debts was for removal, Mr Fernandez was entitled to determine the outcome by exercising his casting vote. Mr Fernandez used his casting vote to vote against his removal. As a result the resolution to remove him was not carried. 39 Mr Fernandez explained why he voted against his removal. His explanation is recorded in the minutes as follows: A There appeared to be reasonable cause to maintain the continuity of his appointment as Administrator and the administrative matters relating to the company's affairs to date; B There seemed to be an absence in his view of persuasive reasons in relation to the alternative appointment given the nature of issues in this administration; C A vast majority of the creditors in number had expressed support for his continued role as Administrator; D The majority in value had reflected in some great measure the votes of the secured creditors who held securities and, provided that their securities were valid, had direct recourse to such securities and had done so by the appointment of Receivers and Managers. The secured creditors would not be disadvantaged by the continuation of the Administrator's appointment; E Without reflection on the expressed independence of Mr Carson and Mr Crosbie, the Chairman considered that an impartial or independent observer may quite likely regard the nomination of someone other than by the banking syndicate as more likely to act independently on behalf of all stakeholders and to apply a greater degree of scrutiny to the company's dealings with the banking syndicate; F The banks had exercised their security and could have done so at any time; G The indicative hourly charge out rates of PPB Administrators and their staff, as outlined by Mr Carson, were more expensive than that charged by Fernandez Partners. 40 A resolution to remove Mr Fernandez as administrator of three other group companies, Willmott Finance Pty Ltd, Willmott Forest Products Pty Ltd and Willmott Forests Investment Management Pty Ltd, suffered a similar fate. A like resolution in respect of the remaining group companies was not pursued.

Should Mr Fernandez be removed? 41 The banks seek to have Mr Fernandez removed under s 449B on the following grounds: (1) his failure to notify creditors that he had received a consent to act from alternative administrators; (2) the way in which proxies were solicited and exercised; (3) the manner in which he exercised his casting vote; and (4) his lack of expertise and resources to conduct an administration of the size and nature of the Willmott Forest administration. 42 As to the first ground, the relevant principles are not in issue. What is required is the application of those principles to the facts. Section 436E requires notice of the first meeting of creditors to be given in writing and by advertisement. It says nothing about the content of the notice. Section 436(E)(4) provides that at the first meeting the creditors may, by resolution, remove the administrator and appoint someone else. It does not stipulate that the notice of the first meeting must advise creditors that this can happen. 43 Obviously, a notice convening a meeting must state the date, time and place of the meeting. The notice must also state the purpose of the meeting: ie it must inform the recipient of the business to be transacted at the meeting. Whether the business is stated sufficiently clearly depends upon what meaning the notice "would fairly carry to ordinary minds": Henderson v Bank of Australasia (1890) 45 Ch D 330, 337. It has been said that the notice must be construed as a businessperson would construe it and it is to be understood in the ordinary sense of the words used: Alexander v Simpson (1889) 43 Ch D 139. In Ryan v Edna May Junction Gold Mining Co (NL) (1916) 21 CLR 487, 496 it was put that the notice must give fair warning of the matters to be dealt with. This need not be in the precise terms of the proposed resolution; all that need be done is to specify the general nature of the business. In Colhoun v Green [1919] VLR 196 the standard was described as "sufficient information". 44 In addition to the formal requirements for a notice, there is a principle, applicable in company cases, that directors owe a fiduciary duty to members to give them full information of all matters material to the business that is to be transacted at a company meeting. The duty is fully stated in Bulfin v Bebarfald's Ltd (1938) 38 SR (NSW) 423. It arises, according to Long Innes CJ in Eq (at 440), "when directors are advising or urging a particular action or course of conduct upon the members". The information to be given must be sufficient to enable the members or creditors (as the case may be) to decide whether to attend the meeting and vote or leave it to be determined by the majority attending and voting: Fraser v NRMA Holdings Ltd (1995) 55 FCR 452, 466. 45 The case for invalidity was argued on the basis of two assumptions, neither of which was put in issue. Those assumptions were that (1) an administrator convening a meeting of creditors under s 436E is under the same duty to advise as is a director convening a meeting of members; and (2) the duty to provide information arises whether or not the administrator is urging a particular approach. Neither assumption is self-evidently correct. Rather there is good reason to think that the opposite is the true position. Still, as the point was not argued, I will proceed on the basis that each assumption is an accurate statement of the legal position. 46 Even given those assumptions, I do not think it was material for creditors to be informed that prior to the meeting a creditor had put forward a particular insolvency practitioner to be the alternative administrator. After all, the creditors knew from the notice of meeting that one topic which might be considered was whether the existing administrator should be replaced. If they were interested in that topic they knew they could attend either in person or by proxy. 47 Moreover, I do not accept that a creditor's decision whether or not to attend the meeting would have been affected if s/he had known there was in fact a creditor who wanted to replace the administrator with his/her own nominee. At any first meeting of creditors it is possible that someone may, even without prior notice, move to replace the administrator with his/her own nominee. As I have said, if that issue is of interest, the creditor knows s/he can attend. 48 As to the second ground (the solicitation of proxies), that can be put to one side. Mr Fernandez has sworn that he was not involved in any solicitation. Further, if there was solicitation, and the evidence suggests that Mr Derham, the former CEO of WFL, did what he could to get votes that would keep Mr Fernandez in office, this is neither surprising nor improper. Solicitation of votes takes place for all sorts of business to be considered at meetings of members and meetings of creditors. I see nothing wrong with that, provided company funds are not being spent along the way. Nor do I see anything wrong with Mr Derham having done so. It would, of course, be different if Mr Fernandez was involved in the solicitation, but the evidence says he was not. 49 The third ground concerns the manner in which Mr Fernandez exercised his casting vote. I will deal with this ground later. 50 The final ground concerns Mr Fernandez's lack of experience and resources. Before dealing with it I should say something about Mr Fernandez's role in the application. Unfortunately he has been put in an invidious position. Mr Fernandez has had to carry the burden of the argument against the banks. In my view that burden should have been borne by others, for example the board who appointed Mr Fernandez. The failure of the board to justify their choice of administrator (a choice given to them by s 436A) meant that Mr Fernandez found himself in the middle of a dispute, not only with the banks but also a dispute between groups of growers, one which supported and the other which opposed him continuing to act as administrator. This is hardly a position in which an administrator, who is required to act impartially between all creditors, should find him/herself. 51 I confess to being partly to blame. The application could have been structured so that the board was represented (if necessary with an indemnity for their costs) to defend Mr Fernandez's position. Alternatively, I could have required the Willmott Action Group, which represented the growers that supported Mr Fernandez, to make the running against the banks. In that way Mr Fernandez's role could have been reduced to one of providing assistance to the court rather than being a protagonist in the battle. In hindsight, I regret not having taken steps to reduce Mr Fernandez's role at the hearing. That the outcome would have been no different is beside the point. 52 The court is given power to remove an administrator by s 449B. The circumstances in which the power is to be exercised were considered by Hayne J (as he then was) in Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544. He said (at 550) that "an order for removal should be made only if it is demonstrated that such an order would be for the better conduct of the administration". He went on to say that it is not enough to show, for example, "that a majority in value of creditors, but not a majority in number, want the administrator removed". There must, he went on to say (at 551), be some reason, other than a consideration of bare majorities, for the order to be made. 53 It is clear that Mr Fernandez has to be removed. The reason has nothing to do with his personal integrity. ASIC did tender evidence showing that in 2005 the Companies Auditors and Liquidators Disciplinary Board had suspended Mr Fernandez's registration as a liquidator for 90 days and ordered that, for 12 months thereafter, he was not to accept a new appointment unless it was in a joint capacity with another liquidator. The breach which gave rise to the suspension was the failure to lodge in excess of 100 documents relating to the status of companies of which he was the liquidator. But I put that evidence to one side. I am entitled to assume, as I do, that following Mr Fernandez's suspension ASIC kept a watchful eye on his actions and did not detect any further breaches. For that reason I am not prepared to treat a lapse that occurred more than five years ago as a matter of present significance. 54 My real concerns are that (1) I do not think Mr Fernandez appreciates the potentially enormous task that will confront an administrator of the Willmott Forests group; and (2) there is little (probably no) possibility that Mr Fernandez and his staff have the capacity to carry out the tasks that will need to be performed. 55 As to (1), Mr Fernandez appears to have been persuaded by Mr Derham that the Willmott Forests administration would be a straightforward affair. Mr Derham thinks all that is required to sort things out is to put together some paperwork that will give sufficient information to convince a third party to take over responsibility for the projects. Mr Derham seems to believe that a third party will soon be found to replace WFL as the operator of the schemes and, then, all will be well. 56 I have already expressed the view that there is an air of unreality about Mr Derham's expectations. There are several well known and large agribusiness schemes that are presently in administration or in the process of being wound up. Each has hopes of finding a white knight to take over the operation of its schemes. None has come forward with a realistic proposal. The result is a growing web of complex litigation as secured creditors, ordinary creditors and investors struggle to get what they can of assets that are insufficient to meet all their claims. I fear that will be the likely reality for the Willmott Forests schemes as well. 57 There are, to my mind, two things that highlight Mr Fernandez's failure to appreciate the task at hand. The first was his inability to appreciate that the investors are, or are likely to be, creditors of WFL and, perhaps, other group companies. This is a point that would have occurred to an insolvency practitioner experienced in managed investment schemes. Indeed, it was his lack of appreciation of the position of scheme members that led to the adjournment of the first meeting, no doubt at considerable expense. 58 The second thing is Mr Fernandez's failure to turn his mind to whether he had appropriate insurance cover. ASIC's Regulatory Guide 194 ("Insurance requirements for registered liquidators" (June 2008)) recommends that registered liquidators have insurance of at least $20 million (RG 194.43). I was provided with a copy of Mr Fernandez's professional indemnity policy. The limit of his cover is $2 million. And, in relation to external appointments (eg an appointment as an administrator) the cover only operates in relation to liability arising out of an appointment to a proprietary company (cl 14). As it turns out WFL is a public company. Naturally, Mr Fernandez indicated he would increase his cover to an appropriate level. That, however, is not the point. The point is that a practitioner with an appreciation of what is likely to be involved in a particular administration would have arranged appropriate insurance cover before the problem was pointed out, as it was, in this case, by ASIC. 59 As to (2), Mr Fernandez has what may best be described as a "one man" (perhaps, more aptly, a "one person") practice. Fernandez Partners employ four accountants (two of whom are contractors), but Mr Fernandez did not suggest that any of them has the experience required to handle a complex administration. He also employs four investigation, asset management and administration staff, one investigation and asset management contractor and three administration staff contractors. This is nowhere near sufficient for the task at hand. And, the lack of staff cannot easily be made up. No doubt there are accountants that can be contracted on a short-term basis to make up the numbers. But it is not enough simply to build up the numbers. What is required are personnel with the appropriate experience and skills. In today's market, where insolvency practitioners are working on many large administrations, it is unlikely that good people can be found at short notice for what will, at best, be a temporary position.

The appointment of the banks' nominees 60 Whether to appoint Messrs Crosbie and Carson as the substitute administrators is a difficult question. It is made all the more difficult because their appointment is opposed by one growers group. In part, that opposition is based on the fact that Messrs Crosbie and Carson have been nominated by the banks. It is also based on the circumstance that Messrs Crosbie and Carson have worked for one of the banks in connection with the Willmott Forests group. 61 At the heart of the opposition are two propositions: (1) the interests of the banks and of creditors (especially growers/creditors) are likely to be in conflict; and (2) the banks' nominees will not be seen to be independent. I am bound to say that neither proposition is farfetched. The first (the potential for conflict) is obviously true. The banks hold security for their debt. Mr Webster says that the banks' debt will not be satisfied by the security. In that event the banks' receivers will be duty bound to maximise the banks' return. That may lead to action which will be contrary to the interests of the unsecured creditors and will likely be detrimental to the interests of the investors. Of course there are obligations a secured creditor and its receivers owe to the mortgagor and to those claiming through the mortgagor. As these obligations are limited, it is important that there is an independent person who will take on the banks if necessary. 62 This is the reason why the second point (the perception of partiality) is not so easily put aside. It cannot be emphasised too much that an administrator must be both independent and impartial. Not only that, the independence and impartiality must "be manifestly seen to exist": Re Allebart Pty Ltd (in liq) [1971] 1 NSWLR 24, 30 per Street J, speaking of the office of liquidator. 63 An administrator is a fiduciary and should have imposed on him/her the same duty to act impartially as courts of equity impose on trustees: Parbery v ACT Superannuation Management Pty Ltd (2010) 79 ACSR 425, [34]; Re Eaton Electrical Services (2006) 58 ACSR 403, [9]. The court will not appoint as a trustee a person who will protect the interests of only some of the beneficiaries: Re Tempest (1866) LR 1 Ch App 485. So, for example, the court will not appoint as a trustee a solicitor who acts for one only of the beneficiaries: Re Kemp's Settled Estates (1883) 24 Ch D 485 and Re Spencer's Settled Estates [1903] 1 Ch 75. The court should be equally cautious when appointing an insolvency practitioner to the position of liquidator or administrator. 64 It was once the rule that that an insolvency practitioner should not take up the office of liquidator or administrator if s/he had prior dealings with the company, its directors, major shareholders or creditors: Re Chevron Furnishers Pty Ltd (in liq); Qld Amalgamated Industries Pty Ltd v Harris [1995] 1 Qd R 125, 130. But, as with so many sound rules, commercial expediency has led to them being watered down. In National Australia Bank Ltd v Market Holdings Pty Ltd (in liq) (2001) 37 ACSR 629 Young J acknowledged (at [194]) that the rules have been "slightly eroded" by three practices: (a) permitting a company which has consulted an insolvency accountant about its future to nominate that accountant as liquidator; (b) permitting a voluntary liquidator to be appointed who has given financial advice to the directors; and (c) permitting creditors to nominate a liquidator in an ordinary winding up in insolvency. 65 In this case I am asked to erode the principle by one more practice - permitting an administrator to be appointed who has given advice about the mortgagor to the secured creditor. In their DIRRI Messrs Carson & Crosbie advised they had been engaged by the CBA on 17 August 2010 to prepare a report in respect of the bank's exposure to the group and its investment schemes. Their view was that this retainer was not an impediment to their appointment. The declaration stated: "We understand our obligations to all stakeholders and our engagement by CBA in relation to the Group should not be taken to constitute a bias or lack of independence on our behalf". 66 The need for the appearance of independence by the proposed administrators was sufficiently important that the matter could not be left at that. Further disclosure was required. Accordingly on 15 October 2010 I requested the CBA to provide a copy of the report they had received from Messrs Carson & Crosbie. A copy was provided to me, to ASIC and, in a redacted form, to counsel and solicitors for the parties. Following receipt of the report, I invited counsel to make such further submissions as they may be advised. In the event, no further submissions were forthcoming. 67 Probably this was because the report was an innocuous affair. All PPB did in its report was to identify topics for future examination. Those topics included the current state of the group, potential risks to the bank and the kind of risk assessments that should be undertaken by the bank. PPB undertook no substantive analysis on any issue. 68 There was, however, another problem. Late on 13 October 2010, the Willmott Growers Group indicated that representatives of BRI Ferrier were still interested in being appointed as the substitute administrators. Thus, I was asked, in effect, to choose between two insolvency firms. No doubt, if a wider enquiry of potentially interested firms was made, more candidates would have come forward. 69 This problem, indeed this whole proceeding, is the direct consequence of Pt 5.3A being drafted to permit the "private ordering" of administrators. The Harmer Committee (Australian Law Reform Commission) whose report "General Insolvency Inquiry" (Report No 45) led to the enactment of Pt 5.3A, considered two methods of selecting an administrator. One was selection by the directors. The second method was an appointment based on a roster system. 70 The Harmer Committee rejected a roster system approach. The Harmer Report stated (at [70]): "A roster system would detract from the voluntary nature of the procedure. The quality of administrators would inevitably vary from person to person. The directors may have proposals for dealing with the company's insolvency. In fact, the existence of these proposals may have encouraged the directors to have the company voluntarily submit its affairs to a particular insolvency administrator. Therefore it is important that the company, at least in the initial stages, should have some freedom of choice in appointing the administrator". 71 The choice which the Harmer Committee set for itself was, of course, a false choice. The alternative to an appointment by directors was not simply a roster system, which could, I accept, be a poor alternative. Another, to my mind preferable, but not the only, alternative, is for an administrative organ of government (eg ASIC) to nominate the administrator from a panel of qualified insolvency practitioners. To nominate an appropriate person ASIC would need certain information about the practitioners on the panel including: (1) the nature of the firm of which the practitioner is a member; (2) the work that has been performed in the past by the practitioner and his/her firm; (3) the fees the practitioner charges (including details of the gross fees charged in previous insolvencies); (4) whether the practitioner is sufficiently independent; and (5) the financial capacity of the practitioner to finance the administration. Armed with this information ASIC would be able to match a particular practitioner to a new administration. 72 Recognising that private ordering had the potential to cause problems the Harmer Report proposed certain procedures to safeguard the independence of the administrator. Those features (all of which were, over time, adopted in Pt 5.3A) were (1) persons eligible to be appointed as administrators must be registered insolvency practitioners; (2) certain persons having a close connection with the company cannot be its administrators; (3) the administrator must declare associations with the company and any circumstances which may make it difficult for the administrator to act impartially; (4) directors cannot remove an administrator; and (5) a lack of independence of an administrator may be a ground for removal by the court (Harmer Report [72]). 73 Notwithstanding those safeguards (which are not dissimilar to those that exist in the case of liquidators) the appointment of insolvency practitioners is a matter of continuing concern. In December 1993 the then Commonwealth Attorney-General established a Working Party to consider and make recommendations as to whether changes should be made to the system for the registration, appointment and remuneration of insolvency practitioners. The Working Party published its report, "Review of the Regulation of Corporate Insolvency Practitioners", in June 1997. 74 In its review the Working Party looked at the appointment of liquidators by the court, noting that the court is not involved in the appointment process in other administrations, except when the party's appointment is challenged. As regards liquidators the Working Party examined whether the appointment should be made through a nomination or rotation system. The arguments in favour of using a nomination system were identified (at [9.19]) as (1) selection of a liquidator by the market encourages competition; (2) the most skilled and efficient liquidators would be rewarded; (3) the number of liquidators required would be set by market forces; and (4) creditors would be encouraged to appoint the most able and competitive liquidators based on skill, experience, efficiency and costs. The main arguments in favour of a rotation system were identified (at [9.20]) as being (1) preventing inappropriate relationships developing between liquidators and creditors; (2) avoiding entrenching liquidation work in a small number of large firms; (3) ensuring all liquidators receive a reasonable amount of work, thereby maintaining their experience levels; (4) enabling less experienced practitioners to gain more experience than they may otherwise obtain; and (5) spreading the burden of assetless administrations. 75 In its discussion on the rotation system the Working Party mentioned (at [9.24]) that "one of the virtues of a rotation system for the selection of official liquidators is that it assists to ensure the independence of the practitioner". They went on to mention two concerns about inappropriate relationships which might arise if a nomination system were used rather than a rotation system. They were (1) the formation of "clubs" comprising lawyers and liquidators who refer work to each other; and (2) the independence of the insolvency practitioner from any particular party involved in the liquidation, such as a creditor. 76 The Working Party gave no separate consideration to the appointment of administrators under Pt 5.3A. Nonetheless, in my view, the concerns the Working Party expressed about inappropriate relationships that result from a nomination system apply equally to the private ordering of administrators. 77 Another investigation into the appointment, removal and functions of insolvency practitioners was undertaken by the Parliamentary Joint Committee on Corporations and Financial Services. The Joint Committee published its report in 2004 - "Corporate Insolvency Laws: a Stocktake". The Report makes clear that the Joint Committee received many submissions concerning the lack of independence of insolvency practitioners. Several, including a submission from the Commercial Law Association of Australia (extracted at [3.17]), noted the difficulty of overcoming the perception among creditors that an administrator appointed by the directors is not impartial. Nonetheless, the Joint Committee was of the view (at [3.37]) that the Harmer rationale for the appointment of administrators by directors remained persuasive. In its report the Joint Committee observed (at [3.38]) that creditors have the opportunity to replace the administrator with one of their own choice. It also observed that a creditor could apply to the court to prevent abuses. At least the Joint Committee acknowledged that creditors may not have the resources to exercise that option: ie that recourse to the courts is often not a realistic option. 78 The most recent examination into the regulation of insolvency practitioners is that undertaken by the Economic References Committee of the Senate - "The regulation, registration and remuneration of insolvency practitioners in Australia: the case for a new framework" (Sept 2010). When dealing with the remuneration of insolvency practitioners (a major topic of the Committee's report), the Committee discussed (at [10.61]-[10.78]) a number of possible methods of keeping fees down. They included a set fee, broadening the recruiting base for insolvency practitioners, better disclosure on fees and competitive tendering. As regards this last proposal the Report (at [11.50]) stated that competitive tendering was "appealing in principle" but the Committee felt that it would be unreasonable given the potential complexity of an insolvency job was not often apparent at the outset. 79 With the greatest of respect, I have a different view from that taken by the Senators. A competitive tendering process or "auction" has many benefits both in keeping fees down and more generally. First and foremost it will secure the independence of the practitioner. Second, creditors will inevitably benefit from lower fees because it is to be expected that the fees tendered would be less than those agreed through private negotiations. This is the usual consequence of competition where the insolvency practitioner will be cutting unnecessary expenses and developing innovative ways of providing their services in order to make the best bid. Third, it will produce information which will enable an assessment to be made of what are reasonable fees. Fourth, it will increase the pool of experienced insolvency practitioners by creating new opportunities for new insolvency practitioners to enter the market. Fifth, it will prevent cosy relationships being developed between insolvency practitioners and large creditors (eg lenders such as banks and finance companies) and between lawyers and insolvency practitioners who refer work to each other. 80 Naturally there are some downsides. The goal of an appointment is to maximise the recovery by creditors and to provide fair compensation to the insolvency practitioner. A tender or auction process may not take into account that a higher bidder often factors in the necessary resources that would increase the possibility of a better return for creditors. Put another way, it is possible that a lower bid will result in lower quality work that will be performed. Moreover, the need to put in a lower bid may entice the insolvency practitioner to cut corners to maintain his/her profit margin. Then there is the difficulty of comparing bids. For example, how is one to determine which bidder is better able to carry out the work? It is necessarily the case that a bid should not be assessed just on price. There must be some quality control. Hence subjective judgments will be made on matters such as the quality of the insolvency practitioner and his/her staff, their experience, resources, etc. If the tender or auction is to be supervised by the court it may be beyond its capacity to properly assess the bids. There is also the risk that there will be a shortage of bidders of high quality. Insolvency practitioners may forego the opportunity to bid because they are not willing to bid against lower quality firms on the basis of price. And, insolvency practitioners may drop out of the tender or auction process if they feel they cannot win or incur the costs of participating in the auction/tender process. 81 Although I was very much tempted to conduct a mini-tender process to fill the vacancy created by Mr Fernandez's removal, I thought it inappropriate for three reasons. First, Dr Bigos, who appeared for ASIC, told me that, at present, there are few insolvency firms in Victoria that have sufficient resources and experience to do the work. He pointed out, in a submission in part based on an article in the Australian Financial Review, that most of the major accounting firms are involved, in one way or another, in the collapse of several large agribusiness managed investment schemes. He said, and I accept, that it would be undesirable to allocate the administration of the Willmott Forests group to one of those firms because of their potential lack of capacity to take on another large administration. 82 The second reason is one of timing. To conduct an effective tender or auction process it would be necessary either to advertise the process or invite nominated insolvency practitioners to bid. That would take time, and time is not a luxury available in this administration. As it is, things are at a standstill and that position could not be allowed to remain given the stakes involved and the risk of more losses being suffered if the affairs of the schemes are not in safe hands. 83 The third reason is the means of selection of the successful bidder. This is not a task a judge could undertake, at least not without assistance. A judge does not have the requisite information about the skill and capacity of each bidder plus the other information that is necessary to make an informed choice. It would take time to build up the stock of information that is needed. In the meantime it would be necessary for the judge to be assisted by, eg, a creditors' committee or ASIC. Once again, this would take time. 84 Thus the issue comes down to this: Should I appoint Messrs Carson & Crosbie as the banks want. Or should consideration be given to the appointment of BRI Ferrier, the only other firm I have been told is interested in taking on the administrations? For a practical reason I cannot consider the appointment BRI Ferrier. The reason is that their proponent, Willmott Growers Group, has not provided me with any details about the firm and its capacity to undertake the administrations. It would be wrong to appoint a firm about whom I know so little. 85 On the other hand, I do have information about Messrs Crosbie and Carson and their firm, PPB. They have considerable experience in the insolvency industry having worked on a number of large and complex external administrations, some with liabilities of over $200 million. Mr Carson's experience includes involvement with the Timbercorp managed investment schemes. As well, PPB has the necessary resources to conduct large administrations. It has 30 partners and approximately 300 employees specialising in corporate insolvency. It has offices in Melbourne, Sydney, Perth, Brisbane and Adelaide. 86 What should I make of the fact that they are the banks' nominee? The context in which the issue arises is this: In an insolvency the interests of secured creditors will not always be coincident with the interests of other creditors. Usually this will be for the reason that a better outcome will be produced for a secured creditor if it can get rid of interests over assets that other creditors may claim. More especially is this so with managed investment schemes. The investors (here the growers) have an interest in scheme assets that are acquired with pooled money. The banks will likely seek to minimise the growers' interests in order for them, as secured creditors, to maximise their own return. 87 Accordingly, it will be necessary for the administrators to tread a very careful course between the two groups. The argument put by the Willmott Action Group amounts to an assertion that the administrators will not adequately look after, or will not be seen to be adequately looking after, the interests of the growers. I am not prepared to accept this submission. Insofar as it is based on the possibility of Messrs Carson & Crosbie acting partially, I do not accept it. They are both gentlemen of good standing and would not run the risk of ruining their reputation by acting inappropriately. 88 Insofar as the objection is that Messrs Carson & Crosbie will not be seen to be independent, and there is a group of growers who do not regard them as independent, I have satisfied myself that, when looked at objectively, such a view is misplaced. First, the Willmott Growers Group believes Messrs Carson & Crosbie will do a good job. Second, the work they have undertaken for the CBA in connection with the Willmott Forests group should not, in light of the current practical approach to these appointments, be seen to be disqualifying. Third, I will require Messrs Carson & Crosbie to appoint independent lawyers (ie lawyers that are completely independent of the banks) and that should strengthen the appearance of their (the administrators') independence. 89 In Smarter Way (Aust) Pty Ltd v D'Aloi (as admin of) Smarter Way (Aust) Pty Ltd (2000) 35 ACSR 595 Byrne J spoke about the undesirability of an administrator engaging solicitors who act for a secured creditor (at [26]). He said that such a course was undesirable. I would go one step further than did Byrne J. Not only should an administrator not appoint solicitors retained by the secured creditor, they should not appoint solicitors who are on the secured creditor's panel of solicitors. I think that solicitors on a secured creditor's panel are just as likely to be perceived as loyal to the secured creditor as is the solicitor who happens to be retained by the secured creditor. 90 I readily appreciate that panel solicitors will see this approach as a challenge to their independence. No doubt panel solicitors will, if asked, say they will just as faithfully act against the interests of the client to whose panel they have been appointed as would any other solicitor. For my own part, I do not accept this to be so clearly the case. Just ask the managing partner of the firm that is about to bring proceedings against one of its large clients. Even if the action is allowed to go ahead (which in most instances would be problematic because permission would normally be required from the client) one would expect the liaison partner to speak to the client to smooth over any cracks in the relationship. 91 Anyway, I am not so much concerned with the actual independence of the firm but with the legitimate concerns of creditors. The creditors will quite properly want their administrator's lawyers to be truly independent of any party with whom the administrator has a legal dispute. Test the matter this way: Assume a poll is conducted and creditors are asked whether their administrator should appoint as his/her lawyer in an action against a bank (eg to challenge the validity of the bank's security) a firm that regularly acts for the bank. I would be surprised if even a small number would vote in favour of the proposal. 92 Although satisfied about the proposed administrators' independence, I was not inclined to appoint them without further information. In particular I wanted to know: (a) On what basis would Messrs Carson and Crosbie charge fees and expenses for the work they perform. I specifically requested details regarding the rates proposed to be charged, an estimate of the number of persons who would be involved in the administration, a justification of the proposed fees and expenses by reference to those charged by other insolvency practitioners undertaking similar work, the type of work Messrs Carson and Crosbie and their staff were likely to perform and how long it would take to perform that work; (b) What insurance cover was held by Messrs Carson and Crosbie and the employees of PPB who might work on the administration; (c) On what basis Messrs Carson and Crosbie would select and retain solicitors to assist them in connection with the administration; and (d) Whether Messrs Carson and Crosbie would give an undertaking that they would not, without leave of the court, retain as the solicitors of any Willmott company a firm on the CBA's or St George's panel of solicitors. The importance of the two latter points will become clear in a moment. 93 My associate wrote to the banks' solicitors requesting that information. The response they provided was as follows: (a) The fees would be calculated on a time based method using hourly rates determined by the level of expertise of staff involved. The rates proposed to be charged were outlined and justified as being in line with rates charged by Ferrier Hodgson in respect of the Great Southern administration in June 2010 and Korda Mentha in respect of the Timbercorp administration in the financial year 2009. Messrs Carson and Crosbie outlined the core team of the administration, their position and experience and the type of work the proposed administrators and staff were likely to perform. Messrs Carson and Crosbie stated that it was difficult to predict with any certainty the length of time required to perform the tasks; (b) PPB holds insurance covering all partners and staff in the amount of $50 million; (c) Messrs Carson and Crosbie would select and retain solicitors based on their depth of expertise (particularly in relation to forestry managed investment schemes), experience in having acted in large-scale administrations, the depth of their teams, whether the solicitors had interstate offices in Willmott plantation regions, the costs charged by the firms and independence/lack of conflict; (d) Messrs Carson and Crosbie would provide the undertaking. 94 It is worthwhile noting that the fees Messrs Carson & Crosbie propose to charge are reasonable. I say this following consultation with one of the Court's Registrars who is familiar with rates charged by insolvency practitioners. The Registrar informed me that the proposed fees are "middle of the range". Interestingly, the proposed fees are less than those which PPB has charged in other insolvencies (according to information I found in reports to creditors freely available on the internet). 95 While the rate of fees is reasonable, I propose for the fees to be determined by the Court. Ordinarily, an administrator's remuneration is fixed by the creditors' committee or the creditors. The court only steps in if agreement cannot be reached at that level. In this case I will, pursuant to s 447A, vary the operation of s 449E so that the administrators' remuneration, unless otherwise ordered, will be set by the court. If it transpires that the court's role is unnecessary and it is best to leave the determination of the fees to, say, a creditor's committee, appropriate orders can be made. 96 I know that when fees are fixed by the court there will be delay in the administrators receiving payment. First they will be required to prepare the necessary material to justify their claim. Then time will be taken up while their claims are assessed. To deal with this problem I have, in other administrations, made orders allowing the insolvency practitioner to take, say 80% of his/her fees out of the company's assets, on an undertaking that, if the assessment results in the insolvency practitioner being entitled to less than what has been taken, the difference will be returned. Such an arrangement could be put in place for these administrations, if the administrators wish.

Reversing the result of the removal resolution 97 As Mr Fernandez will be removed from office under s 449B it is not necessary to consider the other basis (an order under s 600C) upon which the banks challenged his continuation in office. Nonetheless, in deference to the arguments put, I feel I should express my views on the point. 98 Section 600C provides that when a resolution is not passed because the person presiding has exercised a casting vote the court may nevertheless order that the proposed resolution is taken to have been passed. 99 In Global Realty Development Corp v Dominion Wines Ltd (in liq) (2005) 56 ACSR 474 Barrett J summarised the obligations of the chairperson exercising a casting vote. He said (at [25]): First, there is no general rule that the chairperson should use the casting vote to prefer the majority in value over the majority in number … Second, the correct approach is for the chairperson to proceed according to what the chairperson believes to be in the best interests of those affected by the vote. Third, the objectives of Pt 5.3A must be considered in making the decision. Fourth, a distinction is to be drawn between propriety and wisdom, the latter probably being non-justiciable. Fifth, the court's decision on a challenge under [s 600C] should be made in the light of all the material the chairperson had. 100 Often a challenge to the presiding officer's exercise of his/her casting vote comes down to this: Did the chairperson cast his/her vote honestly and in accordance with what s/he believed to be in the best interests of those affected by the vote?: see R v Bradford City Metropolitan Council; Ex parte Corris [1990] 2 QB 363, 371 and Kirwin v Cresvale Far East Ltd (in liq) (2002) 44 ACSR 21, [363]. 101 Did Mr Fernandez satisfy this standard? The striking omission from Mr Fernandez's explanation is his failure to have regard to his capacity to do the work. It is a striking omission because the issue of capacity was raised by the banks, the growers and ASIC. And, no doubt, it was apparent to Mr Fernandez that this was a matter of most serious concern. 102 If he was to justify his vote by reference to any factor, surely this was the one he should have explained to the creditors. I think the reason Mr Fernandez failed to explain why he thought he had the capacity to undertake the administration was that he, himself, doubted that proposition. 103 Were it necessary to do so, I would have reversed the result of the vote under s 600C.

Conclusion 104 I will make the orders to remove Mr Fernandez and replace him with Messrs Carson and Crosbie. I will hear the parties on costs. I certify that the preceding one hundred and four (104) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Associate: Dated: 24 December 2010 SCHEDULE IN THE MATTER OF WILLMOTT FORESTS LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 063 263 650 IN THE MATTER OF WILLMOTT FINANCE PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 081 274 811 IN THE MATTER OF WILLMOTT FOREST PRODUCTS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 103 019 094 IN THE MATTER OF WILLMOTT FORESTS INVESTMENT MANAGEMENT PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 098 718 837 IN THE MATTER OF WILLMOTT FOREST NOMINEES PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 085 588 772 IN THE MATTER OF WILLMOTT ENERGY PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 130 251 759 IN THE MATTER OF WILLMOTT NOTES PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) A CN 134 963 036 IN THE MATTER OF WILLMOTT SUBSCRIBER PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 134 963 027 IN THE MATTER OF BIOENERGY AUSTRALIA PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) A CN 096 335 901 IN THE MATTER OF BIOFOREST LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) A CN 096 335 876 B E T W E E N COMMONWEALTH BANK OF AUSTRALIA First Plaintiff ST GEORGE BANK, A DIVISION OF WESTPAC BANKING CORPORATION Second Plaintiff and AVITUS THOMAS FERNANDEZ First Defendant WILLMOTT FORESTS LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 063 263 650 Second Defendant WILLMOTT FINANCE LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 081 274 811 Third Defendant WILLMOTT FOREST PRODUCTS PTY LTD (RECEIVERS & MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 103 019 094 Fourth Defendant WILLMOTT FORESTS INVESTMENT MANAGEMENT PTY LTD (RECEIVERS & MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 098 718 837 Fifth Defendant WILLMOTT FOREST NOMINEES PTY LTD (RECEIVERS & MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 085 588 772 Sixth Defendant WILLMOTT ENERGY PTY LTD (RECEIVERS & MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 130 251 759 Seventh Defendant WILLMOTT NOTES PTY LTD (RECEIVERS & MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 134 963 036 Eighth Defendant WILLMOTT SUBSCRIBER PTY LTD (RECEIVERS & MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 134 963 027 Ninth Defendant BIOENERGY AUSTRALIA PTY LTD (RECEIVERS & MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 096 335 901 Tenth Defendant BIOFOREST LTD (RECEIVERS & MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 096 335 876 Eleventh Defendant

Corporations Act 2001(Cth)ss 436A, 436E, 438A, 447A, 449B, 449E, 600C, 601FC, 601FD, 601FS, 1322, 1330

Outcomeplaintiff

Disposition:

The Court removed Avitus Thomas Fernandez as administrator of the listed Willmott group companies and appointed Ian Menzies Carson and Craig David Crosbie as joint and several administrators; pursuant to s 447A the court varied Part 5.3A so that their remuneration is, unless ordered otherwise, to be determined by the Court; the new administrators were required to provide undertakings (including not to retain, without leave, solicitors on the banks' panels) and to appoint independent solicitors; further orders extended times for convening creditors' meetings (see Orders dated 26 October 2010 and Reasons [92]–[96], [104]).

Commonwealth Bank of Australia v Fernandez

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