Cook, in the matter of The Natural Grocery Company Pty Ltd (administrator appointed) [2020] FCA 433

BACKGROUND 5 The Company was incorporated on 23 October 2015. The Company sold organic food and groceries to the public through retail stores which it operated throughout Queensland and New South Wales. It also operated a number of cafés that were situated within the retail stores. The Company's business underwent rapid expansion, with fourteen stores being opened or acquired between April 2016 and January 2017, and a further six stores were acquired during the 2018 financial year. 6 From 12 May 2016 to 22 November 2019, the Commonwealth Bank of Australian (CBA) was the major senior secured lender to the Company and ACNCo by way of a Senior Facility Agreement between CBA as lender or financier, and the Company and ACNCo, as borrowers and guarantors. The CBA Facilities (as defined in Mr Cook's open affidavit) were secured by a general security deed which was registered in the PPSR on 10 May 2016 as securing all present and after acquired property (with exceptions) and two mortgages of leases and associated rights of entry in relation to certain premises. 7 On 22 November 2019, a deed of assignment of debt and securities and ancillary matters was executed between each of CBA (as assignor), Myhalo (as assignee) and the Company and ACNCo (the borrower group). Mr Cook understands that, by that document, CBA assigned to Myhalo, absolutely and unconditionally, the debt then owing to CBA of $27,599,414.53 and related securities and he refers to this as the "Myhalo debt". A notice of this assignment (said to be under s 12 of the Conveyancing Act 1919 (NSW)) signed on behalf of the CBA and dated 22 November 2019 was given to the Company and ACNCo in the deed. 8 Mr Cook was appointed as administrator of the Company pursuant to s 436A(1) of the Corporations Act on 25 November 2019. By that time, the Company: (1) Operated a total of 23 retail stores throughout New South Wales and Queensland which were all operated out of leased premises. (2) Had a head office/administrative centre in leased premises in Chatswood, New South Wales. (3) Employed approximately 155 employees, many of whom were part-time or casual workers. (4) Had eight shareholders in respect of 9,678,841 shares on issue (Shares). (5) Had issued 5,052,410 convertible notes (Notes) in two tranches with a combined face value of $4,443,825. There were 11 registered holders of Notes (Noteholders), with three Noteholders holding Notes in respect of each tranche. Notes to a face value of $3,760,509 are held by related parties. The Notes rank equally with other unsecured creditors. (6) The Myhalo debt was for an amount of $27,599,414.53 and the Company had other secured creditors of $550,000. (7) There was an outstanding tax liability to the Australian Taxation Office of $387,323.65. (8) The Company had made a loss over the last three financial years and creditors requested cash on delivery terms from October 2016 onwards. (9) Trading losses had continued in the first five months of the 2020 financial year. (10) Although the Company balance sheet recorded a net asset surplus of $4,615,429, it was premised on a figure for "goodwill" of $25,140,188. That goodwill arose largely because of the acquisition of a number of businesses over time. If that asset is excluded, as Mr Cook considers appropriate in any scenario other than a sale of the Company's business, the asset position was a deficit of $20,524,759. (11) Current liabilities exceeded current assets by a figure in excess of $3 million. 9 At that time, the directors of the Company were Paul David Wilson, Stephen Anthony Parsonage (Mr Parsonage) and Michael Alan Hume. Mr Parsonage is also the sole director and shareholder of Myhalo. 10 By orders made on 20 December 2019, the convening period for holding a second meeting of creditors was extended to 3 February 2020, with the meeting to be held at any time during or within five days after the end of the convening period. 11 During the course of the voluntary administration, Mr Cook closed six stores, located at: Taringa; Toowoomba; Wynnum; Bondi Junction; Crows Nest and Lane Cove (Closed Stores). 12 Mr Cook continued to trade stores at: Benowa, Chermside, Cronulla, Gymea, Kunara Café and Garden, Kunara Organic Marketplace, Kunara Wholesale, Loganholme, Lismore, Maroochydore, Miami, Mona Vale, Paddington, Paradise Point, Robina, and Victoria Point. It also continued to occupy the Sydney Support Office 13 During the voluntary administration, Mr Cook undertook a campaign for sale of the Company's assets. The campaign was carried out on the basis that the business assets were being offered for sale on a going concern basis. In summary: (1) The sale campaign commenced with advertisements in the Australian Financial Review on 4 and 12 December 2019; (2) 65 interested parties entered into confidentiality deeds and they were supplied with information memoranda. Of those 65, 21 were provided with further specific data; and (3) Mr Cook received 12 purchase offers. 14 Mr Cook sought the consent of Myhalo to a sale on the terms of the Best Offer of the 12 purchase offers he received. The Best Offer was described in submissions was being "well below" the amount of the Myhalo debt. Mr Cook's confidential affidavit provides evidence of the amount of the Best Offer. On 10 January 2020, Mr Parsonage rejected the Best Offer on behalf of Myhalo. The Best Offer was ultimately rejected by Mr Cook because he believed that he could not pursue that offer without Myhalo's support as it held security over substantially all of the Company's present and after acquired property and the Company's real estate interests. 15 With Myhalo's consent, Mr Cook continued discussions for the sale of four stores. On or around 3 and 4 March 2020, Mr Cook entered into Business Sale Agreements with respect to the Cronulla, Gymea, Loganholme and Paradise Point stores (Sale Stores). Those agreements are due to complete between 31 March and 30 April 2020. These transactions are expected to yield about $1.2 million within 12 months. 16 The second creditors' meeting was held on 29 January 2020. The result of the poll taken on the resolution to approve the DOCA was as follows: (1) In number of creditors, 213 voted in favour, 9 voted against and 1 abstained. (2) In value, $9,180,129.29 voted in favour, $3,082,325.41 voted against and $552.87 abstained. (3) 11 Noteholders (representing a value of $3,181,369) voted in favour, none voted against and none abstained. (4) One landlord (of premises which are not Ongoing Premises as defined in [17(2)(c)] below) voted against (representing a value of $1,191,269.51) and no other landlords or lessors of Equipment Leases voted. Accordingly, a majority of the creditors represented at the meeting in number and by value voted in favour of the DOCA. 17 Mr Cook recommended to creditors that the Company should enter into the DOCA primarily because: (1) Myhalo is a secured creditor with a security interest in substantially the whole of the Company's assets. This means, practically, that any transaction Mr Cook might entertain required Myhalo's support. (2) In Mr Cook's assessment, the proposed DOCA achieves the objectives of Part 5.3A of the Corporations Act, as set out in s 435A of that Act, because: (a) A majority of the Company's business (being the retail stores Benowa, Chermside, Kunara Cafe and Garden, Kunara Organic Marketplace, Kunara Wholesale, Lismore, Maroochydore, Miami, Mona Vale, Paddington, Robina, Victoria Point and the Sydney Support Office (Ongoing Stores)) will continue; (b) There will be a return to unsecured creditors that is, in Mr Cook's assessment, superior to what they would get in a liquidation; (c) Creditors who are former employees will receive 100 cents in the dollar of their entitlements. There will be continuation of employment for approximately 131 employees whose entitlements will continue to accrue; (d) For landlords of the premises at which Ongoing Stores conduct their business (Ongoing Premises), the Company is a continuing tenant and the disruption and loss that would be suffered if the Company's business did not continue will not occur; (e) For trade suppliers, the Company will be a continuing trading customer; (f) Creditors who will participate out of the Deed Fund, being either Deed Fund 1 or Deed Fund 2 (as defined in the DOCA) will be entitled to distributions from: (i) Up to $1,750,000 paid into the fund by Myhalo; (ii) Up to $400,000 from the Company's future trading. If the Company cannot pay that amount, Myhalo will; (iii) A trading facility of up to $1 million to be made available by Myhalo should it be needed; and (iv) Proceeds of the sale of assets of the Company which would otherwise be subject to security for the Myhalo debt. (g) Myhalo and its directors and ACNCo will not participate in distributions; (h) Other creditors will receive a return better than they would receive in an immediate liquidation of the Company; and (i) No other deed of company arrangement was proposed. 18 The DOCA is, in effect, subject to the condition precedent (among others) that, within 90 business days after the "commencement date" (being 6 February 2020) or such later date as agreed by Mr Cook and Myhalo (CP Sunset Date), the Court make orders as follows: (1) Leave being given under s 444GA(1)(b) of the Corporations Act to Mr Cook as Deed Administrator to transfer all of the Shares to Myhalo or its nominee; (2) An order under s 444F(4) of the Corporations Act that the owner or lessor of any Ongoing Premises and (if required by the Company, Myhalo or Mr Cook) the owner or lessor of any Ongoing Equipment Lease (as defined in the DOCA) not take possession of the property owned or otherwise recover it by reason of any event that has happened on or before 6 February 2020; (3) If required by any of Mr Cook, the Company or Myhalo: (a) An order under s 447A of the Corporations Act that Part 5.3A of the Corporations Act is to operate so that, to the extent necessary, all and any Claims (as defined in the DOCA) a Noteholder has by reason of a Note, including any entitlement to the allotment and issue of Shares is wholly extinguished on the first to occur of the Noteholder's receipt of a distribution from the Deed Fund or Effectuation (as defined in the DOCA) and the Company is fully and finally released from all of its obligations to that Noteholder; and/or (b) A direction under s 90-15 of the Insolvency Practice Schedule (Corporations) that the Deed Administrator and Company are justified in treating all and any Claims a Noteholder has by reason of a Note, including any Claim to an entitlement to the allotment and issue of any Share in the Company, as wholly extinguished on the first to occur of that Noteholder's receipt of any distribution from the Deed Fund or Effectuation and treating the Company as fully and finally released from all of its obligations to that Noteholder by reason of the Note. 19 The DOCA is subject to other conditions precedent, being: (1) As at 6 February 2020, there being no notice of default, breach or termination being given by any lessor of an Ongoing Premises. Mr Cook's evidence is that no such notice has been received. (2) The continued trading of the Sale Stores until the first to occur of completion of the contracts for their sale or the CP Sunset Date. (3) The Company complying with its Tax Obligations notified by Mr Cook to the Company within 30 days after 6 February 2020 as outstanding, late or otherwise delinquent. "Tax Obligations" are returns or filings and information or documents the Company is required by law to give to a revenue authority which were outstanding at 6 February 2020. That condition cannot be waived. (4) ACNCo executing the DOCA within the time required by the Corporations Act. 20 Deed Fund 1 will comprise: (1) Cash, cash at bank, cash equivalents, book debts and accounts held at 6 February 2020; (2) Such part of the Surplus Property (as defined in the DOCA) as has been realised and converted into cash or cash equivalents by Mr Cook as administrator at 6 February 2020. (3) $1,750,000 less any amount paid to or held by Mr Cook as Deed Administrator or as the Company's administrator under the indemnity deed and side letter in relation to Mr Cook's remuneration dated 25 November 2020. Deed Fund 1 must be distributed no later than 30 September 2020 (or a later date agreed between Myhalo and the Deed Administrator). 21 Deed Fund 2 will comprise: (1) That part of the Surplus Property that had, for any reason, not been realised or converted into cash, cash at bank or cash equivalents at 6 February 2020 and did not form part of Deed Fund 1. The Court understands that the Sale Stores fall into this category; and (2) The lesser of $400,000 and the amount needed (as determined by Mr Cook as Deed Administrator) to pay qualified creditors at a date after Deed Fund 1 has been distributed and before 30 September 2021 a dividend on their admitted claims of $0.20 in the dollar. Deed Fund 2 must be distributed no later than 30 September 2021 (or a later date agreed between Myhalo and the Deed Administrator). 22 Surplus Property generally relates to the tangible property, goodwill and premises at stores which are not Ongoing Stores (including the Sale Stores) and anything designated as Surplus Property by the Company and Myhalo at or after 6 February 2020, but it excludes stock, except stock which is at a Sale Store at or after 6 February 2020. 23 Mr Cook estimates (without having formed a concluded view) that the total debt to creditors is at least $67,431,302.74, broken down as follows: (1) Myhalo, the major secured creditor, with an all present and after acquired (with exceptions) security interest in the amount $27,599,415. (2) Other secured creditors, where the security claimed is not an all present and after acquired property (with or without exceptions), totalling approximately $550,000. (3) Employees: (a) If the DOCA is Effectuated, then the only outstanding employee entitlements will relate to the employees terminated during the administration period, which is estimated to be $593,420; and (b) In the case of liquidation, the total outstanding entitlements are estimated to be $2,194,113. (4) Ordinary unsecured creditors (including Noteholders), with claims totalling, approximately, $38,688,467.74. 24 Mr Cook is presently of the opinion that there are only two possible recoveries which would be available in a liquidation scenario: (1) Unfair preferences to eight creditors worth $193,210 (although he has given it an estimated recovery value of $150,000 which is the potential claim less estimated recovery costs); and (2) An insolvent trading action against the Company's directors which is, at this stage, unquantifiable and Mr Cook has been unable to form a view of the prospects of success of such a claim. 25 Under the DOCA, Deed Fund 1 will be distributed as follows: (1) Mr Cook will be paid his remuneration and disbursements incurred as the Company's administrator and as Deed Administrator; (2) Employees who are not continuing would be paid all of their entitlements; (3) $25,000 will be paid to the administrator of ACNCo or any administrator of a deed of company arrangement executed by ACNCo; (4) An aggregate amount of $100,000, will be paid to the Noteholders; (5) An aggregate amount of $100,000, will be paid to the landlords of the premises at Bondi Junction, Byron Bay, Chermside Expansion, Corinda, Crows Nest, Engadine, Gymea Extension, Lane Cove, Maroochydore Expansion, Robina Refuel, Taringa, Toowoomba, Tugun, Wynnum (referred to as the Non-Ongoing Premises); (6) In respect of unsecured creditors not mentioned above: (a) First, the lesser of $1,000 and the amount of the unsecured creditor's admitted claim; and (b) Second, the lesser of the admitted claim (minus any amount paid under (a)) and a dividend on the admitted claim that is $0.20 cents in the dollar. (7) If any money remains in Deed Fund 1, to the Company. 26 Deed Fund 2 will be distributed to the extent not already paid out of Deed Fund 1 as follows: (1) Mr Cook will be paid his remuneration and disbursements incurred as the Company's administrator and as Deed Administrator; (2) Employees who would be entitled to a priority claim; (3) Creditors of a kind referred to at [25(6)] above, up to $0.20 cents in the dollar, and any remaining moneys are to be paid to the Company.

SECTION 444F RELIEF LIMITING THE RIGHTS OF AN OWNER OR LESSOR 27 Sections 444F relevantly provides as follows: 444F Court may limit rights of secured creditor or owner or lessor (1) This section applies where: (a) at a meeting convened under section 439A, a company's creditors have resolved that the company execute a deed of company arrangement; or (b) a company has executed such a deed. … (4) The Court may order the owner or lessor of property that is used or occupied by, or is in the possession of, the company not to take possession of the property or otherwise recover it. (4A) Subsection (4) does not apply in relation to PPSA retention of title property of the company. (5) The Court may only make an order under subsection (4) if satisfied that: (a) for the owner or lessor to take possession of the property or otherwise recover it would have a material adverse effect on achieving the purposes of the deed; and (b) having regard to: (i) the terms of the deed; and (ii) the terms of the order; and (iii) any other relevant matter; the interests of the owner or lessor will be adequately protected. (6) An order under this section may be made subject to conditions. (7) An order under this section may only be made on the application of: (a) if paragraph (1)(a) applies - the administrator of the company; or (b) if paragraph (1)(b) applies - the deed's administrator. 28 Section 444F should be construed with the objects of Part 5.3A (as expressed in s 435A) in mind. Section 435A provides as follows: 435A Object of Part The object of this Part, and Schedule 2 to the extent that it relates to this Part, is to provide for the business, property and affairs of an insolvent company to be administered in a way that: (a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or (b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company. Note: Schedule 2 contains additional rules about companies under external administration. 29 Part 5.3A (of which s 444F forms part) is predicated on the assumptions that: (1) The company the subject of a deed of company arrangement is insolvent, (2) By entering into the deed of company arrangement it will maximise its chances of existence and/or the company's creditors will obtain a better return than if the company were wound up; and (3) Relevantly, the owners or lessors of premises do not consent to the loss of rights which they might have to deal with the property, see Strazdins, in the matter of DNPW Pty Ltd (subject to DOCA) ACN 107 484 711 v Birch Carrol & Coyle Limited [2009] FCA 731 at [93]-[94] and [127] (Lander J). 30 In determining whether to make an order under s 444F, the Court will have regard to factors including the Company's financial position and the effect of the grant of an order on the owner or lessor: see Re Atlantic Computer Systems [1992] Ch 505 at 543. 31 The Court is satisfied that each owner or lessor of Ongoing Premises was given notice of this application and none sought to appear at the hearing to oppose orders being made. 32 Mr Cook's evidence supports the following propositions: (1) The Company is plainly insolvent absent implementation of the DOCA. (2) The proposed order relates only to the lessors or owners of the Ongoing Premises. (3) Mr Cook is not aware of any breach of any of the leases relating to the Ongoing Premises nor has there been any breach notice served in relation to those leases. (4) During the administration, rent was paid in relation to each of the Ongoing Premises. (5) The Company is heavily reliant on goodwill which attaches to the location of each of the Ongoing Stores. Mr Cook believes that if any of the leases under which the Company occupies the Ongoing Premises were to be terminated, the viability of the DOCA would be greatly affected to the extent that it may be necessary for the Company to be wound up. (6) The proposed orders do not affect the rights of any of the lessors or owners of the Ongoing Premises with respect to any breach of a relevant lease after 6 February 2020. 33 Having regard to this evidence and the matters set out under the heading "Background", the Court is satisfied of the matters set out in ss 444F(1), (5) and (7) and that it is appropriate to make the order sought by Mr Cook under s 444F(4).

SECTION 444GA RELIEF TRANSFERRING SHARES TO MYHALO 34 Section 444GA of the Corporations Act provides as follows: 444GA Transfer of shares (1) The administrator of a deed of company arrangement may transfer shares in the company if the administrator has obtained: (a) the written consent of the owner of the shares; or (b) the leave of the Court. (2) A person is not entitled to oppose an application for leave under subsection (1) unless the person is: (a) a member of the company; or (b) a creditor of the company; or (c) any other interested person; or (d) ASIC. (3) The Court may only give leave under subsection (1) if it is satisfied that the transfer would not unfairly prejudice the interests of members of the company. 35 The Court's satisfaction that the transfer of the Shares would not unfairly prejudice the interests of members of the Company is a pre-requisite to the exercise of the Court's discretion in favour of granting leave to effect the transfer, but it does not require the Court to grant leave. Nonetheless, having regard to the fact that power to grant leave falls within the context of Part 5.3A, serving the objects of Part 5.3A may mean that, in the usual case, leave would be granted if the members would not be unfairly prejudiced: see In the matter of Nexus Energy Ltd (subject to deed of company arrangement) [2014] NSWSC 1910 (Re Nexus Energy Ltd) at [30] (Black J). 36 Relevant to the assessment of whether there would be unfair prejudice to the shareholders' interest is a comparison between the circumstances of the affected party under the proposal for transfer of shares as compared to their circumstance under a winding up: Darren Gordon Weaver, Andrew John Saker and Martin Jones in their capacity as Joint and Several Deed Administrators of Midwest Vanadium Pty Ltd v Noble Resources Ltd [2010] WASC 182; 41 WAR 301 at [76]-[77] (Martin CJ). As observed by Martin CJ at [79]-[80]: … consideration of the notion of unfairness only arises if prejudice is established. If the shares have no value, if the company has no residual value to the members and if the members would be unlikely to receive any distribution in the event of a liquidation, and if liquidation is the only alternative to the transfer proposed, then it is difficult to see how members could in those circumstances suffer any prejudice, let alone prejudice that could be described as unfair. … … a mere transfer of shares without compensation cannot of itself constitute unfair prejudice, otherwise the section's operation would be significantly constrained. So, something more would have to be established before it could [be] said that unfair prejudice to the members of the company could arise. See also: In the Matter of OrotonGroup Limited (Subject to Deed of Company Arrangement) ACN 000 038 675; Application of Strawbridge and Kanevsky [2018] NSWSC 1213 (Re Oroton Group Ltd) at [37] (White J) and the cases there cited. 37 Provision for compulsory acquisition of shares has long existed in legislation relating to companies, for instance, in schemes of arrangement and takeovers. The significance of the shareholder's proprietary rights in shares is recognised by the concept of "unfair prejudice" in s 444GA(3). The possibility of a compulsory transfer of shares under s 444GA(3), where the shares have no value, is an incident of, or qualification to, the right enjoyed by shareholders: Re Oroton Group Ltd at [38]; Re Nexus Energy Ltd at [18]. 38 There is an evidentiary onus on the shareholders to raise any consideration telling against the exercise of the discretion, but the ultimate onus of satisfying the Court that the discretion should be exercised remains on the deed administrator: Re Nexus Energy Ltd at [27]. 39 The Company's financial position at the time Mr Cook was appointed as administrator is summarised at [8] above. Mr Cook's view of the total debt owing to creditors is set out at [23] above. Following a credible sales campaign, the Best Offer achieved would not have satisfied the secured Myhalo debt, leaving no possibility that most other creditors would be satisfied to any extent. 40 The Court accepts the submission that Mr Cook's evidence establishes that, if the Company's business is assessed on either a going concern basis or on a distressed basis, the Shares have no value. If goodwill is not taken into account (as the Court accepts is appropriate in this case), there is a substantial deficiency of net assets. 41 Mr Cook's discussions with the Company's management led him to the understanding that, while the Company's shareholders contributed funding to enable various acquisitions, they were unwilling to provide the further equity required to continue trading operations and/or to restructure the business, even though proposals for that were made during the 2019 financial year. The Court therefore accepts Mr Cook's conclusion that there is not a realistic prospect that the Company will be able to raise necessary capital apart from recapitalisation in accordance with the DOCA. 42 The only realistic alternative to the DOCA is winding up. On the basis of Mr Cook's evidence, on a winding up, all classes of creditors would be worse off than under the DOCA, and in a liquidation scenario, ordinary unsecured creditors would likely receive no dividend. There is therefore, in a liquidation, no prospect that members would receive any payment in respect of their Shares. 43 Having regard to the principles, evidence and conclusions referred to above, the Court was satisfied that the grant of leave would not unfairly prejudice the interests of the shareholders of the Company and that leave should be granted.

DIRECTION WITH RESPECT TO CONVERSION RIGHTS UNDER THE NOTES 44 The interlocutory process sought orders under s 447A with respect to the rights of holders of Notes issued by the Company, but that plea was not pressed. Instead, Mr Cook sought judicial advice that the Deed Administrator and Company are justified in treating all and any Claims a Noteholder has by reason of a Note, including any Claim to an entitlement to the allotment and issue of any share in the Company, as wholly extinguished on the first to occur of that Noteholder's receipt of any distribution from the Deed Fund or Effectuation and treating the Company as fully and finally released from all of its obligations to that Noteholder by reason of the Note. 45 Sections 90-15 and 19-20 of the Insolvency Practice Schedule (Corporations) relevantly provide as follows: 90-15 Court may make orders in relation to external administration Court may make orders (1) The Court may make such orders as it thinks fit in relation to the external administration of a company. Orders on own initiative or on application (2) The Court may exercise the power under subsection (1): (a) on its own initiative, during proceedings before the Court; or (b) on application under section 90-20. (3) Without limiting subsection (1), those orders may include any one or more of the following: (a) an order determining any question arising in the external administration of the company; … (d) an order in relation to the costs of an action (including court action) taken by the external administrator of the company or another person in relation to the external administration of the company; … (7) This section does not limit the Court's powers under any other provision of this Act, or under any other law. 90-20 Application for Court order (1) Each of the following persons may apply for an order under section 90-15: … (d) an officer of the company; … (2) Paragraph (1)(d) has effect despite section 198G. Note: Section 198G deals with powers of officers etc. while a company is under external administration. … 46 Relevantly to s 90-15(1), s 5-15(b) of the Insolvency Practice Schedule (Corporations) defines when a company is taken to be in "external administration" and that includes when a deed of company arrangement has been entered into in relation to the company. Relevantly to applications for directions under s 90-15 as provided for under s 90-20(d), s 9 of the Corporations Act defines "officer" of a corporation to include an administrator of a deed of company arrangement executed by the relevant company. Accordingly, Mr Cook was entitled to make the application for directions under s 90-15 and the Court has jurisdiction in relation to that application. 47 Although its terms are unconstrained, in determining whether to make orders under s 90-15 of the Insolvency Practice Schedule (Corporations), Courts have typically taken into account factors to which the Courts usually adverted in giving directions to liquidators and administrators under powers conferred by the Corporations Act before the Insolvency Practice Schedule (Corporations) came into force: see GDK Projects Pty Ltd, in the matter of Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541 at [32]-[33] and the cases there cited. Those principles include: (1) When liquidators and administrators seek directions from the Court in relation to any decision they have made, or propose to make, or in relation to any conduct they have undertaken, or propose to undertake, they are not seeking to determine rights and liabilities arising out of particular transactions, but are rather seeking protection against claims that they have acted unreasonably or inappropriately or in breach of their duties in making the decision or undertaking the conduct. They can obtain that protection if they make full and fair disclosure of all relevant facts and circumstances to the Court: In the matter of Ansett Australia Ltd and Korda (No 3) [2002] FCA 90; (2002) 115 FCR 409 (Re Ansett) at [44] (Goldberg). (2) The Court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion but will typically not do so where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision: Re Ansett at [65]-[66]. 48 In In the matter of One.Tel Ltd [2014] NSWSC 457 at [32]-[33], Brereton J noted the following concerning the giving of judicial advice by way of directions under s 511 of the Corporations Act before its repeal upon the introduction of s 90-15 of the Insolvency Practice Schedule (Corporations) as follows: … The jurisdiction is analogous to the judicial advice jurisdiction under (NSW) Trustee Act, s 63. The effect of a direction under s 511 is to sanction a course of conduct on the part of the liquidator so that he or she may adopt that course free from the risk of personal liability for breach of duty [In the matter of Ian James Purchas as liquidator of Astarra Asset Management Pty Ltd (in liq) [2011] NSWSC 91, [36]; Re Timbercorp Limited (in liq) [2011] VSC 189, [3]; International Pty Ltd (in liquidation) (No 7) [2012] VSC 551, [88]]. … the ability of a liquidator to approach the Court for directions is intended to facilitate the liquidator's functions and should be interpreted widely to give effect to that intention [Re One-Tel Networks Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83] Having regard to the broad terms of s 90-15(1), the Court accepts that similar principles apply to the Court's determination of an application for directions by an external administrator under that provision. 49 Although the Notes were issued in two tranches, the terms relating to conversion of Notes into shares in the Company (Notes Deeds) are identical. Relevantly: (1) Clause 3.3.2 provides that the Notes are unsecured obligations of the Company and rank behind all secured creditors and equally with all unsecured creditors. (2) Clause 1 defines "End Date" as being 31 December 2021. (3) Clause 1 defines the "Maturity Date" as being the first to occur of a "Capital Raise" (being a situation where the Company raises equity by the issue of shares after the day which is five business days after the date of the relevant Notes Deed or as otherwise agreed in writing by the parties) or a "Liquidity Event" (being a listing, following an initial public offering of shares, a sale of all of the shares, or the sale of all or substantially all of the Company's assets). (4) Clause 3.9 provides that, subject to waivers of pre-emptive rights being obtained, on the Maturity Date, the Notes would be redeemed by the issue of shares in the Company in accordance with a formula set out in the Notes Deeds. If no Maturity Date occurred by the End Date, or the waivers of pre-emptive rights were not obtained by then, the Notes would be redeemed for their face value. 50 Mr Cook says that, on one argument, the existence of the redemption rights under cl 3.9 of the Notes Deeds establishing the obligations on which the Notes were issued creates the possibility that, although their claims as unsecured creditors will have been extinguished by distributions out of Deed Fund 1 and Deed Fund 2 or Effectuation occurring, Noteholders may be entitled to insist on the issue of shares in the Company. Mr Cook submitted that any ongoing obligation of the Company to issue shares to the Noteholders, and the possibility that such a right might be enforced after Myhalo has performed its obligations under the DOCA, is inconsistent with one of the assumptions that underpins Myhalo's support for the DOCA as secured creditor and deed proponent. That assumption is that, upon the earlier to occur of the payments out of Deed Fund 1, Deed Fund 2 or Effectuation of the DOCA, Myhalo will hold 100% of the issued capital of the Company. In exchange, the Noteholders will obtain $100,000 between them, a return which is greater than they would receive upon the liquidation of the Company. 51 In circumstances whereby the debts acknowledged by the Note Deeds are extinguished upon distributions being made out of Deed Fund 1 or Deed Fund 2, it is difficult to see that cl 3.9 of the Notes Deeds can have any operation since there will be no debt to convert. While the Court prefers that view, it is unnecessary to make that finding. At issue is whether a direction should be given to Mr Cook in the terms sought. 52 The Court is satisfied that it should give the direction for which Mr Cook applied because: (1) While it is the Court's view that its preferred interpretation is correct, there is an area of uncertainty so that making the direction will allow the Deed Administrator to proceed confidently in the administration of the DOCA. (2) It is a condition precedent to the DOCA that a direction of the kind described at [44] above is obtained within 90 business days after 6 February 2020 or such later date as the Deed Administrator and Myhalo agree if either of Myhalo or Mr Cook so requires. On 12 March 2020, Mr Cook received written notice from Myhalo's solicitors of the requirement to seek this relief in relation to the Notes. If the direction is not given, the likely alternative is liquidation of the Company in which it is unlikely that the Noteholders will receive any payment and all creditors will (in Mr Cook's view, which the Court accepts) be worse off. Accordingly the making of the direction will facilitate the administration of the DOCA and serve the purposes of Part 5.3A. (3) The Noteholders suffer no material prejudice by the making of the direction. As noted, on the facts presently known, they would receive nothing on the liquidation of the Company. While the terms of the direction refer to the advice being given to the Deed Administrator and the Company, in fact, the advice is given solely for Mr Cook's benefit as deed administrator under the power conferred by s 90-15 of the Insolvency Practice Schedule (Corporations). The direction does not preclude Noteholders from asserting such rights as they might have in another venue. They also have leave to approach the Court in relation to this order. (4) All Noteholders who participated at the second creditors' meeting, who appear to be all of the Noteholders, voted in favour of the resolution to approve the DOCA in circumstances where the notice of the meeting noted that it would be a condition precedent to the DOCA that relief of this kind be obtained. (5) Notice of the application to this Court was given to all Noteholders and none appeared to oppose orders being made.

CONFIDENTIALITY ORDER 53 The Court was satisfied that it was necessary to make an order under s 37AF of the Federal Court of Australia Act with respect to Mr Cook's confidential affidavit in order to prevent prejudice to the proper administration of justice. In the context of this application, it was necessary for the Court to have before it the amount of the Best Offer. The Court accepted Mr Cook's evidence given in his affidavit sworn on 18 March 2020 that disclosure of the amount of the Best Offer was necessary to protect the integrity of any future sale campaign which may be required to be undertaken if the conditions precedent to the DOCA are not satisfied and the DOCA is not Effectuated. Accordingly, the order was made for the period until the date by which Deed Fund 2 must be distributed or further order. I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.