Cronin, in the matter of Cubbie Group Limited (Subject to Deed of Company Arrangement) v Cubbie Group Limited

IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 135 of 2011

IN THE MATTER OF Cubbie Group Limited (SUBJECT TO DEED OF COMPANY ARRANGEMENT) & Ors. (LISTED IN THE Schedule attached) ACN 116 808 694

BETWEEN: JOHN PATRICK CRONIN, WILLIAM JAMES HARRIS AND COLIN MCINTOSH NICOL AS DEED ADMINISTRATORS OF CUBBIE GROUP LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 116 808 694) AND THE COMPANIES LISTED IN THE SCHEDULE

AND: CUBBIE GROUP LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 116 808 694) AND THE COMPANIES LISTED IN THE SCHEDULE

JUDGE: REEVES J DATE: 18 JULY 2011 PLACE: BRISBANE

INTRODUCTION 1 This matter came before me as an urgent application on the morning of 14 June 2011. It was an application made by the Administrators of a group of 11 companies, described as the Cubbie Group. The Administrators sought orders directed to overcoming a defect in the notices of meetings of the creditors of the 11 companies, which meetings were to be held later on the morning of 14 June 2011. Among other things, those creditors' meetings were to consider resolutions to vary the Deeds of Company Arrangement ("DOCAs") executed on 6 July 2010 so that each administration would be extended until 31 October 2011. The matter was urgent because, by their terms, the DOCAs were expressed to expire on 15 June 2011, ie on the following day. 2 Given the urgency, I made the orders sought on the understanding I would deliver detailed reasons at a later date. These comprise those reasons.

The DEFECT in the meeting notices 3 Each of the meeting notices (dated 3 June 2011) stated that the purpose of the meetings was "to consider and vote on the resolutions to vary the Companies' Deeds of Company Arrangement and to approve the remuneration of the Deed Administrators". However, none of the notices set out the terms of the resolutions proposing the variations to the DOCA which were to be voted on at the meetings. The requirement to set out the terms of such resolutions is expressed in s 445F(3)(a) of the Corporations Act 2001 (Cth) ("the Act") as follows: (3) The notice given to a creditor under subsection (2) [to convene a meeting of creditors to consider a variation of a deed of company arrangement] must: (a) set out each resolution (if any) under section 445A or paragraph 445C(b) that the deed's administrator proposes that the meeting vote on; and 4 Section 445A of the Act provides: A deed of company arrangement may be varied by a resolution passed at a meeting of the company's creditors convened under section 445F, but only if the variation is not materially different from a proposed variation set out in the notice of the meeting.

The legislative provisions that allow defects to be cured 5 Both these sections are in Pt 5.3A of the Act. That fact is important because s 447A(1) of the Act provides: The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company. 6 The Administrators relied upon this provision and the provisions of s 1322(4)(a) of the Act to overcome the defect in the meeting notices. Section 1322(4) of the Act provides: (4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; (b) an order directing the rectification of any register kept by ASIC under this Act; (c) an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a); (d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding; and may make such consequential or ancillary orders as the Court thinks fit. 7 The operation of these two provisions was considered by the High Court of Australia in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; [2000] HCA 30. In that decision, the High Court held that the power to cure defects conferred by s 447A of the Act was quite wide, but not without limits: see at [17]-[20]. While the High Court identified a number of those limits (at [21]-[32]), none of them is relevant to the present application. The High Court also held that, depending upon the circumstances, s 1322 of the Act provided an alternative source of power to cure defects to that provided in s 447A: see at [33]. From this I consider that, in the present case, where the defect involved a contravention of a provision of the Act that fell within Pt 5.3A, the Court has power to cure the defect in the notices under either, or both, sections. 8 However, there is a difference between the operation of these two provisions. That is, that s 1322(6) of the Act sets certain express pre-conditions to the making of an order under s 1322(4). In particular, for the purposes of an order under s 1322(4)(a) of the Act, those pre-conditions, set out in s 1322(6)(a), are as follows: (6) The Court must not make an order under this section unless it is satisfied: (a) in the case of an order referred to in paragraph (4)(a): (i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or (iii) that it is just and equitable that the order be made; and 9 Putting aside the first of these pre-conditions, the other two essentially identify the same kind of considerations a court would ordinarily take into account in exercising a discretion of the kind conferred by s 447A. Thus, in practical terms, there would appear to be little difference in this case in the operation of the two provisions. 10 In order to indicate why I was satisfied about these matters, it is necessary, first, to set out some of the background to this application. I have taken this from an affidavit sworn and filed by one of the Administrators, Mr John Patrick Cronin.

Factual background 11 The Cubbie Group has a number of rural land holdings at St George and Dirranbandi in south west Queensland. They total approximately 93,328 hectares. These rural land holdings have a total water storage capacity of approximately 538,800 megalitres. While the Cubbie Group has the capacity to produce crops such as wheat, sorghum, sunflower, soybeans and chickpeas, its current operations are largely dedicated to the production of cotton. 12 On 30 October 2009, Mr Cronin, Mr William James Harris and Mr Colin McIntosh Nicol were appointed joint and several voluntary administrators of the 11 companies in the Cubbie Group. Those companies are: Cubbie Group Limited (ACN 116 808 694) Cubbie Group Brisbane Pty Limited (ACN 107 458 391) Cubbie St George Pty Limited (ACN 116 498 876) Cubbie Group St George Pty Limited (ACN 116 498 867) Cubbie Dirranbandi 1 Pty Limited (ACN 116 335 490) Cubbie Dirranbandi 2 Pty Limited (ACN 116 330 673) Cubbie Dirranbandi 3 Pty Limited (ACN 116 330 708) Cubbie Station Pty Limited (ACN 009 772 150) Cubbie Group 1 Pty Limited (ACN 009 772 132) Cubbie Group 2 Pty Limited (ACN 009 772 141) Cubbie Group 3 Pty Limited (ACN 009 772 123). 13 The major secured creditor of the Cubbie Group is the National Australia Bank Limited ("NAB"). Apart from its debt and some inter-company debts, there are two other groups of creditors: 21 employees who are owed a total of $963,495 and five trade creditors who are owed a total of $9,088. 14 At the second meeting of creditors held on 15 June 2010, the creditors resolved that the 11 companies in the Cubbie Group should all execute DOCAs. As I have already noted above, those DOCAs were executed on 6 July 2010 and were due to expire on 15 June 2011. 15 One of the purposes of these DOCAs was to investigate the sale of the assets or shares of the Cubbie Group and/or to restructure it. To that end, in January 2011, the Deed Administrators obtained advice from Goldman Sachs and thereafter arranged for Goldman Sachs to conduct an international marketing campaign to identify those persons who may be interested in purchasing or restructuring the Group. A number of persons was identified and it is anticipated that binding offers will be received from some of them in July 2011. 16 In the meantime, in September and October 2010, the Deed Administrators garnered sufficient resources to plant the 2011 cotton crop of approximately 22,000 hectares. Then, fortuitously, during December 2010 and January 2011, significant rains fell in the Condamine-Balonne river system. This rainfall filled the Cubbie Group's water storage system with enough water to provide for the 2011 crop and crops in the 2012 and 2013 seasons. 17 The 2011 crop was harvested in April and May 2011. It is estimated to have returned 245,000 bales of cotton having a total approximate value of $156 million. The processing of the 2011 crop is presently estimated to continue until November 2011. In the meantime, the Deed Administrators have been able to secure finance to allow the Cubbie Group to plant the 2012 season cotton crop. That planting is due to be undertaken in September and October 2011. To carry out these activities, the Cubbie Group currently employs approximately 18 full time employees and 14 part-time and casual employees. As well, it uses approximately 16 contractors in the St George and Dirranbandi areas.

The proposed deed variations and what will happen without them 18 The purposes of the proposed variations to the DOCAs were explained in Mr Cronin's affidavit, as follows: (a) [to] allow the deed administrators to finalise the ginning of the 2011 cotton crop; (b) subject to the execution of formal documentation with NAB, [to] enable Cubbie Group to plant and harvest the 2012 cotton crop; and (c) [to] enable the deed administrators to continue the sale campaign presently being undertaken. 19 If the DOCAs are not varied and extended, Mr Cronin opined in his affidavit that the Cubbie Group may be placed in liquidation. If that happened, he postulated the following events would occur: (a) the existing facilities granted by NAB [will be] discontinued as the termination of the deeds of company arrangement will constitute an event of default under those facilities; (b) Cubbie Group [will] not [plant] a 2012 cotton crop; (c) Cubbie Group [will terminate] the employment of most (if not all) of its 32 employees; (d) Cubbie Group [will terminate] the contracts it has in place with the 16 contractors. This may lead to those contractors terminating some (or all) of their employees; (e) the sale campaign being conducted by Goldman Sachs [will be] significantly delayed whilst options [are] pursued for a potential sale of Cubbie Group's assets whilst it is in liquidation; and (f) the value of the Cubbie Group, and the amount of any return to Creditors, [will be reduced] significantly. 20 It is these outcomes that the Deed Administrators sought to avoid by this application.

Some notice of the proposed deed variations was given 21 It is also important to note that, although the notices of the meetings did not contain the terms of the proposed resolutions of the variations to the DOCA, the Deed Administrators' Report to Creditors, that was circulated with the notices of the meetings on 3 June 2011, did mention the proposed deed variations and did provide some details as to why they were being sought. For example, in the introductory paragraphs of that Report, the purpose of the Report was stated to include to: convene a meeting of creditors for 14 June 2011, to be held at the St George RSL, 108 Alfred Street, St George, Qld, to consider: - an extension to the DOCAs which expire on 15 June 2011; … 22 Further, in Section 1 of that Report, the purpose of the extension to the DOCAs was stated as: "to allow sale and operational efforts to continue and to avoid a winding up scenario". 23 Finally, in Section 4 of that Report, under the heading "Extension to DOCAs", the following appears: As discussed in Section 1, the Holding DOCAs executed by Cubbie Group on 6 July 2010 expire on 15 June 2011. In the absence of a resolution by creditors to extend the DOCA, the expiry of the DOCAs would result in Cubbie Group being wound up. The Deed Administrators consider that it would be Creditors' interest to resolve to vary the terms of the DOCAs by extending the expiry date of the DOCAs to 31 October 2012. Extension of the DOCAs would facilitate: + continuation of the Deed Administrators' sale process; and + a full crop in 2012 being undertaken. 24 Furthermore, on 10 June 2011, when he first became aware of the defects in the notices of meetings, Mr Cronin arranged to send out an amended notice of the meetings which accorded with the requirements of ss 445F and 445A of the Act. The amended notice stated, among other things, that: The purpose of each meeting is to consider and vote on the following resolutions: (a) That, subject to the creditors of each of the Companies resolving in similar terms to this resolution, the Deeds of Company Arrangement executed by the Company on 6 July 2010 be varied by, in the definition of 'Termination Date', deleting '15 June 2011' and inserting in its place '31 October 2012'. This amended notice was sent by email to, among others, Mr John Stenzel, an attorney acting on behalf of the National Australia Bank Limited; Mr Paul Brimblecombe, a creditor and the managing director of the Cubbie Group; and Ms Kirsten Murphy and Mr Brent Brimblecombe, who separately represented various of the employee creditors of member companies of the Cubbie Group. 25 Furthermore, steps were taken to email the amended notice of the meetings to various creditors, in addition to those mentioned above, including Mr Richard Lancaster, Mr John Grabbe, Ms Leisa McGahan, Mr John Lowe, Mr Simon Graham, Mr Trevor Bass and Mr Rick Willment. Finally, Mr Brimblecombe also arranged to place a copy of the amended notice of the meetings on the employee notice board located at the office complex operated by the Cubbie Group at St George, where it could reasonably be expected to come to the attention of employees working on 13 June 2011. 26 Notwithstanding all these attempts to bring the amended notice to the attention of the creditors of the Cubbie Group, it has to be noted that 13 June 2011 was a public holiday in Queensland and, even if it was received, the amended notice would have provided less than a day's notice of the meetings which were to be held on the morning of 14 June 2011.

Just and equitable to cure the defects 27 In all the circumstances outlined above, particularly the drastic effect that the inability to vary and extend the DOCAs beyond 15 June 2011 was likely to have on the Cubbie Group and its employees and creditors, I was satisfied it was appropriate to exercise my discretion to make an order under s 447A(1) and/or s 1322(4)(a) of the Act, to overcome the defect in the notices of the meetings identified above: see at [3]. In other words, in the terms of s 1322(6)(a)(iii), I considered "it [was] just and equitable" for that order to be made. If it were necessary to do so, I would also have had no hesitation in finding that, in all the circumstances, the Deed Administrators acted honestly in the terms of s 1322(6)(a)(ii) of the Act.

Conditions included in the orders 28 However, out of an abundance of caution, I did include two conditions in the orders I made. First, I required the Deed Administrators to give notice to all of the creditors of the Cubbie Group of the details of the orders I had made and to draw their attention to their rights under s 445B(1) of the Act. That section provides: (1) Where a deed of company arrangement is varied under section 445A, a creditor of the company may apply to the Court for an order cancelling the variation. 29 Secondly, I also required the Deed Administrators to give notice to all the creditors that they had sought an order to have the costs of this application paid out of the Deed Administration and if any of them wished to object to such an order, they should file an application to that effect by close of business on 1 July 2011. If there were no objections to that order by that date, I made a contingent order for costs in the terms sought by the Deed Administrators. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Reeves.