MATTER : Section 444GA of the Corporations Act 2001 (Cth)

BETWEEN : DARREN GORDON WEAVER, ANDREW JOHN SAKER and MARTIN JONES in their capacity as Joint and Several Deed Administrators of MIDWEST VANADIUM PTY LTD

Corporations - Voluntary administration - Application to court by administrators under Corporations Act 2001 (Cth), s 444GA for leave to transfer shares - Whether unfair prejudice suffered to interests of members of the company by transfer

Companies (Acquisition of shares) (Victoria) Code

Corporations Act 2001 (Cth), s 435A, s 436C, s 444GA, s 444GA(3), s 445D

Corporations Amendment (Insolvency) Act 2007 (Cth)

Leave granted to plaintiff to transfer all of the defendant's shares

Cresvale Far East Ltd (in liquidation) v Cresvale Securities (subject to DCA) [2001] NSWSC 89; (2001) 37 ACSR 394

Fleet Broadband Holdings Pty Ltd v Paradox Digital Pty Ltd [2005] WASC 261; (2005) 228 ALR 598

Gjergja v Cooper [1987] VicRp 15; [1987] VR 167

Lam Soon Australia (administrators appointed) v Molit (No 55) Pty Ltd (1996) 70 FCR 34

Lehman Brothers Holdings Inc v City of Swan & Ors [2010] HCA 11; (2010) 265 ALR 1

Mulvaney v Wintulich (Unreported, FCA, O'Loughlin J, SG 3184, 29 September 1995)

MARTIN CJ: (This judgment was delivered extemporaneously on 18 May 2010 and has been edited from the transcript.)

1 This is an application by Darren Gordon Weaver, Andrew John Saker and Martin Jones in their capacities as joint and several administrators of a deed of company arrangement relating to Midwest Vanadium Pty Ltd (receivers and managers appointed) (MVPL) for leave under s 444GA of the Corporations Act 2001 (Cth) (the Act) to transfer the shares of that company.

2 Section 444GA provides that the administrator of a deed of company arrangement may transfer shares in a company if the administrator has obtained either the written consent of the owner of the shares or the leave of the court.

3 The deed administrators apply for leave to transfer 9999 shares held by Noble Resources Ltd (Noble) in MVPL, the defendant in these proceedings, to Mineral Resources Ltd (MRL) and Atlantic Ltd. I will refer to these two companies collectively as 'the Consortium'. Noble has its registered place of business in Hong Kong.

4 Earlier in these proceedings the deed administrators applied for and were granted leave to serve notice of this application on Noble outside the jurisdiction. I am satisfied by the affidavit evidence that has been received that service has been effected within the time specified by the court. It is also clear from inquiries that have been made, and by statements from the bar table, that Noble has not filed a memorandum of appearance and does not respond to these proceedings. To that extent, the application of the deed administrators is unopposed.

5 On 18 February 2009, Martin Madden and Brian McMaster were appointed joint and several receivers and managers of MVPL. On the same date the deed administrators were appointed by the secured creditors of MVPL as joint and several administrators of MVPL pursuant to s 436C of the Act.

6 In support of their application for leave to transfer the shares the deed administrators have provided the affidavit of Mr Darren Weaver. He is one of the deed administrators and has been authorised by his co-administrators to swear an affidavit on their behalf. Mr Brian McMaster in his capacity as joint and several receiver and manager of MVPL has been given leave to appear in this proceeding and has also provided an affidavit in support of the application for leave to transfer the shares. Mr McMaster has been authorised by Mr Madden to swear his affidavit on behalf of them both in their capacity as joint and several receivers and managers of MVPL. Those affidavits have been received in evidence together with a further affidavit of Mr Weaver and they are the only substantive evidence before me in the matter. I have also had the benefit of submissions provided by each of the deed administrators and the receivers.

7 It is appropriate to first set out the background to this matter. MVPL's primary asset is a vanadium mine at Windimurra in Western Australia. The mine is located 550 kilometres north-east of Perth and 85 kilometres south-east of Mount Magnet. Construction of the vanadium mine commenced in 1998 following more than a decade of research and development. The mine was officially opened in May 2000. It was expected to remain in operation for 30 years.

8 The State of Western Australia invested more than $30 million to provide infrastructure to support the mine and the Shire of Mount Magnet also committed significant funds to enhance local infrastructure for the mine. Precious Metals Australia Ltd was principally responsible for the mine's development after pegging the Windimurra site in 1985.

9 Precious Metals Australia relinquished its controlling interest to a Swiss-based company, Xstrata PLC, in 1997 and Xstrata acquired full management of the project after the mine opened in 2000. The mine was permanently closed in May 2004 with Xstrata claiming that cumulative problems as well as external pricing pressures rendered the mine uneconomic.

10 In or around September 2003 Xstrata had entered into an agreement with Fabcon Constructions Pty Ltd to purchase and dispose of the mine's assets and, by August 2004, a significant proportion of the equipment on site had been dismantled and removed. There was a report into the mine conducted by a committee of the legislative assembly which reported that partial dismantling of the mine site lessened its overall attractiveness to potential buyers by adding the cost of reinstalling the removed parts to the nominated purchase price of the mine, thus creating a new start-up price that was very high and potentially uneconomic.

11 That committee also found that Xstrata was unlikely to attract serious bids for the sale of the mine once the infrastructure was partially disassembled. However, in 2005 MVPL acquired sole ownership of the mine and the then existing facilities and commenced the process of redeveloping the mine.

12 In mid to late 2006 Noble entered into a series of agreements with the company Windimurra Vanadium Limited (Windimurra) which at that time owned 100% of the shares in MVPL and MVPL itself. Those agreements included, first, a sales and marketing agreement pursuant to which Noble was obliged to buy vanadium at a price equal to at least the unit cost of production for the first seven years of production and to market the product worldwide; second, a heads of agreement which set out the terms and conditions on which Windimurra was prepared to issue a convertible note to Noble and MVPL was prepared to grant options to Noble to subscribe for shares in MVPL and, third, a shareholders agreement which governed the relationship between Windimurra and Noble in respect of their shareholding in MVPL.

13 Pursuant to the shareholders agreement on 3 November 2006, Mr Leiman was appointed as a non-executive director to each of Windimurra and MVPL. Mr Leiman was also the chief executive officer of Noble and a member of Noble's board of directors. In the second half of 2007 the board of Windimurra approved plans for the redevelopment of the vanadium mine including the construction of a crushing and beneficiation plant and vanadium refinery at an estimated overall cost of $A272 million.

14 To that end, in October 2007 Windimurra entered into a build, own, operate and transfer agreement with MRL, for the construction and operation of a crushing and beneficiation plant, and in December 2007 an engineering procurement and construction management contract was entered into with Proteus Consultants Pty Ltd for the construction of a vanadium refinery. Construction of the crushing and beneficiation plant commenced in November 2007 while construction of the vanadium refinery was delayed until March 2008.

15 In January 2008 Windimurra entered into a debt-financing arrangement in an amount of $US127.5 million with a banking syndicate led by Merrill Lynch to assist it with construction of the beneficiation plant and refinery. In the first quarter of 2008, Windimurra raised a further $54.8 million through equity-raising. In addition, in January 2008 Noble agreed to provide a loan to MVPL. Noble's commitment under the loan agreement was for $A9.5 million and was fully drawn at the time of entering into that agreement.

16 In the first half of 2008 MVPL experienced a series of cost overruns as a result of both rising steel prices and an underestimation of the scope of the redevelopment required. In about September 2008 MVPL identified that further funds initially estimated at an amount of $A51 million, but subsequently revised to $A81 million, would be required to complete construction of the mine and to meet the working capital requirements during the mine's ramp up to operational status.

17 From October 2008 Windimurra and MVPL explored various options with various financial institutions and advisers for the purpose of raising additional debt-funding and/or capital. However, as a result of poor market conditions, Windimurra and MVPL were ultimately unsuccessful and, in December 2008, Windimurra commenced negotiations with key stakeholders, including Noble, for the provision of the funding to enable the project to continue.

18 At that time Windimurra also called on Noble to pay the face value of the convertible note, to which I have already referred, which was some $A8.2 million. That amount was fully paid by Noble. In addition, MVPL increased the estimated overall cost for the redevelopment of the mine by a further $116 million to a total of $A388 million.

19 During January 2009 Noble sought amendments to the off-take agreement with MVPL and, specifically, the removal of the floor price guaranteed during ramp up and the expansion of the definition of 'operating costs' to also include funding costs.

20 By mid-February 2009 the negotiations between the key stakeholders broke down. One of the reasons for that breakdown appears to have been Noble's demands for amendments to the off-take agreement. In the result Windimurra and MVPL were unable to secure a firm commitment to the funding required to enable the project to proceed.

21 Mr Leiman of Noble resigned from the board of Windimurra on 13 February 2009 and from the board of MVPL on 17 February 2009. On 18 February 2009, following the appointment of receivers and managers to each of Windimurra and MVPL, both were placed into administration.

22 It is also the fact that construction of the crushing component of the crushing and beneficiation plant, which is owned by MRL, is complete including dry and wet commissioning. Construction of the beneficiation component of the crushing and beneficiation plant is incomplete in that only about 10% of the wet commissioning part of the plant and 70% of the dry commissioning part of the plant is complete. Construction of the vanadium refinery is incomplete in that considerable work needs to be undertaken on: the roasting, leaching and desilication areas; the ammonium metavanadate production; the flash drying and V203 production areas; the ferrovanadium production and the plant services.

23 It is estimated that it will take a further $A60-$A70 million, after allowing for the use of existing cash reserves, to complete the construction and commissioning of the project including ramp up. It is further estimated that that process would take at least nine months.

24 As I have mentioned, in February 2009 each of Windimurra and MVPL were put into receivership and managership and into administration and a meeting of creditors was held.

25 In February 2010 a second meeting of MVPL's creditors was held. At this meeting the creditors resolved that MVPL execute a deed of company arrangement. Each of the deed administrators were appointed the administrators of that deed and the deed of company arrangement was duly executed on 24 February 2010. That deed was essentially a holding deed which allowed more time to undertake negotiations with a view to finalising transaction documentation with a third party for the recapitalisation of MVPL. I will refer in due course to those negotiations.

26 On 9 April 2010 Mr Weaver issued a circular to the creditors which advised that a further meeting of creditors had been scheduled for 20 April 2010 to again consider the future of MVPL. He attached a report to creditors which detailed a proposal to vary the deed of company arrangement. The proposal included a condition that 100% of the shareholding be transferred to the Consortium on or before 30 May 2010.

27 The register of members of MVPL shows that MVPL has two shareholders - Windimurra and Noble. Windimurra holds 90,001 shares, which is of course 90.001%. Noble holds 9999 shares, which is 9.999%. On 20 April a meeting of creditors was duly convened and the creditors resolved by a significant majority that MVPL vary the deed of company arrangement as proposed in the circular. That resolution had the effect of enabling the recapitalisation proposal which was put to the meeting to proceed.

28 As I have mentioned, the receivers had undertaken a process of negotiation for the recapitalisation of MVPL. It is necessary I think to set out the background to those negotiations.

Attempts to recapitalise or sell MVPL's assets

29 In May 2009 the receivers engaged Macquarie Capital Advisers Ltd (Macquarie) to commence a formal process of recapitalisation or sale of the shares and/or the assets of MVPL. Between May 2009 and June 2009 the receivers and Macquarie contacted Noble on numerous occasions and were notified by Noble that they wished to be kept informed but they were not prepared to participate in negotiations for either recapitalisation or acquisition of MVPL's assets at that time.

30 There was an extensive campaign of advertising and promotion of the sale of the interest of MVPL which resulted in the receipt of proposals from a number of parties. Noble was not one of those parties.

31 On 22 July 2009 a representative of Macquarie spoke to a representative of Noble and informed him that offers had been received and that the receivers would need to make a decision to move forward to a preferred bidder. During that conversation the representative of Macquarie foreshadowed that the proposal which appeared to offer lenders the highest return did not envisage a continuing role for Noble and that this was the last opportunity for Noble to participate before the receivers selected a preferred bidder.

32 Noble indicated in response to this that it might be prepared to provide funding, but no particular proposal was outlined and no interest in any further involvement was indicated in any specific form at that point. The receivers then engaged in a competitive sales process with two competing bidders. One bidder was proposing a recapitalisation of MVPL and another was proposing an outright purchase of the shares and/or assets of MVPL.

33 On 10 September 2009 a telephone conference took place between Mr McMaster of the receivers, the solicitors for the receivers and representatives of Noble and Macquarie. Mr McMaster indicated that any bid would likely be conditional upon the acquisition of 100% of the shares in MVPL and asked the representative of Noble whether Noble would consent to the termination of the off-take agreement and the transfer of Noble's shareholding to the successful bidder. Noble indicated that they would need to discuss those matters with their solicitors before providing a response.

34 In the result the party pursuing a transaction for the outright acquisition of the shares and/or assets of MVPL formally withdrew from the process of negotiation in September 2009. The other party interested in a possible recapitalisation engaged in a lengthy period of discussion with the receivers and submitted an amended offer but withdrew that amended offer in October 2009.

35 No other party who had been attracted in response to the campaign conducted by the receivers in conjunction with Macquarie was prepared to advance an offer to acquire the MVPL assets or otherwise commit to a recapitalisation of MVPL. I am satisfied from the evidence that all reasonable efforts were made to secure interested bidders either to acquire the assets or to undertake a recapitalisation of MVPL.

36 Following the withdrawal of each of the offers from the two remaining bidders, in an attempt to avoid liquidation of MVPL the receivers engaged with MRL. As I have mentioned, MRL own the crushing and beneficiation plant which is situated on the MVPL tenement.

37 The receivers inquired whether MRL would be interested in acquiring or recapitalising MVPL. In response to that inquiry on 20 November 2009 MRL submitted an offer on behalf of the Consortium for the recapitalisation of MVPL

38 One of the key elements of the offer made on behalf of the Consortium was the restructuring of the existing equity in MVPL so that the Consortium could acquire 100% of the shares in MVPL either by consent of the shareholders or by the leave of the court pursuant to s 444GA of the Act. That proposal and its condition have now been approved by the creditors as a result of the meeting that took place in April.

39 On 24 November 2009 the receivers informed MRL that the offer submitted on behalf of the Consortium was acceptable to the secured creditors who had appointed the receivers.

40 As I have already indicated, the evidence establishes to my satisfaction that the receivers undertook a comprehensive process intended to either achieve a sale of the assets of MVPL or a recapitalisation. At the completion of that process the only offer that had materialised which was capable of acceptance was that provided on behalf of the Consortium by MRL.

Consequences of the Consortium's recapitalisation proposal and of the liquidation compared

41 It is important, I think, to identify the consequences that would flow in the event that the MRL recapitalisation proposal did not proceed.

42 The deed administrators through Mr Weaver have deposed that if Noble's shares in MVPL are not transferred the varied deed of company arrangement will fail, the recapitalisation will not proceed, and MVPL will inevitably be put into liquidation. The recapitalisation proposal will not repay the secured debt nor the unsecured debt in full and there will in fact be a shortfall of approximately $A49.8 million to secured creditors and $292 million to unsecured creditors.

43 The deed administrators have further pointed out that if recapitalisation does not proceed and MVPL is wound up, the return to creditors will be less than under the recapitalisation proposal in that there will be a shortfall of approximately $107.2 million to secured creditors and $292 million to unsecured creditors. On the basis of those figures it is clear that the deed administrators' estimate that the debts of MVPL exceed its realisable assets by an amount in the vicinity of $400 million.

44 The views of the deed administrators as to the outcomes for each class of unsecured creditors as compared to recapitalisation and liquidation were expressed in the report which they provided to the creditors prior to their meeting in April. That report advised the creditors that, for employees, the monetary returns would appear to be the same under both scenarios, (that is recapitalisation and liquidation) but it is likely that distributions would be quicker under recapitalisation. The deed administrators estimated that in both cases that class of creditors would receive 100 cents in the dollar.

45 The deed administrators estimated that under the recapitalisation proposal, unsecured creditors with claims less than $5,000 would receive a substantially higher return than that which would be available in liquidation. The deed administrators anticipate that that class of creditor would receive 67 cents in the dollar under recapitalisation and nothing under liquidation.

46 For unsecured creditors with claims greater than $5,000 the deed administrators estimated that recapitalisation would not provide a greater return than liquidation. The deed administrators anticipate that in both cases unsecured creditors would receive nothing. Noble, in addition to being a shareholder, was also an unsecured creditor with a claim significantly greater than $5,000 and also, of course, claims to be a party to the off-take agreement.

47 Mr Weaver deposes, and I accept, that there is no prospect of any return to shareholders in the event of a liquidation. The recapitalisation will provide greater returns to creditors in liquidation but will still fall far short of repaying all debts. As he points out, if placed into liquidation, even less of MVPL's existing debt will be repaid.

48 MVPL has existing secured debt of about $A140 million and unsecured debt of around $A292 million. Mr Weaver has been informed by the receivers, and he believes, that it will take between $A60 million and $A70 million of investment to complete the project. He deposes that in order for shareholders to receive any distribution upon liquidation, the assets of MVPL would need to exceed $430 million. The attempted sales process undertaken by the receivers set out above, indicates that the assets of MVPL are worth very much less than that amount.

Consent of shareholders to transfer the shares

49 By letter dated 20 April 2010, the receiver of Windimurra confirmed to the deed administrators that Windimurra consented to the transfer of its shares in MVPL. As a result, that consent empowers the transfer of Windimurra's shares under s 444GA and so the court is not called upon to make an order in respect of these shares.

50 In relation to Noble, the evidence establishes that the receivers wrote to Noble on 16 December 2009 requesting that it grant its consent to the transfer of its 9.999% shareholding in MVPL to the consortium. In that letter the receivers offered to pay the reasonable legal and other costs incurred up to a maximum amount of $10,000 in order to give effect to the transfer if Noble consented. A further letter was sent to Noble on 11 January 2010 requesting a statement of Noble's position. No response was received to either of those two letters.

51 On 15 March 2010 Mr McMaster spoke to representatives of Noble and stated that the receivers had entered into an agreement with the Consortium which required an application to the court to transfer Noble's shareholding if Noble refused to consent. The representatives of Noble indicated to Mr McMaster that Noble had an interest in remaining involved in the project as an equity holder. Mr McMaster responded that Noble would have to discuss that with the Consortium and offered to arrange a telephone conversation between a representative of the Consortium and Noble. That offer was accepted and the conversation did occur. However, it does not seem to have resulted in any continuing agreement.

52 On 12 April 2010 Mr McMaster wrote to the deed administrators requesting them to transfer all shares in MVPL to the consortium pursuant to s 444GA of the Act. The deed administrators then sent a letter to Noble dated 13 April 2010 requesting that Noble advise whether they consented to the transfer. That letter further advised that if consent was not provided, the deed administrators would, immediately following the meeting of creditors, make an application to the court pursuant to s 444GA of the Act and seek the leave of the court to transfer the shares.

53 On 19 April 2010 the deed administrators received a letter from Noble advising that they did not consent to a transfer of the shares which they held in MVPL. In that letter Noble stated that, as a creditor holding a debt exceeding $5,000 and a shareholder, they were not expecting to receive any distribution under the MRL offer and they did not understand the justification for what they asserted was the unfairly discriminatory nature of the proposal.

Noble does not presently understand the law upon which you intend to rely to confiscate its interest in MVPL. You assert there to be a negative debt/asset residual value in MVPL at this point of time in the life of the project, though the recapitalisation plan itself is evidence of an inferred value of shares at some value above nil. Put another way, if the shares had no value, the Consortium would not be seeking, as a term of the transfer, the compulsory confiscation of Noble's shares in the company.

55 I will return later to address those assertions.

56 Noble's letter also drew attention to the off-take agreement which they considered to be still on foot and also raised concerns about the capacity of the Consortium to meet the financial requirements of the recapitalisation. The deed administrators responded to Noble by a letter dated 27 April stating that, in their view, the varied deed of company arrangement operated for the benefit of the company and its creditors and the recapitalisation plan did not infer any value to the existing shares and therefore that there was no prejudice to the members of MVPL in transferring the shares which they held to the Consortium. The deed administrators also asserted that the off-take agreement had been terminated. There appears to be an issue between the deed administrators and Noble in that regard, but that is not an issue which I need to concern myself with or determine for reasons which I will explain.

57 Noble wrote again to the deed administrators on 30 April 2010 confirming that they had been informed by the solicitors for the administrators that an application had been made under s 444GA of the Act. The deed administrators responded on 4 May 2010 proposing a telephone conference between all parties, including the receivers. I am told from the bar table that there have been communications between the parties but, so far as the evidence before the court goes, the correspondence to which I have referred is the final detailed evidence of communications between the parties.

Section 444GA of the Act

58 I turn now to consider s 444GA of the Act. That section, which was inserted into the Act by the Corporations Amendment (Insolvency) Act 2007 (Cth), came into effect on 31 December 2007. As already noted, the section provides that the administrator of a deed of company arrangement may transfer shares in the company if the administrator has obtained either the written consent of the owner of the shares or the leave of the court. A member of the company, a creditor of the company, any other interested person, or the Australian Securities and Investments Commission may oppose an application for leave.

59 Section 444GA(3) provides that the court can only grant leave if it is satisfied that 'the transfer would not unfairly prejudice the interests of members of the company'. The section itself gives no other guidance as to the considerations properly taken into account by the court when determining whether or not leave should be granted. It should also be noted that, pursuant to s 445D of the Act, an application may be made by a creditor of the company, the company itself, the Australian Securities and Investments Commission or any other interested person for termination of a deed of company arrangement.

60 The second reading speech given in relation to the Corporations Amendment (Insolvency) Act does not of itself shed a great deal of light on the legislative purpose behind s 444GA. However, the second reading speech does refer to one of the aims of the Bill as being to fine tune voluntary administration procedures by implementing what are described in the second reading speech as 'CAMAC recommendations'. CAMAC is a reference to the legal committee of the Companies and Securities Advisory Committee and the recommendations referred to are contained in a report which that committee published in June 1998. I will return a little later to these recommendations.

61 The second reading speech goes on to state that administrators will be able to consent to the transfer of shares held in a company under administration if they are satisfied that 'it is in the best interests of the company as a whole', although I note that that particular terminology does not find expression in the section itself.

62 Paragraph 7.53 of the explanatory memorandum which was issued in relation to the Corporations Amendment (Insolvency) Bill notes that prior to the introduction of the Bill there was an unresolved question as to whether the current law gave power to a deed administrator to sell existing shares in the company without the consent of the holders of those shares.

63 It also noted that in cases where courts had considered the matter, it had been held that a deed administrator had no power to sell without the members' consent and reference was made to Mulvaney v Wintulich (Unreported, FCA, O'Loughlin J, SG 3184, 29 September 1995) and also to Cresvale Far East Ltd (in liquidation) v Cresvale Securities (subject to DCA) [2001] NSWSC 89; (2001) 37 ACSR 394.

64 The explanatory memorandum further notes that such a sale power may be beneficial as it might be essential to the success of a deed of a company arrangement that a share sale proceeds; for example, if a deed of company arrangement is based on an investor acquiring all of the shares in a company, as is the case in these proceedings.

65 It is clear then that s 444GA was introduced to give the deed administrator power to transfer shares in a company with either the consent of the members or with leave of the court in the absence of consent. The explanatory memorandum notes that this is consistent with recommendation 42 made in the CAMAC report to which I have already referred.

66 That report considered the issue of whether the law should grant the deed administrator the ability to compulsorily sell company shares in circumstances where:

The share sale is for the purpose of implementing a deed of company arrangement which has been accepted by the creditors and [the] creditors will not receive full payment of their debts unless the shares are sold ... [6.73]

67 The report considered that such a power may allow an administrator to 'clear up' the balance sheet of a company and thereby enable trading in its shares to resume, but also recognised the possibility that giving deed administrators that power could be abused by 'opportunistic creditors who acquire those shares, especially as the test of insolvency is based on cash flow, rather than total assets and liabilities'.

68 What I take that passage to mean is to identify the fact that a company might be insolvent because of a present incapacity to meet its debts as and when they fall due but, nevertheless, have a surplus of assets over liabilities. That would result in the members of that company, and its shareholders, retaining some residual equity and possibly receiving a distribution in the event of liquidation.

69 In order to prevent abuse in such a circumstance, the CAMAC report proposed at par 682 that the deed administrator should only have the power to sell shares either with the consent of the members or in the absence of that consent, with the leave of the court. The explanatory memorandum picks up the sentiments of the CAMAC report, notes the potential for such abuse, and states that the condition imposed by s 444GA(3), that is, that the court can only grant leave if it is satisfied the sale would not unfairly prejudice the interests of shareholders, 'is intended to direct the court to consider the impact of the compulsory sale of shares where there may be some residual value in the company'.

70 I take that to embody the sentiments expressed in the CAMAC report, namely, that the possibility of prejudice to a shareholder would arise if there was some residual equity in the company. If there was no residual equity or value in the company, it is difficult to see how shareholders could be prejudiced either unfairly or fairly.

71 The CAMAC report also notes that two submissions were received which suggested that deed administrators should have the power to compulsorily transfer shares to another, where the deed of company arrangement would not result in any return to the shareholders. However, the committee did not accept those propositions and reaffirmed its view that administrators should have to obtain either the shareholders' consent or the leave of the court, even if the shares had no value. The committee did, however, state in its report that an administrator in a court application could point to the fact that the shares have no residual value as a justification for their compulsory transfer.

Would the transfer of shares unfairly prejudice members?

72 Because of the requirements of s 444GA(3) it is necessary now to address the question of whether the transfer would unfairly prejudice the interests of members of the company. That, of course, is a precondition to the grant of the relief which the deed administrators seek.

73 It is noteworthy that the interests that are required to be taken into account are those of the members generally, not just the member whose shares it is desired to transfer. In that regard it is of some significance that Windimurra, the only other shareholder in MVPL, has indicated its consent to the transfer of the shares to the consortium.

74 The meaning of the phrase 'unfairly prejudice the interests of members of the company' is not defined by the Act, nor does the Act give any guidance to the particular interests of members which should be addressed by the court but it is clear from the language of the section as a whole, and of s 444GA(3) specifically, that it is the interests of members in their capacity as members, rather than creditors, to which the section is directed.

75 The expression 'unfairly prejudicial' has been considered in other contexts and, in particular, in the context of s 445D of the Act. In Lam Soon Australia (administrators appointed) v Molit (No 55) Pty Ltd (1996) 70 FCR 34, 48, the Full Court of the Federal Court expressed the view that in determining whether a deed is unfairly prejudicial or unfairly discriminates against a group of creditors, consideration should be given to what they would receive on a winding up. The court stated:

In circumstances where a deed of company arrangement involves the closure of part of a business and the continuation of another part, and a consequent discrimination between groups of creditors, it may be expected that the creditors whose connection is with the continuing business will receive, if not all that they are owed, then at least more than they would receive in a winding up. The alternative to a deed being liquidation, it is likely that the creditors whose connection is solely with the business to be closed will justifiably claim to be unfairly discriminated against, or unfairly prejudiced, if the scheme gives them less than they would have in a winding up. But if the continuing creditors are to be paid more than they would have in a winding up, it is likely that funding from some external source - perhaps, as here, a parent with adequate resources - will be required in order to enable the others to be dealt with in a way that does not involve unfair prejudice or discrimination. [48]

76 The point I draw from that passage is that one point of comparison, relevant to the assessment of whether there would be unfair prejudice, is between the circumstances of the affected party under the proposal for transfer of shares as compared to their circumstance under a winding up. More recently, again in the context of s 445D of the Act, Master Newnes (as his Honour then was) stated in Fleet Broadband Holdings Pty Ltd v Paradox Digital Pty Ltd [2005] WASC 261; (2005) 228 ALR 598:

In considering whether a deed is oppressive or unfairly prejudicial or discriminatory under s 445D(1)(f), it is necessary to consider the effect of the deed against the background of the general principles underlying Pt 5.3A, which establish the basic right of a creditor to be paid or to wind a company up, or to have the company administered by the administrator in a way that keeps the company's business going and will see the creditor paid something out of the property of the company. If a deed departs from that, a creditor is more easily able to say that it is operating oppressively: Sydney Land Corporation Pty Ltd v Kalon Pty Ltd (supra) at 99.

Where s 445D(1)(f)(i) is relied upon, the Court looks at the whole of the effect of the DOCA and assesses its unfairness, if any, to the plaintiff creditor bearing in mind the scheme of Pt 5.3A, the interests of the other creditors, the company and the public generally: Sydney Land Corporation Pty Ltd v Kalon Pty Ltd (supra) at 98. In order to consider questions of fairness it is necessary to look at the whole of the circumstances and see if there is overall unfairness: Hagenvale Pty Ltd v Depela Pty Ltd & Serrada Holdings Pty Ltd (1995) 17 ACSR 139 at 151; Deputy Commissioner of Taxation v Portinex Pty Ltd [2000] NSWSC 99; (2000) 156 FLR 453. The criteria that guide the Court are fairness and practicality of the scheme as a whole: Re Bartlett Researched Securities Pty Ltd (1994) 12 ACSR 707 at 710. [59] - [60]

77 It seems to me that, with respect, a similar approach is properly taken in relation to the notion of unfair prejudice under s 444GA.

78 The expression 'unfairly prejudicial' was also considered in the case of Gjergja v Cooper [1987] VicRp 15; [1987] VR 167 in the context of the Companies (Acquisition of shares) (Victoria) Code. McGarvie J stated in that case:

The word 'prejudice' is used in the sense of disadvantage. I consider the adjective 'unfairly' conveys that an order which prejudices a person is only to be made if upon taking into account the various circumstances and considerations which is proper to consider in the exercise of discretion, the order is regarded by the Court as providing the fair and just solution. Usually the exercise of a discretion prejudices someone. The governing consideration in the exercise of a discretion is what the justice of the case requires. In other words, the order to be made is that which the judge regards as the fairest order, having regard to the various interests to be reconciled and the considerations relevant to the exercise of the discretion. [173]

79 It seems to me that those observations are of some pertinence to this case because they elucidate the point that 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. As Master Newnes identified in Fleet Broadband Holdings, it is also important to note s 435A which sets out the objects of Pt 5.3A of the Act, of which s 444GA forms part. That section provides:

The object of this part is to provide for the business property and affairs in 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.

80 Before moving on to the circumstances of this case I would also observe that 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 said that unfair prejudice to the members of the company could arise.

81 In this particular case the evidence to which I have referred establishes that MVPL has no residual value. The claims of the secured creditors alone very substantially succeed the realisable assets of MVPL on any scenario. If the recapitalisation of MVPL fails, the value of the members' equity position will be negative. The shares in the company can only be restored to value if the recapitalisation proceeds, but that can only proceed if those who are to invest the capital acquire all the share of MVPL.

82 It is significant that the recapitalisation does not discriminate between members. Rather, it is a condition that all shares be transferred to the Consortium. The transfer of shares is a precondition to the recapitalisation. The recapitulisation will maximise the chances of the company continuing in existence and, if it occurs, would result in a better outcome for creditors. Also, it is clear that there is no unfair prejudice to Windimurra which consents to the transfer.

83 I will now return to address the issues raised by Noble in their letter of 19 April. Noble questioned in its letter whether the value of the shares was negative, arguing that if the shares had no value the Consortium would not be seeking, as a term of the transfer, the compulsory confiscation of Noble's shares in the company. However, that conclusion does not follow as a matter of logic or commercial practice.

84 The recapitalisation, in order to be undertaken, would require the provision of a benefit to flow to the investor who takes the risk involved in injecting further capital into a project that has already revealed the risks of such a course. It would be extremely unlikely for an investor to take that risk on the basis that existing shareholders (whose risks of ownership and investment have already materialised and resulted in the loss of all value) could receive some free-carried benefit from further investment in which they take no risk.

85 Further, as I have already stated, all the evidence before me indicates that the shares in MVPL have no value and there is no credible contention to the contrary.

86 The other points raised in the letter of 19 April from Noble are irrelevant to the considerations properly taken into account by the court. Noble argues that the recapitalisation proposal unfairly prejudices unsecured creditors, of which they are one.

87 However, s 444GA clearly focuses attention upon the interests of the members of the company. Other provisions of the Act provide for remedies to creditors and, in particular, s 445D of the Act provides a potential remedy to Noble in its capacity as creditor, should it wish to pursue that remedy.

88 Noble has also raised in its correspondence the issue of the off-take agreement. It is unnecessary for me to determine whether or not that agreement is still on foot because it is plain that it is not relevant to Noble's interests in its capacity as member but rather, if anything, it will give Noble rights as creditor: see Lehman Brothers Holdings Inc v City of Swan & Ors [2010] HCA 11; (2010) 265 ALR 1 [38]. Again in that regard, if and to the extent that Noble is a creditor by reason of its position under the off-take agreement, its remedies lie under other provisions of the Act and those considerations are not, in my view, properly taken into account under s 444GA.

89 Finally, Noble raised a concern about the financial capacity of the Consortium to complete the recapitalisation. The point that is properly made in response to Noble's concern is that the proposed transfer of shares is subject to and will only occur if the recapitalisation proposal is completed.

90 There are broader considerations appropriately taken into account in this case, because they bear upon the overall fairness of the proposed scheme. These considerations include the interests of those affected by the development of the project. As Mr Weaver deposes in his affidavit at par 43, in his experience:

[W]hen a mining company is liquidated and the assets cannot be sold to a third party as a whole package then the value for creditors of the estate can be significantly reduced and the prospects of recommencing operations will be impacted negatively due to the costs of reinstating the site infrastructure.

91 Mr Weaver justifies that opinion on the basis that employees and contractors with the experience and intellectual property relating to the site and the project will move on and obtain employment elsewhere. The third-party property will usually be collected and removed from the site resulting in the benefit of sunk costs being lost, increasing the cost of replacing those items. In addition, freehold plant and equipment will usually be sold at public auction and removed from site, also resulting in the benefit of sunk costs being lost. The replacement value of that plant and equipment is usually significantly higher than its auction value.

92 Further, the mining performance bonds for the tenements would need to be maintained or replaced upon sale of the tenements. This is commonly treated as a reduction of the purchase price. In the case of MVPL, Mr Weaver deposes that he has been informed by the receivers and believes that there are a number of employees currently engaged that have specific experience with respect to the Windimurra project and hold intellectual property regarding the same including the quarry manager, process manager, chief chemist, survey manager, financial account, and shift supervisor. He deposes that if the recapitalisation does not proceed and the assets are broken up, significant sunk costs would be lost through, for example, the removal of the camp, the removal of the power station, the removal of the gas inlet delivery system which has been part-paid to approximately $6 million with $2.5 million remaining to be paid, the removal of the BOOT plant which includes the beneficiation plant owned by MRL and the loss of gas pipeline contracts which have been kept on foot during the receivership.

93 Mr Weaver deposes that having regard to the full terms of the varied deed of company arrangement, which incorporates the recapitalisation proposal, there are likely to be commercial benefits relating to the recapitalisation scheme not strictly reflected by a comparison of dividends or outcomes. Those commercial benefits include that MVPL would continue to be run as a business. The mine's resumed operations would promote continued employment for creditors and other members of the community, would provide creditors and companies with an opportunity to supply services to the mine site for the receipt of valuable consideration and would provide the community generally with an opportunity to achieve a return on the significant investments made by the State of Western Australia, including through its agency Western Power, and the Shire of Mount Magnet.

94 Mr Weaver points out the recapitalisation proposal would also likely promote the timely receipt of a distribution by some creditors that would otherwise be delayed in the event of a liquidation. It is important that I note that all these benefits can of course only be achieved if the recapitalisation project proposal proceeds and is successful, as to which there can be no present certainty. But what can be said with some certainty is that that proposal is contingent upon the transfer of all the shares in MVPL to the Consortium which proposes to undertake the recapitalisation proposal, and if that does not occur then it is very unlikely that the recapitalisation proposal would proceed.

95 Although these broader considerations appear to me to be relevantly considered under s 444GA, in this case the critical consideration is that the evidence satisfies me that Noble and Windimurra will suffer no prejudice in the event of the transfer of their shares. It follows that there can be no question of unfairness and therefore the condition which is required to be met before leave can be granted is met. In this case on the evidence before me there are no other considerations which would militate against the grant of leave and for those reasons I would propose to make orders that:

1. The plaintiffs be given leave to transfer all of the defendant's shares in Midwest Vanadium Pty Ltd (Receivers and Managers appointed) (subject to DOCA) CAN 113 874 712 to the Consortium comprised of Atlantic Ltd CAN 009 213 763 and Mineral Resources Ltd CAN 118 549 910 acting through CAN 143 559 880 Pty Ltd CAN 143 559 880, subject to the recapitalisation proposal contemplated in the Varied Deed of Company Arrangement dated 12 May 2010, annexed to the affidavit of Darren Gordon Weaver dated 14 May 2010, becoming unconditional by reason of satisfaction or waiver of all conditions in cl 6 of that deed; and
2. the costs of this application be a cost in the deed of company arrangement to the extent that they are not otherwise covered by any arrangement between the plaintiffs and the receivers and managers of Midwest Vanadium Pty Ltd (receiver and managers appointed) (subject to DOCA) CAN 113 874 712.