Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd

REASONS FOR JUDGMENT 1 This is an application by the liquidators of Australian Capital Reserve Limited (in Liquidation) (ACR) for an order under s 511(1) of the Corporations Act 2001 (Cth) that they would be justified in not declaring any interim or final dividend to ordinary unsecured creditors of ACR that would involve distribution of funds received or to be received under an agreement described below (the Agreement) until the expiry of a period of at least six months following the respective dates of receipt of those funds. 2 The factual material which the liquidators put before me in support of the application is contained in an affidavit of Mr Gregory Winfield Hall sworn 8 December 2008. The affidavit exhibits a large number of documents contained in Exhibit GHW1. A number of confidential documents, including a confidential statement of Mr Hall are contained in Confidential Exhibit GWH2. Mr T F Bathurst QC, who appears for the liquidators, concedes that it is appropriate for me to refer to so much of the confidential statement as is necessary to disclose my reasons for judgment. 3 Notwithstanding the bulk of the evidentiary material, the essential facts may be stated shortly. ACR was the fundraising vehicle for Estate Property Group Limited group of companies (EPG Group) which carried on the business of residential property development. ACR raised funds from the public in a note issue and on-lent the funds to various companies in the EPG Group. ACR went into voluntary administration on 28 May 2007 with liabilities of approximately $335 million, of which approximately $332 million was owed to a trustee for the note holders. 4 In September 2007, a series of agreements were entered into between the administrators of the EPG Group and Becton Investment Management Limited in its capacity as the trustee of the Becton Everest Fund (Becton), the effect of which was that Becton took control of the property development part of the EPG Group. 5 The structure of the Becton transaction was set out in a Heads of Agreement dated 30 August 2007 between, inter alia, ACR and Becton. One of the agreements entered into pursuant to the Heads of Agreement was a Receivables Acquisition Deed. That Deed, together with the Heads of Agreement and certain contracts for sale of land at Villawood and Werrington, provided for certain payments to be made by Becton to ACR. The payments were to be made in three instalments, the last of which fell due on 1 December 2008. The amount due under the final instalment was nearly $54 million. 6 On 18 November 2008, Becton wrote to the liquidators of ACR proposing to defer payment of the final instalment and to make payment of it as follows: We propose that the Final Payment be paid in the following instalments: · The first instalment of $17,500,000 on or before Wednesday, 3 December 2008; · The second instalment of $15,000,000 on or before Thursday, 30 April 2009; · The third instalment of $10,000,000 on or before Tuesday, 30 June 2009; and · The fourth instalment of $11,297,733.67 (plus interest) on or before Wednesday, 30 September 2009. 7 In the course of his submissions this morning, Mr Bathurst effectively acknowledged that the letter from Becton was not a confidential exhibit. However, shortly before giving my reasons for judgment, Mr Pike, who appears with Mr Bathurst, made an application to me for an order for confidentiality for that letter. 8 Notwithstanding what appears under [8] of the letter, it seems to me that it is not appropriate for me to make a confidentiality order under s 50 of the Federal Court of Australia Act 1976 (Cth) in relation to the letter, because the interests of justice require me to be able to state my reasons with sufficient transparency for them to be understood by persons such as note holders who would wish to be fully apprised of the reasons for the orders that I propose to make. I will, therefore, refer to so much of the letter of 18 November 2008 as is necessary to give my reasons for judgment. 9 The letter of 18 November 2008 included a summary of the unsuccessful efforts made by Becton to fund the payment of the final instalment due under the Receivables Acquisition Deed on its due date of 1 December 2008. Those efforts included negotiations by Becton for a loan facility which was subsequently rejected, and discussions with other proposed replacement financiers. I do not need to refer in detail to that portion of the letter. However, the letter went on to state that Becton was then in advanced discussions with other financiers which would enable Becton to be able to meet the payment of $17.5 million proposed to be made on 3 December 2008. 10 As to the payment of the second and subsequent proposed instalments, the letter stated as follows: As a property developer the nature of Becton's operating cash flow is lumpy. Cash inflows are not received until a project is completed and settlement achieved. Becton expects to complete and settle several projects in 2009 and, in addition, has elected to sell various other property assets. The result is a cash flow which Becton believes amply demonstrates its ability to meet its obligations under the proposal set out herein. As discussed with you, in this connection Becton has commissioned Deloitte to examine that cash flow and its underlying assumptions in detail in order to allow them to provide independent assurances to you and ACR as to the ability of Becton to meet its obligations under the payment proposal set out above. We anticipate Deloitte's final report to be ready for perusal by you on Monday, 24 November 2008.