PROPOSED MODIFICATION OF THE INSOLVENCY PRACTICE RULES AND ASSOCIATED FURTHER DIRECTIONS WITH REGARD TO THE HALO PLATFORM
25 Section 90-15 of the Insolvency Practice Schedule (Corporations) 2016 (the 'IPSC') (being Sch 2 to the Corporations Act) confers power to make orders modifying the operation of the IPSC and the IPR and, generally, to give directions to external administrators.
26 In In the matter of Hawden Property Group Pty Ltd (in liq) (ACN 003 528 345) [2018] NSWSC 481 at [8], Gleeson JA (sitting at first instance) noted that:
In Walley, In the Matter of Poles & Underground Pty Ltd (Admin Apptd) [2017] FCA 486 at [41], Gleeson J remarked that the question of whether to exercise the power in s 90-15 was "to be answered by reference to the principles applied to the exercise of the discretions previously contained in s 479(3) and s 511 of the Act". That may be accepted insofar as the external administrator seeks the directions of the Court, but the power under s 90-15 to "make such orders as it thinks fit in relation to the external administration of a company" (s 90-15(1)) including "an order determining any question arising in the external administration of a company" (s 90-15(3)(a)), is wider and accommodates the determination of substantive rights. Of course, the Court would not do so without affording potentially affected parties an opportunity to be heard: Meadow Springs Fairway Resort Ltd (in liq) v Balance Securities Ltd [2007] FCA 1443, at [49]-[51] (French J, referring to Australian Securities Commission v Melbourne Asset Management Nominees Pty Ltd (1994) 49 FCR 334 at 352 (Northrop J)); Re Willmott Forests Ltd (No 2) [2012] VSC 125; (2012) 88 ACSR 18 at [45]-[46] (Davies J); In the Matter of ICS Real Estate Pty Ltd (in liq) [2014] NSWSC 479 at [25] (Brereton J).
27 In Hutson (liquidator), in the matter of WDS Limited (in liq) (Receivers and Managers Appointed) [2020] FCA 299 at [66], Markovic J made similar observations:
The Court's power to make orders under s 90-15(1) is unconstrained: Deputy Commissioner of Taxation v Italian Prestige Jewellery Pty Ltd (in liq) (2018) 129 ACSR 115; [2018] FCA 983 at [36]. The subsection "contains no express words of limitation" and is "intended to facilitate the performance of a liquidator's functions": Re Octaviar Ltd (in liq) [2019] QSC 235 at [10].
28 The power to give directions to an administrator under repealed s 447D(1) of the Act is now conferred by s 90-15 of the IPSC: Reidy, In the Matter of eChoice Limited (Administrators Appointed) [2017] FCA 1582 at [27]; El-Saafin v Franek (No 2) [2018] VSC 683 ('El-Saafin') at [110].
29 The function of an application for directions is to give an administrator advice as to the proper course of action to take in the administration. As Goldberg J explained in Re Ansett Australia Limited and Korda (No 3) (2002) 115 FCR 409 at [44]:
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 duty 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 Re G B Nathan & Co Pty Ltd (1991) 24 NSWLR 674, McLelland J said at 679-680:
The historical antecedents of s 479(3) ..., the terms of that subsection and the provisions of s 479 as a whole combine to lead to the conclusion that the only proper subject of a liquidator's application for directions is the manner in which the liquidator should act in carrying out his functions as such, and that the only binding effect of, or arising from, a direction given in pursuance of such an application (other than rendering the liquidator liable to appropriate sanctions if a direction in mandatory or prohibitrary form is disobeyed) is that the liquidator, if he has made full and fair disclosure to the court of the material facts, will be protected from liability for any alleged breach of duty as liquidator to a creditor or contributory or to the company in respect of anything done by him in accordance with the direction.
Modern Australian authority confirms the view that s 479(3) 'does not enable the court to make binding orders in the nature of judgments' and that the function of a liquidator's application for directions 'is to give him advice as to his proper course of action in the liquidation; it is not to determine the rights and liabilities arising from the company's transactions before the liquidation'…
30 The applicable principles were most recently summarised by Stewart J in Krejci, in the matter of Union Standard International Group Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 1111 as follows, at [7]-[11]:
A court is empowered by s 90-15(1) of the Insolvency Practice Schedule to "make such orders as it thinks fit in relation to the external administration of a company". The power conferred by s 90-15(1) is "very broad": Kelly (in the matter of Halifax Investment Services Pty Ltd (in liquidation) (No 8) [2020] FCA 533; 144 ACSR 292 at [51] (Gleeson J). It includes a power to make orders determining any question arising in the external administration of a company: s 90-15(3)(a). An administrator of a company may apply for such an order: s 90-20(1)(d), read with s 9 of the Act (paragraph (d) of the definition of "officer").
The court's power under s 90-15(1) includes a power to give directions about a matter arising in connection with the performance or exercise of an administrator's functions or powers: Reidy, in the matter of eChoice Ltd (Administrators Appointed) [2017] FCA 1582 at [26]-[27] (Yates J). In this respect, s 90-15(1) confers a power to give directions that was previously conferred by ss 447D(1) and 479(3) of the Act concerning administrators and liquidators, respectively: see Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; 93 ALJR 807 at [166] (Gordon J); Reidy at [27] (Yates J); and Kelly (liquidator), in the matter of Australian Institute of Professional Education Pty Ltd (in liq) [2018] FCA 780 at [30] (Gleeson J). The principles governing directions to administrators and those governing directions to liquidators are relevantly analogous: Re Ansett Australia Ltd (No 3) [2002] FCA 90; 115 FCR 409 at [43] (Goldberg J).
The function of a judicial direction of this kind is not to determine rights and liabilities arising out of a particular transaction, but to confer a level of protection on the administrator. An administrator who acts in accordance with a judicial direction, having made full and fair disclosure to the court of the material facts, has "protection against claims that they have acted unreasonably or inappropriately or in breach of their duty in making the decision or undertaking the conduct" proposed: Ansett at [44].
A court may give a direction on an issue of "substance or procedure" or "of power, propriety or reasonableness": Ansett at [65]. Although a court will not give a direction on a decision that is purely commercial, a direction may be provided where there is a "particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought": Ansett at [65]. As Black J observed in In the matter of RCR Tomlinson Ltd (administrators appointed) [2018] NSWSC 1859, a decision may have a "commercial character" but nonetheless be amenable to judicial direction. His Honour said (at [14]) of the application before him (which sought a direction as to whether a company should borrow loan funds):
The Court has been prepared to give directions of this kind, where the decision is a complex one, and where it has to be made, as here, under circumstances of time pressure, in respect of a very large corporate group, and by balancing different interests. The Court's preparedness to grant such a direction in those circumstances reflects the intrinsic unfairness of leaving a voluntary administrator to be at risk of liability, in respect of a complex decision of that kind, where any decision that is made, including making no decision, will have inevitable risks for some or all of the affected constituencies.
Because the effect of a direction under s 90-15 is to exonerate the liquidator or administrator if full disclosure is made, it will usually necessitate consideration by the court of the liquidator's or administrator's reasons and decision making process: see Re ONE.TEL Ltd [2014] NSWSC 457; 99 ACSR 247 at [36] per Brereton J (referring to former s 511 of the Act).
31 The proposed application of the Halo Platform to the administrations (including the adjudication of proofs of debt or claims and the voting process), and the prescription of dates by which proofs of debt and proxies must be lodged, are matters of procedure. This is an appropriate subject matter on which directions may be given by the Court under s 90-15 of the IPSC: El-Saafin at [113]; In the matter of Equiticorp Australia Ltd (in liq) and Ors [2020] NSWSC 143 at [45] (Gleeson JA, sitting at first instance).
32 Details of the Halo Platform are identified in Mr Orr's evidence (which I accept) and were summarised in the Administrators' written submissions dated 29 July 2020.
33 An earlier application sought orders that the Administrators would be justified in:
(1) requiring creditors to register on the Halo Platform;
(2) utilising the Halo Platform to communicate with creditors as to proofs of debt and the adjudication process; and
(3) ascertaining who is a creditor of any of the Virgin Companies for voting purposes at the Second Meetings based on the material provided by persons or otherwise entered in the Halo Platform.
34 This further application concerning the Halo Platform seeks orders that:
(1) the Administrators would be justified in:
(a) permitting only those persons who have lodged, on the Halo Platform, particulars of a debt or claim in the administrations, by 5.00pm on the fifth business day before the Second Meetings are held (the 'POD Lodgement Date'), to participate and vote at the Second Meetings;
(b) otherwise disregarding a debt or claim not lodged on Halo by the POD Lodgement Date;
(2) the IPR operate such that creditors who wish to participate or vote on resolutions at the Second Meetings (other than persons not voting by proxy or attorney), must lodge, on the Halo Platform, a specific proxy form and an appointment of power of attorney by 5.00pm on the third business day before the Second Meetings are held (the 'Proxy Lodgement Date');
(3) the Administrators would be justified in:
(a) permitting only those persons who have lodged, on the Halo Platform, a specific proxy form and an appointment of power of attorney by the Proxy Lodgements Date, to participate and vote by proxy or attorney at the Second Meetings;
(b) entering the proxy or attorney details submitted by a person to the Administrators into the Halo Platform and registering the relevant creditor's details on the Halo Platform;
(c) otherwise disregarding specific proxy form and an appointment of power of attorney not lodged on Halo by the Proxy Lodgement Date;
(4) the requirements of rr 75-25 and 75-35(2) of the IPR will be satisfied by the Administrators including a link, in their report, to an electronic appointment of proxy or attorney form on the Halo Platform;
(5) a poll is to be taken at the Second Meetings by tallying votes lodged on the Halo Platform (as being suitable technology to take such a poll); and
(6) the Second Meetings be held by Microsoft Teams technology and the creation of an event on the Halo Platform.
35 The evidentiary basis for these orders is set out in Mr Orr's evidence.
36 For the reasons that follow, I am of the view that the orders sought should be made.
37 First, the Halo Platform is a practical way of assisting the Administrators to manage the very large number of creditors in the administrations.
38 Secondly, in circumstances where customers whose flights were cancelled due to the COVID-19 pandemic may also seek to lodge claims or proofs in the administrations, the Administrators could confront a situation of hundreds of thousands of creditors in total. In order to manage a creditor pool of that size, it is necessary to impose cut-off dates by which both proofs and proxy, and attorney forms must be lodged (otherwise the Administrators may be unable to cope with a significant number of proofs or proxies lodged immediately prior to the Second Meetings).
39 In that regard, r 75-225(2)(b)(vii) of the IPR envisages that the report to creditors may specify the date by which such proofs and proxies are to be submitted. The orders sought are in conformity with this principle, in that they require creditors to take these steps by lodging the claim or form, on the Halo Platform, by a particular date (and otherwise disregarding the proofs or proxies). Such a direction was provided by Brereton J (as his Honour then was) in In the matter of SurfStitch Group Limited [2018] NSWSC 164, where his Honour noted at [13]:
In my view, it is implicit in clause 2(g) [Corporations Regulation, reg 5.3A.03AB(2)(g), the then equivalent of section 75-225(2)(b)(vii) of the IPR] that proofs and proxies submitted after the specified time are not validly submitted and may be disregarded. While I do not consider it appropriate to engage s 447A to modify the operation of Part 5.3A in this respect, lest there be doubt I am prepared to advise the administrators, under (former) s 447D, that they would be justified in rejecting proofs and proxies received after the date and time so specified.
40 Thirdly, the proposed POD Lodgement Date and Proxy Lodgement Date provide sufficient time for the creditors to lodge requisite forms on Halo after receipt of the report to creditors (which is envisaged to be issued eight business days before the Second Meetings (assuming that the Convening Period is further extended)). In the case of the POD Lodgement Date, creditors will have three business days from receipt of the report to lodge their proofs of debt or claims (which will enable them to register as a creditor). In the case of the Proxy Lodgement Date, creditors will have five business days from receipt of the report to lodge their proxy or attorney forms (which will enable them to vote on their preferred resolutions).
41 Finally, the evidence establishes that the combination of Microsoft Teams technology and the Halo Platform permits the Second Meetings to be adequately conducted and carried on by audio-visual means. Such electronic platforms are necessary in the light of the current COVID-19 pandemic which will preclude the possibility of a physical meeting.
I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Middleton.