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In the matter of ACN 004 410 833 Limited (formerly Arrium Limited) (subject to deed of company arrangement) (No 2) [2018] NSWSC 1536 - NSWSC 2018 case summary — Zoe
Before the Court are two applications arising out of examinations conducted by the plaintiffs (to whom I will refer as the "Deed Administrators"). ACN 004 410 800 Limited was formally known as Arrium Ltd. It and its subsidiaries are subject to a deed of company arrangement of which the plaintiffs have been appointed deed administrators. The debts of the group of companies which are the subject of the administration exceed $2.3 billion.
The examinations began in May 2018. On 17 May Gleeson JA made orders on two applications for access to documents produced for the purposes of the examinations and the transcript of the examination proceedings. One of those applications was from Anchorage Capital Master Offshore Ltd (to which I refer as "Anchorage"). It is a creditor of the Arrium group of companies in a sum of approximately $100 million.
The other application was made by the Deed Administrators for orders for access in favour of six banks who formed part of Arrium's banking syndicate. The debts owed to that syndicate under administration are approximately $2 billion and account for approximately eighty-five per cent of the debts in the administration. Anchorage's debts account for approximately five per cent.
His Honour made orders for access in favour of Anchorage and the six bank lenders to which I have referred. His Honour's reasons for making the orders in favour of the bank lenders was subsequently published: In the matter of ACN 004 410 833 Limited (formerly Arrium Limited) (subject to deed of company arrangement) & the companies listed in Schedule 1 to the Interlocutory Process [2018] NSWSC 747.
His Honour's orders provided for beneficiaries of the orders to have access to, to be entitled to uplift, and to copy the bundles of documents collected for and used in the examinations and also the transcript of the examinations. But there was a reservation concerning those documents in the examination bundles which had originally been produced by third parties under compulsion for the purposes of the examination. Use of those documents was restricted to use for the purposes of the examination proceedings themselves until further order of the Court (for Anchorage at least, that limitation may not be as self-defeating as it sounds because Anchorage was itself authorised to conduct or participate in the examinations pursuant to arrangements made with the Australian Securities and Investments Commission).
Anchorage now moves for orders authorising it to have access to the documents which were produced on compulsion, subject to certain terms as to the use of those documents. A group of twenty-five bank lenders, including the six syndicate members who are beneficiaries of the existing orders obtained on applications of the Deed Administrators, have now filed their own application. They seek orders extending the benefit of the orders made by Gleeson JA to all twenty-five members of the group (or their assignees) and also permitting access to the documents produced under compulsion for certain purposes.
The applications are not opposed by the Deed Administrators. Notice of the applications has been given to the parties whose documents were produced under the compulsory process the subject of the applications. There is no outright opposition. Some of the parties who have produced documents have taken a neutral position, neither consenting to nor opposing the applications. One party who produced documents under compulsion, the accounting firm KPMG, consents to orders being made but there is a dispute between it and the applicants as to the terms upon which access is to be granted. But despite the fact that the dispute between the parties before me is a narrow one, I still need to be satisfied that the order made is proper.
Gleeson JA at [18]-[23] reviewed the authorities applicable to applications of this sort, in particular New Cap Reinsurance Corporation Holdings Limited [2001] NSWSC 835 and Re Eurostar Pty Ltd (in liq) (Receivers and Managers Appointed) [2003] NSWSC 633. As his Honour pointed out, two justifications or grounds have been offered as supporting the making of access orders of the type currently under consideration. The first ground is that, depending on the circumstances, the grant of access may possibly increase the flow of funds to creditors in the administration. It may thus directly be in the interests of those creditors. The second ground is that the authorities have recognised the bringing of proceedings which will expose the reasons for a corporate collapse and offer the prospects of persons who suffered loss from the collapse to recover compensation as a legitimate objective within the scope of the legislation. That is so even if the proceedings result in the compensation flowing to third parties rather than into the administration.
The applicants in this case rely on both grounds. Both seek access to facilitate claims which they may have against the directors and officers involved in the borrowing by the Arrium group of companies. I will not go into the detail of those claims. It is sufficient to say that they involve questions of misrepresentation in drawdown notices and other documents provided to Arrium's creditors under the terms of the relevant borrowing agreements. Anchorage has already commenced proceedings which are pending in the Commercial List of this Court. The bank lenders are actively considering the bringing of proceedings.
The applicants contend that in these circumstances the first ground is engaged. They say that if they are successful in bringing claims against the directors and officers of Arrium and recovering losses which they have suffered through such proceedings, that will reduce the extent to which they need to claim through the administration and thus increase the proportion that other creditors will receive moneys eventually distributed.
Such a consideration has been mentioned in other cases as a ground for an access order. In my view, however, its application in the present case is less clear. Indeed, it tends to cut both ways. If Anchorage and the bank lenders succeed in their claims against Arrium's directors and officers, to that extent they will not need to prove in the administration (or the debts provable by them in the administration will be reduced), but they will also tend to exhaust funds that might otherwise be available should the Arrium group of companies bring their own claims against former directors and officers.
In view of the amounts involved, it is clear that the real commercial target of claims by Anchorage or the bank lenders against Arrium's former directors and officers would be any directors' and officers' liability insurance. Should such claims succeed, it is unlikely in the extreme that there would be sufficient funds left over for the Arrium group of companies to pursue their own claims.
On the face of it, Anchorage and the bank lenders are in competition with the Deed Administrators. In such circumstances, facilitating direct claims by Anchorage and the bank lenders against Arrium's former directors and officers could be seen as a positive disadvantage to other creditors in the administration, and thus to the administration as a whole, rather than an advantage.
When this issue was raised at the hearing, I was puzzled about the Deed Administrators' position. The Deed Administrators have spent a very large amount of creditors' money on the examinations. Why, it might be asked, are they cooperating in a process which could see Anchorage and the bank lenders taking the fruits of those examinations by making their own competing claims against the directors and officers?
Counsel for the applicants pointed out that there was a considerable overlap between the claims by Anchorage and the bank lenders (accounting, as they do, for ninety per cent of the debts in the administration as a whole). This may reduce the practical consequence of the competition but it does not eliminate it. From the point of view of the ten per cent of creditors who are not contemplating their own direct claims and may be unable to, there is still a potential for disadvantage, at least on the face of it.
I asked counsel for the Deed Administrators about this matter. Counsel pointed out that the present applications are only consequential and that the Court has already granted access to most of the documents in the examination bundles and all of the transcripts. This may be so but it does not really explain why the Deed Administrators have taken the approach of facilitating the direct claims by Anchorage and the bank lenders in the first place. When pressed on the issue, counsel submitted that I should proceed on the basis that the Deed Administrators' approach was a considered one and that it reflected a judgment that it was in the interests of the creditors as a whole including those other than the bank lenders and Anchorage.
On reflection, I think I must accept this submission. Advice may have been obtained or an agreement struck behind the scenes which means that the approach which has been taken by the Deed Administrators benefits the creditors as a whole, even though I cannot see any such benefit on the material before the Court. The result is that I do not accept that the first ground which has been offered has been established on the evidence. But nor do I conclude that there is a positive disadvantage to the administration from separate proceedings being brought by Anchorage and the bank lenders.
This leaves the second ground. In my view, the proposition that the interest secured by the legislation in question extends to the bringing of claims by third parties which will not necessarily benefit the administration is well established and I should follow it. There is no suggestion that there is anything untoward about the applications otherwise. For these reasons, I propose to make orders for access as sought by the applicants.
The remaining question is what conditions should be imposed on the use of the documents. It is common ground between KPMG and the applicants that use should be limited to proceedings against the Arrium group of companies or current and former directors and officers and employees of the group. The question for debate is the subject matter of the proceedings. KPMG seeks to have the use restricted to claims concerning the execution of relevant drawdown or rollover notices under the relevant debt agreements. The applicants contend that the use of the documents should be limited only to proceedings which bear upon the circumstances that have led to, or are associated with, the collapse of the Arrium group of companies.
The policy justification which I consider is decisive in these proceedings is a broad one. The public benefit has been seen to flow from exposure of the causes of a corporate collapse and the recovery of compensation from that corporate collapse generally, not limited to specific events or types of events involved in the collapse.
It is accepted in the authorities that there must be some specificity in the claims which are foreshadowed but, in my view, KPMG's suggestion is too limiting. If adopted, it might well result in further applications having to be made to the Court as further details are exposed of the processes by which the Arrium group's funding was obtained and the group collapsed. In my view, a criterion which limits the use of documents to proceedings connected with the collapse generally is the appropriate one.
[Counsel addressed on the form of orders]
The orders of the Court are:
Pursuant to r 2.13 of the Supreme Court (Corporations) Rules 1999 (NSW), the financier creditors listed in Schedule 1 ("Listed Lenders") of ACN 004 410 833 (formerly Arrium Ltd) (subject to Deed of Company Arrangement) and its subsidiaries (together the Arrium Group), be granted leave to be heard in this proceeding.
Pursuant to s 596F(1)(e) of the Corporations Act 2001 (Cth) and the inherent jurisdiction of this Court, the Orders made by Gleeson JA on 17 May 2018 (17 May Orders) be varied as follows:
(a) Order 1 be amended to read:
"Pursuant to section 596F(1)(e) of the Corporations Act 2001 (Cth), the entities set out in Schedule 2 and their assignees or transferees ("Listed Lenders") be permitted to access, uplift and make a copy of:
(i) the bundles of documents marked "MFI-1", "MFI-2", "MFI-3", "MFI-5", "MFI-6", "MFI-7", "MFI-8", "MFI-9", "MFI-10", "MFI-11", "MFI-12", "MFI-13", "MFI-14", "MFI-15" and "MFI-16", "MFI-17", "MFI-18" and "MFI-19" (together the MFI Exhibits) in the proceeding;
(ii) any document or bundle of documents subsequently marked for identification (and not contained in the MFI Exhibits) in the proceeding and/or produced to an examinee during the course of his or her examination; and
(iii) the transcript of the examination of any examinee in the proceeding."
(b) Schedule 2 of the 17 May Orders be replaced with Schedule 1 to this order.
(c) Order 2 of the 17 May Orders be varied so that the Listed Lenders (including their assignees or transferees) be permitted to use the documents falling within orders 1(a)-(b) of the 17 May Orders, which were produced by any third party under compulsion in this proceeding, for the purposes of any future civil proceedings which the Listed Lenders (including their assignees or transferees) may commence against the Arrium Group or its current or former directors, officers or employees, where those civil proceedings bear upon the circumstances that have led to, or are associated with, the corporate collapse of ACN 004 410 833 (formerly Arrium Ltd) (subject to Deed of Company Arrangement) and its subsidiaries.
[2]
Schedule 1 (Listed Lenders)
1. Banco Bilbao Vizcaya Argentaria, S.A., Hong Kong Branch
2. Australia and New Zealand Banking Group Limited
3. Commonwealth Bank of Australia
4. National Australia Bank of Australia
5. Westpac Banking Corporation
6. Deutsch Bank AG, London
7. Deutsch Bank AG, Sydney Branch
8. ARCM Master Fund III Ltd
9. Arkkan Opportunities Fund Ltd
10. Bank of China Limited
11. Bank of Communications Co. Limited
12. BNP Paribas
13. Chang Hwa Commercial Bank Ltd
14. CTBC Bank Co., Ltd. Singapore
15. Mega International Commercial Bank Co., Ltd, Sydney Branch
16. Midtown Acquisition L.P.
17. Merrill Lynch International
18. Mizuho Bank, Ltd
19. Nomura International Plc
20. SC Lowy Financial (HK) Limited
21. SC Lowy Primary Investments, Ltd
22. Taiwan Cooperative Bank, Ltd., Sydney Branch and Offshore Banking Branch
23. Bank of Nova Scotia, Singapore Branch
24. The Bank of Tokyo-Mitsubishi UFJ, Ltd
25. United Overseas Bank Limited
[3]
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Decision last updated: 15 October 2018