In the matter of Aeon Metals Limited

Decision: Plaintiffs granted leave under s 444GA of the Corporations Act 2001 (Cth) to transfer shares in the company and associated orders made.

Catchwords: CORPORATIONS — Voluntary administration — Deed of company arrangement — Application under s 444GA of the Corporations Act 2001 (Cth) for leave to transfer shares pursuant to DOCA — Whether residual equity in company — Whether shareholders unfairly prejudiced.

Legislation Cited: - Corporations Act 2001 (Cth), ss 436A, 444GA, 447A, 606

Cases Cited: - Cussen, Re Big Un Ltd [2019] FCA 1162
- Re Hills Ltd [2023] NSWSC 1308
- Re Infinite Water Holdings Ltd (subject to deed of company arrangement) [2024] NSWSC 1096
- Re Kupang Resources Ltd (subject to deed of company arrangement) (recs and mgrs apptd) [2016] NSWSC 1895
- Re Mirabela Nickel Ltd (subject to deed of company arrangement) [2014] NSWSC 836
- Re Nexus Energy Ltd (subject to deed of company arrangement) (2014) 105 ACSR 246; [2014] NSWSC 1910
- Re Openpay Group Ltd (recs and mgrs apptd) (subject to a DOCA) [2024] NSWSC 789
- Re Ten Network Holdings Ltd (subject to a deed of company arrangement) (recs and mgrs apptd) (2017) 123 ACSR 253; [2017] NSWSC 1529

Category: Principal judgment

Parties: Vaughan Strawbridge, Kathryn Evans and Benjamin Campbell in their capacity as joint and several deed administrators of each of the Second to Seventh Plaintiffs (First Plaintiffs)
Aeon Metals Ltd (Subject to Deed of Company Arrangement) (Second Plaintiff)
Aussie NQ Resources Pty Ltd (Subject to Deed of Company Arrangement) (Third Plaintiff)
Aeon Walford Creek Ltd (Subject to Deed of Company Arrangement) (Fourth Plaintiff)
Aeon Isa Exploration Pty Ltd (Subject to Deed of Company Arrangement) (Fifth Plaintiff)
Aeon Monto Exploration Pty Ltd (Subject to Deed of Company Arrangement) (Sixth Plaintiff)
Aeon Walford Exploration Pty Ltd (Subject to Deed of Company Arrangement (Seventh Plaintiff)

Representation: Counsel:
Ms S Scott (Plaintiffs)
Solicitors:
Ashurst (Plaintiffs)

File Number(s): 2024/300446

Judgment – ex tempore (Revised 18 November 2024)

Nature of the application

1. By Interlocutory Process filed on 11 February 2025, Mr Strawbridge, Ms Evan and Mr Campbell (“Deed Administrators”) as the joint and several deed administrators of Aeon Metals Ltd (subject to Deed of Company Arrangement) ("AML"), AML and several of its subsidiaries (together with AML, the “AML Group”) apply under s 444GA of the Corporations Act 2001 (Cth) (“Act”) for leave to transfer all of the existing shares in AML from each holder to OL Master Ltd (“OL Master”) or its nominee. Creditors and shareholders of AML have been given notice of the application; several shareholders have indicated opposition to the application in correspondence with the Deed Administrators; but none appeared at the hearing to be heard in opposition to the application. I made the orders sought by the Plaintiffs at the conclusion of the hearing on 7 March 2025. These are my reasons for doing so.

Affidavit and expert evidence

2. The Plaintiffs read the affidavit dated 11 February 2025 of Mr Strawbridge in support of the application. Mr Strawbridge sets out his qualifications and experience and refers to AML’s business and structure.

3. By way of background, AML is a public company, the shares of which were listed on the Australian Securities Exchange (“ASX”). Citicorp Nominees Pty Limited holds 47.072% of the issued capital of AML as nominee for OL Master, which is AML’s largest shareholder and also has, by a somewhat complex arrangement, a significant secured claim against AML. The AML Group’s main project, the Walford Creek Copper-Cobalt Project in northwest Queensland, contains high grade copper and cobalt deposits. AML also owns tenements in several areas in the Mount Isa region of Queensland and has several exploration permits in south-east Queensland. AML has five wholly owned subsidiaries and one entity in which it holds a controlling interest. The AML Group’s operations are in the exploration and evaluation phase, do not presently derive any revenue and are presently loss-making and they will require significant capital investment to progress the projects to a stage where they are producing. Mr Strawbridge also points to a difference, that is not material for present purposes, between the number of issued shares indicated in a company search of AML and the number of ordinary fully paid shares recorded on issue by the ASX.

4. Mr Strawbridge also refers to the tasks undertaken by the administrators since their appointment, including the conduct of a sale process which resulted in a deed of company arrangement (“DOCA”) proposal which was approved at the second meeting of creditors in the voluntary administration and underpins this application. In the course of that sale process, the administrators received two non-binding indicative offers, one from OL Master and another from a third party, in relation to the AML Group as a whole and six offers in relation to individual mining tenements. The administrators assessed OL Master’s offers as the most favourable offer and OL Master then submitted a DOCA proposal for the acquisition of the shares of AML and, indirectly, the assets of the AML Group. The administrators recommended that creditors approve that DOCA and, on 29 November 2024, creditors resolved at concurrent meetings for AML and each of its subsidiaries that the companies enter into the proposed DOCA with OL Master.

5. That DOCA (Ex VS-1, 433-526) relevantly provides that OL Master would make a credit bid of its secured debt of approximately $32.8 million (plus accrued interest and fees since 26 July 2024), and the balance of its debt (approximately $10 million) would be left in place following completion under the DOCA; it would acquire the “Assumed Assets” (including all debtors of the AML Group and the shares in each company in the AML Group and the interest in SLW Queensland Pty Ltd) and subject to the “Assumed Liabilities”; OL Master or its nominee would make a DOCA contribution of approximately $2 million to be applied to pay the entitlements of continuing employees and certain other liabilities listed in Schedule 4 of the DOCA, trading losses of the Group during the administration and DOCA and payment of the remuneration, costs and expenses of the Administrators and Deed Administrators; and the shares of AML would be transferred to OL Master or its nominee subject to the leave of the Court. Completion under the DOCA is subject to the Deed Administrators obtaining the orders sought in this application and to ASIC granting relief in relation to the requirements of s 606 of the Act and the creditors’ trust will come into effect upon completion under the DOCA.

6. Mr Strawbridge identifies several conditions precedent to implementation of the DOCA, and notes that, if relevant conditions precedent are not satisfied by a Sunset Date, the sale of AML’s underlying assets may be completed by an Asset Sale Agreement rather than the share sale transaction which is the subject of this application . Mr Strawbridge’s evidence is that proceeds of an asset sale transaction are likely to be less than the proceeds of the share sale transaction, because additional transaction costs and reorganisation costs will be incurred and it will take longer to complete a restructuring because of the need to transfer or novate several contractual arrangements, with the result that returns to creditors will be less than would arise under this transaction. Mr Strawbridge also notes that, if OL Master did not elect to proceed with an asset sale arrangement, then the Deed Administrators may convene a further meeting of creditors, the DOCA will ultimately terminate if creditors resolve to that effect, and AML would then be taken to have passed into a voluntary creditors’ liquidation, and its assets would then be sold on a “piecemeal” basis.

7. Mr Strawbridge expresses the view that there is no unfair prejudice to AML’s shareholders in the proposed transaction, because there is a substantial deficiency in the assets available to meet the debts and claims of AML’s creditors and there is no value in the equity of shares in AML. He there refers to a valuation of the mining tenements held by AML and its subsidiaries by Behre Dolbear Australia Minerals Industry Consultants, which valued them at between $19.3 million (low) and $40.8 million (high) on a ‘willing buyer-willing seller’ basis but noted that in the case of an ‘anxious seller’ values could be as low as 30-50% of that valuation. Mr Strawbridge also refers to his assessment of the value of AML’s assets in a liquidation on a low case or a high case, and the lower value which he attributed to them is significantly less than Ms Nettleton’s view which I address below.

8. Mr Strawbridge’s evidence is also that there is no deed of cross-guarantee in place between AML and its subsidiaries. AML in turn owes OL Master approximately $42.8 million; a subsidiary of AML, Aeon Walford, owes AML $100.7 million comprised of an intercompany loan of $62.5 million and a promissory note of $38.2 million; Aeon Walford has granted security over its present and after acquired property in favour of AML; and, in a liquidation, OL Master would be able to enforce its security over AML to the value of the secured debt and AML would in turn be able to enforce its security over the assets of Aeon Walford, which will not have assets sufficient to satisfy the debt. Mr Strawbridge’s evidence is also that, in a liquidation scenario, unsecured creditors of AML with "Assumed Liabilities" will receive less than they would receive under the DOCA and unsecured creditors with “Excluded Liabilities” will not receive a return.

9. Mr Strawbridge in turn refers to the independent expert report prepared by Ms Nettleton of Korda Mentha Pty Ltd, who is an experienced insolvency practitioner. Ms Nettleton there addresses the residual value of shares in AML, adopting the approach contemplated by ASIC Regulatory Guide 111, by assessing AML’s assets and business operations, less borrowings, other liabilities and creditors' claims, by reference to shareholders' residual equity in a liquidation, where that is the likely or necessary consequence of the transfer of shares being approved. Ms Nettleton had regard to the Behre Dolbear valuation of AML’s mining tenements and, on that basis, assessed the residual equity in AML as between approximately negative $26.8 million (low cases) and approximately negative $10 million (high case), having regard to intercompany loans totalling $134.5 million and the likelihood that AML’s secured debt (including the intercompany loan owed by Aeon Walford) would not be fully recoverable on either a high or low case.

10. The Plaintiffs also read an affidavit dated 21 February 2025 of Ms Fung, a solicitor acting for them, who referred to correspondence with ASIC in respect of the transaction. By email dated 12 February 2025, ASIC advised that:

“… We gave made an in-principle decision to approve the application for relief subject to the Court granting leave under s 444GA(1)(b) of the Act for the transfer of all of the existing shares in the Company pursuant to the [DOCA]. We note that ASIC’s decision does not take effect until a formal instrument of relief is executed and we propose to finalise our relief following receipt of the Court order.”

11. By his affidavit also dated 21 February 2025, Mr Macreadie, who is a chartered accountant employed in Mr Strawbridge’s firm, gives evidence that notice of this application was provided to creditors and shareholders by circular and by post, email, publishing on the firm’s and the ASX’s websites and publication in two national newspapers. Mr Macreadie also referred to correspondence with shareholders, in which some shareholders had, as I noted above, expressed opposition to the application.

12. By a second affidavit dated 14 March 2025, Ms Fung referred to further correspondence with shareholders and, by a second affidavit also dated 14 March 2025, Mr Macreadie addressed the notice given to shareholders and creditors of the application and a further circular to creditors and shareholders giving notice of the final hearing of this application

Applicable principles

13. Section 444GA of the Act provides for the circumstances in which the administrator of a deed of company arrangement may transfer shares in a company, relevantly, with the leave of the Court. That section relevantly provides that:

“(1) The administrator of a deed of company arrangement may transfer shares in the company if the administrator has obtained:

(a) the written consent of the owner of the shares; or

(b) the leave of the Court.

(2) A person is not entitled to oppose an application for leave under subsection (1) unless the person is:

(a) a member of the company; or

(b) a creditor of the company; or

(c) any other interested person; or

(d) ASIC.

(3) The Court may only give leave under subsection (1) if it is satisfied that the transfer would not unfairly prejudice the interests of members of the company.”

14. I summarised the applicable principles in Re Mirabela Nickel Ltd (subject to deed of company arrangement) [2014] NSWSC 836 at [38]ff as follows:

“In Weaver v Noble Resources Ltd [2010] WASC 182; (2010) 41 WAR 301 [(“Weaver”)], Martin CJ undertook a detailed review of the history of s 444GA of the [Act], which I gratefully adopt. This section was introduced into the [Act] by the Corporations Amendment (Insolvency) Act 2007 (Cth) with effect from 31 December 2007 and adopts a recommendation made in a report of the Legal Committee of the Companies and Securities Advisory Committee ("CAMAC") on Corporate Voluntary Administration (June 1998) that the law should grant deed administrators the ability to compulsorily sell company shares where necessary for the purposes of implementing a deed of company arrangement under which payment of creditors' debts is dependent upon such a transfer occurring (Recommendation 42, para [6.75], noted in [Weaver] at [65]-[71]). The Explanatory Memorandum to the Corporations Amendment (Insolvency) Bill 2007 in turn notes (at [7.53]) that, prior to the introduction of the section, there was some uncertainty as to whether deed administrators had the power to transfer shares without the holder's consent, and the weight of authority was against such a power. The Explanatory Memorandum in turn notes (at [7.54]) that the purpose of the section is to enable a deed administrator to transfer shares in the company without the consent of shareholders where such a transfer is necessary for the success of the deed.

The Court may only grant leave for a transfer of shares under this section if satisfied that the transfer would not unfairly prejudice the interests of members. In [Weaver] above, Martin CJ noted (at [67], [70]-[71]) that this requirement in s 444GA of the [Act] reflects the view expressed in the CAMAC report that the possibility of prejudice to a shareholder would arise if there were some residual equity in the company. His Honour also noted (at [79]) that:

‘... [t]he 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.’

… His Honour also noted (at [80]) that something more than a mere transfer of shares without compensation would be necessary to establish unfair prejudice.

The approach adopted in [Weaver] above is consistent with that adopted by the courts in respect of the similar concept used in s 445D of the [Act], where the question whether a deed of company arrangement gives a class of creditors less than they would receive in a liquidation is highly material to whether unfair prejudice to creditors is established: Lam Soon Australia Pty Ltd (admin apptd) v Molit (No 55) Pty Ltd (1996) 70 FCR 34 at 48; 22 ACSR 169.

In Lindholm v Tsourlinis Distributors Pty Ltd [2010] FCA 1488 at [9]-[10], Finkelstein J took a similar view to that taken by Martin CJ in [Weaver] above. In Lewis, In the Matter of Diverse Barrel Solutions Pty Ltd (subject to a Deed of Company Arrangement) [2014] FCA 53 at [19], White J noted (at [19]) that the terms of s 444GA(3), in focusing on the concept of "unfair prejudice" to shareholders, contemplated that a transfer of shares may result in some prejudice to the interests of shareholders and that:

‘Whether or not 'unfair prejudice' will result from a transfer of the shares is to be determined having regard to all the circumstances of the case and to the policy of the legislation. Relevant matters would seem to include whether the shares have any residual value which may be lost to the existing shareholders if the leave is granted; whether there is a prospect of the shares obtaining some value within a reasonable time; the steps or measures necessary before the prospect of the shares attaining some value may be realised; and the attitude of the existing shareholders to providing the means by which the shares may obtain some value or by which the company may continue in existence. A relevant comparison will be between the position of the shareholders if the proposal does not proceed and their position if leave to transfer shares is granted.’

His Honour there held that a transfer of shares involved no unfair prejudice where those shares had no residual value and the shareholders would not receive any return on a winding up.”

15. In Re Nexus Energy Ltd (subject to deed of company arrangement) (2014) 105 ACSR 246; [2014] NSWSC 1910 at [22], I again followed the observations of Martin CJ in Weaver that the possibility of prejudice to a shareholder “would arise if there was some residual equity in the company.” Conversely, it is difficult to see how shareholders could be prejudiced by the transfer of their shares in the absence of any residual value or equity in the company: Weaver at [70]. The case law also seems to me to establish that there would not ordinarily be any prejudice, or no prejudice that has the requisite quality of “unfairness”, if the shares to be transferred have no value and there would be no distribution in the event of a liquidation which is the only realistic alternative to the proposed transfer: Re Kupang Resources Ltd (subject to deed of company arrangement) (recs and mgrs apptd*)* [2016] NSWSC 1895 at [16]; Re Ten Network Holdings Ltd (subject to a deed of company arrangement) (recs and mgrs apptd*)* (2017) 123 ACSR 253; [2017] NSWSC 1529 at [32]-[39]; see also Re Openpay Group Ltd (recs and mgrs apptd*) (subject to a DOCA)* [2024] NSWSC 789 at [20]ff on which I have drawn for this summary.

16. In Cussen, Re Big Un Ltd [2019] FCA 1162 at [5], Jagot J observed that:

“the test involves unfair prejudice to the interests of the shareholders. Further, in order to determine this, the Court must consider whether there is any residual value in the company as the issue involves comparing the circumstances in the event of a transfer of shares with the circumstances which would prevail in a liquidation.”

17. Ms Scott, who appears for the Deed Administrators, also refers to my summary of the applicable principles in Re Hills Ltd [2023] NSWSC 1308 (“Hills”) at [18]-[22], to the effect that the test to be applied under s 444GA of the Act is concerned with “unfair prejudice” rather than any prejudice to the interests of relevant shareholders; the statutory test requires the Court to consider the circumstances of the case and the policy of the legislation, as summarised in s 435A of the Act; the transfer of shares without compensation does not, of itself, establish unfair prejudice; the statutory test generally focuses on whether there would be any residual value in the shares if the relevant company was to proceed in liquidation, at least where that is the likely or necessary consequence of the transfer of shares not being approved; ordinarily, there will be no “unfair prejudice” if the shares have no value, and there would be no distribution in the event of a liquidation, which is the only realistic alternative to the proposed transfer; the Deed Administrators bear the legal onus of proving that the discretion to allow the share transfer should be exercised in their favour; and shareholders (should any appear to oppose this application) bear an evidentiary onus to establish the facts relevant to any prejudice on which they rely in such an application. I again address these principles in my judgment in Re Infinite Water Holdings Ltd (subject to deed of company arrangement) [2024] NSWSC 1096 at [16]ff and Re Bizpay Group Ltd [2024] NSWSC 1480 at [14]ff, on which I have drawn for the summary which appears above.

Submissions and determination

18. I recognise that the Deed Administrators here bear the legal onus of establishing that the Court's discretion to allow the share transfer should be exercised in their favour. They rely on Mr Strawbridge’s evidence and Ms Nettleton’s expert report in order to establish that matter, and I have summarised that evidence above.

19. Ms Scott submits that the interests of AML’s shareholders will not be unfairly prejudiced if leave is granted pursuant to s 444GA of the Act for the transfer of the shares in AML because the residual equity in AML has no value. She also submits that

“The members of [AML] would be in the same financial position regardless of the mechanism by which the transaction is completed (or, indeed, even if the transaction does not complete at all and the assets of the Group are sold to other parties in a winding up). Therefore, there is no prospect of unfair prejudice being suffered by shareholders from a transfer of their shares to [OL Master] or its nominee.

As explained by the Deed Administrators, completion of the transaction by the effectuation of the DOCA is expected to provide a better return to creditors in comparison with [an asset sale transaction]. This is primarily because of the additional costs associated with an [an asset sale transaction] and the possibility that that structure may not provide for tax losses to be carried forward. Put another way, although the method of completion of the transaction makes no financial difference to [AML] shareholders (because their shares have no value), the proposed share transfer under s 444GA and the subsequent effectuation of the DOCA will provide a better outcome for creditors. That strongly favours the making of orders to permit the share transfer to proceed.”

20. I accept that the evidence establishes that the shares in AML have nil value, given the equity shortfall calculated by Ms Nettleton. Where there is a significant shortfall to creditors either on a liquidation, or an alternative asset sale transaction and no better offer was elicited by the sale process undertaken by the Deed Administrators, there is no prospect of any return to AML's shareholders and there could be neither prejudice nor unfair prejudice to AML's shareholders in making the orders sought by the Deed Administrators.

21. The Deed Administrators also seek orders under s 447A of the Act to provide machinery by which a proposed transfer of shares in the subject company may be put into effect, including orders permitting them to execute and lodge relevant share transfer documents and ensure the entry of the acquirer’s name on AML’s register of members. The Court has power to make those orders and they should be made where the transaction is properly implemented: Hills at [27].

22. For these reasons, I made the orders sought by the Deed Administrators at the conclusion of the hearing on 17 March 2025.

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