In the matter of Bantex Pty Limited (subject to deed of company arrangement) [2018] NSWSC 531

Background

1. Bantex carries on business as a manufacturer and supplier of stationery and office products, which it distributes throughout Australia under the brand names Bantex, Quill and WC Penfolds.
2. On 27 December 2017 Bantex appointed the defendants, Mr Riad Tayeh and Ms Suelen McCallum, as voluntary administrators. According to the administrators' report to creditors dated 30 January 2018, Bantex had for a number of years, experienced cashflow difficulties and had entered into at least two documented repayment arrangements with creditors and a number of other informal arrangements. It seems that by late 2017 it became apparent to the directors that the cashflow of the business was not going to improve unless a major restructure was undertaken. That led to the appointment of voluntary administrators. The estimated deficiency at that time, as recorded in the report to creditors, was $5,607,505 on a going concern basis and $12,392,759 on a liquidation basis. Bantex employed approximately 50 employees. The administrators terminated 10 employees due to the restructuring of the business.
3. At the second meeting of creditors of Bantex held on 23 February 2018, the creditors resolved that Bantex enter into a deed of company arrangement (DOCA). On 16 March 2018 Bantex executed a DOCA with Mr Tayeh and Ms McCallum as administrators (the deed administrators) and Mr Michael Stathakis, the sole director of Bantex.
4. The DOCA provides for a fund to be created (the deed fund) for the benefit of the creditors of Bantex, other than certain excluded creditors such as secured creditors, equipment financiers and related party creditors: cl 8. The deed fund is constituted by funds held by the deed administrators from the trading of Bantex during its administration, supplemented by a contribution by Bantex of $1,100,000, payable over 24 months, by way of monthly payments of $45,833.33.
5. On the execution of the DOCA the control and day-to-day operation of Bantex returned to Mr Stathakis (cl 4.1), other than in respect of certain litigation involving Bantex referred to below: cl 4.4. The role of the deed administrators is to administer the deed fund for the benefit of the creditors of the company prior to their appointment as voluntary administrators on 27 December 2017 (other than certain excluded creditors): cl 5.
6. Bantex now proposes to enter into a recapitalisation transaction with Holdham SA (Holdham), a company based in Europe that supplies stationery products under the brand name "Hamelin". The proposed transaction, if implemented, will result in the deed fund being fully constituted by the immediate payment by Bantex to the deed administrators of $1,100,000, which would otherwise not occur until 2020. However, Holdham has indicated that it is not prepared to enter into the recapitalisation transaction unless Bantex obtains a dispensation from the requirement in s 450E(2) to have the words "subject to deed of company arrangement" appear after its name in every public document and negotiable instrument. Holdham's position is the underlying basis for the application.
7. The deed administrators do not oppose the dispensation sought by Bantex.
8. Notice of the application was given to the Australian Securities and Investments Commission (ASIC) on 17 April 2018. Correspondence from ASIC indicates that it does not propose to intervene in the application or seek leave to appear in circumstances where the deed administrators have agreed, at the request of ASIC, to notify the creditors of any orders made by the Court in respect of the application (Ex F).

Section 450E(2)

1. Section s 450E(2), of the Corporations Act, provides: (2) Except with the leave of the Court, until a deed of company arrangement terminates, the company must set out, in every public document, and in every negotiable instrument, of the company, after the company's name where it first appears, the expression ("subject to deed of company arrangement").
2. An application for dispensation may be made by the administrator of a deed of company arrangement or any interested person: s 450E(4). The expression "interested person" when used in other provisions of the Corporations Act, such as s 447A, has been described as being of wide scope and should be construed liberally: Allatech Pty Ltd v Construction Management Group Pty Ltd (2002) 41 ACSR 587 at 591. Ordinary principles of statutory construction require that an Act be construed so far as possible to give the same meaning to the same words wherever those words appear in the statute: Firebird Global Masterfund II Ltd v Republic of Nauru (2015) 258 CLR 31; [2015] HCA 43 at [190] (Nettle and Gordon JJ). There is no reason for giving a different meaning to the same expression in s 450E(4). Plainly, the company, which is the subject of a deed of company arrangement, answers the description of an interested person in s 450E(4).
3. The Court's power to grant dispensation is subject to the condition in s 450E(5) which provides: (5) The Court may only grant leave under subsection (2) if it is satisfied that the granting of leave will not result in any significant risk to the interests of the company's creditors (including contingent or prospective creditors) as a whole.
4. As Barrett J explained in De Vries re TMPL Pty Ltd [2009] NSWSC 818 at [6] (TMPL), while a positive finding by the Court that the dispensation will not result in any significant risk to the interests of the company's creditors activates the Court's discretion to grant a dispensation, it does not compel, let alone indicate, any particular outcome with respect to the exercise of the discretion.
5. The history of the amendments in 2007 to the current provisions in s 450E introduced by the Corporations Amendment (Insolvency) Act 2007 (Cth), are helpfully traced by Barrett J in TMPL at [7]-[10]. Prior to those amendments, it had been recognised in two cases that a like power of dispensation was available through s 447A, although dispensation had not been granted in either of the cases: Re Brashs Pty Ltd (1994) 15 ACSR 477 and Re Multelink Australia Ltd [2003] NSWSC 836; (2003) 21 ACLR 1661 (Multelink).
6. The extrinsic materials referred to by Barret J in TMPL support the view that the purpose of s 450E(2) is to provide a means of alleviating adverse effects for the company subject to the deed of company arrangement caused by the need to include the words "subject to deed of company arrangement" in public documents and negotiable instruments of the company. This would include harm to the company's goodwill and reputation with consequential detriments to the ability to trade and therefore to creditors, particularly future creditors, and its members: TMPL at [10].
7. In determining whether to exercise the power of dispensation, attention must be given to the interests of the company itself and to the question of whether those interests will be positively served in some identifiable and relevant way by the granting of this dispensation. Some positive case must be made out by reference to those interests: TMPL at [12].

The present case

1. Turning to the circumstances of this case, Bantex relies on affidavits from the deed administrators, two affidavits from the sole director of Bantex, and an affidavit from Mr Franck Troquay setting forth Holdham's position.
2. The proposed transaction between Bantex and Holdham relevantly involves: 1. Holdham subscribing for 2.4 million shares in Bantex, for consideration of $6 million, which is to be used to pay Bantex's contribution to the deed fund; to pay out the substantial secured creditor of Bantex; and to provide working capital for Bantex; 2. other entities based in Indonesia (together, BINO) subscribing for 800,000 shares in Bantex. (The consideration for the issue of shares to BINO will be the retransfer to Bantex of the ownership of certain trademarks which were previously sold by Bantex to BINO in 2015 and 2016); 3. Holdham will thereafter have a majority shareholding in Bantex; 4. Holdham will appoint two directors and BINO will appoint one director to the Board of Bantex, with Mr Stathakis resigning as a director; and 5. Holdham is proposing in due course to change the name of Bantex to Hamelin Pty Limited and to rebrand the business under the Hamelin name.
3. The balance sheet of Bantex as at 16 March 2018 annexed to the affidavit of Mr Stathakis shows that Bantex presently has net assets of $173,378. The proposed recapitalisation involves disbursement of the $6 million equity injection by Holdham as follows: 1. the immediate payment of Bantex's contribution of $1,100,000 to the deed fund; 2. payment of approximately $2,601,253 to the secured creditor, Hermes Capital Australia Pty Ltd; 3. payment of the sum of money presently estimated by Mr Stathakis to be about $800,000 to the deed administrators in reimbursement of expenses and debts incurred by them in the period in which they traded the business of the company as administrators (from 27 December 2017 to 16 March 2018) and which have not yet been paid out of the assets of Bantex. Given that the deed administrators have a right of indemnity (s 443D) secured by a lien on the company's property (s 443F) in respect of trading on liabilities incurred during the administration, the effect of this payment will be to reduce the liabilities of Bantex by the amount of the payment. As a consequence, Bantex will receive a net injection of about $1.5 million of cash into the business.
4. Mr Troquay confirmed in his affidavit that it is a pre-condition to the proposed transaction that Bantex not be required to state in public documents and negotiable instruments that it is subject to a DOCA. Mr Troquay puts the basis for Holdham's position as follows: (a) through the Proposed Transaction, Holdham is effectively seeking to utilise the existing assets (including the intangible assets, such as goodwill) of the Company for the establishment of its operations in Australia; (b) both Holdham and BINO intend to invest significant capital subscribing for shares in the Company in order to recapitalise it thereby ensuring that the Company meets all its debts to its creditors as they fall due and payable following completion of the Proposed Transaction; (c) if the Company is required to state on all its public documents and correspondence that it is subject to a deed of company arrangement, there would (or at least could) be an adverse effect on the goodwill of the business of the Company, in that the Company's relationships with its suppliers or purchasers may be harmed (for example, suppliers may change the terms on which they supply goods or services to the Company upon identifying that it is subject to a deed of company arrangement); and (d) as explained above, Holdham is proposing to rename the Company under the Holdham brand and it does not want to do so while the Company is required to state that it is subject to (a) deed of company arrangement.
5. Mr Tayeh says that the deed administrators are supportive of the proposed transaction between Bantex and Holdham because, upon execution of the proposed agreement, it will lead to the deed fund being fully constituted (which would otherwise not occur until 2020) and, as a consequence, the creditors of Bantex will be paid about two years earlier than as currently provided for by the DOCA.
6. Mr Tayeh explained that it is expected that there will be two distributions to creditors from the deed fund, one being a dividend to priority unsecured creditors (who are expected to receive 100 cents in the dollar in respect of their debts) and a second dividend to ordinary unsecured creditors (who will be paid out in accordance with the terms of the DOCA, the estimated dividend being in the range of three to four cents in the dollar).
7. Mr Tayeh also referred to the litigation to which Bantex and the deed administrators are parties, being proceedings commenced by Bantex on 24 January 2018 against Toll Global Forwarding Pty Ltd and Toll Global Forwarding (Hong Kong) Ltd. On 29 January 2018, the Toll companies filed a cross-summons against Bantex and various other parties. The Toll proceedings concern an alleged liability of Bantex for certain demurrage and shipping costs of the Toll companies, as well as whether one or other of the Toll companies has a lien over the goods (and, if so, whether that security interest vested in Mr Tayeh and Ms McCallum upon their appointment as administrators pursuant to s 267 of the Personal Property Securities Act 2009 (Cth).
8. Mr Tayeh says that the Toll proceedings do not affect the deed fund as Bantex and Mr Stathakis have agreed under the terms of the DOCA to indemnify Bantex in respect of any liability to the Toll companies, as well as the administrators' costs of those proceedings: cl 9. Nonetheless, Mr Tayeh acknowledges that the existence of the Toll proceedings may lead to a continuation of the DOCA until those proceedings are resolved.
9. Mr Tayeh deposed that he and Ms McCallum do not oppose the dispensation order sought by Bantex and consider that it is in the best interests of the creditors because: (a) the execution of the Agreement and the payment of monies by Hamelin (or its related entity) provides additional assurances that the creditors will receive the funds that the Company agreed to pay into the Deed Fund, and for those monies to be received by creditors far earlier than would otherwise be the case; (b) in the absence of the order being made, the Agreement will not be executed and the transaction with Hamelin will not take place (or at least there is a very high risk of that eventuality); and (c) omitting the words that the Company is subject to a deed of company arrangement will not have any significant risk to existing or future creditors given that the funds being provided by Hamelin (or its related entity) will pay out the totality of monies due under the Deed Fund and also provide working capital for the Company moving forward; (d) the Company has no further obligations under the DOCA once the payments (have) been made.

Disposition of application

1. The first question for consideration concerns whether s 450E(5) is satisfied.
2. I am satisfied on the materials before the Court that the dispensation will not result in any significant risk to the interests of the company's creditors (including contingent or prospective creditors) as a whole. As indicated, the proposed recapitalisation involves the payment by Bantex of its contribution of $1,100,000 to the deed fund immediately, rather than over the course of two years. As a consequence, existing creditors, whose debts are subject to the deed of company arrangement, will be in a better position than in the absence of the recapitalisation because they will have the certainty of the monies being paid immediately and they are likely to receive the dividend payable to them from the deed fund far earlier than otherwise would be the case.
3. As to prospective creditors, they would be dealing with a company on a far sounder financial footing following the recapitalisation because Bantex would have the benefit of the new equity capital in the order of net $1.5 million, the discharge of the debt owing to its secured creditor of approximately $2.6 million, relief from its current obligations to BINO in respect of royalty payments of $18,000 per month, the re-transfer of ownership of the trademarks previously sold to BINO, the support of Holdham as its majority shareholder, together with a new board of directors and management, and a rebranding of the business under the Hamelin name.
4. Turning to the question of whether the Court should exercise its exempting power, this is not a case of simply allowing the company to test the commercial prospects in the future under the deed of company arrangement at the expense of warning creditors who deal with the company in the future: cf Multelink at [16]. This is a case where the grant of dispensation will be conducive to the "rescue of the business": TMPL at [23]. This is a significant factor in favour of the grant of dispensation. Plainly, the proposed transaction involves the bringing in and risking of further monies as capital, which is substantial: Multelink at [15]-[16].
5. In addition to the benefits to creditors referred to above, it is relevant to take into account the attitude of the deed administrators - who do not oppose the dispensation sought and have expressed the opinion that there is no significant risk to creditors. Given the proposed replacement of the existing management and a rebranding of the business under the Hamelin brand, I accept Bantex's submission that there is good reason to distinguish the company under its new management and control and not to burden the restructured entity with the conduct of its prior management.
6. Further, in the absence of a dispensation it may be anticipated, as Mr Troquay deposed, that Holdham will not proceed with the proposed recapitalisation. Against this, the proposed transaction would provide Bantex with a much sounder financial footing going forward, which is in the interests of the company, its shareholders, employees and prospective creditors.

Conclusion and Orders

1. I am satisfied that Bantex has made out a case for the grant of a blanket dispensation from the requirement specified in s 450E(2). As a protective mechanism, the dispensation order should operate only upon both execution of the proposed transaction agreement and the receipt by the deed administrators of the sum of $1.1 million to be paid by Bantex into the deed fund. The form of orders proposed by Bantex provides for this conditionality. It is also appropriate that the Court direct that an affidavit be filed by the deed administrators confirming that the payment of Bantex's contribution into the deed fund has been made.
2. The orders make provision for notification to creditors of Bantex of the terms of the order, which the parties have agreed to give to creditors, at the request of ASIC. The costs order referred to below reflects the position agreed between Bantex and the deed administrators.
3. For these reasons, the Court made the following orders on 19 April 2018: 1. Order that upon: 1. execution of the document described as the Share Subscription Agreement that is annexure 'B' to the affidavit of Franck Pierre Frederik Maria Troquay sworn 17 April 2018 or an agreement substantially in the form of that document; and 2. receipt by Riad Tayeh and Suelen McCallum, in their capacity as the Deed Administrators of Bantex Pty Limited (subject to deed of company arrangement) (Bantex), of the sum of $1.1 million, leave be granted, pursuant to s 450E(2) of the Corporations Act 2001 (Cth), to Bantex thereafter to omit the words 'subject to deed of company arrangement' after its name on all public documents and all negotiable instruments, until the termination of the Deed of Company Arrangement executed by Bantex, Riad Tayeh, Suelen McCallum and Michael Stathakis on 16 March 2018. 1. Order that, by 4.00pm on 20 April 2018, the Defendants file an affidavit as to whether they have received the funds referred to in order 1(b). 2. Order that the Plaintiff pay the Defendants' costs of the proceedings, as agreed or assessed. 3. Note the agreement of the parties that the Defendants will notify the creditors of Bantex of these orders, in writing, by 4.00pm on 24 April 2018. 4. Direct that these orders be entered forthwith.

20 April 2018

1. I record that in accordance with order (2) referred to in [34] above, the deed administrators filed an affidavit by Ms McCallum sworn on 20 April 2018 deposing to the receipt of a cheque for $1.1 million on 20 April 2018 which is to be deposited into the bank account established by the deed administrators in respect of the deed fund.

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