In the matter of Elderslie Finance Corporation Limited, Perpetual Trustees WA Limited v Elderslie Finance Corporation Limited

REASONS FOR JUDGMENT 1 In this proceeding the plaintiff, as trustee for debenture holders, seeks certain relief under ss 283HA and 283HB of the Corporations Act 2001. 2 The proceeding was before me on 13 June 2008 when it was adjourned to today, ultimately without resistance from the plaintiff (although there was some debate as to the conditions of the adjournment). The reason for the adjournment was that there was evidence before the Court that a transaction associated with Mr Purves, one of the directors of the defendant, might proceed and that if it did the interest of debenture holders would have been better served than if the proceeding had gone to a hearing then. The Purves proposal has not come to fruition. 3 The defendant now seeks a further adjournment to allow an alternative proposal on behalf of Turnbull Group Developments Pty Ltd (Turnbull Group) to be given time to eventuate. On the application for the adjournment Mr Walton, senior counsel for the defendant, refers to certain documentary evidence of what this alternative proposal is. Apparently the proposal was first raised on 4 June 2008, but it has re-emerged on 20 June 2008 as a joint proposal from Turnbull and Scarborough Property Holdings. 4 The nature of the proposal is vague. It would involve the proposer entity having a 28-day period in which, to the exclusion of all others, it would investigate the defendant with a view to formulating its proposal. Various conditions are mentioned in a letter dated 26 June 2008 from Turnbull Group, including a term that the proposal would only go ahead at the end of the 28 day period if certain conditions were satisfied. One of these is that the Court would approve a debenture moratorium for six months and "an opportunity to argue for a further moratorium if considered necessary at the end of that six months for a further short period". 5 The proposal would involve $15 million being made available to the defendant, but of this amount $12.6 million would be used to pay creditors other than the debenture holders and the remaining $2.4 million would be provided for "working capital". 6 Moreover, the $15 million is apparently to be covered by security of $22.37 million in the form of mortgages over real estate or interests in real estate of the defendent. These forms of security would apparently stand in priority to the debenture holders' security. In sum, the sum of $15 million would not benefit the debenture holders and would be to the detriment of their security. 7 The proposal contains a number of general statements of an intention: · "to revitalise Elderslie", "to recapitalise the business for the medium to long term"; · to "introduce finance and other businesses into the Elderslie stable"; · to "restructure the existing debenture liabilities"; · to "design and market new investment products"; and · to "introduce fresh management and board, including to the development companies and subsidiaries". I have set them out to emphasise the non-specific nature of the proposal, if it can be called that, that is before the Court. 8 It should be noted that although a 28 day investigation period is sought, the period of the adjournment sought today is of only seven days, which would not seem to meet the purpose. 9 There is evidence before the Court pointing clearly to the financial straits in which the defendant finds itself at present. The position seems to be deteriorating. There is a cash flow projection estimating the position as at yesterday, 30 June 2008, a number of predictions which have not been fulfilled, leading to a deficiency of $16.704 million as at yesterday. 10 I have not referred to the detail of all that was put to me. Having regard to the unfortunate financial position in which the company finds itself and therefore the unfortunate position in which the debenture holders find themselves and the very vague hope that is put before the Court as the basis for the adjournment, I decline the adjournment. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.