- Kempe v Ambassador Insurance Company

Judgment (4 paragraphs)

[1]

Solicitors: DLA Piper Australia (Plaintiffs) Gilbert & Tobin (Certain scheme creditors) File Number(s): 2019/384003

[2]

Nature of the application, background and affidavit evidence

By Interlocutory Process filed on 27 April 2020, the Plaintiffs, Wollongong Coal Limited ("WCL") and Jindal Steel & Power (Australia) Pty Ltd ("JSPAL") sought an order under rules 1.12 or 36.17 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") or s 1322(4)(d) of the Corporations Act 2001 (Cth) that certain time periods under schemes of arrangement approved by the Court on 14 February 2020 be extended. Specifically, WCL and JSPAL sought an order that the CP Satisfaction Long Stop Date (as defined) be extended to 1 April 2020 and the Settlement Long Stop Date (as defined) be extended to a date 7 days after the entry of the Court's orders, with that order to operate retrospectively from the date orders approving the schemes were made on 14 February 2020. The application was supported by creditors representing a substantial proportion of creditors by value and number, who were represented at the hearing. I made the orders sought at the conclusion of the hearing, on 29 April 2020. These are my reasons for doing so.
By way of background, Gleeson JA summarised the terms of and background to the relevant schemes in his judgment in respect of the second Court hearing in Re Wollongong Coal Ltd and Jindal Steel & Coal Australia Pty Ltd [2020] NSWSC 73, as follows: "The scheme companies are [JSPAL] and [WCL]; both are registered under the Corporations Act 2001 (Cth). [WCL] is an ASX-listed coal mining company. Its shares have been voluntarily suspended from trading since 13 December 2018. JSPAL is wholly owned by Jindal Steel & Power (Mauritius) Ltd (JSPML), which in turn is wholly owned by Jindal Steel & Power Ltd (JSPLI), the ultimate parent company of the Jindal Group. JSPML holds 60.38 per cent of the shares in [WCL]. The balance of the shares is held by the public. JSPAL borrows funds from JSPML and on-lends those funds to [WCL]. JSPAL also borrows funds from outside lenders and on-lends those funds to [WCL], under two facilities known as the Axis facility and the SBI facility. Those facilities are in default. [WCL] is a guarantor of the Axis and the SBI facilities. … ... The scheme meetings were held on 30 January 2020. The resolutions agreeing to the proposed schemes were overwhelmingly passed by the requisite majorities referred to in s 411(4)(a) of the Corporations Act. … [WCL] carries on the business of mining and producing coal for sale and export near Wollongong on the south-coast of New South Wales. Through two wholly-owned subsidiaries it owns two coal collieries known as Russell Vale and Wongawilli. Those collieries have not operated consistently for a number of years. The Russell Vale colliery has been placed on care and maintenance since 2015 following environmental and health safety concerns. Operations at Wongawilli have been intermittent in recent years and Wongawilli has been placed on care and maintenance since May 2019. As a consequence, [WCL] has struggled to finance their operations and has had difficulties making payments under its facilities with its secured lenders. In July 2019, [WCL] filed a final [Amended] Underground Expansion plan seeking regulatory approval to carry out an underground mining at Russell Vale. Subject to the schemes being approved, the directors of [WCL] expressed confidence in the explanatory statement [accompanying] the proposed schemes that mining operations will resume at Russell Vale in late 2020 or early 2021. The date that the directors of [WCL] now expect mining operations will resume is March 2021. The Explanatory Statement sent to lenders on [24 December 2020] stated that the existing facilities which are secured comprised: … (3) The SBI facility pursuant to which JSPAL, as borrower, and [WCL], among others, as guarantor, entered into a $US98,690,000 facility agreement in 2015 with SBI (Sydney) and SBI (Mauritius) Limited as the original lenders. The governing law of the SBI facility is New South Wales law: cl 25. As at 30 November 2019, the SBI facility had an aggregate outstanding amount of $US78,301,339. The facility is in default. On 19 September 2019, a notice of demand and acceleration was issued to JSPAL as borrower and [WCL], among others, as guarantor. An initial forbearance agreement entered into by the parties has been replaced by the restructuring support agreement; (4) The Axis facility pursuant to which JSPAL, as borrower, and [WCL], among others, as guarantor, entered into a $US69,000,000 facility agreement in 2015 with Axis Bank Ltd as the original lender (with an option to increase the facility by $US561,000,000). The governing law of the SBI facility was changed to New South Wales law on 19 December 2019, by a Consent letter between the Obligors and the Majority Lenders under the SBI facility. As at 30 November 2019, the Axis facility had an aggregate amount outstanding of approximately $US291,857,860. The facility is in default. … On 11 November 2019, JSPAL and [WCL] and nine lenders under the SBI and Axis facilities, referred to as the Consenting Creditors, entered into a Restructuring Support Agreement to give effect to the proposed restructuring by way of the schemes. Under the Restructuring Support Agreement as amended on 19 December 2019, the Consenting Creditors have agreed to support the schemes and their implementation on the terms of the Restructuring Support Agreement. The Consenting Creditors comprise all of the lenders under the SBI facility and a majority in number and 78.94[%] in value of the lenders under the Axis facility. … The effect of the schemes is to restructure the existing SBI and Axis facilities by offering the secured lenders the opportunity to participate in one of two rescheduled facilities described as Rescheduled Facility A (which provides for various reductions of principal amounts outstanding upon certain milestones occurring) or Rescheduled Facility B (which extends the repayment schedule). In outline, Rescheduled Facility A is subject to a reduction of up to 29 per cent in the amount of principal upon certain milestones being met. It will be repaid before Rescheduled Facility B and has a higher coupon rate with a margin of 4.5 per cent. Rescheduled Facility B facility will rank pari passu in respect of guarantees and security provided with Reschedule Facility A, but will be repayable in full and without any reduction in the principal amount, in three equal payments amount to one-third of the total outstanding under Rescheduled Facility B, such payments to be made on 30 September 2026, 30 September 2027 and 30 September 2028. Rescheduled Facility B has a lower margin than Rescheduled Facility A of 3 per cent and lenders will not be able to exercise their rights to enforce a security interest while the principal amount is outstanding under Reschedule Facility A."

Submissions and determination

Mr Newlinds, who appeared with Mr Bender for the Plaintiffs, referred to three possible sources of the Court's power to make the orders sought by the Plaintiffs. I am satisfied that the Court has that power, although different views have been expressed in the case law as to the basis of that power.
First, rule 1.12 of the UCPR provides that the Court may, by order, extend or abridge any time fixed by the UCPR or any judgment or order of the Court, including after that time expires. That rule is applicable in Corporations matters by r 1.10 of the Supreme Court (Corporations) Rules 1999 (NSW). That power allows the Court to extend or abridge the time in which steps are required to be taken under a scheme of arrangement under the Corporations Act on the basis that, once a scheme is approved at the second Court hearing, it is subsumed into the order of the Court: Re AGL Gas Networks Ltd [2001] NSWSC 165 at [47]; Re The Dominion Insurance Company of Australia Ltd [2013] NSWSC 898 at [33]. I recognise that the Privy Council reached a different view in Kempe v Ambassador Insurance Company (in liq) [1998] 1 WLR 271, but that decision has not been applied in subsequent Australian cases. I should follow those Australian cases, given the desirability of consistency of decision-making in matters arising under the national corporations legislation.
Second, Mr Newlinds points to r 36.17 of the UCPR which allows a Court, on the application of a party or of its own motion, to correct a mistake or error arising from an accidental slip or omission in a judgment or order. In Re AGL Gas Networks above, Santow J relied on that provision in amending a scheme with retrospective effect where a condition precedent to the operation of the scheme had not been satisfied by reason of a slight delay in the receipt of an amendment to a necessary statutory authorisation. Santow J there referred to authority that the application of the slip rule is not confined to giving effect to the intention of the Judge at the time when the Court's order was made or judgment given, and extends to the intention which the Court would have had, but for the failure that caused the accidental slip or omission. The reference to an "accidental slip or omission" is there to the making of an order, or the approval of a scheme, in a form that would not be satisfied given subsequent events. Santow J also observed that the Court's inherent power to amend an entered judgment which did not represent the parties' true intention could be used to extend a time limit contained in a scheme. His Honour there observed (at [33]) that both the parties and the Court were operating under a mistake of fact that the relevant authorisation would be obtained prior to the specified time and: "If the parties or the Court had been aware of the true state of affairs, I find that it is inevitable that the Court would have made an order altering the terms of the order and the scheme pursuant to s 411(6) of the Corporations Law."
In Re Dominion Insurance Company of Australia Ltd above, Brereton J also referred to Re AGL Gas Networks Ltd. His Honour there noted his reservations as to whether the Court's ability to extend the time fixed by any judgment or order would extend so far, but considered that he should follow the prevailing Australian authority including that case. His Honour also expressed doubt (at [35]) as to whether a failure to provide a longer period for satisfaction of a condition precedent could qualify as a "slip", which I share, and also doubted that a scheme, being a creature of statute, could be amended under the inherent jurisdiction, where the statute prescribes the procedures for approval and authority establishes that, once approved, a scheme cannot be amended other than by following the same procedures.
As Mr Newlinds points out, the approach taken by Santow J in Re AGL Gas Networks Ltd above was approved by Banks-Smith J in Re Tawana Resources NL (No 4) [2019] FCA 75 at [39]-[40]. That approach is plainly constructive and allows the Court to rectify an unanticipated error or delay that would otherwise have the result that a scheme would fail. It does seem to me that there is a degree of artificiality in the reasoning supporting that approach, so far as it relies on the Court's and the parties' lack of knowledge at the date of the orders of a matter that only occurred on a subsequent date.
Mr Newlinds also refers to s 1322(4)(d) of the Corporations Act which relevantly permits the Court to make an order extending the period for doing any act, matter or thing under the Corporations Act or in relation to a corporation, including an order extending a period which had already expired. That power may be exercised where no substantial injustice has been or is likely to be caused to any person. In Re AGL Gas Networks above, Santow J left open the possibility that that section would also be available to extend the period for satisfaction of conditions precedent to the effectiveness of a scheme of arrangement which was approved by the Court, and Mr Newlinds submitted that the better view was that that section applied in this situation.
I have no doubt, on the authorities, as to the Court's ability to extend the time for satisfaction of the relevant conditions precedent in this matter. I would myself prefer to base that extension on r 1.12 of the UCPR, treating the terms of the scheme as having been subsumed into the Court's orders in respect of the scheme. However, if it were necessary to do so, I would follow the decision of Santow J in Re AGL Gas Networks as to the operation of UCPR r 36.17, where that decision has been followed in subsequent cases and delivers a constructive outcome. It also seems to me that s 1322(4)(d) of the Corporations Act may well be applicable in the relevant circumstances although I, like other judges addressing this question, do not find it necessary to finally determine that question.
Mr Newlinds in turn submits that, on the premise where the Court has power to make the orders, there are strong similarities between this case and the facts of Re AGL Gas Networks. I accept that the failure to satisfy the conditions precedent arose from a short delay in the relevant waivers taking effect, and a longer time would have been allowed for the satisfaction of the conditions precedent if the parties had the benefit of hindsight. The failure to satisfy the conditions precedent by the specified dates and the failure of the schemes would deprive WCL, JSPAL and the consenting creditors of the benefits that they respectively expect from the schemes, and expose the companies to the risk of external administration which had been identified at the time the schemes were put before creditors for their approval. The fact that the schemes, and this application, has the support of a number of creditors in greater number and value than would be required for the statutory majorities to approve a scheme under s 411 of the Act is also a relevant factor, as Mr Newlinds point out. I also accept that there would be no practical utility and considerable wasted costs in requiring that a new meeting be convened to consider a new or revised scheme. It is no doubt possible, given the difficulties which have already been experienced, that future payments contemplated by the revised arrangements between WCL, JSPAL and the consenting creditors will be delayed or not made, but that does not seem to me to be reason to deprive WCL, JSPAL and creditors of at least the possibility that the schemes will achieve their intended objectives.
For these reasons, I made the orders sought by WCL and JSPAL, and supported by the consenting creditors, at the hearing on 29 April 2020.

At a glance

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Judgment (4 paragraphs)

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Legislation Cited (3)

Cases Cited (4)