Mighty River International Limited v Hughes

Report to creditors 3. Pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) (Schedule 2 to the Corporations Act), the first plaintiffs are justified in relying on the report to creditors of the seventh, eighth, ninth, tenth and thirteenth plaintiffs (together the DOCA Companies) issued 7 February 2023 to accompany a notice convening the second meeting of creditors of any of the Non-DOCA Companies for the purposes of s 75-225(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth), along with any supplementary report to creditors which is produced by the first plaintiffs specifically for any of those companies.

Committee of inspection 4. Pursuant to r 1.32 of the Federal Court Rules 2011 (Cth), the single committee of inspection formed in respect of the second to thirteenth plaintiffs be modified such that the committee will continue in respect of the Non-DOCA Companies and cease in respect to the DOCA Companies.

Ancillary orders 5. The first plaintiffs must take all reasonable steps to cause notice of these orders to be given, within one business day after the making of these orders, to: (a) the creditors (including persons or entities claiming to be creditors) of each of the Non-DOCA Companies and additional Clough Companies, in the following manner: (i) where the creditor is a registered user on the Halo platform, by publishing a notice via the Halo platform; (ii) where the creditor is not a registered user on the Halo platform but the first plaintiffs have an email address for a creditor, notifying each such creditor, via email, of the making of the orders and providing a link to a website where the creditor may download the orders and this interlocutory process; (iii) where a creditor is not a registered user on the Halo platform and the first plaintiffs do not have an email address for a creditor but have a postal address for that creditor (or have received notification of non-delivery of a notice sent by email in accordance with (a)(ii) above), notifying each such creditor, via post, of the making of the orders and providing a link to a website where the creditor may download the orders and this interlocutory process; and (iv) placing scanned, sealed copies of the orders and this interlocutory process on the website maintained by the first plaintiffs at https://aurestructuring.deloitte-halo.com/clough; (b) the Australian Securities and Investments Commission; (c) the Deputy Commissioner of Taxation; and (d) the Department of Employment and Workplace Relations (administering the Fair Entitlements Guarantee Scheme). 6. Any person who can demonstrate a sufficient interest has liberty to apply to the Court to vary or discharge any of the above orders on three business days' notice to the first plaintiffs. 7. The first plaintiffs' costs of and incidental to this application be costs in the administration of the Non-DOCA Companies, jointly and severally. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

BANKS-SMITH J: 1 This is the third application relating to the Clough Companies. 2 On 13 December 2022 I made a range of orders, including orders limiting the liability of the Administrators under certain agreements and facilitating the use of the Halo platform as a means of communications with creditors: Algeri (Administrator), in the matter of Murray & Roberts Pty Ltd (Administrators Appointed) [2022] FCA 1506 (Algeri (No 1)). 3 On 21 December 2022 I made orders extending the statutory convening period for the second meeting of creditors of each of the Clough Companies, required by s 439A of the Corporations Act 2001 (Cth), from 12 January 2023 to midnight on 17 February 2023: Algeri (Administrator), in the matter of Murray & Roberts Pty Ltd (Administrators Appointed) (No 2) [2022] FCA 1563 (Algeri (No 2)). 4 These reasons assume familiarity with those reasons and adopt the same defined terms. 5 This application is supported by a fourth affidavit of one of the Administrators, David Orr, filed 13 February 2023. Mr Orr also relies on the First Orr Affidavit and the Third Orr Affidavit in support of this application. 6 It is now apparent that a pooled single deed of company arrangement (DOCA) may be entered into with respect to one group of Clough Companies, being the seventh, eighth, ninth, tenth and thirteenth plaintiffs (DOCA Companies). There is a second group of companies where it is not currently anticipated that a DOCA will be entered into. These are the second, third, fourth, fifth, sixth, eleventh and twelfth plaintiffs (Non-DOCA Companies). 7 The orders sought by the Administrators by this application are: orders to the effect that the period within which the Administrators must convene the second meetings of creditors of each of the Non-DOCA Companies under s 439A of the Corporations Act be further extended from 17 February 2023 to midnight on 6 April 2023; that the Administrators are justified in relying on the Report to Creditors and any supplementary report (described below) to accompany a notice convening the second meeting of creditors of the Non-DOCA Companies; modifying the composition of the Committee of Creditors; and certain non-contentious ancillary orders.

Second extension of time - principles 8 In Algeri (No 2) I summarised the principles that apply on an application to extend the time for convening the meeting of creditors under s 439A(6) and s 447A(1) of the Corporations Act: at [7]-[14]. 9 Section 439A(6) provides only for one extension of time. Such extension having already been granted, it is necessary for the Administrators to rely on s 447A(1) as the source of the Court's power to grant a further extension of time. That is the source of the general power of the Court to make such order as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company. 10 It is established that the power under s 447A(1) extends to further extending the convening period notwithstanding that an earlier extension has already been granted: In the matter of Henry Walker Eltin Group Ltd (Administrators Appointed) [2005] FCA 984 (Hely J). 11 The principles that inform the exercise of the power to extend time to convene a meeting under s 439A also inform the exercise of the power under s 447A(1) to further extend that time: Henry Walker Eltin at [4] (reference to the commercial interests of the creditors); and Chamberlain, in the matter of South Wagga Sports and Bowling Club Ltd (Administrator Appointed) [2009] FCA 25 at [10] (Jacobson J). 12 Accordingly, in considering this application, as in Algeri (No 2), I am guided by the desirability of reaching an appropriate balance between the expectation that an administration will be undertaken in a relatively speedy and summary manner with the need on the part of the Administrators to consider sensible and constructive options directed towards maximising the returns for creditors and other stakeholders.

Work undertaken since previous orders 13 The evidence indicates that since the first extension, the Administrators have undertaken considerable work with respect to both the DOCA Companies and the Non-DOCA companies.

The SID 14 As to the DOCA Companies, the Administrators have taken the significant step of exercising their power of sale under s 437A(c) of the Corporations Act and have entered into a Sale and Implementation Deed (SID) with Webuild and Webuild Australia for the sale of the DOCA Companies' shares and assets to Webuild Australia (this is an expanded agreement as compared with the Webuild Agreement referred to in Algeri (No 2)). Webuild Australia, an Australian subsidiary of Webuild, is the purchaser under the terms of the SID. Webuild guarantees the obligations of Webuild Australia under the SID. 15 Expressed generally, the SID provides for the completion of the sale of the Clough group's business to Webuild Australia by either a DOCA (Webuild DOCA) (via the sale of shares in the capital of the DOCA Companies), or an Asset Sale and Purchase Deed (ASA) (via the sale of certain assets of the DOCA Companies). 16 A copy of the proposed Webuild DOCA is included by way of appendix in the Report to Creditors referred to below. 17 In summary the Webuild DOCA is a pooled DOCA covering the DOCA Companies, which upon completion converts claims against them to claims against a creditors' trust. Employees of the DOCA companies will remain employees of the relevant DOCA companies. Their entitlements will remain with those companies and will be excluded from claims against the creditors' trust. Webuild Australia will contribute an amount of $35.9 million to the Administrators to be applied in accordance with the terms of the SID and the Webuild DOCA. 18 At the second meeting of creditors of the DOCA companies, the creditors will be asked, among other things, to resolve whether to execute a DOCA in accordance with the regime proposed. 19 Under the terms of the SID, if the Webuild DOCA is not accepted by creditors at the second meeting and the DOCA Companies' businesses are sold by way of the ASA, then the sellers and Webuild Australia agree to finalise the ASA the business day immediately following the reconvened meeting of the DOCA Companies creditors. Webuild Australia is required to offer new terms of employment to all employees to be on terms no less favourable than the current terms of employment with the Clough Group, and recognising all accrued entitlements. The nominated Clough companies under the ASA will transfer various assets to Webuild Australia. 20 According to Mr Orr, the Administrators' intention is to sell substantively the same business to Webuild Australia under the SID and ASA as would be transferred to Webuild Australia under the SID and Webuild DOCA.

Other tasks 21 The Administrators also convened the second meeting of creditors of the DOCA companies for 15 February 2023 and issued the Administrators' Report to Creditors of the DOCA Companies pursuant to s 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPR). 22 The Administrators have also continued to investigate and pursue various sale opportunities in respect of the various Non-DOCA Companies' businesses or assets in Australia and overseas. For example, they have engaged a global investment bank to assist in the sale of the shares of MRPL's subsidiary, RUC Cementation Mining Contractors Pty Ltd, a diversified underground mining contracting specialist. The Administrators have received a number of non-binding indicative offers, and a timetable has been put in place to provide for due diligence and calls for binding offers, with progression to financial close of any deal not expected to be practical or possible until on or around 24 March 2023.

Administrators' justification for second extension of convening period for Non-DOCA companies 23 Unless a further extension is granted, the convening period for the second meeting of creditors of the Non-DOCA Companies pursuant to s 439(5) of the Corporations Act (as extended by the orders of 21 December 2022) will expire on 17 February 2023. 24 The further extension is sought by the Administrators primarily because the administration of the Clough Companies to date has been highly complex having regard to: the scale and nature of their affairs; the scale of the Active Projects at the date of the appointment of the Administrators (see Algeri (No 1) at [28]); the number of entities in voluntary administration; and the diverse nature and geographic location of projects, employees, creditors, sureties, financiers and other stakeholders. 25 The Administrators do not anticipate that any sale or other process in relation to the Non-DOCA Companies will be completed until after 17 February 2023, noting the timelines set out by way of example for the RUC sale process. 26 Mr Orr on behalf of the Administrators states that they are of the opinion that it would be in the best interests of the creditors of the Non-DOCA Companies for the convening period to be extended by a period of 48 days in light of these matters. The additional time would enable the Administrators to undertake a proper and competitive process to facilitate and negotiate the sale of the assets of the Non-DOCA Companies, or potentially the sale of those Non-DOCA Companies' businesses as going concerns. 27 Mr Orr states that given the scale and complexity of the administrations, and the progress made in them to date, notwithstanding the impact of the statutory moratorium provided by Part 5.3A on the ability of creditors to enforce their rights, the proposed further extension of the convening period of the Non-DOCA Companies will not unduly prejudice the Non-DOCA Companies' creditors. Any limited prejudice that may be caused to creditors of the Non-DOCA Companies by a further extension of the convening period is greatly outweighed by the benefits to creditors as a whole conferred by the additional time available to complete any sale or other process. 28 Mr Orr states that in the opinion of the Administrators, immediate liquidation, as opposed to further extending the convening period, would not produce a better outcome for the Non-DOCA Companies' creditors (including the ability of the Non-DOCA Companies to pay employee entitlements) given that the Non-DOCA Companies do not presently employ any staff. The Administrators are satisfied there are sufficient resources available to the Non-DOCA Companies to meet any outstanding employee entitlements of previous employees of the Non-DOCA Companies, and say that this position will not change if an extension of the convening period is granted. Mr Orr observes that the Non-DOCA Companies are not operating companies within the Clough Group, and therefore will not incur ongoing trade and operational expenses if an extension of the convening period is granted. 29 Further, the Administrators intend to convene the second meetings of creditors of the Non-DOCA Companies as soon as practicable depending on developments, such that these meetings may be held earlier than the latest possible time during the extended time for the convening of the meetings as sought by the Administrators. For this reason a 'Daisytek' order is sought: see Algeri (No 2) at [6].

Extension appropriate 30 As I noted in Algeri (No 2) at [35], this is an example of a large and complex administration. Substantial extensions of convening periods in such cases are not uncommon. I repeat the observations of Nettle and Gordon JJ (in dissent, but not relevantly in this respect) in Mighty River International Limited v Hughes [2018] HCA 38; (2018) 265 CLR 480: [73] Generally speaking, courts have been disposed to grant substantial extensions in cases where the administration has been complicated by, for example, the size and scope of the business, substantial offshore activities, large numbers of employees with complex entitlements, complex corporate structures and intercompany loans, and complex recovery proceedings, and, more generally, where the additional time is likely to enhance the return to unsecured creditors. Provided the evidentiary case for extension has been properly prepared, there has been no evidence of material prejudice to those affected by the moratorium imposed by the administration, and the administrator's estimate of time has had a reasonable basis, the courts have tended to grant extensions for the periods sought by administrators. (footnote omitted) 31 The matters raised by the Administrators to which I have referred above are persuasive. 32 The Fourth Orr Affidavit (read with the First and Third Orr Affidavits) provides the evidentiary case for the requested extension. 33 There is no evidence of material prejudice to those affected by the extension. There has been disclosure to creditors of the intention to seek the further extension and notice has been given of this application (referred to further below). There is a proper basis for the Administrators' opinion that it in the commercial interests of the parties to seek the extension, and so maximising the prospect of as much of the business of the Clough group continuing as possible. I take into account the ongoing work that is being undertaken, as evidenced by the ongoing sale process relating to RUC (for example), all of which is directed towards maximising the returns for creditors, including employees. 34 The purpose of the second extension falls squarely within the principles set out in In the matter of Riviera Group Pty Ltd (admins apptd) (recrs and mgrs apptd) [2009] NSWSC 585 at [13] (Austin J): see Algeri (No 2) at [12]. 35 The Administrators' estimate of time has a reasonable basis, and I accept that it is appropriate and in accordance with principle to give weight to the Administrators' views as to the appropriate length of any extension. 36 For those reasons, and exercising the power provided by s 447A(1) of the Corporations Act, I will order that there will be an extension of the period within which the Administrators must convene the second meetings of creditors in respect of each of the Non-DOCA Companies under s 439A of the Act to midnight on 6 April 2023. 37 There will also be a Daisytek order to facilitate any prospect of convening the meeting earlier than the latest possible date.

Report to Creditors 38 The Administrators seek a direction that the Administrators are justified in relying on the Report to Creditors to accompany a notice convening the second meeting of creditors of any of the Non-DOCA Companies for the purposes of s 75-225(3) of the IPR, along with any supplementary report to creditors which is produced by the first plaintiffs specifically for any of those companies. 39 I have reviewed the Report to Creditors of the DOCA Companies. It provides detailed information that I consider will also be of value to the creditors of the Non-DOCA Companies. It expressly anticipates that supplementary information will be reported to the creditors of the Non-DOCA Companies. The Administrators acknowledge that the business, property, affairs and financial circumstances of the Non-DOCA Companies are different to those of the DOCA Companies and that a supplementary report should be provided. 40 There are great efficiencies in providing the Report to Creditors together with a supplementary report to the Non-DOCA Companies, as anticipated by the Administrators. The Court has power under s 90-15 of the Insolvency Practice Schedule (Corporations) (being Schedule 2 to the Corporations Act) to make such an order, and I consider that the Administrators have demonstrated sufficient utility to the external administration to justify making the order sought. Committee of inspection

Committee of inspection 41 The Administrators also seek an order pursuant to r 1.32 of the Federal Court Rules that the Committee (formed by order of this Court on 13 December 2022) be modified such that the Committee will continue in respect of the Non-DOCA Companies and cease in respect of the DOCA Companies. 42 Such an order modifying the Committee is a practical and efficient manner in which to proceed, given that: (a) at the second meeting of creditors to be held on 15 February 2023, creditors of the DOCA Companies will be asked to resolve whether to execute the Webuild DOCA to give effect to the sale to Webuild Australia; (b) the Report to Creditors includes the Administrators' opinion that the interests of creditors of the DOCA Companies would be best served if the DOCA Companies execute the Webuild DOCA to give effect to the sale to Webuild Australia; and (c) the Administrators do not presently intend to convene the second meeting of creditors of the Non-DOCA Companies, and instead continue to undertake the sale or other processes as discussed above. 43 There will be an order accordingly.

Notice of hearing 44 For completeness, I record that an affidavit of Samuel Dundas of King & Wood Mallesons affirmed 15 February 2023 was filed in support of this application for orders and directions, addressing notice of the hearing. 45 Mr Dundas ensured that advance notice of this hearing and the relief sought was given to each of the Secured Parties, the Australian and Securities Investment Commission, the Australian Taxation Office, the Commonwealth Department of Employment and Workplace Relations and the members of the Committee of Inspection. None sought to oppose the orders sought or to appear at the hearing. 46 Mr Dundas also noted that the solicitor assisting him in this matter, Andrew McLeod, was informed by Matthew Carr of Deloitte that on 13 February 2023 a copy of this application was uploaded to the Halo platform. 47 I am satisfied that the relevant stakeholders had sufficient notice of today's hearing.

Ancillary orders 48 The Administrators also seek directions addressing the manner in which notice of these orders is to be given to creditors, and preserving liberty to apply to interested parties. Those directions are routine and will be made. There will also be an order that the costs of the application be costs in the administration of the Non-DOCA companies, jointly and severally. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith.

SCHEDULE OF PARTIES WAD 256 of 2022 Plaintiffs Fourth Plaintiff: CLOUGH OPERATIONS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 109 444 279) Fifth Plaintiff: CLOUGH OVERSEAS PTY LTD ADMINISTRATORS APPOINTED) (ACN 067 272 182) Sixth Plaintiff: CLOUGH SEAM GAS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 139 610 656) Seventh Plaintiff: CLOUGH ENGINEERING & INTEGRATED SOLUTIONS (CEIS) PTY LTD (ADMINISTRATORS APPOINTED) (ACN 097 480 736) Eighth Plaintiff: E20 PTY LTD (ADMINISTRATORS APPOINTED) (ACN 125 234 924) Ninth Plaintiff: SHARP RESOURCES PTY LTD (ADMINISTRATORS APPOINTED) (ACN 166 613 127) Tenth Plaintiff: CLOUGH PROJECTS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 109 444 831) Eleventh Plaintiff: CLOUGH ENGINEERING PTY LTD (ADMINISTRATORS APPOINTED) (ACN 009 093 869) Twelfth Plaintiff: CLOUGH PROJECTS INTERNATIONAL PTY LTD (ADMINISTRATORS APPOINTED) (ACN 109 444 902) Thirteenth Plaintiff: CLOUGH PROJECTS AUSTRALIA PTY LTD (ADMINISTRATORS APPOINTED) (ACN 109 444 215)