Mighty River International Ltd v Hughes

Supreme Court of NSW|2021-08-26|Before: Rees J, Black J

Solicitors: Nelson McKinnon Lawyers (Plaintiffs) O'Neill Partners Commercial Lawyers (Creditors) File Number(s): 2021/207800

ex tempore Judgment

HER HONOUR: This is an application under section 447A of the Corporations Act 2001 (Cth) and section 90-15 of the Insolvency Practice Schedule (Corporations) in Schedule 2 of the Act for orders that the resumption of the adjourned second meeting of creditors of Orbis Commodities Pty Ltd (administrators appointed) (receiver and manager appointed) and Pacific Investment Holding Pty Ltd (administrators appointed) (receiver and manager appointed), both scheduled to resume on 3 September 2021, be further adjourned.
The adjournment sought is lengthy, being to 3 December 2021. This will be the third adjournment granted by this Court. On 21 July 2021, Black J adjourned the meeting to 13 August 2021 and, on 4 August 2021, adjourned the meeting again until 3 September 2021. When granting the second adjournment, Black J made plain that the second application for an adjournment was weaker than the first and warned that a further application for an adjournment may not be granted, noting: There will be a point, and that point may well be reached if a further application of this kind is brought, where the disadvantages of delay to creditors would outweigh the benefit of continuing adjournments, or where the prospect of a proposal will have been diminished by the fact that it has not arrived over a significant period.

FACTS

Orbis and Pacific, through a complicated corporate structure, have an interest in Lever Solomons Ltd, a Solomon Islands company, which owns land in the Solomon Islands, being 27 Fixed Term Estates. Lever Solomons also has a judgment of some $8 million against the Solomon Islands Government. Orbis and Pacific's interests in Lever Solomons are their only assets of note.
Orbis and Pacific are owned by Willem and Margriet Van Vlymen. The Van Vlymens appear to have been in a joint venture with entities controlled by Patrick Wong, who appeared today with his company, Overseas Shipping Trading and Investment Pty Ltd (a Cook Islands company), as creditors. As I understand it, the Van Vlymens and Mr Wong have fallen out.
Mr Wong is a secured creditor of Orbis, Pacific and the Van Vlymens. In March 2017, Christopher Darin of Worrells Solvency & Forensic Accountants was appointed receiver and manager to Orbis and Pacific, at the instigation of Mr Wong.
There are widely differing views between the parties as to the value of Orbis and Pacific's interest in Lever Solomons. The accountant for Orbis and Pacific, Grant Thornton, values the land and judgment debt at some $123 million, of which Orbis and Pacific's interest via Lever Solomons is $49 million. Against this, Mr Wong has put forward material to the administrators suggesting that the value of the land is negligible. The administrators have been unable to determine the value of the land with any certitude. In part, this is because, despite requests to Mr Wong for various information and documents, they have not obtained a response.
There also appears to have been some disputation in the Solomon Islands between Mr Wong and the Solomon Islands Government, and perhaps the Van Vlymens. In November 2020 and March 2021, the Solomon Islands Government forfeited some of the land owned by Lever Solomons. As I understand it, in the event of forfeiture of land, no compensation is payable to the landowner. Soon afterwards, Lever Solomons commenced proceedings in the High Court of the Solomon Islands, challenging the forfeiture.
In April 2021, Richard Albarran and Kathleen Vouris were appointed as administrators to Orbis and Pacific. The administrators sought information from the receiver, who advised that a sales campaign was underway in respect of the Van Vlymen's shares in Orbis, and due to close on 30 April 2021. It was then proposed to extend the sale campaign until 30 July 2021, subject to the second meeting of creditors being adjourned.
On 12 May 2021, the first report to creditors of both companies was issued, recommending that liquidators be appointed, as no deed of company arrangement (DOCA) had then been proposed. On 18 May 2021, the administrators were contacted by the solicitors for Mr Wong, who wished to put forward a DOCA but needed more time to do so.
The first meeting of creditors took place on 20 May 2021 and was adjourned for 45 business days, to be reconvened by the administrators by a supplementary report being issued to creditors, detailing the pros and cons of Mr Wong's DOCA proposal and recommending whether it should be accepted or not.
In the meantime, the Van Vlymens presented a debtor's petition and, on 29 June 2021, their shares in Orbis and Pacific vested in their trustee in bankruptcy.
On 1 July 2021, the administrators received correspondence from SV Partners, a professional insolvency firm, advising that they had been approached by the Chief of Staff for the Prime Minister of the Solomon Islands Government via a local barrister. SV Partners advised that the Solomon Islands Government "are looking to ultimately own the property again and are considering what is required which includes the proposal of a Deed of Company Arrangement for [Orbis and Pacific] which will deal with the shareholding issues between Messrs Van Vlymen and Wong." SV Partners requested copies of reports issued to creditors and a list of creditors for each entity. The administrators provided the reports to creditors and various information about creditors, to facilitate an alternate DOCA proposal being put forward.
On 13 and 14 July 2021, Mr Wong put forward a DOCA proposal involving a deed fund of $260,000. Under this proposal, unsecured creditors of Orbis would receive five cents in the dollar, being $21,790 in total. Unsecured creditors of Pacific would receive 100 cents on the dollar, although those creditors totalled a relatively small sum.
In a supplementary report to creditors on 15 July 2021, the administrators reconvened the second meeting of creditors on 23 July 2021 and recommended rejecting Mr Wong's DOCA proposal as they did not accept the value which Mr Wong attributed to the assets of the companies in his proposal. Further, Mr Wong's DOCA proposal provided that, if the assets of the companies were sold to a third party for an insufficient sum to discharge the secured creditor, then the DOCA may be terminated, with no return to creditors. The administrators did not consider that there was any benefit to creditors in accepting the DOCA proposal if this was a possible outcome, considering the nominal return proposed.
As to the potential DOCA proposal from the Solomon Islands Government, Cabinet was unable to meet and pass the necessary resolutions to put forward a DOCA in time, by reason of the COVID-19 pandemic and an inability to hold a virtual meeting due to technology constraints. Nonetheless, the administrators were informed on 19 July 2021 that the Solomon Islands Government remained keen to put forward a DOCA proposal, but had problems doing so within the timeframe customarily imposed on such matters by this Court and under the Corporations Act. At that time, the proposed offer under the Solomon Islands DOCA was thought to be between $15 million and $20 million, which would be enough to pay all creditors of Orbis and Pacific in full.

First extension

On 20 July 2021, these proceedings were commenced. Mr Albarran considered that it was in the interests of creditors to adjourn the second meeting to allow the Solomon Islands Government to put forward its DOCA proposal. On 21 July 2021, Black J extended the date for the adjourned second meeting of creditors to 13 August 2021. His Honour was satisfied that this kept open for unsecured creditors the prospect of a more favourable DOCA or the introduction of competitive tension into the process of realising the companies' assets, or both.

Second extension

On 4 August 2021, the administrators sought a further adjournment of the second meeting of creditors, relying upon Mr Albarran's evidence that the Solomon Islands Government was undertaking due diligence with respect to the proposal and expected to make an offer this week, but not in enough time for a further supplementary report to be issued to creditors in advance of the second meeting.
On 4 August 2021, Black J adjourned the second meeting of creditors until 3 September 2021. As already noted, Black J considered that the second application was weaker than the first but was persuaded that a further adjournment was warranted bearing in mind the significant advantages to the creditors of a DOCA proposal being put by the Solomon Islands Government, on more favourable terms than that put by Mr Wong, and the advantage to creditors of a competitive tension between the Solomon Islands Government and Mr Wong in realising the companies' assets.
On 5 August 2021, the Ministry of Finance and Treasury of the Solomon Islands Government wrote to the administrators, expressing an interest in acquiring the land owned by Lever Solomons through the DOCA process, but noting that any proposal would have to be approved by the Cabinet. Further information was needed by the Solomon Islands Government to formulate its DOCA proposal, and that information was sought by the administrators from Mr Wong on 13 August 2021, but not provided. The receiver also communicated with the Solomon Islands Government, advising that the Government needed to deal with him. It appears that the Solomon Islands Government is not prepared to do so but wishes to pursue the matter through the DOCA process.
On 16 August 2021, the Commissioner of the Ministry of Lands, Housing and Survey published a notice in a Solomon Islands newspaper advising that the Commissioner had recently commenced forfeiture action in relation to land held in the name of Lever Solomons, in Lungga, Henderson, Bloody Ridge, Alligator Creek and Tenaru areas, this action now being the subject of litigation. The Commissioner advised that, unless and until that legal action was completed, applications for the land could not be accepted, considered or approved, nor would consents for transfers of the land be granted. As I understand it, the Commissioner for Lands was averting to the forfeiture of the land to which I have already referred, being the subject of litigation commenced by Lever Solomons challenging the forfeiture. The Commissioner was informing other members of the public making claims to the land that there was no point doing so until that litigation had concluded.
On 18 August 2021, the Commissioner of Lands confirmed to the receiver and manager that he intended to block the transfer of all land owned by Lever Solomons in accordance with Cabinet's direction.
On 20 August 2021, the Attorney General of the Solomon Islands wrote to the administrators, estimating that a minimum of three months was required to finalise a DOCA proposal for the approval of Cabinet. On 23 August 2021, the administrators held a telephone conference with the Attorney General, a representative of the Ministry of Finance and Treasury, and the Chief of Staff to the Prime Minister of the Solomon Islands, and discussed the proposed DOCA being formulated in the Solomon Islands and how long that would take. At that point in time, the representatives of the Solomon Islands Government indicated that $14 million was being considered.
On 24 August 2021, the Minister for Lands, Housing and Survey issued a notice of compulsory acquisition of some of the land owned by Lever Solomons, noting that compensation was payable to the owner of the land. As that matter has since been clarified by the Attorney General, the notice relates to a small number of parcels of land owned by the company, being a much smaller number than those already forfeited and the subject of legal proceedings in the Solomon Islands.

Third extension

On 25 August 2021, I heard the administrators' application for a further adjournment of the second meeting of creditors. In support of the application, Mr Albarran noted that the DOCA proposal from the Solomon Islands Government was expected to result in a complete return to creditors, who supported the adjournment, apart from Mr Wong. Mr Albarran was concerned that Mr Wong had not answered the administrators' requests for information, being necessary for the Solomon Islands Government to formulate its proposal.
Given the recent notice published in the Solomon Islands newspaper and the notice of compulsory acquisition, the hearing was adjourned to enable the administrators to make further enquiries of the Solomon Islands Government.
On 26 August 2021, the administrator had a further telephone conference with the Attorney General, John Nuria, and the Chief of Staff for the Prime Minister, Robson Djokovic, who explained that the forfeiture proceedings and the compulsory acquisition of land in Solomon Islands does not interfere with or detract from the Solomon Islands Government's intention to forward a DOCA proposal. Further, the forfeiture legal proceedings, and any compulsory acquisition of land will not be finalised before the extension of time, which is now sought from this Court, being 3 December 2021. It is not expected that forfeiture litigation will be heard in the Solomon Islands until February or March 2022, with any judgment not expected until May or June 2022, and the hearing of any appeal from such a judgment until April 2023.
The hearing resumed today. At this hearing, Mr Wong advised that his DOCA proposal would be withdrawn on 4 September 2021.

PRINCIPLES

The principles which inform the exercise of the Court's discretion are the same as when considering extending a convening period. The Court is to undertake a balancing exercise between, on the one hand, the expectation of a speedy administration and, on the other, the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return to creditors: Mighty River International Ltd v Hughes (2018) 265 CLR 480; [2018] HCA 38 at [73] per Nettle and Gordon JJ; In the matter of Collective Olive Groves Ltd [2009] FCA 177 at [18]; In the matter of Palace Memories Pty Ltd (administrator appointed) [2015] NSWSC 56 at [5].
The question is whether the Court is satisfied that it is in the best interests of the creditors to grant the extension. Whilst the power to extend time should not be exercised lightly, this is not to suggest that juridical parsimony is paramount; it is important to give administrators time to present meaningful choices to creditors at the second meeting: In the matter of NewSat Ltd [2015] FCA 435 at [58]-[59]. Relevant matters include the size and scope of the company's business, the existence of a complex corporate structure and intercompany loans, the time needed to execute an orderly process of disposal of assets, the fact that an adjournment is likely to enhance the return for unsecured creditors and the impact upon a person whose claim is affected by the statutory moratoriums under Part 5.3A of the Act: In the matter of Riviera Group Pty Ltd [2009] NSWSC 585; (2009) 72 ACSR 352 at [13] per Austin J; In the matter of Renex Holdings (Dandenong) 1 Pty Ltd (administrators appointed) [2015] NSWSC 2002 at [7] per Black J.

CONSIDERATION

There are several reasons which support the extension now sought.
First, from what has been said by senior members of the Solomon Islands Government, including the Attorney General, the government is seriously considering putting forward a DOCA. I am entitled to rely on the representations made by senior members of that government. I have no reason to doubt them.
Second, although the adjournment sought is unusually long, I accept that decision-making may take longer for a government than an individual or a company. A process of due diligence is being undertaken to submit to cabinet for its consideration. I accept that the processes of governments generally take longer than those of commerce.
Third, it appears that the DOCA proposal which is being contemplated by the Solomon Islands Government is likely to result in a greater return to creditors than in a liquidation, and certainly than under the DOCA proposal which is proffered by Mr Wong. It appears to have a consequence that all of the creditors, including Mr Wong, will be paid in full with a surplus to creditors. This weighs strongly in favour of allowing the DOCA proposed by the Solomon Islands Government to eventuate.
Fourth, Mr Wong appears to have been separately trying to sell Lever Solomons' land to the Solomon Islands Government but without success. The Solomon Islands Government does not appear to wish to deal with Mr Wong or his receiver. It appears that the Solomon Islands Government wishes to deal with the administrators to resolve a long-running dispute regarding the land owned by Lever Solomons with, effectively, both Mr Wong and the Van Vlymens. This should not be taken as detracting from Mr Darin's position, but observing that a DOCA proposal may be the preferred way to proceed by this particular proponent.
Fifth, there appear to be significant commercial incentives for the Solomon Islands Government to avail itself of the opportunity of acquiring an interest in Lever Solomons through the DOCA process. It appears to present an opportunity to acquire the land, resolve the forfeiture litigation and, perhaps, the judgment debt which it owes Lever Solomons. This gives me greater confidence that the Solomon Islands Government will actually put forward a DOCA proposal.
For these reasons, I am satisfied that it is in the interests of creditors to give the Solomon Islands Government this opportunity, which I expect will be its last, to put forward a DOCA proposal. I make the following orders: 1. Grant leave to the plaintiffs to file in Court the affidavit of Steven Agosta sworn 26 August 2021. 2. Resumption of the adjourned second meeting of creditors of the third plaintiff convened pursuant to section 439A of the Corporations Act 2001 (Cth) and scheduled to resume at 10.00 am on 23 July 2021, be adjourned to 10.00 am on 3 December 2021. 3. Resumption of the adjourned second meeting of creditors of the fourth plaintiff convened pursuant to section 439A of the Corporations Act 2001 (Cth) and scheduled to resume at 11.00 am on 23 July 2021, be adjourned to 11.00 am on 3 December 2021. 4. The costs of this application be costs in the administration of the third and fourth plaintiffs in equal shares. 5. Grant liberty to apply on two days' notice, including by any third party which may be adversely affected by these orders. 6. These orders be entered forthwith.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 September 2021

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