- Mighty River International Ltd v Hughes

Supreme Court of NSW|2024-08-16|Before: Black J

Solicitors: Ashurst Australia (Plaintiffs) File Number(s): 2024/300446

Nature of the application

By Originating Process filed on 15 August 2024, the Plaintiffs, Mr Strawbridge and others in their capacity as joint and several administrators of Aeon Metals Limited and several other companies (together "Aeon Group") seek two forms of order. The first is an order to extend the convening period, broadly, in order to permit the completion of a sales process in respect of the companies or business of the Aeon Group as a going concern. The second is an order, under s 477A of the Corporations Act 2001 (Cth) ("Act"), that Pt 5.3A of the Act operate so that, if the administrators' indemnity under s 443D of the Act is insufficient to meet the amount for which they may be liable in connection with a funding agreement, then they will not personally be liable to repay that amount to the extent of that insufficiency. That is a straightforward, and relatively common, application to limit the personal liability of the administrators under a funding arrangement in respect of a complex administration.

Extension of the convening period

Ms Scott, who appears for the voluntary administrators, outlines the nature of the Aeon Group's business, aspects of which I have noted above, in submissions, and points to the fact that voluntary administrators plainly require external funding in order to conduct a sales process, and maintain the Aeon Group as a going concern while that sale process is being undertaken. Ms Scott refers to Ms Evans' evidence that unless the Aeon Group is able to continue in the ordinary course, with the benefit of such funding, it could not be sold as a going concern, and that would likely result in a material decrease in its value, a reduction in the prospect of a sale or recapitalisation of the Group, and ultimately a reduced return to creditors and shareholders. That is, of course, a significant matter, both so far as the extension of the convening period and the application for a limitation of the voluntary administrators' personal liability under the funding agreement is concerned.
Dealing first with the application to extend the convening period, Ms Scott refers to the applicable principles, which have been summarised in earlier decisions of this Court including Re Riviera Group Pty Ltd (2009) 72 ACSR 352; [2009] NSWSC 585 and in the High Court's decision in Mighty River International Ltd v Hughes (2018) 265 CLR 480 at [73]. The case law has recognised that the Court will give substantial weight to the considered judgment of voluntary administrators in matters of this kind: Re BCD Resources NL [2015] NSWSC 777. I have noted above that Ms Evans here gives cogent evidence of the advantages of a sale of the Aeon Group's business as a going concern. It is plain enough that that would require an extension of the convening period, since the timetable for that sale process could not realistically be completed in a way that would maximise potential sale proceeds without an extension of a convening period. The period of the extension that is sought in turn allows both for the time that would be taken for a sale process under the existing timetable that has been indicated to creditors and to potential participants in the sale process, and the process of reviewing and considering offers and options for recapitalisation and then preparing a report to creditors in respect of the outcome.
I am satisfied that, here, the Plaintiff's administrators have properly formed their opinion that the extension of the convening period, so as to allow that sale process to be undertaken, will serve the interests of the creditors of the Aeon Group, and maximise the prospect that the Aeon Group will continue as a going concern, promoting the objectives in s 435A of the Act in respect of a voluntary administration. In these circumstances, I am comfortably satisfied that the extension of the time which is sought for the convening period should be granted. That order in turn supports the application to limit the voluntary administrators personal liability under the proposed funding arrangements, because the extension of the convening period would have no utility unless the voluntary administrators are placed in a position to continue to operate the business as a going concern, so as to maintain its value during the sale process.

Limitation of the voluntary administrators' liability for the funding agreement

Turning now to the voluntary administrators' application to limit their personal liability in respect of the funding agreement, the applicable legal principles emerge from cases including Re Griffin Coal Mining Company Pty Ltd (2010) 82 ACSR 142 at [130] and Re RCR Tomlinson Ltd [2018] NSWSC 1859 at [11]-[12], where I observed that voluntary administrators could not be expected to assume unlimited personal liability for a significant borrowing, or the risk that their indemnity against a company's assets was ultimately not sufficient to discharge that borrowing. That proposition here is stronger, where it is plain enough that mining tenements will involve greater uncertainty or at least greater complexity, in respect of a sale, than an operating business which was generating an ongoing cash flow.
Here, then, the real question is whether it is in the interests of the Aeon Group that the borrowing takes place, and, if the Court concludes that it is in the interests of the Aeon Group that borrowing should take place, it will follow that the voluntary administrators should be allowed the relief they seek from personal liability, where they could not otherwise realistically proceed with the borrowing or the sale process that it will permit. Here, for the reasons noted above, it is plain enough that the sale process, and the funding provided to allow it to take place, are in the interests of the Aeon Group and its creditors, and there is nothing unreasonable on the face of the funding agreement which is in evidence.
Ms Scott rightly points out that the voluntary administrators have themselves formed the view that it is necessary to obtain funding in the relevant circumstances; that it is in the best interests of creditors for the sale campaign to take place and for the Aeon Group to be sold as a going concern; and that that could not occur if the voluntary administrators were required to accept personal liability for the amount of the borrowing. I am satisfied that that view is well founded and, on that basis, the Court should also grant the relief which is sought in that respect.
Ms Scott also points to a further order that is sought, confirming that the indemnity for the voluntary administrators is available from the property of the Aeon Group, in respect of all of the debts and liabilities incurred by the voluntary administrators under the funding agreement. I am satisfied that that order is properly made, where the sale process and borrowing will take place for the benefit of the Aeon Group as a whole, as would the sale process, and the indemnity should properly be available from group assets in that situation.

Orders

For these reasons, I made the orders sought in the application.

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: 29 August 2024

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