Mohen (Administrator), in the matter of Wagener Holdings Pty Ltd [2023] FCA 1360

Pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (Act) and s 90-15 of the Insolvency Practice Schedule (Corporations) (Schedule 2 to the Act) (IPS), Part 5.3A of the Act is to operate in relation to the plaintiffs as if s 443A(1) of the Act provides that: (a) the liabilities of the first plaintiffs in their capacities as administrators of each of the second to fourth plaintiffs (together, the Companies), incurred with respect to any obligations arising out of, or in connection with any funding agreement in, or substantially in, the form exhibited to the affidavit of Jerome Hall Mohen dated 6 October 2023 (Affidavit) at pages 99-114 varied in the manner stated at pages 118-122, between the first plaintiffs, Plexe Pty Ltd, Rhonda Wagener in her own right and as trustee for the Wagener Holdings Trust and the Companies (Funding Agreement) are in the nature of debts incurred by the first plaintiffs in the performance and exercise of their functions as joint and several administrators of each of the Companies; and (b) notwithstanding that the liabilities in paragraph (a) of this order are debts incurred by the first plaintiffs in the performance and exercise of their functions as joint and several administrators of each of the Companies, the first plaintiffs will not be personally liable to repay such debts or satisfy such liabilities within the facility limit of $850,000 to the extent that the assets of the Companies are insufficient to satisfy the debt and liabilities incurred by the first plaintiffs arising out of, or in connection with, the Funding Agreement.

COLVIN J: 1 Mr Mohen, Mr Dudley and Mr Kuek have been appointed as the joint and several administrators of Wagener Holdings Pty Ltd, Double Trouble (WA) Pty Ltd and Pennant House Pty Ltd (together, the Companies). The Companies provide signage, installation and traditional signwriting to customers throughout Australia (Business). 2 On 6 October 2023, I heard an urgent application by the administrators for orders pursuant to s 447A of the Corporations Act 2001 (Cth) that would limit the extent of the personal liability of the administrators in carrying out their appointment in respect of the Companies. I was persuaded that it was appropriate to make those orders to enable the administrators to continue to trade the Business in the interests of all creditors in order to seek to preserve the value of the Business as a going concern and also so they could further investigate the prospects of a successful recapitalisation of the Business by means of a deed of company arrangement. I made orders in the terms sought with some adjustment. These are my reasons for doing so. 3 The relevant statutory provisions and case law were summarised recently by Banks-Smith J in Algeri (Administrator), in the matter of Murray & Roberts Pty Ltd (Administrators Appointed) [2022] FCA 1506 at [40]-[51]. As her Honour there explained, orders sought pursuant to s 447A typically limit the recourse of the counterparty to an agreement against the administrators personally so that the liability does not extend beyond specified assets of the company. 4 In the present case, the orders sought concerned a line of credit extended by Plexe Pty Ltd under the terms of a facility agreement entered into on or about 29 April 2021 by the Companies and Rhonda Pauline Wagener in her personal capacity and as trustee of the Wagener Holdings Trust (Facility). Under the terms of the Facility, the Companies, amongst other things, assigned their debts (both present and future) to Plexe free from any other security interest. The Facility was also supported by personal guarantees. 5 Assuming the Facility to be valid and enforceable as to the security interests that were granted over the debts of the Companies, if the Companies continue to carry on the Business then any future debts that are generated from dealings with customers will be factored and must be applied under the terms of the Facility. As at the time of the application by the administrators there was about $550,000 owing under the terms of the Facility which had a facility limit of $850,000. 6 On the evidence, if the Companies were able to continue to operate the Business then that was likely to increase the pool of funds available to creditors. However, if the terms of the Facility were not varied then the Business could not be conducted without all additional sales being factored for the benefit of Plexe. In consequence, the administrators could not look to the funds to be generated from the operation of the Business as a source of funds to meet the further liabilities to be incurred in continuing the Business, particularly employee and other costs associated with supplying signage. In that event, the Companies would need to be wound-up and the opportunity to sell the Business or effect a restructuring through a deed of company arrangement would be lost. 7 The administrators have negotiated a variation to the terms of the Facility that will make funds available to enable them to carry on the Business. In effect they will be able to draw down on the Facility in the same way that the Companies had been doing before the appointment of the administrators. The varied terms will also remove any ability of Ms Wagener to draw down funds under the Facility. 8 However, any draw down on the Facility by the administrators in order to cover costs pending receipt of funds from sales would expose them to personal liability. They are not willing to incur that personal liability. Instead, they proposed that the extent of their liability under the Facility as varied be limited to the extent of the assets of the Companies. 9 The affidavit of Mr Mohen in support of the application summarised the position in the following terms: The Administrators are not aware of any prejudice or injustice that would ensue for any party in the event that this Honourable Court makes the orders proposed in this Application. The Administrators hold this view for the following reasons: (a) based on the cash flow and profit and loss forecasts that the Administrators have prepared (which are referred to in my confidential affidavit), it is unlikely to be possible to continue to trade on the business of the Companies without the entry into and use of the varied Pre-Appointment Facility; (b) the Administrators have limited the relief they are seeking from personal liability to their obligations under the varied Pre-Appointment Facility; and (c) the continued trade on of the Companies is the only option which is likely to result in a return to the general body of unsecured creditors as it will preserve the possibility of the entry into a DOCA or of a sale of the Companies' business as a going concern. 10 The orders as proposed limited the relief to liability under the Facility. To the extent that the orders may be said to prejudice the interests of Plexe, it consented to the orders. This position no doubt reflects its assessment of possible commercial advantages in generating further funds if the Business was able to be continued by the administrators. The orders as proposed required prompt notification to other creditors and reserved liberty to other creditors to apply to vary or discharge the orders. The administrators also indicated that if the orders were made they proposed to promptly notify the terms of the orders to the Australian Securities and Investments Commission. 11 In effect, what was proposed by the application was a variation of the Facility to enable the administrators to borrow funds from Plexe to enable the continued operation of the Business in circumstances where there was evidence from Mr Mohen to the effect that it was likely that such a course would generate more funds for the creditors of the Companies. Financial projections were produced to support that position. 12 It is relatively common for orders of the present kind to be made to enable such funds to be obtained on the basis that recourse for repayment will be limited to the assets of the Companies under administration: Mentha, in the matter of Griffin Coal Mining Company Pty Ltd (administrators appointed) [2010] FCA 1469 at [28]-[29] (Gilmour J). 13 In the above circumstances, I was persuaded that a sufficient basis had been established for the Court to exercise its discretion to make the orders sought. I took the precaution of proposing a limit upon the extent of the funds that was commensurate with the facility limit of $850,000. The administrators did not oppose that change to the orders as proposed. For those reasons, I made orders substantially in the terms sought. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin.

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