Nipps (Administrator) v Remagen Lend ADA Pty Ltd, in the matter of Adaman Resources Pty Ltd

Federal Court of Australia|2021-06-08|Before: Mr J, Smith J

Counsel for the Plaintiffs: Mr J Garas SC with Ms RA Collins

Counsel for the Defendant: The Defendant did not appear

ORDERS WAD 95 of 2021 IN THE MATTER OF ADAMAN RESOURCES PTY LTD (ADMINISTRATORS APPOINTED) (ACN 620 314 007) between: JEREMY NIPPS AND BARRY WIGHT IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF THE SECOND TO EIGHTH PLAINTIFFS First Plaintiff

ADAMAN MINERALS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 628 877 609) (and others named in the Schedule) Third Plaintiff

and: REMAGEN LEND ADA PTY LTD (ACN 636 602 849) Defendant

order made by: BANKS-SMITH J DATE OF ORDER: 8 JUNE 2021

Part 5.3A of the Corporations Act 2001 (Cth) (Act) is to operate in relation to the plaintiffs: (a) as if s 443A(1) of the Act provided that any liabilities of any of the plaintiffs incurred in connection with a Deed of Funding executed by the plaintiffs and Rivet Finco Pty Ltd (ACN 628 595 568) (Lender) on 28 May 2021 (Funding Deed) (including monies borrowed, interest incurred in respect of monies borrowed and borrowing costs) are in the nature of debts incurred by the first plaintiffs (Administrators) in the performance and exercise, or purported performance and exercise, of functions and powers as joint and several administrators of the second to eighth plaintiffs (Debts); (b) as if s 443A(2) and s 443D of the Act provided that the Administrators will not be personally liable to repay any Debts to the extent that the indemnity under s 443D of the Act out of the property and assets of the second to eighth plaintiffs (Companies) is insufficient to pay any Debts for which the plaintiffs are liable, to the extent of such insufficiency.
The Administrators are justified, and would otherwise be acting reasonably in: (a) entering into the Funding Deed and procuring the Companies to enter into the Funding Deed; and (b) drawing down under the Funding Deed.
Within two business days of these orders being made, the Administrators are to take all reasonable steps to give notice of these orders to creditors of each of the Companies (including persons claiming to be creditors) and the Lender under the Funding Deed by means of a circular: (a) to be published on the website maintained by the Administrators in respect of the administration of the Companies; and (b) to be sent by email or by post to all known creditors and the Lender under the Funding Deed.
Liberty be granted to any person who can demonstrate sufficient interest to discharge or modify the orders on the giving of three business days' written notice to the plaintiffs and the Court.
The plaintiffs' costs of and incidental to this application be costs in the administration of the 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 The first plaintiffs (Administrators) are the administrators of the second to eighth plaintiffs, companies which are collectively referred to as the Adaman Group. 2 The Administrators seek orders under s 447A of the Corporations Act 2001 (Cth) and s 90-15 of the Insolvency Practice Schedule (Corporations), being Sch 2 of the Corporations Act (IPS), in relation to the conduct of the administration of the group. 3 The background to their appointment and the nature of the group's operations is summarised in Nipps (Administrator) v Remagen Lend ADA Pty Ltd, in the matter of Adaman Resources Pty Ltd (Administrators Appointed) [2021] FCA 520. 4 In Nipps (Administrator) v Remagen Lend ADA Pty Ltd, in the matter of Adaman Resources Pty Ltd (Administrators Appointed) (No 2) [2021] FCA 577 (Adaman 2) I determined an application for an extension of the convening period for the second meeting of creditors. In that context I summarised the nature and intensity of the work that it has been necessary for the Administrators to undertake in order to continue the operations of, in particular, the Kirkalocka Gold Project, while progressing an expressions of interest campaign for the restructure or sale of the assets of the Adaman Group. 5 Relevantly, the Administrators have foreshadowed since their appointment the need for funding during this administration. 6 The Court was asked to make urgent orders on the papers in connection with a deed of funding executed by the plaintiffs and Rivet Finco Pty Ltd (ACN 628 595 568) (Lender) on 28 May 2021 (Funding Deed). In particular, the Administrators sought orders limiting their prospective personal liability under the Funding Deed and directions that they were justified in entering into the Funding Deed. The urgency arose because the Administrators informed their solicitors on 4 June 2021 (the Friday before a long weekend in Western Australia) of an anticipated further funding requirement of approximately $1,000,000 that would need to be drawn down on Tuesday, 8 June 2021. 7 There are a number of other parties who are either formally joined or interested parties in this proceeding and the Separate Proceedings (defined in Adaman 2 at [6]). Some have taken positions opposed to that of the Administrators in matters before this Court. Accordingly I provided those parties with an opportunity to make any comments on the relief proposed by the Administrators. As it happens, there was no opposition to the orders sought and so I proceeded to make orders on the papers on the morning of 8 June 2021. These are my reasons for making those orders.

Evidence 8 The following unchallenged matters are based on the affidavit evidence of one of the Administrators, Jeremy Nipps. 9 The Administrators were appointed on 1 May 2021. Following their appointment they accepted a $2 million short term funding offer from the Lender, but having prepared a trading analysis they formed the view that additional funding was required to continue the administration until the end of the extended convening period. 10 Between 3 and 18 May 2021 they engaged in negotiations with four prospective funders in relation to additional funding. 11 It was necessary for the Administrators to secure additional funding to avoid incurring costs that they did not have the funding to meet; because adverse consequences would follow if they were unable to make relevant payments; and because of the risk that without funding they would be unable to maintain the day-to-day trading of the Adaman Group. 12 On 28 May 2021 the plaintiffs entered into the Funding Deed by which the Lender has agreed to provide funding to the Administrators throughout the remaining period of the administration of the Adaman Group. 13 Relevantly, the Funding Deed includes the following terms: (a) a facility with a facility limit of $20 million (including amounts already advanced under the interim funding arrangements); (b) an establishment fee of an amount equal to 2% of the facility limit; (c) an interest rate of 13% per annum; (d) the facility is secured by pre-existing all present and after acquired security interests registered on the Personal Properties Securities Register and the Administrators' right of indemnity and lien under s 443D, s 443E and s 443F; (e) the personal liability of the Administrators is limited to the extent that the assets of the Adaman Group are sufficient to satisfy that liability; and (f) the facility must be applied for the Permitted Purpose (as defined in the Funding Deed). 14 The Lender's obligation to provide the facility is subject to two conditions precedent, being: (a) the Administrators having obtained court approval to limit their personal liability under the Funding Deed that they would otherwise have incurred in respect of s s 443A(1)(d) to (f) of the Corporations Act, except to the extent of their rights of indemnity out of, and liens over, the assets of the Adaman Group entities; and (b) no subsisting Event of Default (as defined in the Funding Deed). 15 The Funding Deed allows for, among other things: (a) the refinancing of interim funding provided in the amount of $3 million which has been used to meet debts incurred by the Administrators whilst continuing to trade the business; and (b) to pay post-appointment employee entitlements. 16 The Administrators consider that the ability to continue to trade the Adaman Group is the only way to maximise the value to be achieved for the assets and to be returned to creditors. Without funding provided under the Funding Deed, they would have insufficient comfort regarding debts being incurred to continue the Adaman Group operations, and would be forced to look for immediate alternative funding. The likelihood of obtaining such funding at short notice would be extremely low and, if not obtained, they will likely need to cease to trade. 17 The Administrators consider that having explored options, the Funding Deed is the only viable immediately available option to preserve the assets of the Adaman Group. They consider that entry into the Funding Deed is consistent with the objectives of Part 5.3A of the Corporations Act and in the best interests of the creditors of each of the Adaman Group entities, as it is an immediate funding solution for the expected expenses of the Adaman Group through to the end of the convening period. This maximises the Administrators' chances of achieving a sale of the Adaman Group assets or other arrangement which will likely result in a better return from creditors than if the entities were to be wound up.

Statutory context 18 Section 443A(1) of the Corporations Act relevantly provides that the administrator of a company under administration is liable for debts incurred in the performance or exercise or purported performance or exercise of any of the administrator's functions and powers including the repayment of money and interest borrowed and borrowing costs. 19 Section 443A(2) of the Corporations Act provides that s 443A(1) has effect despite any agreement to the contrary, but without prejudice to the administrator's rights against the company or anyone else. 20 Section 443D of the Corporations Act provides administrators with a statutory indemnity out of the property of the company (other than certain retention of title property that is not relevant for present purposes) for, among other things, debts for which the administrator is liable under Subdivision A (which includes s 443A). 21 Section 447A of the Corporations Act provides that the court may make such orders as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company. 22 Section 90-15 of the IPS relevantly provides that the court may make such orders as it thinks fit in relation to the external administration of a company, including an order determining any question arising in the external administration of the company. 23 While it is now settled that the court has wide powers under s 447A of the Corporations Act and s 90-15 of the IPS, such orders must be made in pursuit of the objects of Part 5.3A as set out in s 435A as follows: 435A Object of Part The object of this Part, and Schedule 2 to the extent that it relates to this Part, is to provide for the business, property and affairs of an insolvent company to be administered in a way that: (a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or (b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company. Note: Schedule 2 contains additional rules about companies under external administration. 24 Where there is recourse to the IPS, regard should also be had to its objects set out in s 1-1 of the IPS which relevantly provide as follows: 1-1 Object of this Schedule … (2) The object of this Schedule is also: (a) to regulate the external administration of companies consistently, unless there is a clear reason to treat a matter that arises in relation to a particular kind of external administration differently; and (b) to regulate the external administration of companies to give greater control to creditors.

Limiting personal liability 25 It is well established that the court has power under s 447A of the Corporations Act to make orders to limit an administrator's personal liability under s 443A. The courts have been satisfied on a number of occasions that it is not to be expected that the administrators should expose themselves to substantial personal liabilities. 26 The considerations and case law relevant to an application under s 447A for modification of the application of s 443A were summarised by Sloss J in Re Unlockd Limited (administrators appointed) [2018] VSC 345: [60] In the leading case of Secatore, in the matter of Fletcher Jones and Staff Pty Ltd (admins apptd) [2011] FCA 1493 (Secatore), Gordon J stated (at [23]): Section 447A(1) of the Act empowers the Court, in an appropriate case, to modify the operation of s 443A to exclude personal liability on the part of a voluntary administrator, and to provide that a loan taken by the company via the voluntary administrator is repayable on a limited recourse basis. Orders in similar terms have frequently been made in circumstances where the Court is satisfied that an administrator has entered into a loan agreement or other arrangement to enable the company's business to continue to trade for the benefit of the company's creditors: see, for example, Re Ansett Australia Ltd (No 1) at [49]; Re Spyglass Management Group Pty Ltd (admin apptd) (2004) 51 ACSR 432 at [6]; Sims; Re Huon Corporation Pty Ltd (admins apptd) (2006) 58 ACSR 620 at [12]; Re Malanos [2007] NSWSC 865 at [13]. [61] In such circumstances, courts have held that it is not to be expected that the voluntary administrators should expose themselves to substantial personal liabilities: see e.g. Re Renex Holdings (Dandenong) 1 Pty Ltd [2015] NSWSC 2003, [13] (Black J); Preston, in the matter of Hughes Drilling Limited [2016] FCA 1175 (Hughes Drilling), [18] (Yates J). See also Korda, in the matter of Ten Network Holdings Ltd [2017] FCA 1144, [43]-[44] (Markovic J). [62] In Secatore, Gordon J also observed (at [29]) that if orders are made relieving administrators from personal liability in respect of borrowings, it will permit them to make commercial decisions about the ongoing operations by focussing on what is in the best interests of the creditors 'uninfluenced by concerns of personal liability.' [63] In Re Great Southern Infrastructure Pty Ltd [2009] WASC 161 (Great Southern) at [13], Sanderson M observed that: The material consideration on such an application is whether the proposed arrangements are in the interests of the company's creditors and consistent with the objectives of Pt 5.3A of the Act. To put that proposition positively - the question is whether the court is satisfied the proposed arrangements are for the benefit of the company's creditors. To put it negatively - the question is whether the court is satisfied the company's creditors are not disadvantaged or prejudiced by the proposed arrangement. These principles have been confirmed in a large number of cases. [64] In Re Mentha (in their capacities as joint and several administrators of the Griffin Coal Mining Company Pty Ltd (admins apptd) (2010) 82 ACSR 142; [2010] FCA 1469, Gilmour J summarized the principles governing the granting of an application for orders under s 447A to vary the liability of administrators under s 443A as follows (at [30]): (a) the proposed arrangements are in the interests of the company's creditors and consistent with the objectives of Part 5.3A of the Corporations Act: Re Great Southern at [13]. (b) typically the arrangements proposed are to enable the company's business to continue to trade for the benefit of the company's creditors: Re Malanos at [9] and Re View at [17]. (c) the creditors of the company are not prejudiced or disadvantaged by the types of orders sought and stand to benefit from the administrators entering into the arrangement: Re View at [18], and also Re Application of Fincorp Group Holdings Pty Ltd [2007] NSWSC 628 at [17]. (d) notice has been given to those who may be affected by the order: Re Great Southern at [12]. 27 More recently in Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717 Middleton J said: [90] Orders are commonly sought limiting an administrator's personal liability where a company borrows funds from an external financier to fund the ongoing trading of the business during the administration: Korda, in the matter of Ten Network Holdings Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2017] FCA 1144 at [42] ('Ten Network') (Markovic J). [91] There can be no doubt that in the appropriate circumstances, personal liability can be excluded with respect to any arrangement where that enables the company's business to continue to trade for the benefit of the company's creditors. Further, s 447A can also be used to avoid liability before it is imposed: Silvia v FEA Carbon Pty Ltd (2010) 185 FCR 301 at [14] (Finkelstein J). 28 Those authorities were also referred to and followed recently by Farrell J in Hill, in the matter of Autocare Services Pty Ltd (administrators appointed) [2021] FCA 167 at [38]-[39]. 29 The orders typically sought and made in such cases have the effect of limiting the recourse of the counterparty to a funding or loan agreement to the administrator personally to the extent to which they are able to be indemnified from the assets of the company. 30 As to the requirement of notice, although as a general rule notice should be given to those affected, where the circumstances are urgent it may not be practical to seek those views and the court is justified in acting on the evidence of the voluntary administrator.

Orders limiting liability appropriate 31 I am satisfied that the Funding Deed is in the interests of the Adaman Group's creditors as a whole and that making the proposed orders is consistent with the objectives of Part 5.3A of the Corporations Act for a number of reasons. 32 First, Mr Nipps' evidence on behalf of the Administrators was to that effect. As approval of the personal liability limitation is a condition precedent to the Funding Deed, such limitation is necessary in order to further the objectives of Part 5.3A for the benefit of creditors. 33 Second, the Funding Deed will enable the Adaman Group to continue trading through to the end of the convening period. I accept, having regard to the evidence of the financial position of the group, that there is insufficient cash to meet liabilities. I accept Mr Nipps' evidence that the chances of achieving a sale of the Adaman Group assets or other arrangement will be enhanced if the companies continue to trade, and that such course will likely result in a better return for the creditors than if the entities were to be wound up. 34 Third, there is unlikely to be any prejudice or disadvantage to creditors by limiting the personal liability of the Administrators in connection with the Funding Deed. Absent such relief, the Administrators cannot be expected to continue to trade and incur debts personally, and realistically the funding would not be entertained. The continued trading of the Adaman Group, for which the Funding Deed allows, will be for the benefit of the creditors. 35 Fourth, as to notice of the application, the entity that will be most affected by the orders is the Lender. The Lender has agreed that court approval of the personal liability limitation is a condition precedent to the Funding Deed. The Lender was given notice of the Administrators' application and did not oppose the proposed orders. As explained above, no other party (formally joined or noted as interested) opposed the orders being made. As the circumstances were urgent it was not practical to seek the views of all creditors, but I am satisfied that it is appropriate to act on the evidence of Mr Nipps and having regard to the absence of other opposition. Further, in the circumstances it is appropriate to make an order (order 4) which has the effect of giving other creditors and sufficiently interested persons who may not have been notified of the application an opportunity to be heard if they have any objections to the orders.

Directions justifying entry into Funding Deed 36 The Administrators also seek a direction pursuant to s 90-15 of the IPS that they are justified in entering into, and causing the Adaman Group entities to enter into, the Funding Deed and to draw down upon the funding under the Funding Deed. In doing so, they seek protection from any potential claims that they have acted unreasonably or inappropriately in doing so. 37 Where judicial advice is sought in the context of an administration, the only statutory constraint on the exercise of that power is the need to consider whether or not the provision of that advice advances the objects of Part 5.3A set out in s 435A of the Corporations Act and is not inconsistent with the objects of the IPS. Section 90-15(3)(a) accommodates the determination of substantive rights, provided appropriate notice has been afforded to potentially affected parties: Hill, in the matter of Autocare Services at [44]. 38 It is well established that there must be something more than the making of a business or commercial decision before a court will give directions in relation to that decision. It may be a legal issue of substance or procedure or it may be an issue of power, propriety or reasonableness - but some issue of this nature is required to be raised: In the matter of Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 (Black J) at [9]. The protection afforded by such an order must be predicated on the external administrator having made full and fair disclosure of all relevant facts and circumstances to the court: Re Ansett Australia Ltd (No 3) [2002] FCA 90; (2002) 115 FCR 409 at [44] (Goldberg J). 39 There are issues of both propriety and reasonableness raised by the Administrators' decision to enter into the Funding Deed, and I accept that the Court has the power to give the advice sought. 40 Entry into the Funding Deed is in the creditors' interest as a whole because it will allow the Adaman Group to trade on and place it in the best position to maximise the value of the business for the benefit of creditors, including employees whose employment prospects may be improved. 41 I consider that there has been full and frank disclosure by the Administrators, and that having regard to the urgency of the application, there has been adequate notice and, in any event, order 4, to which I have already referred, will provide an opportunity to creditors to be heard if they have any objections to the orders. 42 I consider that the actions of the Administrators in entering into the Funding Deed and causing the Adaman Group entities to enter into the Funding Deed are both reasonable and justified in all the circumstances, and that the making of the orders sought is consistent with the objectives of the IPS.

Orders sought 43 Accordingly, I made orders as sought by the Administrators. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith.

Associate: Dated: 14 June 2021 SCHEDULE OF PARTIES WAD 95 of 2021 Plaintiffs Fourth Plaintiff: ADAMAN GOLD HOLD CO PTY LTD (ADMINISTRATORS APPOINTED) (ACN 628 443 470) Fifth Plaintiff: ADAMAN GOLD PTY LTD (ADMINISTRATORS APPOINTED) (ACN 626 160 316) Sixth Plaintiff: GOLDLAKE HOLDINGS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 620 531 133) Seventh Plaintiff: HOPSTORM PTY LTD (ADMINISTRATORS APPOINTED) (ACN 620 534 957) Eighth Plaintiff: KIRKALOCKA GOLD SPV PTY LTD (ADMINISTRATORS APPOINTED) (ACN 626 160 816)

Corporations Act 2001(Cth)ss 439A, 443A, 443D, 447A

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