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

Federal Court of Australia|2021-06-14|Before: Mr J, Smith J

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

Solicitor for the Plaintiffs: Gilbert + Tobin

Counsel for the Defendant: The Defendant did not appear

Solicitor for the identified Interested Parties: Johnson Winter & Slattery

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 RESOURCES PTY LTD (ADMINISTRATORS APPOINTED) (ACN 620 314 007) Second 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: 14 JUNE 2021

Pursuant to section 447A(1) of the Corporations Act 2001 (Cth) (Act) and s 90-15 of the Insolvency Practice Schedule (Corporations), being Schedule 2 to the Act (IPS) an order that, irrespective of any determination on the validity of the appointments of the first plaintiffs as administrators of the second and third plaintiffs: (a) all past and future costs, expenses and reasonable remuneration of the first plaintiffs as administrators (or purported administrators) of the second and third plaintiffs, including the costs of this proceeding, be paid in priority from the property of the second and third plaintiffs; (b) that Part 5.3A of the Act is to operate such that the remuneration provisions under Subdivision B of Division 60 of the IPS apply in respect of the remuneration of the first plaintiffs as administrators (or purported administrators) of the second and third plaintiffs; (c) that Part 5.3A of the Act is to operate such that application can be made under s 60-11 of the IPS for a review of costs and expenses incurred by the first plaintiffs as administrators (or purported administrators) of the second and third plaintiffs, to assess whether they have been properly incurred; (d) that Part 5.3A of the Act is to operate such that application can be made under s 90-20 of the IPS in respect of the remuneration of the first plaintiffs as administrators (or purported administrators) of the second and third plaintiffs, and under s 90-23(2) and s 90-28(3) of the IPS in respect of their remuneration, costs and expenses; (e) that Part 5.3A of the Act is to operate such that the indemnity that exists under s 443D of the Act applies in respect of the costs, expenses and reasonable remuneration incurred (or to be incurred) by the first plaintiffs as administrators (or purported administrators) of the second and third plaintiffs; and (f) that Part 5.3A of the Act is to operate such that the lien that exists under s 443F of the Act applies to secure the right of indemnity referred to in the preceding paragraph.
An order that the plaintiffs' costs of and incidental to this application be costs in the administration of the second to eighth plaintiffs, jointly and severally.
These orders and the reasons for judgment in support of these orders are made and published from Chambers. 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, a group of companies referred to as the Adaman Group. 2 The background to their appointment is set out in Nipps (Administrators) v Remagen Lend ADA Pty Ltd, in the matter of Adaman Resources Pty Ltd (Administrators Appointed) [2021] FCA 520 (Adaman 1), which concerns an application to validate the appointment of the Administrators (Validation Application). 3 On 14 May 2021 I made orders in Adaman 1 under s 447A of the Corporations Act 2001 (Cth) to the effect that the Corporations Act was to operate in relation to each of the fourth to eighth plaintiffs as if the Administrators were validly appointed. That part of the Validation Application that seeks orders with respect to the second and third plaintiffs (Adaman Resources and Adaman Minerals) remains to be determined. 4 On 28 May 2021 I heard applications by the Administrators seeking first, an extension of time for convening the second meeting of creditors and, second, certain orders as to their remuneration and costs. I made orders that day granting the extension application: Nipps (Administrators) v Remagen Lend ADA Pty Ltd, in the matter of Adaman Resources Pty Ltd (Administrators Appointed) (No 2) [2021] FCA 577 (Adaman 2). After hearing from senior counsel for the Administrators, I adjourned determination of that part of the application that concerned remuneration and costs. These reasons now deal with that part of the application. 5 Relevantly, the Administrators seek orders pursuant to s 447A(1) of the Corporations Act and s 90-15 of the Insolvency Practice Schedule (Corporations), being Schedule 2 to the Act (IPS), entitling them to recover their reasonable remuneration and disbursements in respect of the administration of Adaman Resources and Adaman Minerals out of the assets of those companies. They also seek orders pursuant to s 447A(1) and s 90-15 that they are entitled to an indemnity in terms of s 443D and a lien in terms of s 443F as security to support those entitlements. 6 As explained in Adaman 2, there are two groups that complain as to the circumstances of the appointment of the Administrators to Adaman Resources and Adaman Minerals. Those two groups are described and defined in Adaman 2 as the Remagen Interests and the Mitchell Interests (at [6]-[7]). The Remagen Interests have instituted the Separate Proceedings (also defined in Adaman 2 at [6]) that raise, amongst other things, the circumstances as to the appointment of the Administrators to Adaman Resources and Adaman Minerals. Those proceedings constitute a shareholders' oppression action, and any determination of the proceedings, including any complaints maintained against the Administrators, will be some time off: pleadings have yet to be filed. There is an overlap between matters relevant to the balance of the Validation Application and the Separate Proceedings. Therefore, the balance of the Validation Application will not be resolved in the short term, and will most likely await determination of the Separate Proceedings or be dealt with at the same time. 7 None of the parties (formally joined) or any of the interested parties in either this proceeding or the Separate Proceedings sought to be heard on the extension of the convening period and costs application, despite being on notice of the hearing. However, the solicitors for the Mitchell Interests, Johnson Winter & Slattery, wrote to the Administrators' solicitors, Gilbert + Tobin, on the eve of the hearing, stating that they did not intend to appear but asking that certain matters be brought to the attention of the Court with respect to the proposed remuneration orders. In particular, they contended that any question of relief as to the Administrators' remuneration and disbursements should await the outcome of the balance of the Validation Application, and that the remuneration application should be adjourned. 8 It is important to bear in mind that this is a large and complex administration involving, amongst other things, an operating gold mine and an expression of interests (EOI) campaign. In my view, it was not appropriate that the Administrators be placed in the unenviable position of uncertainty relating to their indemnity for costs for anything but the shortest feasible time period. 9 Despite being on notice of the hearing, the Mitchell Interests chose not to seek to appear and did not seek to file any submissions. The course chosen by the Mitchell Interests left the Court in a difficult position at the hearing. Rather than adjourn the hearing, but without ignoring the matters raised in the communication to Gilbert + Tobin, I proceeded to hear counsel for the Administrators but decided to afford to the Mitchell Interests the opportunity to make any written submissions as an interested party within a short time period after the hearing, and extended to the Administrators the opportunity to file reply submissions. 10 Both took up the opportunity to file submissions, and I will return to the respective submissions below.

The statutory context 11 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. 12 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. 13 Orders must accord with the object of those provisions: Nipps (Administrators) v Remagen Lend ADA Pty Ltd, in the matter of Adaman Resources Pty Ltd (Administrators Appointed) (No 4) [2021] FCA 644 (Adaman 4) at [23]-[24]. 14 Orders have been made under s 447A of the Corporations Act in respect of the remuneration of administrators or deed administrators in a number of cases: for example, Lombe, in the matter of Bosnjak Holdings Pty Ltd (Administrators Appointed) [2005] FCA 275. 15 The power under s 447A extends to making orders about how divisions of the IPS are to operate in relation to a particular company: Strawbridge, in the matter of Virgin Australia Holdings Ltd (Administrators Appointed) [2020] FCA 571. The relevant remuneration provisions are set out in Division 60 of the IPS. 16 Further, s 90-15 of the IPS (in Division 90) allows the Court to make such orders as it thinks fit in relation to the external administration of a company. Those orders may include an order in relation to remuneration: s 90-15(3)(f). 17 There is longstanding authority for the view that even if an administrator (or liquidator) has been invalidly appointed, they are still entitled to remuneration: In the matter of Warwick Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd) [2015] NSWSC 2037 at [2] (administrator); In the matter of Polat Enterprises Pty Ltd (in liq) [2020] VSC 485 at [39] (liquidator - and citing numerous cases to that effect); Re The Dominion Insurance Company of Australia Ltd [2013] NSWSC 898;(2013) 276 FLR 338 at [43] (scheme administrator); Blackadder v McQuinn (No 2) [2017] NTSC 57 at [39] (administrator); and Kreab Gavin Anderson (Australia) Ltd, in the matter of Kreab Gavin Anderson (Australia) Ltd (No 3) [2017] FCA 1473 at [21]-[34] (liquidator). 18 Typically, in such cases the foundational basis of the relief is restitution upon a quantum meruit or that the work was of incontrovertible benefit: Blackadder at [39]-[44]. Usually an equitable lien will also be available in such cases over a fund of money or property: Blackadder at [56]-[57]; and see generally Stewart v Atco Controls Pty Ltd (in liq) [2014] HCA 15; (2014) 252 CLR 307; Coad v Wellness Pursuit Pty Ltd (in liq) [2009] WASCA 68. 19 In this case, as yet there has been no determination as to whether or not the Administrators were validly appointed, or whether there has been any breach of any duty on their part that might affect any rights as to remuneration and indemnity. At the most, allegations have been made (summarised in Adaman 1 at [10]). The extent, if any, to which any such allegations relate to the Administrators' own conduct remains to be addressed. But in the interim, as their counsel submitted, the Administrators are in an invidious position - continuing to perform work for the benefit of creditors and shareholders at significant expense and exposure to themselves, while unable for some time to obtain the comfort of an order declaring their appointment valid (or curing it). 20 It is against that background that the Administrators seek orders relating to their remuneration and disbursements, despite the unresolved allegations as to the circumstances of their appointment. The Administrators propose a regime that in effect applies Division 60 of the IPS with respect to remuneration, and also provides for the potential for a review of costs and expenses incurred, such regime to apply irrespective of any determination as to the validity of their appointment. The orders also provide for the same priority, indemnity and lien for remuneration, costs and expenses that would otherwise apply to administrators under Part 5.3A of the Corporations Act.

The Administrators' submissions 21 The Administrators contend that it is appropriate that the orders be made for a number of reasons. 22 First, following their appointment the Administrators performed and continue to perform a significant amount of work for the benefit of the Adaman Group as a whole. This includes work that has stabilised the operations of the Adaman Group and enabled the continued trading of the Group, as well as the work performed in relation to the EOI campaign, which is summarised in Adaman 2. 23 Second, despite the Administrators advising creditors at the first creditors' meeting that any creditor may pass a resolution to remove them from office and appoint another person as administrator, no creditor proposed to replace the Administrators. No person has sought to injunct the Administrators from acting. 24 Third, in deciding to continue to operate the business of the Adaman Group during the administration, the Administrators have exposed themselves to significant financial risk. As at the date of the relevant evidence from Mr Nipps, the Administrators estimate that approximately $260,000 (excluding legal costs and remuneration) has been incurred by the Administrators in the administrations of Adaman Resources and Adaman Minerals, including on account of tenement management costs, payments for pre-appointment employee entitlements, employee costs for head office staff and head office expenses including rent. 25 Fourth, there is no suggestion that the work performed by the Administrators is not of benefit to Adaman Resources and Adaman Minerals, and their creditors and shareholders. It is relevant that the Remagen Interests, the plaintiffs in the Separate Proceedings, despite maintaining claims as to the validity of the appointment of the Administrators, do not oppose the orders the subject of this application. This suggests some appreciation of the benefit of the work being undertaken. 26 Fifth, although s 60-11 does not extend to costs and expenses, the Administrators propose that an application can be made under s 60-11 of the IPS for a review of costs and expenses incurred by them as administrators (or purported administrators) of the second and third plaintiffs, to assess whether they have been properly incurred 27 Sixth, the proposed orders incorporate a number of protections to persons with a financial interest in the administration (which includes, according to the Administrators, the Mitchell Interests). Under the orders it is proposed that Division 60 of the IPS apply with respect to remuneration, which includes s 60-11. Under that provision, a person with a financial interest can apply to the Court for a review of any remuneration determination for the Administrators. Significantly, in the absence of a remuneration determination for 'necessary work properly performed', the Administrators will be confined to reasonable remuneration not exceeding the maximum default amount - which I was informed for the current financial year is $5,388: s 60-5, s 60-10 and s 60-15. 28 On a review application, the Court must have regard to whether the remuneration is reasonable taking into account the matters listed in s 60-12, which includes (among several other factors) the extent to which work was necessary and properly performed. The Court has power to affirm, vary, or set aside or substitute a determination. 29 Further, Division 90 of the IPS ('Review of the external administration of a company') contains broad powers of review. Under s 90-20, a person with a financial interest in the external administration can apply to the Court for an order in relation to remuneration under s 90-15, including an order 'requiring a person to repay to a company, or the creditors of a company, remuneration paid to the person as external administrator': s 90-15(3)(f). 30 There is also the potential to apply to the Australian Securities and Investments Commission to appoint a registered liquidator to carry out a review of either remuneration, or costs or expenses incurred, or both: s 90-23(2), s 90-24(1). Such reviews may include an assessment of whether the remuneration is reasonable and whether any cost or expense was properly incurred: s 90-26(2), s 90-26(3). They could also apply to the Court under s 90-28(3) for orders in relation to such any review. 31 The Administrators are content to proceed on the basis that such Division 90 review powers may be relied upon as to their position as administrators or purported administrators. It is unlikely that any express order is required to reflect that position, having regard to the breadth and object of the provisions, but there is no reason that such position cannot be confirmed by orders.

The Mitchell Interests 32 The Mitchell Interests contend by their written submissions that if the Court is otherwise minded to make orders, it is appropriate that they be granted liberty to discharge or modify the orders as to remuneration and costs sought by the Administrators on the giving of three business days' written notice to the Administrators and this Court. 33 In support of their contention, the Mitchell Interests record the complaints that have been raised as to the circumstances of the appointment of the Administrators (Adaman 1 at [10]) and that are referred to by the Remagen Interests for the purpose of the Separate Proceedings (the Mitchell Interests are not plaintiffs in the Separate Proceedings). To those complaints they add an assertion that the speed with which the Administrators brought their application for validation orders may be a basis for inferring that the Administrators had knowledge, including legal advice, as to issues with respect to their appointments. They contend that the hearing of the balance of the Validation Application may expose circumstances which would disentitle the Administrators to indemnity for their remuneration or costs out of the companies' property, or it may be the case the concerns of the Mitchell Interests 'will be unfounded'. The submission properly acknowledges that currently there is uncertainty as to whether the Administrators' conduct will be impugned in any way. 34 The Mitchell Interests do not express any concern in their submissions as to the Administrators continuing to perform and discharge their statutory roles and functions under Part 5.3A. Indeed it appears that the Mitchell Interests (and others) are content for the Administrators to continue to carry out their work.

Consideration 35 Having considered the submission of the Mitchell Interests, the concerns that they express as to the opportunity to challenge the Administrators' claim for an indemnity for remuneration and costs are addressed by the statutory regime to which the Administrators have referred: see [26]-[31] above. It is preferable that such processes be utilised by the Mitchell Interests, should they wish to challenge any payments or right to an indemnity, rather than under a general liberty to apply provision, which has the potential to introduce uncertainty in terms of timing and procedures. 36 As to the weight placed on the speed with which the Administrators brought the Validation Application, I do not infer that it establishes, or is of itself suggestive of, any disentitling conduct. Insolvency practitioners are generally encouraged to bring such applications quickly. 37 I do not discount the relevance of the matters raised by the Mitchell Interests. However, they must be viewed against the current position of Adaman Resources and Adaman Minerals and the objects of Part 5.3A and the IPS. In particular, the purpose of Part 5.3A is to provide a constructive approach to corporate insolvency by focusing on the possibility of saving a business and preserving employment prospects. The operating business of the Adaman Group is of a significant scale. 38 To this end, the Administrators continue to carry out all relevant tasks relating to the administration of the Adaman Group and have reported to the Court on a number of occasions as to the work that is being undertaken: see in particular Adaman 2. The Adaman Group continues to trade through the Administrators' efforts. That work is being undertaken to maximise the possibility of a sale or restructure of the Group and the value of the assets for the benefit of creditors and to preserve employment prospects, in furtherance of the objects of Part 5.3A, as discussed in Adaman 2. However, the Administrators remain personally exposed. It is appropriate that there be a measure of certainty in respect of their exposure in undertaking that work. 39 I consider that the proposed orders advance the objects of Part 5.3A by giving the Administrators a reasonable degree of certainty in the continued performance of their functions and duties, whilst leaving open the ability of interested parties to review their costs, expenses and remuneration in due course.

Orders 40 Accordingly, I will make orders that generally accord with those proposed by the Administrators, save that I will also include an order to the effect that it is open to a person (with an interest as described in the sections) to bring an application under the sections of the IPS referred to at [29] and [30] of the reasons. I certify that the preceding forty (40) 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 443D, 443F, 447A

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