Osborne v Wilcre Investments, in the matter of New Emerald Energy Pty Ltd

GOODMAN J: 1 The first plaintiffs were appointed as administrators of the second plaintiff (Emerald) on 5 July 2024 at the first meeting of creditors of Emerald, replacing the administrator initially appointed on 26 June 2024. On 24 October 2024, the administrators and Emerald entered into a deed of company arrangement (DOCA) with the defendant. The administrators are the deed administrators. 2 The DOCA has since terminated of its own force by reason of the default of the defendant in making agreed payments. 3 By an originating process filed on 13 December 2024, the administrators seek, in essence, orders under s 447A of the Corporations Act 2001 (Cth) that Part 5.3A of the Act is to operate in relation to Emerald in a manner in which the DOCA is deemed not to have terminated; and as if its terms had been varied in accordance with a proposed amended deed of company arrangement. 4 The originating process is supported by an affidavit of Mr David Johnstone, who is one of the administrators and has provided that affidavit on behalf of all of the administrators. 5 The salient facts may be shortly stated as follows: (1) the DOCA was entered into following a resolution of the creditors of Emerald which was passed at the second meeting of those creditors. Of the 34 creditors who attended that meeting, 31 (91 per cent by number and 50.4 per cent by value) voted in favour of the resolution and three abstained. No creditor voted against the resolution; (2) the terms of the DOCA required that the defendant pay amounts exceeding $1 million over a period of several years and relevantly that the defendant pay an amount of $75,000, defined as the Final Deposit, by 15 November 2024 and the first instalment of a further amount of $150,000, defined as the Upfront Payment, within a further five days; (3) the defendant did not pay the Final Deposit or the Upfront Payment; (4) there were subsequent discussions between the administrators and the defendant, which led to an agreement as to the terms of the proposed amended deed of company arrangement, and as to the defendant paying the administrators' costs of the present application; and (5) on 28 November 2024, the administrators gave written notice to Emerald's creditors of the substance of the relief sought in the originating process and invited their response. No creditor objected to that relief being sought. Of the 44 creditors, 29 voted in favour; one abstained; and 14 did not respond. The non-responses represent 1.29 per cent of Emerald's unsecured liabilities. 6 Clause 16.1(b) of the DOCA provided that the DOCA would automatically terminate if, relevantly, the Final Deposit or any part of the Upfront Payment was not paid within the time specified. See also s 445C(c) of the Act, which provides that a deed of company arrangement terminates upon the existence of circumstances specified in a deed of company arrangement as giving rise to termination. Further, s 446AA(2) of the Act provides that upon the termination of a deed of company arrangement in such circumstances, the company is taken to have passed a special resolution for it to be wound up voluntarily. 7 The administrators seek relief from the effect of these provisions, calling in aid s 447A(1) of the Act, which provides that the Court may make such order as it thinks appropriate about how Part 5.3A of the Act is to operate in relation to a particular company. 8 It is well-settled that the powers of the Court under s 447A are wide although not unlimited: see Australasian Memory Pty Limited v Brien [2000] HCA 30; (2000) 200 CLR 270 at 280 [20] (Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ); In the matters of MROC Car Wholesalers Pty Ltd and Ors [2017] NSWSC 287 at [30] (Gleeson JA); and Duggan, in the matter of Conomi Group Pty Limited (Subject to Deed of Company Arrangement) [2023] FCA 998 at [34] (Halley J). Those powers remain available when an administration has come to an end: see Australasian Memory at 282 [26]. 9 More specifically, s 447A permits the Court to order that a deed of company arrangement not terminate in circumstances where it has terminated under its own terms: see, e.g., Farnsworth v ASIC [2007] NSWSC 866 at [52] to [60] (Hammerschlag J); Re Frenchy's Bread Pty Ltd [2015] NSWSC 2031 (Brereton J) at [5]; and Duggan at [37] to [39]. Section 447A also permits the Court to make orders amending, varying or rectifying a deed of company arrangement: In the matter of Derwent Howard Media Pty Limited [2011] NSWSC 1164 at [11] and [12] (Barrett J). This extends to making such orders despite the administration having terminated: see e.g., Brandrill v Newmont Yandal [2006] NSWSC 974 at 54 (Austin J); Travis Royce as trustee of the Smith Investment Trust v Sandalwood Properties Ltd [2019] WASC 109 at [72] (Vaughan J). 10 As Black J explained in In the matter of Maria's Farm Veggies Pty Ltd (admins apptd) [2016] NSWSC 1899 at [21]: ...The overriding requirement for an order under [s 447A] is that any order made and any directions given must be designed to achieve the objective of Part 5.3A as expressed in s 435A of the Corporations Act, and...must have a nexus with how Part 5.3A is to operate in relation to the particular company. 11 The objects of Part 5.3A, as set out in s 435A of the Act, are to seek to maximise the chances of the particular company under administration or as much as possible of its business continuing in existence, or if that is not possible, to achieve a better return for the company's creditors than would result from an immediate liquidation. In the present case, the focus is upon the potential of a better return for Emerald's creditors than would result from liquidation. 12 I am satisfied that the orders sought by the administrators should be made, for the following reasons. 13 First, there is no question as to the plaintiffs' standing to bring this application: see s 447A(4) of the Act. 14 Secondly, Mr Johnstone's evidence is that he believes that the reinstatement of the DOCA (as amended) will result in a better return to Emerald's creditors than would be achieved in a winding up of Emerald and is thus in the best interests of those creditors. This is of course, entirely consistent with the object of Part 5.3A of the Act, as set out in s 435A(b) of the Act. 15 Thirdly, the grant of such relief is strongly supported by the creditors of Emerald. As noted earlier, of Emerald's 44 creditors, 29 - being 65.9 per cent in number and 91.5 per cent in value - have voted in favour of, and no creditor has voted against, the seeking of the relief now sought. The initial DOCA was also strongly supported by the creditors of Emerald. 16 Fourthly, it is not apparent, nor was it submitted, that the interests of anyone other than the creditors of Emerald would be affected by the making of the orders sought. 17 Fifthly, the orders sought provide for a grant of liberty to apply on reasonable notice to any person able to demonstrate a sufficient interest to discharge or vary the orders. 18 Sixthly, the defendant has indicated its support for the application, including consenting to an order that it pay the plaintiffs' costs of and incidental to the application on an indemnity basis. 19 Seventhly, the changes to the DOCA are relatively minor and address the defendant's default. Those changes are supported by Emerald's creditors. 20 Finally, no reason has been suggested or is apparent as to why the orders sought ought not be made. 21 I will make orders accordingly, substantially in the form of the orders sought by the plaintiffs. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Goodman.