Owen, in the matter of RiverCity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) v Madden

REASONS FOR JUDGMENT 1 I have stood over for separate consideration two issues raised by Mr Owen, Mr Parbery and Mr Hill, in their capacities as the joint and several administrators of RiverCity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed), and related companies, which may collectively be described as the RiverCity Motorway Group. The questions which fall for consideration are those set out in paragraphs 9 and 10 of the interlocutory application. The administrators there seek the following: 1. Pursuant to s 447A(1) or s 447D(1) of the Corporations Act 2001 (Cth) (Corporations Act), an order or direction that when performing their role as administrators of RiverCity Motorway Management Limited (RCMML), and when exercising their powers under Pt 5.3 of the Corporations Act, the applicants are entitled to rely on the authority of Norman and others v FEA Plantations Ltd (2010) 191 FCR 39 (Norman's Case), for the proposition that the applicants are not "officers" of RCMML for the purposes of ch 5C of the Corporations Act. 2. Pursuant to s 447A(1) or s 447D(1) of the Corporations Act, an order or directions that when performing their role as administrators of RCMML and when exercising their powers, under Pt 5.3A of the Corporations Act, the applicants need not cause RCMML, the RiverCity Investment Trust (RCMIT) or the RiverCity Holding Trust (RCMHT) to comply with their obligations under some or all of ss 292(1), 298(1), 302, 306(1), 314, 319 and 320 in Pt 2M.3 of the Corporations Act. 2 The administrators, by one of their number, Mr Owen, have provided a detailed affidavit deposing to the factual circumstances attending the administration and why, having regard to that administration, and taking into account the coincident appointment of receivers and managers, the circumstances presently attending the units in the two managed investment schemes referred to in the application and the costs of financial accounting, the application has been brought. 3 The application comes as a sequel to an order which I made in March 2011, extending the convening period for each of the companies in the RiverCity Motorway group until 18 December 2012. These reasons for judgment must be read against the background of the circumstances set out in the earlier reasons for judgment as to why such an extension was, in the particular peculiar and extraordinary circumstances of this matter, considered warranted: see Owen, in the matter of Rivercity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) v Madden [2011] FCA 295. Suffice it to say, in all material respects, those circumstances remain. 4 In particular, critical to the worth of the group and also to the two managed investment schemes units, is the worth of the core business, which is the operation of the Clem7 tunnel. It remains the case that there is an expectation that the worth of the core business, which is cash flow sensitive and in turn sensitive to traffic volumes, will be increased for the better once the Airportlink comes on-stream in mid-this year, and once a reasonable period thereafter has elapsed, by reference to which computations may be made of the capital value of the core business. 5 Since their appointment, the administrators have engaged in extensive and intensive dealings with the Australian Securities and Investment Commission (ASIC), the Australian Stock Exchange, the receivers, unit holders and Link Market Services. The latter maintains the management investment schemes' registers of members and processes applications to change details and to transfer units in the schemes off-market. It should be added that the units are suspended from market quotation, of which more later. Also since March of last year, the administrators have engaged in extensive investigation of the property affairs and financial position of the group. They have compiled their findings in preparation for a report to creditors. The making of such a report is an obligation which falls upon administrators under Pt 5.3A of the Corporations Act. 6 The administrators have also been engaged in the preparation of business activity statements, a consideration of the group's tax position, and considering potential litigation against an adviser who had provided advice in respect traffic forecasts for the tunnel. More particularly, the administrators have attended to the day-to-day affairs of the group and traded on the core business. In the course of all that activity, the administrators have faced a number of complex legal issues, not the least of which provides the occasion for the issues which fall for consideration today. The administrators have encountered difficulties in the reconciliation of provisions in ch 5C of the Corporations Act, concerning responsible entities and officers, with the provisions in Pt 5.3A of the Corporations Act, concerning companies under administration. 7 Yet further, the managed investment schemes, themselves, are not corporations. The schemes sit outside the administration of RCMML, their responsible entity. Part 5.3A of the Corporations Act does not, in terms, apply to the schemes as opposed to that responsible entity along with others in the RiverCity Motorway Group. The long and the short of this, and as Mr Owen deposes, is that this has made it difficult to maintain the schemes in their "dormant present state" in order to increase the prospect of achieving a better return for the group's creditors. 8 Given this, the administrators initially made an application to ASIC for relief from some of the obligations imposed by: (a) RCMML's Australian Financial Services licence, the conditions attaching to it, and Pt 7.6 of the Corporations Act; (b) part 2M.3 of the Corporations Act; (c) chapter 6CA of the Corporations Act; and (d) chapter 5C of the Corporations Act. 9 Units in the managed investment schemes have been suspended from quotation since the administration began. Mr Owen opines, and it is tolerably clear on the material before me, that the suspension of those units is unlikely to be lifted during the course of the administration. The units last traded at $0.007 cents before their suspension from quotation on 25 February 2011. 10 On the information presently available to the administrators, it appears that there is a large deficit between the estimated value of the group's assets and the secured debt. 11 Mr Owen deposes, based on his dialogue with the solicitors for the banking syndicate, the secured creditors, that the deficit as at 25 February 2011 was approximately $1.38 billion. Based on this information, and again at the present stage, and in the absence of some form of deed of company arrangement of a kind for which Pt 5.3A of the Corporations Act provides, or some trust scheme or other proposal, it seems that there will not be a return to unit holders. Thus he further opines their financial position may not be affected by the outcome of the administration as units in the schemes have been suspended from quotation on the Australian Stock Exchange. 12 Mr Owen further deposes, and for that matter, I accepted as a fact when deciding to extend the period of the administration, that it is difficult accurately to value the group's most significant asset, the tunnel. 13 At the time of that earlier proceeding, and now, having regard to an opinion furnished by Mr Madden, who is, with Mr Merryweather, one of the joint and several receivers and managers of the companies in the RiverCity Motorway Group, it is unlikely that a "true" value, or put another way, intrinsic value to the tunnel, or for that matter, the business of which the tunnel is the core asset, can be given without heavy discounting for uncertainties in traffic volume data. That will remain the position at least until matters referred to by Mr Madden, principally the Airportlink completion, come to pass towards the end of this year. Those were factors which intruded persuasively on the extension of the convening period. 14 Yet further, again for reasons deposed to by Mr Madden and Mr Owen, there are, at least at present, sound commercial reasons in terms of optimising the worth of that core asset, why it would be imprudent to attempt to give a value, at least in terms of wider public dissemination. 15 The costs of preparing the group's financial accounts would necessarily involve the combined efforts not only of the administrators and their staff, the receivers and their staff and another accounting firm to assist in the preparation of accounts, but also an independent accounting firm to conduct an audit of the group's financial reports. A candidate, or candidates, for the latter role may perhaps be Deloitte or KPMG, the group's accountants and auditors respectively before it went into administration. It is unnecessary to pass any observation upon whether one or the other of those firms would be suitable for that role. What is patent, just from the recitation of accounting firms necessarily concerned, as well as the very nature and interwoven extent of the companies in the group, is that considerable costs would be involved in the preparation of these financial reports. 16 It was against that background that Mr Owen conferred with Mr Madden on the subject of the costs of preparation of such financial reports. Mr Owen had also caused his staff also to confer with staff at the RiverCity Motorway Group's head office concerning this subject. Drawing on the results of these conferrals, Mr Owen's estimate is that the total cost to the group to prepare and audit the group financial accounts would include at least: 1. up to approximately $50,000 in external accounting fees per set of reports prepared; 2. costs and fees for the financial reports to be reviewed by the administrator's office and the receivers' office; and 3. costs and fees for the financial reports to be reviewed and considered by the solicitors of the administrators and receivers respectively, ie Mallesons and Allens Arthur Robinson. 17 Mr Owen also deposes that it is possible, in addition to the annual and half yearly reports, that the Australian Stock Exchange may require the group to prepare and lodge, quarterly reports also, in that case, the costs to which he has referred would be incurred four times per year. 18 Mr Owen deposes that he and his fellow administrators consider there is no utility in preparing financial reports for the group as this cost is one which would ultimately be borne by the banking syndicate. The banking syndicate represents over 99.9% of the group's total known indebtedness. Further, the banking syndicate can command the preparation of any special purpose financial reports it requires. 19 There is substance in this particular opinion voiced by Mr Owen. Another factor which intrudes upon the preparation of accounts is that Mr Owen's investigations to date have disclosed that a number of transactions within the group were not fully documented. Thus, it would be a difficult, time-consuming and costly process to attempt to reconstruct those transactions in order to prepare the group's financial accounts such that those accounts represented a fair and true view of the group's position. 20 Mr Owen also makes reference to there being no directors to sign off on financial reports or give declarations required by Pt 2M.3 of the Corporations Act as all directors of the group's entities resigned immediately after the appointment of administrators of the group. Whether this is, indeed, a difficulty is moot given the role consigned to administrators under s 437A of the Corporations Act. It is not, in any event, a matter to which I give particular weight, nor need it be, having regard to the other considerations which I have already mentioned. 21 In summary, the administrators believe that the administrative burden and associated costs relating to the preparation of group financial reports are unreasonable and, insofar as this would entail a need to assign a value to the tunnel, potentially prejudicial. 22 Another factor to which they point is that there are no end users for such financial reports. The major party interested in the administration, the banking syndicate, is able to and does command the preparation of whatever financial information it requires in relation to the group from the information readily available to the receivers who continue to operate the tunnel. I accept that each of those factors is present in this case. They are not mere matters of opinion on the part of Mr Owen and his fellow administrators alone. 23 Mr Owen further opines that it is impractical to ask the administrators to cause RCMML, the responsible entity, to comply with its obligations under its financial services licences, pursuant to Pt 7.6 and ch 5C of the Corporations Act in circumstances where the schemes are dormant. Accordingly, he deposes there appears to be no regulatory benefit in requiring strict compliance. The administrators, understandably, wish to do no more and no less than to maintain the current state of the schemes in the hope that it may allow greater flexibility in any sale process, thereby increasing the chances of the best possible return to creditors. The administrators believe that this is in conformity with the spirit of Pt 5.3A of the Corporations Act and the orders previously made which extended the administration period. 24 To all of those ends, the administrators have earlier engaged with ASIC. The end result of that is that ASIC has declined to afford the administrators any exemption from particular provisions of the Corporations Act imposing obligations on responsible entities. There is also a difference of views as between the administrators and ASIC as to whether, having regard to the Corporations Act, an administrator is, for the purposes of provisions concerning managed investment schemes, an "officer" as defined. It will be necessary later in these reasons to refer in more detail to some provisions of the Corporations Act of particular relevance in that regard. Suffice it to say, ASIC's exemption refusal decision is one able to be reviewed in the Administrative Appeals Tribunal. Such a review application has been made. It is yet to be heard and determined in that Tribunal. It has not been suggested in any way by or on behalf of ASIC that the existence of that administrative review process provides occasion, even as a matter of discretion, for the refusal of the relief sought; nor in the particular and peculiar circumstances of this case do I separately consider that it provides such occasion. 25 Something now much be said about the representation before me in respect of the questions for consideration. In that regard, though the application was widely publicised in ways which conformed with orders made by the Court, there was no appearance by any person seeking to be made a respondent to the application. Instead, ASIC appeared and sought to be heard as amicus curiae. That was so even though s 1330 of the Corporations Act affords ASIC an ability to intervene in any proceeding relating to a matter arising under the Corporations Act. Intervention would make ASIC a party, and expose it to the potential of a costs liability: see s 1330(2) of the Corporations Act. 26 Recently, in Roadshow Films Pty Ltd v iiNet Pty Ltd [2011] HCA 54, the High Court had occasion to make observations upon the subject both of intervention and leave to appear as amicus curiae. The Court's observations as to intervention concerned whether to allow non-party intervention. It is not necessary to refer to these, having regard to the statutory right of ASIC to intervene. The Court's observations at paragraph 6 in relation to an amicus appearance are germane. The Court there observed, in considering whether any applicant should have leave to intervene in order to make submissions or to make submissions as amicus curiae: [I]t is necessary to consider not only whether some legal interests of the applicant may be indirectly affected but also, in this case critically, whether the applicant will make submissions which the Court should have to assist it to reach a correct determination. Ordinarily then, in cases like the present where the parties are large organisations represented by experienced lawyers, applications for leave to intervene or to make submissions as amicus curiae should seldom be necessary or appropriate and if such applications are made it would ordinarily be expected that the applicant will identify with some particularity what it is that the applicant seeks to add to the arguments that the parties will advance. The latter part of the passage quoted from Roadshow finds resonance in r 9.12 of the Federal Court Rules 2011 (Cth) as to factors to which the court may have regard in deciding whether to permit intervention. 27 Again though, ASIC has a statutory right to intervene. There is a difference between intervention and granting a person leave to act as amicus. An amicus is not a party to the proceedings. Where an person's interests are directly affected, and that person wishes to undertake an active role as a contradictor in respect of matters of factual controversy, intervention would be the appropriate course for that person to take. Here though, ASIC expressly disavowed any role of factual contradictor. Instead, the role sought to be undertaken by ASIC was to assist the Court in respect of what undoubtedly are novel issues arising under the Corporations Act, and difficult ones at that. 28 The position taken by ASIC was, given its role of day to day administration of the Corporations Act, with respect, principled and welcome. I granted leave for ASIC to appear as amicus in relation to particular issues of statutory construction and powers which the Court had or did not have in respect of the granting of the relief sought. 29 I turn then to consideration of the particular issues which are raised by the application. In essence, there are three: 1. Is an administrator an officer for the purposes of provisions concerning managed investment schemes? 2. Does the Court have power under either or each of s 447A and s 447D of the Corporations Act to grant any of the relief sought? 3. In any event, if there is such power, should the relief sought be granted in whole or in part?

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