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

IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 60 of 2011

IN THE MATTER OF RIVERCITY MOTORWAY PTY LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) (AND EACH OF THE COMPANIES LISTED IN THE ATTACHED SCHEDULE)

BETWEEN: MICHAEL ANDREW OWEN, STEPHEN JAMES PARBERY AND CHRISTOPHER CLARKE HILL IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF RIVERCITY MOTORWAY PTY LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 116 665 304 (AND EACH OF THE COMPANIES LISTED IN THE ATTACHED SCHEDULE)

JUDGE: LOGAN J DATE: 28 NOVEMBER 2013 PLACE: BRISBANE

REASONS FOR JUDGMENT 1 There is by now a considerable history to the administration of RiverCity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) and other corporations in what might conveniently be described as the RiverCity Motorway Group. 2 Earlier aspects of that considerable history are set out in two previous judgments of mine, Owen, in the matter of Rivercity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) v Madden [2011] FCA 295 and Owen, in the matter of RiverCity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) v Madden (No 4) (2012) 92 ACSR 255. These reasons for judgment must be read in conjunction with those earlier reasons for judgment. In those earlier reasons for judgment and in particular, in the 2011 judgment, I canvassed principles concerning administrations under Pt 5.3A of Ch 5 of the Corporations Act 2001 (Cth) (Corporations Act) and in particular, considerations relevant to the extension of a convening period. I also canvassed in those earlier reasons for judgment the ability of the Court to make particular orders modifying what would otherwise be the application of the Corporations Act in the circumstances of particular administrations. I do not propose to repeat what I there stated. 3 The application for consideration today entails the seeking of the following relief: (a) A yet further extension of the convening period for the second meeting of creditors; (b) Directions and orders with respect to the conduct of and costs related to three proceedings in the Court in New South Wales to which companies in their RiverCity Motorway Group either are or might reasonably be expected to become parties; and (c) Approval of the remuneration of the administrators for the preceding twelve months, together with related consequential orders. 4 There are, in all, ten companies in the RiverCity Motorway Group, together with related trusts. Each of the companies is under administration. Eight of the companies are also the subject of the appointment of receivers and managers by a consortium of financiers. At the heart of the group lies a tolling business associated with the Clem7 Tunnel and a bridge across the Brisbane River known as the Go Between Bridge. Those tolling operations are administered from premises at Cannon Hill. Also located there is a call centre which services the tolling operations. The extensions granted earlier were directed to the end of the securing, if possible, of a sale of the tolling business. 5 It is necessary now to set out something of what has occurred since those extension orders were made in order to understand why it is that a yet further extension has been sought. On 27 September this year the receivers and managers entered into a sale agreement for the tolling business. In the event the sale is one aspects of which are unlikely to be completed on or before 18 December 2013. By virtue of orders previously made by the Court and unless further extension is granted the administrators would be required to convene the second meeting of creditors on or before 18 December 2013. 6 Two particular times for extension have been alternatively propounded in the submissions made, both by the administrators and separately by the receivers and managers. On the one hand, it is submitted that an extension might appropriately be granted until the end of February 2014. On the other, and preferably so, each submission goes, the extension might be until the end of June 2014. Before turning to the merits of whether there ought to be an extension and, if so, for how long, it is necessary to say something of appearances which were not made today. The reason why that is so will become apparent immediately upon mentioning those to whom notice of the application has been given. 7 The Brisbane City Council from whom the tunnel concerned is leased has been given notice, as indeed it was on earlier occasions and has chosen not to appear. Likewise, the landlord of the premises at Cannon Hill has, as on previous occasions, been given notice and chosen not to appear. Further, and again as on previous occasions, the Australian Securities and Investments Commission (ASIC) has been given notice of the application and has chosen not to appear. The absence of appearance ought not to be construed and I do not construe it in any way as an adverse criticism of each or any of those persons. Rather, the inference which I draw from the absence of appearance is that there has been a considered value judgment by persons who have particular and disparate interests in the overall operations and continued operation or otherwise of the companies which comprise the RiverCity Motorway Group, that there is nothing to be said against the relief sought. I infer nothing more than a neutrality of possession. 8 Likewise, though there are many, many unsecured creditors, there has been no appearance by or on behalf of any of them. Nor has there been any notice given, either to the administrators directly or for that matter to the receivers and managers, of any interest in the contradiction of the relief that is sought by the administrators. 9 The administrators' seeking of the extension is the result both of their own considered and responsible value judgment, as well as responsive to a request made of them by the receivers and managers. It is very important to appreciate, in respect of the present application, at least so far as it touches upon the question of extension and for that matter, the remuneration of the administrators, that the administrators and the receivers and managers have quite different responsibilities to discharge. 10 That they have in the end come to a congruence of submission with respect to the question of extension is not in any way indicative of collusion on their part, as opposed to a responsible and dispassionate consideration of the interests of their own clients, so far as the receivers' and managers' representatives are concerned, or the interests of the companies and the companies' creditors as a whole, so far as the administrators are concerned. That there is, approaching the question from separate perspectives, a congruence of submission is, though, a consideration of great weight in relation to the outcome of the extension application. 11 That the extension application is able to be dealt with at all this afternoon is eloquent proof of the assistance to the administration of justice offered by the responsible discharge of office by administrators, their considered and valuable submissions via counsel and the equally considered and valuable submissions made on behalf of the receivers and managers. 12 So there is then a sale which is in the throes of its being undertaken. Reflecting upon the reasons which motivated me to extend and then further to extend the period of the administration I consider that it would be a subversion of those reasons and indeed, perverse if I were not at least to extend the period of administration until the end of February. 13 The plain fact was and remains that the core asset, the tolling operation, is highly unique and did require and still requires a targeted application of the powers given to the Court under Pt 5.3A of the Corporations Act to the end of ensuring that the possibility of maximisation of a corporate asset is realised. In this regard, the interests of secured creditors in that maximisation are not to be ignored. Were the administration not to be extended there is a risk that all of the good endeavours which have in prospect their fruition would be sat at nought. The landlord has obviously been content with the assurance provided as far as the occupancy of the Cannon Hill premises are concerned by the arrangements in place in the course of the administration. There is a skilled workforce also in place, the members of which have continued in place over the course of the administration. The continuance of the administration has allowed a pattern to be established in relation to traffic flows, so as responsibly to permit a sale to occur of the tolling operation. All of the factors touching upon an ability to sell an operation as a going concern would be placed at risk were there not to be an extension. 14 There are aspects to the sale which need not, and indeed to some extent should not, be detailed which motivate me at least to extend the convening period to the end of February. There are also contingencies which touch upon why it may be prudent, in conjunction with other considerations, to extend the convening period beyond that date. These were put in a summary way on behalf of the receivers and managers in a way which corresponded also with submissions made separately by the administrators in this way. The receivers' preference was for a longer extension. That, it was submitted, would allow time for the completion of the sale agreement and further there are contingencies touching upon that completion, as well as for the novation of particular contracts which are material and for which the sale agreement provides. 15 The securing of that novation may require a period beyond the end of February. Whilst there is no present reason to suspect that the sale will not complete, there are contingencies which touch upon that. An extension to the end of June would at least, in the event that for some unforseen reason the sale does not complete, allow the administrators time to canvass an alternative buyer. 16 There are other reasons with which the receivers and managers are not directly concerned why it is that an extension beyond the end of February is, on balance, preferable. Those reasons stem in one way or another from litigation in this Court's New South Wales Registry which either presently or might reasonably be expected to involve companies within the RiverCity Motorway Group. 17 Those proceedings are these: NSD757 of 2012: This is a proceeding brought by unit holders in the related managed investment schemes. The allegation in these proceedings is that traffic forecasts made by AECOM in relation to the Clem7 Tunnel were misleading or deceptive or further or alternatively, were made negligently. RC Management, one of the companies in the group, has been joined as a second respondent to the proceeding. Another, RC Services, is the third respondent. The allegation in the proceeding, so far as it touches upon them, is that the product disclosure statement for the schemes, which was issued by RC Management and prepared by RC Services, was defective by reason of the traffic forecasts found in it. The Court has granted leave to proceed against RC Management on conditions. Those conditions materially include, at least for the moment, dispensation from the filing of a defence or the giving of discovery. NSD697 of 2012: This proceeding has been brought by Portigon AG. Portigon AG was a lead arranger and underwriter in respect of the tunnel project. It has brought proceedings in the Court against AECOM. At the heart of those proceedings is an issue the same as that in the class action proceeding, NSD757 of 2012, namely, an allegation that traffic forecasts made by AECOM in relation to the tunnel were misleading or deceptive or further or alternatively, made negligently. NSD678 of 2012: This proceeding has been commenced by a group of companies within the RiverCity Motorway Group itself against AECOM. Once again, the allegation at the heart of those proceedings corresponds with that which is at the heart of NSD697 of 2012 and NSD757 of 2012. In both the proceedings brought by Portigon AG, as well as those brought by the group within the RiverCity Motorway Group itself, AECOM proposes to sue RC Management and other companies within the group by way of cross-claim. It has sought consent so to do pursuant to s 440D of the Corporation Act. That consent has yet to be given. 18 Unsurprisingly, given the overlap of issues, each of the proceedings in the New South Wales Registry are being managed together. They are on the docket of Nicholas J. Recently, AECOM sought leave to amend its defences in each of the proceedings. Its application in that regard is opposed and that application is not likely to be heard until 28 and 29 April 2014. 19 The role which the administrators have to date taken has been described in submissions as not "particularly active". That is not to say that the administrators have been indolent. Rather, what they have done is to deal with the day-to-day conduct of NSD757 of 2012, the class action. They have responded to requests for s 440D consent. They have investigated whether any insurance policies would respond to the claims made and proposed to be made against RC Management in the various proceedings. 20 There are aspects of the administrators' present investigations concerning insurance policies which have been put, and understandably put at that, to be confidential. Suffice it to say, they have identified a number of potentially relevant insurance policies. They are at present in the throes of taking advice in relation to these policies. It is unlikely that this advice, which includes a need to obtain advice from overseas legal advisors, will be received and able to be meaningfully assimilated before the end of February 2014. It is more likely that by the end of June, rather than the end of February, the administrators would be able to make an informed value judgment about the worth, if any, of insurance policies and having regard to the litigation existing or in prospect, those insurance policies may, and it is necessary emphatically to underscore "may", provide some prospect of some return to a wider class of creditors than the secured creditors. That is a factor which supports an extension to the end of June. 21 Another is the absence of any apparent detriment to trade creditors of allowing the administration and the related conduct of the tolling business to continue. The arrangements which were in place for the meeting of current obligations will remain in place. That provides, especially in light of experience since 2011, a comfortable assurance, in my view, that there is no likelihood of detriment to trade creditors including, I particularly note, employees from a continuance of the administration. 22 Also to be noted is the absence of objection by the ASIC to what is, on any view, a very singular application under Pt 5.3A in respect of very singular facts. I also note that the administrators continue to comply with various reporting requirements of the Australian Stock Exchange. 23 There is another factor which intrudes and that is a phenomenon of the presence of tax losses within the group. Whilst it may seem strange to some that losses could compromise an asset, that is not so in relation to the use permissibly under revenue law of tax losses. There is, for reasons the administrators explain, a case to be made based on the identification of these within the group for an extension of the convening period to the end of June as well. It should not be thought that the administrators are in any way engaged in inappropriate practice by drawing that particular factor to the Court's attention. Administrators must responsibly administer the company to which or companies to which they are appointed. Not to take into account taxation considerations would be an irresponsible rather than a responsible act on the part of administrators. 24 Likewise, to do nothing in relation to the existing litigation could legitimately be regarded as an irresponsible action on the part of the administrators. 25 The Court expects much candour on the part of administrators in respect of applications for extension. I am well satisfied that Mr Owen and his colleagues have fulfilled that duty in relation to this application. For all of these reasons and having regard to principles which I discussed in the earlier judgments, I propose to extend the convening period to the end of June 2014. I do so fully recognising that such an extension, considered with those previously granted, may well evidence something of a record in relation to Pt 5.3A of the Corporations Act. It is to be remembered, at the risk of repetition, that singular circumstances call for having regard to the ends to which Pt 5.3A is directed, singular responses. 26 In many ways, recognition of the need responsibly for the administrators to do something other than nothing in relation to the litigation pending or in prospect in this Court informs what should be the outcome in respect of the directions which have been sought by the administrators. Those directions are to the end of providing some advice and assurance for them in relation to that litigation or that body of litigation. 27 The directions are sought pursuant to s 447D of the Corporations Act. That provides, materially, that the administrator of a company under administration or of a deed of company arrangement may apply to the Court for directions about a matter arising in connection with the performance or exercise of any of the administrator's functions or powers. It is necessary to approach the giving of directions by reference to the ends to which Pt 5.3A of the Corporations Act is directed. I canvassed those ends and other authorities touching on those ends in my earlier reasons for judgment. 28 What is sought today are, directions under s 447D that it would be a proper exercise of the administrators' powers and functions to cause RC Management to do the following: (a) continue to monitor and investigate the claims made and take such steps as orders by the court in the New South Wales proceedings; (b) continue to take steps to identify, preserve and enforce rights under any policy of insurance that might respond to the claims made in the New South Wales proceedings, including, if necessary, take further action in The Netherlands; (c) take such legal advice and other advice as the administrators may, from time to time, require; (d) take such steps or action of and incidental to any of the foregoing; (e) incur costs in doing so. 29 The reference in the requested directions to The Netherlands is a reference that relates or, at least, may relate to a need having regard to the policies of insurance to pursue remedies in that place. I find it difficult to see how the administrators could perform adequately and responsibly their function of administering what is a highly complex interrelated corporate administration and maximise the worth, if any, of insurance which may be available by doing other than what they are doing and propose to do in relation to the litigation in this Court existing and in prospect. It would be difficult, if not impossible, to measure the worth and application of insurance without an understanding of the litigation concerned. As has been put on behalf of the administrators: The pursuit of insurance is necessary because if a policy responds to the claims in the New South Wales proceedings, it is an asset of RC Management and the schemes. I agree. 30 Further, and as Mr Lynch has disposed in his affidavit, the costs to date of the involvement undertaken by the administrators in the New South Wales litigation are proportionate having regard to the size and complexity of that litigation. 31 A question then arises as to the indemnification of the administrators. The administrators seek orders that they are entitled to be indemnified directly out of the assets of the schemes for remuneration and expenses incurred in relation to those schemes. Section 443D of the Corporations Act provides a right of indemnity out of "the company's property", which would materially be that of RC Management. In short, the administrators seek an order that would extend the indemnity beyond that of RC Management itself to the property of the schemes for which RC Management is the responsible entity without, in turn, a need to rely on RC Management's own right of indemnity out of the property of the schemes. 32 They also seek protection from a possible prejudicial, that is prejudicial to them, operation of the constitution of the schemes and that possible prejudice is not fanciful, in my view. It arises from a combination of s 601GA(2) of the Corporations Act read in conjunction with articles 17 to 19 of the scheme's constitutions. 33 Section 601GA of the Corporations Act relevantly provides: (2) If the responsible entity is to have any rights to be paid fees out of scheme property, or to be indemnified out of scheme property for liabilities or expenses incurred in relation to the performance of its duties, those rights: (a) must be specified in the scheme's constitution; and (b) must be available only in relation to the proper performance of those duties; and any other agreement or arrangement has no effect to the extent that it purports to confer such a right. 34 Article 19.3(b)(xv) relevantly provides: 19.3 Expenses (a) subject to this article, all expenses incurred by the Manager in relation to the proper performance of its duties in respect of the Trust are payable or reimbursable out of the Assets to the extent that such reimbursement is not pre-empted by the Corporations Act. (b) Manager expenses include expenses connected with: … (xv) any court proceedings, arbitration or other dispute concerning the Trust including proceedings against the manager, except to the extent that the manager is found by a court to be in breach of trust or to have been negligent, in which case any expenses paid or reimbursed under this article 19.3(b)(xv) must be repaid;" 35 What is put is that read in light of s 601GA, and Art 19.3(b)(xv), there is a prospect that if RC Management is found in any of the New South Wales proceedings to have in the past, and as is alleged, acted negligently or in breach of the trust, that this would trigger an obligation to repay all of the costs associated with this litigation that have been paid out of scheme funds. That in turn might see the administrators becoming liable personally to repay those costs. In many ways, that will be an unfortunate, if not perverse, outcome given that the incurring of the costs is at least as I see it at present, in the interests of creditors as a whole, but particularly unsecured creditors. 36 It is therefore desirable in my view to make orders which would remove from the administrators that particular understandable concern from their carrying out responsibly their duties. A way of achieving that is by way of the making of orders under s 447A of the Act. It was said of that provision in Re Octavia Ltd (No 8) (2010) 237 FLR 315 by Keane JA as his Honour then was, with whom Muir J and Chesterman J agreed that: … the powers conferred on the Court by section 447A are wide (though not without limit), and there is no reason to read them down. The only limitation on the power conferred on the court by section 447A(1) is that the order must be one which affects how Pt 5.3A is to operate. The precise means by which the operation of Pt 5.3A is to be affected in relation to any given company is left to the discretion of the court. 37 As I have observed myself in relation to s 447A, earlier in this corporate insolvency saga, what is required is a nexus with the way in which Pt 5.3A operates. Here, what is put is that the nexus is to be found by virtue of the fact that the orders sought would modify the operation of s 443D and s 443F. It is further put that s 447A allows the court to make orders which limit or exclude the personal liability of an administrator. With each of these submissions I agree. The directions sought would modify the operation of s 443D and s 443F, as they apply to RC Management so as to extend the indemnity that those sections confer and allow the administrators to have direct recourse to the scheme assets without having to rely upon RC Management's own right of indemnity. They would do that in a way that ensured that the rights of indemnity under those provisions were explicitly not qualified by the operation of Art 19.3 in the constitutions. 38 There is then a question as to how costs should be apportioned. The submission is that the most appropriate way to apportion costs is in accordance with the value of the funds held by the schemes at the time the indemnity is satisfied. It is to be remembered that the units concerned are "stapled". That is a short-hand way of saying that, in effect, a unit holder cannot transfer a unit in one scheme without transferring a related, or "stapled" unit in the other scheme. For this reason, there is no basis for differentiating between the schemes so as to avoid unfairness to different groups of beneficiaries. 39 There are other reasons why the apportionment proposed is apt. In particular, work which the administrators perform in relation to the New South Wales proceedings, and the investigations they have undertaken, and are undertaking, in relation to insurance will be for their benefit of both schemes. 40 There is another practical consideration, which is it will remove the prospect, if the apportionment is ordered, that the administrators may become subject to a risk that they will be out of pocket, because the funds in one scheme will be exhausted before the other. 41 Further, the creditors of the scheme comprise the unit holders, as well as possibly some of the companies in the Rivercity Motorway Group. The administrators depose, and I accept, that the complexity of the loan accounts in the group is such that it would be impractical to determine to what extent those companies are creditors, or the extent to which what they are owed by one scheme is different to what they are owed by the other. 42 All in all then, the proposal for apportionment is in my view principled, and, insofar as there may be any difference between that and the following, sensible. 43 Finally, there is a question of whether the remuneration sought by the administrators should be approved. I canvassed principles applicable to remuneration in the reasons which I gave in Owen, in the matter of Rivercity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) v Madden (No 2) [2012] FCA 312 (Rivercity Motorway (No 2)). I shall not repeat what I there stated. 44 It is to be remembered that s 449E of the Corporations Act expressly contemplates that administrator may in whole or in part charge on a time basis. As I did in Rivercity Motorway (No 2), I am by no means an adherent to the merits of time costing. It can reward the indolent and the inefficient in ways in which the able and the diligent and efficient are not rewarded. For all that, these particular costs in respect of actions which Mr Owen has detailed in his affidavit, strike me as very reasonable reward indeed for what must have been a demanding year past. 45 I note that the receivers and managers were provided in advance with the administrator's submissions. That is important because the relief sought in relation to costs of the administrators extends beyond approval. They seek to have the Court approve a particular avenue of payment. 46 Administrators have a statutory right to be indemnified out of the property of the company or companies under administration for their remuneration and expenses: see s 443D and as to the lien concerned, s 443F. In relation to property held by RC Management on trust, that is the trust property, the administrator may have the course to trust assets for the purpose of paying trust liabilities. This extends to the administrator's remuneration associated with the management of the trusts, because the remuneration is regarded as the debt of the corporation, and therefore a debt of the trustee incurred in the administration of the trust. 47 There is also, as has correctly been put on behalf of the administrators, a power possessed by a court of equity, of which this Court is one, to allow an administrator of a corporate trustee to have the recourse to trust assets for remuneration and expenses. I am quite satisfied that such recourse is appropriate in this case. 48 Finally, and as I have earlier mentioned, there are aspects to the sale and the administration, where it is in the interests of creditors as a whole that there be a degree of confidentiality. For that reason, I have decided not to make the submissions of the administrators and the separate submissions of the receivers, and particular affidavits read in support of the applications, available for searching in an unredacted way. There will be directions given which balance the desirability of public administration of justice with the present desirability that some aspects of the administration be kept, for good commercial reasons, confidential. 49 There will then be orders in terms of the draft proposed by the administrators. There will be further orders for confidentiality in terms of the orders proposed by the receivers and managers. And likewise, there will be orders for confidentiality in terms of short minutes to be brought in by the administrators. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.