Plaintiffs v AUSTRALIAN EXECUTOR TRUSTEES LIMITED as trustee for the AUSTRALIAN FORESTRY PLANTATIONS

Plaintiffs v AUSTRALIAN EXECUTOR TRUSTEES LIMITED as trustee for the AUSTRALIAN FORESTRY PLANTATIONS - [2012] VSC 655 - VSC 2012 case summary — Zoe

[68]

(1) This section applies if, under an agreement made before the administration of a company began, the company continues to use or occupy, or to be in possession of, property of which someone else is the owner or lessor, including property consisting of goods that is subject to a lease that gives rise to a PPSA security interest in the goods.

General rule

(2) Subject to this section, the administrator is liable for so much of the rent or other amounts payable by the company under the agreement as is attributable to a period:

(a) that begins more than 5 business days after the administration began; and

(b) throughout which:

(i) the company continues to use or occupy, or to be in possession of, the property; and

(ii) the administration continues.

(3) Within 5 business days after the beginning of the administration, the administrator may give to the owner or lessor a notice that specifies the property and states that the company does not propose to exercise rights in relation to the property.

(4) Despite subsection (2), the administrator is not liable for so much of the rent or other amounts payable by the company under the agreement as is attributable to a period during which a notice under subsection (3) is in force, but such a notice does not affect a liability of the company.

(5) A notice under subsection (3) ceases to have effect if:

(a) the administrator revokes it by writing given to the owner or lessor; or

(b) the company exercises, or purports to exercise, a right in relation to the property.

(6) For the purposes of subsection (5), the company does not exercise, or purport to exercise, a right in relation to the property merely because the company continues to occupy, or to be in possession of, the property, unless the company:

(a) also uses the property; or

(b) asserts a right, as against the owner or lessor, so to continue.

Restrictions on general rule

(7) Subsection (2) does not apply in relation to so much of a period as elapses after:

(a) a receiver of the property is appointed; or

(b) under an agreement or instrument under which a security interest in the property is created or arises:

(i) the secured party appoints an agent to enter into possession, or to assume control, of the property; or

(ii) the secured party takes possession, or assumes control, of the property;

but this subsection does not affect a liability of the company.

(8) Subsection (2) does not apply in so far as a court, by order, excuses the administrator from liability, but an order does not affect a liability of the company.

(9) The administrator is not taken because of subsection (2):

(a) to have adopted the agreement; or

(b) to be liable under the agreement otherwise than as mentioned in subsection (2).

[88]

The reason for the section [443B] is clear enough. The administrator of a company under administration is the company's agent: s 437B. Under the general law, an agent would not be liable for rent due under a lease entered into by his (or her) principal, whether or not the rent fell due before or after his appointment, unless, by his conduct, the agent has adopted the lease. This was thought to be unacceptable in respect of property which the administrator used during the administration in circumstances where s 440C places a bar on an owner or lessor taking possession of his property without the administrator's consent or the court's leave. So, if the administrator allows the company in administration to continue to use leased property for the purposes of the administration, it was thought only fair that the administrator be personally liable for the rent.

However, as the legislation makes plain, the administrator is given a period of grace. He has 5 business days within which to investigate the affairs of the company and decide whether or not he wishes to avoid liability to pay rent. If he does wish to avoid that liability then he must give a notice under subsection (3).

Often 5 business days will not be enough time in which to conduct the necessary investigation to decide whether the administrator thinks it best to retain or give up possession of leased property. Indeed, 5 business days may be too short a period to discover what are the outstanding leases into which the company has entered.

Principally for this reason, subsection (8) allows the court to excuse the administrator from liability to pay rent after the 5 business day period has passed. At least that is the explanation for the subsection given in the Harmer Committee Report which recommended the enactment of Part 5.3A: Australian Law Reform Commission, General Insolvency Inquiry, Report No 45 (1988) [91]

Subsection (8) allows the court ex post to excuse an administrator from the liability imposed by s 443B. Perhaps that subsection may also apply ex ante. If not, s 447A can be employed to avoid liability before it is imposed. That is, if the short period an administrator is given to conduct an investigation is not sufficient to uncover all leases, an order could be made under s 447A to extend the time for the investigation. Curiously, subsection (8) does not provide for an extension of time for the service of a notice under subsection (3). For that purpose, it is necessary to go to s 447A.[7]

[104]

The administration of the Gunns Group is large and complex. Notably there are:

(a) 36 companies comprising the Gunns Group;

(b) GPL is for the responsibility of the 21 schemes;

(c) there are some 35,000 growers with investments in the 21 schemes;

(d) the Gunns Group companies had in excess of 500 employees;

(e) the forest is subject to the schemes as spread across Tasmania, South Australia, Western Australia, Victoria, Queensland and New South Wales;

(f) in total there are approximately 1,100 leases between GPL and third party lessors and from our review of those leases to date, the terms of the leases vary from lease to lease; and

(g) the affairs of the companies are intertwined.

There are several matters that we need to further investigate and consider before we can properly report to creditors of the Gunns Group companies and growers in respect of GPL, assuming they are creditors, in the s 439A report in respect of the consolidated group, GPL and GHPL and before creditors can make an informed choice as regards the future of the Gunns Group of companies including:

(a) Assessing the position of the various leases;

(b) Assessing the solvency of the Gunns Group and the reasons for its failure;

(c) Ongoing negotiation with insurance brokers to offer growers an opportunity to maintain insurance on the various scheme plantations;

(d) Organising and implementing an expression of interest campaign for a replacement responsible entity in respect of the schemes managed by GPL;

(e) As required by regulation 5.3A02 of the Corporations Regulations Investigating whether there are any transactions in respect of any of the companies in the Gunns Group that appear to us to be avoidable transactions in respect of which money, property or other benefits may be recoverable by a liquidator of any of the Gunns Group companies under Part 5.7B of the Act.

(f) Investigating the possibility of a restructure and/or recapitalisation of the scheme and any other Gunns Group companies.

(g) Forming our opinion in respect of each of the companies in the Gunns Group as required by s 439A(4)(b) of the Act as to:

(1) Whether it would be in the creditor's interest for any of the Gunns Group companies to execute a deed of company arrangement;

(2) Whether it would be in the creditor's interest for the administrations in respect of any of the Gunns Group companies to end; or

(3) Whether it would be in the creditor's interests for any of the Gunns Group companies to be wound up.

Further, I anticipate that it will take significant time to compile and analyse the results of these various investigations into the 439A report.

...

Expressions of interest campaign for a replacement responsible entity

We also wish to extend the convenient period in order to preserve the possibility of restructuring the schemes or any of them. We are currently conducting urgent viability analyses of the schemes and have recently acknowledged the expressions of the interest campaign as discussed below. On 15 October 2012 we commenced a campaign seeking expression of interest for the role of responsibility to replace GPL in respect of the 18 Woodlot managed investment schemes.

We published an advertisement in respect of the expression of interest campaign in the Australian Financial Review and on the PPB Advisory website on 15 October 2012. Due to the status of the three wine grape schemes at the time of our appointment we have not included those schemes in the expressions of interest campaign.

Also on 5 October 2012, we established an online data room which contains documents and information regarding the 18 Woodlot Schemes as subject of the expression of interest campaign. As of the close of business on 18 October 2012, a number of interested parties had contacted PPB Advisory and executed confidentiality agreements to gain access to the online data room. The parties entered the data room on a confidential basis and therefore we cannot disclose the number of parties or their identities.

Additional documents and information are being added to the data room as they become available. The expressions of interest campaign that we are currently conducting for a replacement responsible entity for GPL in respect of the 18 Woodlot schemes is expected to finish in mid to late November 2012.

Assuming a viable alternative is found to replace GPL as the responsible entity of any of the Woodlot schemes, we then intend to give growers 21 days notice of a meeting to put forward a resolution to remove GPL as responsible entity and appoint that viable alternative as the new responsible entity. It is also our intention that if a viable alternative is found to replace GPL as the responsible entity of one or more of the 18 Woodlot schemes, the subjects of the expression of interest campaign, representatives of that company would meet with the relevant lessors under the leases in respect of the relevant schemes to discuss appropriate arrangements which would enable the schemes or any of them to continue.

In the circumstances, an extension of the convening period will provide the necessary time to determine whether a new responsible entity is likely to be appointed in respect of any of the 18 Woodlot schemes as subject to the expression of interest campaign and permit us to have regard to the outcome of the campaign in forming our opinion in respect to the future of GPL pursuant to s 439A(4)(b) of the Act.

[105]

Negotiation with interested parties

Since 12 November 2012, together with our advisors, we have been carrying on extensive confidential discussions and negotiation with the interested parties. I set out below summary details of the proposals as submitted by the interested parties. We have received confidential binding proposals from Macquarie Bank Ltd and WA Blue Gum Ltd.

...

On 30 October 2012 and 12 November 2012, WA Blue Gum submitted correspondence to us outlining a proposal to take over the role of responsible entity from GPL in respect of the schemes. [...] Our discussion with both of the parties is continuing.

...

The issues are raised by the Macquarie (discussions) and the WA Blue Gum proposal are complex and will necessarily involve extensive further negotiation with Macquarie, WA Blue Gum, landlords of property used in the schemes, growers and other stakeholders of GPL before we can make a decision whether to pursue one or other of those proposals.

In order to preserve the possibility of the Macquarie proposal and WA Blue Gum proposal proceeding, we will not be in a position to make a decision whether or not to issue the appropriate s 443B(3) notices until the lease analysis is complete and the associated discussion with interested parties and landlords are exhausted. In order to preserve the possibility that Gunns Woodlot Schemes and the Great Southern Schemes continuing in existence and maximising the possible benefits and return to creditors of GPL growers and other stakeholders, we have formed the view that it is appropriate and necessary to seek a further extension of the period under s 443B(2)of the Act to enable us to decide whether to issue notices under s 443B(3) of the Act.

...

There is considerable uncertainty as to the consequences upon termination of the exploration of the leases in respect to the unharvested trees in the Gunns Woodlot Schemes and the Great Southern Schemes. If GPL is required to relinquish those leases before our negotiation with the interested parties and our viability analysis and lease reviews are concluded, we anticipate that complex disputes between the growers, landlords and other stakeholders in respect of the unharvested trees situated in the land used in the Gunns Woodlot schemes and the Great Southern schemes will ensue.

This could result in costly and protracted litigation and may jeopardise the possibility that the restructure of the Gunns Woodlot schemes and the Great Southern schemes, or the orderly, efficient and equitable realisation of the assets including the unharvested trees of those schemes.

...

Having regard to the incomplete status of the negotiations with the interested parties in relation to the possible restructure of the Gunns Woodlot schemes and the Great Southern schemes:

(b) The size and complexity of the leasehold arrangements under which the Gunns Woodlot schemes and the Great Southern schemes and the Great Southern schemes were operated.

(c) The uncertainty and legal complexity and the issues surrounding ownership of the unharvested trees upon the termination expiry of the Gunns Woodlot scheme leases and the Great Southern scheme leases.

(d) The necessity of the Gunns Woodlot schemes leases and the Great Southern scheme leases to be to the viability of the scheme and any restructure of those schemes.

(e) The substantial body of grower investors in the Gunns Woodlot schemes and the Great Southern schemes owe 35,000 whose rights are dependent upon the Gunns Woodlot scheme leases and the Great Southern scheme leases.

Having regard to the incomplete status of our lease review and analysis in respect of the Gunns Woodlot schemes and the Great Southern schemes, if we are required to make decisions to issue notices under s 443B(3) of the Act by 30 November 2012, the possibility of restructuring the Gunns Woodlot Scheme leases and the Great Southern Scheme leases, or otherwise realising unharvested trees in those schemes is likely to be materially prejudiced. Furthermore, any premature decision to issue those notices before we can complete the EIO campaign and our review and analysis of the schemes and leases is likely to result in prejudice to the growers and investors in those schemes.

[119]

(a) An assessment of the land which is the subject of each of the GS lease, the Gunn land. We undertake to determine whether the date of expiry, the rate of return for investors will meet the threshold of eight per cent. If the combined land and tree crop is likely to meet that threshold, the land will be kept. If it is not likely to meet that threshold, the land will be sold.

(b) It is intended the Gunns land in higher rainfall areas close to port where viable tree crops can be grown will be retained and the balance will be sold.

The land which is subject to the expired leases is a mixture of land which is intended to be retained by trust and land which its debtors sell. On the land which is the subject of the 60 expires leases, the land which is the subject of 27 of the expired leases is to be sold and the land that is subject to the remaining 33 leases is to be retained. In respect of the land that is subject to the expired leases, the business strategy proposed by me and approved by the management committee is to issue termination notices to Gunns unencumbering it and not entering into further dealings with Gunns as lessor and responsible entity of the relevant managed investment schemes or any replacement responsible entity.

I am aware of two unsolicited offers not as a result of marketing or advertising which have been made by a prospective purchaser in relation to the Webb and Eccho Downs properties and those are unable to proceed having regard to the status of the administration of Gunns and the extension of the moratorium period until 31 January 2013. Furthermore, prior to the appointment of the administrators, New Forests have commenced to market a large tranche of properties subject to GS leases (that is Great Southern leases) in Western Australia and the GT which has also been placed on hold.

Forestry Funds is adversely affected by the rent free period and will be further adversely impacted by any extension of the rent free period by reasons of the matters referred to above. Namely:

At a glance

Court

Decision date

Before

Source

Judgment (266 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (5)