Playcorp Pty Ltd v Venture Stores

The affidavit evidence

1. The application is supported by affidavits of Mr Rasetti who is, as I noted above, a company secretary of BLY, a director of two of the other Plaintiffs, Boart Longyear Management Pty Limited ("BLM") and Votraint No. 1609 Pty Limited, and is also a Senior Vice-President and general counsel of BLY. Mr Rasetti refers to the structure of the proposed schemes of arrangement, which I have broadly described above. He also refers to the background to the schemes, which include the entry by two of the entities, BLY and BLM into a restructuring support agreement with certain of their creditors on 2 April 2017, providing for support by those creditors of the secured creditors scheme and the unsecured creditors scheme. Mr Rasetti notes that those creditors who support the schemes comprise a significant proportion of the total debt held by secured creditors, being 77.9% of that total debt, and a substantial proportion of the debt held by 7% noteholders, being 88.5% of the debt. It should be recognised that a substantial part, if not all, of that percentage is associated with three creditors who are supportive of the application.
2. Mr Rasetti also refers to the ASX announcement made by BLY on 3 April 2017, which provides a detailed explanation of the purposes of and nature of the proposed schemes. He also refers to the fact that a letter has been received from the solicitors acting for First Pacific, which, as I noted, appeared in the course of this application, raising a question of the application, or potential application, of the prohibition on insolvent trading in s 588G of the Corporations Act in circumstances that interest was not paid on 1 April 2017 in respect of senior secured notes due 2018 issued pursuant to the 10% secured notes indenture.
3. The Plaintiffs also rely on an affidavit of Mr Dennis Dunne, who is a US legal practitioner of very substantial experience, who refers to the circumstances in which a US Court would recognise the appointment of a "foreign representative", for the purpose of US proceedings under chapter 15 of the United States Bankruptcy Code. The broad thrust of Mr Dunne's evidence is that a US Court would be likely to recognise the appointment of such a foreign representative if made by an order entered in these proceedings.
4. I have also been taken, in the course of submissions, to a detailed report prepared by KordaMentha, which is intended to be included with scheme material sent to creditors in respect of both of the schemes, which compares the outcome of the implementation of the schemes and the outcome of a winding-up of the companies and, importantly, notes the possibility, or likelihood, that the companies would become insolvent from the end of April 2017 or the commencement of May 2017, absent any moratorium or other standstill or other step to prevent claims against them in respect of the relevant debt instruments. The terms of those instruments relevantly provide for an event of default if a payment of interest on the securities is not made when due, and that failure continues for 30 days. Where payment was not made on the 10% secured note at the beginning of April 2017, that 30-day period would, on its face, expire at the end of April 2017.

The scope of s 411(16) of the Corporations Act

1. Section 411(16) of the Corporations Act relevantly provides that: "Where no order has been made or resolution passed for the winding-up of a Part 5.1 body and a compromise or arrangement has been proposed between the body and its creditors or any class of them, the Court may, in addition to exercising any of its other powers, on the application in a summary way of the body or of any member or creditor of the body, restrain further proceedings in any action or other civil proceeding against the body except by leave of the Court and subject to such terms as the Court imposes."
2. Mr Jackman has drawn attention to the purpose of this provision, recognised in the case law, of seeking to promote the orderly conduct of a scheme which may bring about a compromise of claims of creditors. Mr Jackman also draws attention to two relevant questions of construction as to this provision. The first is whether, as the earlier decision in Re Reid Murray Acceptance Ltd [1964] VR 82 suggested, the words "further proceedings" in s 411(16) confine the Court's jurisdiction to restraining only proceedings which have commenced, or whether the Court's power extends to proceedings which have not yet commenced. As Mr Jackman points out, McLure J preferred the latter and wider view in Re Glencore Nickel Pty Ltd [2003] WASC 18; (2003) 44 ACSR 210 at [67], observing that, as a matter of construction, the reference to "further proceedings" in that section could properly be read as a reference to proceedings other than the proceedings for approval of the scheme. Her Honour also pointed out that the concept of "proceedings" is not, in its terms, limited to proceedings that are presently in existence. Her Honour also expressed the view that the wider construction which she had adopted was consistent with the purpose of s 411 and was conducive to the orderly and efficient consideration of the proposed schemes and that she could see nothing in the language or purpose of the section that required the words "further proceedings" be read down to a further step in an existing action or civil proceeding.
3. I would adopt the same view as her Honour, which seems to me to be consistent with the language of the section, consistent with the purpose of s 411(16) of the Corporations Act in promoting the orderly and efficient consideration of the schemes, and which also seems to me to be consistent with the trend in modern international insolvency practice to recognise the risks of multiple proceedings which do not involve any form of collective resolution of claims against a company that is in financial difficulty. For these reasons, I would adopt the wider view of the scope of the section and, on that basis, to the extent that an order is made, it should properly expressly extend to any action or civil proceedings against the Plaintiffs, whether or not such action or proceeding has already been commenced.
4. Second, Mr Jackman identified a question whether, in the present case, the requirement that a compromise or arrangement had been "proposed" between a Part 5.1 body and its creditors or any class of them was satisfied. The case law, including the earlier decision in Re GAE Pty Ltd [1962] VR 252 and Playcorp Pty Ltd v Venture Stores (Retailers) Pty Ltd (1992) 7 ACSR 193 indicates that that concept does not require that all steps of the scheme have been completed, and that it is likely to be sufficient that the substantial features of the scheme have been identified and made known to creditors or some of them, at which point a risk would arise that individual creditors may bring individual claims so as to seek to obtain a form of preference by execution or otherwise. It may be, as Master Evans noted in Playcorp Pty Ltd v Venture Stores (Retailers) Pty Ltd above, that a "proposal" of the scheme would exist at least at the point the draft documents had been submitted to the Australian Securities and Investments Commission. It is ultimately not necessary to determine, in this case, at what precise point a "proposal" exists, because it seems to me plain that a proposal exists here. A detailed announcement was made to ASX that set out the substance of the proposed schemes as early as 3 April 2017. Detailed explanatory memoranda were provided to the Australian Securities and Investments Commission, including draft independent experts' reports, on 18 April 2017. Creditors have been aware of the substance of the proposed schemes at least since the date of the ASX announcement and it is readily possible to identify the detail of the schemes from the explanatory materials. In these circumstances, I am comfortably satisfied that both the secured creditors' scheme and the unsecured creditors' scheme have been "proposed" for the purposes of s 411(16) of the Corporations Act.

Matters relevant to the exercise of the Court's discretion

1. In exercising its discretion under s 411(16) of the Corporations Act, the Court would have regard to the factors noted in the case law to which I referred above, including the risk that individual steps taken by creditors could give rise to a preference or bring about the frustration of the procedure provided by s 411 of the Corporations Act to bring about a compromise of creditors' claims against a company, potentially forcing that entity into voluntary administration or into winding up.
2. The availability of a creditors' scheme under s 411 of the Corporations Act and its predecessor provisions allows the compromise of creditors' claims in a manner that may benefit not only a company in financial difficulty and its creditors and shareholders, but also for employees of such a company and the communities in which its operations are located. It seems to me that, in this case, there is at least a suggestion, albeit the threat may not have been made entirely explicit, that steps may be taken by First Pacific on the basis that the companies are alleged to have become insolvent on not having made the payment due in respect of the notes, and that failure having continued for 30 days. Any individual action taken in that respect could prejudice the capacity of creditors and other interested persons to consider the schemes.
3. I should also have regard to the fact that there is evidence of a substantial degree of creditor support, albeit that that may be concentrated in several creditors, for the proposed schemes, and I note that McLure J treated that as a relevant matter in Re Glencore Nickel above at [68]. I should also have regard to the fact that, as Mr Jackman points out, the schemes are at a relatively advanced stage and they have the potential, if approved by creditors, to bring about a better return, at least for some categories of creditors, than a winding up and to restore the company to solvency, albeit that that may require a complex and possibly contestable analysis.
4. It seems to me that, as Mr Jackman points out, in these circumstances, the restraint of proceeding against the companies, at least without leave of the Court, and subject to such conditions as the Court may impose, is a proper and desirable step to take in order to protect the assets of the scheme companies against steps which may be taken which would either bring about a potential preference to one or more creditors or frustrate the consideration of the schemes. For that reason, I will make the order that is sought under s 411(16) of the Corporations Act.

Appointment of foreign representative

1. An application is also brought for Mr Rasetti to be authorised as a "foreign representative" of the proceedings for the purposes of making an application to the United States Bankruptcy Court. I proceed on the basis that an application in the United States Courts under the United States Bankruptcy Code will be facilitated by such a designation, as would a corresponding application in Australia under the Model Law.
2. The same reasons that support an order under s 411(16) of the Corporations Act so as to preserve the opportunity for a restructuring by the proposed creditors' schemes of arrangement may well support the grant of a stay of proceedings by the United States Courts. Whether to grant such an order is, of course, ultimately a matter for those Courts. Conversely, absent a stay of potential proceedings in the United States, any stay granted by this Court may ultimately be ineffective, because proceedings may well be brought in the United States.
3. There is a question which is perhaps not simple, as to the Court's jurisdiction to make an order appointing Mr Rasetti as foreign representative for these purposes. Such an order was made in by Foster J in Re Emeco Holdings Limited (FCA, NSD 101/2017) although there does not appear to be a decision recording the juridical basis for that order. Mr Jackman points to three possible bases for that order. The first, which he submits is the most readily applicable, and which I prefer, arises under the Cross-Border Insolvency Act, implementing the Model Law in Australia. Article 25 of the Model Law provides, inter alia, that: "The Court shall co-operate to the maximum extent possible with foreign courts or foreign proceedings, in matters referred to in Article 1."
4. Article 1, in turn, extends to assistance sought in this State by a foreign court or a foreign representative in connection with a foreign proceeding. It seems to me that that provision cannot strictly apply, because there does not yet exist a proceeding in a foreign court, and the application relates to the authorisation of Mr Rasetti to act as foreign representative, so he is not yet in a position to seek such assistance. However, that article also extends to the position where assistance is sought in a foreign State in connection with a proceeding under Australian laws relating to insolvency. In this case, it seems to me that assistance is sought in the United States, both because Mr Rasetti is present there and because the application is made in respect of potential US proceedings in connection with this proceeding under s 411 of the Corporations Act. That is sufficient to satisfy the requirements of Article 1 and to found the Court's jurisdiction to co-operate under Article 23 of the Model Law.
5. Alternatively, Mr Jackman points to the possibility that the Court may be authorised to co-operate under s 581(2) of the Corporations Act, in acting in aid of and being auxiliary to the Courts of the United States in an external administration matter. It seems to me that that section would also be available, albeit it would require the Court to offer assistance which the United States Court has not yet requested, because proceedings in the United States Court have not yet commenced.
6. Mr Jackman also points to the reasoning adopted by David Richards J in Re Telewest Communications PLC [2004] EWHC 924; [2005] 1 BCLC 752 at [61], where his Honour considered that the Court had jurisdiction to make a declaration of appointment of an "authorised representative", under the corresponding English provisions. The reasoning there adopted by his Honour led to a desirable outcome, which was practically of considerable utility. However, there may be a degree of circularity in it, so far as it finds the power to make an appointment in a declaration as to the appointment's validity, where that declaration of validity might in turn depend upon first finding a power to make that appointment. It is not necessary to determine that question, where it seems to me that the Court has jurisdiction on the other bases that I have noted.
7. If I had not reached the conclusion that the Court had jurisdiction on those other bases, I am likely to have, in any event, concluded that the Court, as a superior court of general jurisdiction, had an inherent jurisdiction to make such an appointment since it is scarcely conceivable that the international régime for cooperation between Australian and foreign courts could be frustrated by the Court's inability to appoint an authorised representative to promote Australian insolvency proceedings in parallel proceedings in a foreign Court.
8. I am satisfied that, on the facts to which I have referred above, the orders sought for the appointment of Mr Rasetti as a "foreign representative" in these proceedings should be made.

Orders

1. In circumstances that many creditors will not have had formal notice of this application, it is appropriate to reserve liberty to any interested party, including any creditor of the Plaintiffs and the Australian Securities and Investments Commission to apply on one business days' notice, which would permit such a creditor to seek to set aside or vary these orders if so advised. I make orders in accordance with the Short Minutes of Order initialled by me and placed in the file.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 May 2017