CITATION : RE REWARDS GROUP LTD; EX PARTE REWARDS PROJECTS LTD (ADMINISTRATORS APPOINTED) IN ITS CAPACITY AS THE RESPONSIBLE ENTITY OF THE MANAGED INVESTMENT SCHEMES LISTED IN SCHEDULE 1 [2010] WASC 276

MATTER : Rewards Group Ltd (Administrators Appointed) (Receivers and Managers Appointed), Rewards Projects Ltd (Administrators Appointed) Rewards Land Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) Rewards Management Pty Ltd (Administrators Appointed), Ord Packers Pty Ltd (Administrators Appointed), Berry Packers Pty Ltd (Administrators Appointed) Rural Labour Pty Ltd (Administrators Appointed) and Greentree Capital Pty Ltd (Administrators Appointed)

REWARDS PROJECTS LTD (ADMINISTRATORS APPOINTED) IN ITS CAPACITY AS THE RESPONSIBLE ENTITY OF THE MANAGED INVESTMENT SCHEMES LISTED IN SCHEDULE 1

ANDREW JOHN SAKER, MARTIN BRUCE JONES AND DARREN GORDON WEAVER IN THEIR CAPACITY AS THE ADMINISTRATORS OF THE FIRST PLAINTIFF

Corporations - Managed investment scheme - Application for directions by administrators - Entry into loan agreements - Maintenance of schemes

Corporations Act 2001 (Cth), s 443A(1), s 443D, s 447A, s 447D

First Plaintiff : Mr J W S Peters SC & Mr S B Rosewarne

Second Plaintiff : Mr J W S Peters SC & Mr S B Rosewarne

Coad v Wellness Pursuit Pty Ltd (in liq) [2009] WASCA 68; (2009) 71 ACSR 250

Re Ansett Australia Ltd and Mentha [2001] FCA 1439; (2001) 39 ASCR 355

Re Ansett Australia Ltd and Mentha [2001] FCA 1806; (2001) 115 FCR 376

Re Great Southern Managers Australia Ltd [2009] VSC 642; (2009) 77 ACSR 9

LE MIERE J: (This judgment was delivered extemporaneously on 30 June 2010 and has been edited from the transcript.)

1 The plaintiffs have brought proceedings by originating process dated 25 June 2010 and filed on 28 June 2010, by which they seek orders or directions in relation to various matters arising from the entry by the second to fourth plaintiffs (the Administrators) into loan agreements in their capacity as joint and several administrators of the first plaintiff (RPL).

2 The provision of funding under the loan agreements is conditional on the court making orders in relation to the Administrators' decision to enter into the agreements and the consequences that attach to the provision of funds to the Administrators. The condition is required to be satisfied today, 30 June 2010, and for that reason the matter has been brought on and heard by the court as a matter of urgency.

3 In support of the application the plaintiffs rely on the affidavits of Martin Bruce Jones sworn 25 June 2010 (the Jones affidavit) an affidavit sworn 29 June 2010 (the supplementary Jones affidavit) and an affidavit sworn 30 June 2010 (the further supplementary Jones affidavit).

4 RPL is the responsible entity of the horticultural and forestry managed investment schemes which are listed in the first schedule to the originating process. The Administrators are the joint and several administrators of RPL and other related companies involved in the operation of the schemes. In their outline of submissions the plaintiffs described those companies as 'the companies' and I will adopt that description.

5 The Administrators were appointed on 16 May 2010. On 19 May 2010, Mr Thackray, Mr Anderson and Mr Harries (the Receivers) were relevantly appointed receivers and managers of Rewards Land Pty Ltd (RLPL).

6 On 2 June 2010, the Receivers were appointed receivers and managers of The Ark Fund Ltd (Ark). RPL leased various parcels of land from RLPL and Ark for the purposes of undertaking the projects the subject of the schemes. Since their appointment, the Administrators have conducted various negotiations aimed at sourcing further funding either in relation to the administration of the schemes as a whole or to some of the schemes operated by RPL and the companies.

7 In his affidavit of 25 June 2010, Mr Jones says that external funding is essential so that the maintenance and operational costs associated with the schemes can be met in the short term and, more generally, external funding is required as part of any overall strategy for the orderly realisation or recapitalisation of the schemes.

8 On 25 June 2010, the Administrators entered into the following two agreements. The first is a facility agreement with Rewards Growers Advocacy Group (RGAG), in relation to various timber and horticultural projects forming part of the schemes but excluding the berry and viticulture projects that are part of the schemes. That agreement is referred to as the General Loan Agreement. The second is a facility agreement with Berry Connection Pty Ltd (the Connection Group) in schemes described as the 2007 Berry Project and the 2008 Berry Project. I will refer to that agreement as the Berry Loan Agreement, and the two agreements collectively as the Loan Agreements.

9 As I have said, the draw-down of funds under both the General Loan Agreement and the Berry Loan Agreement is conditional on the court making the directions and orders as sought in the originating process. I am satisfied that the court has jurisdiction and power to make the orders sought pursuant to the Corporations Act 2001 (Cth) (the Act) s 447A and s 447D: see, for example, Re Ansett Australia Ltd and Mentha [2001] FCA 1439; (2001) 39 ASCR 355, and Re Ansett Australia Ltd and Mentha [2001] FCA 1806; (2001) 115 FCR 376, and the authorities there cited.

10 The effect of and benefit to the creditors of the Loan Agreements is described by the plaintiffs in the plaintiffs' written outline of submissions and I accept that description. Mr Jones' affidavits establish that unless funding can be immediately sourced from third parties, RPL and the Administrators have insufficient funds to continue the operation of the schemes and, as a result, the funding provided under the Loan Agreements is necessary to keep the schemes operating in the short term.

11 The funding will allow the Administrators to ensure that necessary lease payments are made to those parties RPL has leased land from to operate the schemes. The funding is also necessary to ensure that ongoing maintenance and harvesting is undertaken.

12 Mr Jones says, in effect, that in the event that external funding cannot be sourced the Administrators will be left with no choice but to disclaim the various leases relevant to the schemes. If this was to occur it is the Administrators' view that there would be little possibility of the schemes being restructured or recapitalised for the benefit of the creditors of the companies. In the Administrators' view the Loan Agreements provide the best chance of maximising the return to members of the schemes and other creditors consistent with the objects of pt 5.3A of the Act.

13 Mr Jones says that the situation is particularly in relation to the schemes the subject of the Berry Loan Agreement. Given the need to harvest the berry crops located in Caboolture in the harvest period running between 1 June 2010 and 31 October 2010 urgent funding is required if the potential of projects carried out under the relevant schemes is to be realised in 2010. If the crop of berries is not harvested in the near future the value of that crop will be lost and the value of any future crops grown on that land will be adversely impacted.

14 Funding provided under the Loan Agreements will allow for the maintenance and preservation of the schemes that are the subject of the funding until 31 July 2010. This will provide the Administrators with necessary time to further consider and formulate proposals that may provide a greater return than if the schemes are immediately wound up. It will also allow the Administrators additional time to attempt to find a replacement responsible entity for one or more of the schemes.

15 The plaintiffs have sought the views of other relevant parties. The originating process and affidavit in support of the application have been served by email and courier on the following parties. First, Cornwall Stodart Lawyers acting for Global Rewards Pty Ltd; secondly, the Australia Securities and Investment Commission (ASIC); thirdly, Arnold Bloch Leibler acting for Investec Bank, a secured creditor of Rewards Group; fourthly, Clayton Utz acting for the Receivers; fifthly, Clarendon Lawyers and Solomon Brothers both acting for RGAG and, sixthly, Kliger Partners acting for Connection Group.

16 So far as Global Rewards Pty Ltd are concerned the Administrators have reached an agreement with Global Rewards and as a result of that agreement the Administrators no longer seek one of the orders that were previously sought which affected Global Rewards and Global Rewards do not appear or oppose any of the relief sought in this application.

17 ASIC have not appeared or opposed the relief which is sought. Similarly Investec Bank has not appeared or opposed the relief sought, nor have the Receivers.

18 RGAG is an association incorporated under the Associations Incorporation Act 1981 (VIC). The founder members of the association were financial advisers to the investors in the various schemes. The association consists of the founder members, dealer members, adviser members and grower members, that is, the growers or investors in the schemes.

19 RGAG appeared by counsel and support the relief which is sought by the plaintiffs. The Connection Group have appeared by counsel and also support the relief which has been sought by the plaintiffs.

20 In addition to the notices which have been given by the plaintiffs, notice of the application was posted on the Ferrier Hodgson website on 25 June 2010 and on the Rewards Projects website on 28 June 2010. The Administrators also caused a copy of the notice to be emailed to those growers for whom they have an email address and who have an interest in the schemes that are subject of this application, and to be sent by post to all creditors.

21 Such responses as have been received from any growers are annexed to the further supplementary Jones affidavit. None of them in terms oppose the relief which is sought by the plaintiffs.

22 I turn then to consider the particular orders sought by the Administrators. First I will consider [1(a)] and [2(a)] of the originating process.

23 The Administrators seek directions from the court that they are justified or otherwise acting reasonably in entering into the General Loan Agreement and the Berry Loan Agreement. Such orders will provide the Administrators with protection against claims that they are acting inappropriately or unreasonably in entering into and performing the Loan Agreements. I am satisfied that the actions of the Administrators are both reasonable and justified in all the circumstances and that directions in those terms should be made.

24 The next orders sought that might conveniently be considered together are those in [1(b)], [1(c)] and [1(d)] and [2(b)], [2(c)] and [2(d)] of the originating process. The Administrators say that these orders are required for three purposes. The first is to ensure that any liabilities incurred by the Administrators by entering into the Loan Agreements comprise debts falling within the scope of s 443A(1) of the Act such that the Administrators will be entitled to an indemnity under s 443D of the Act. The second is to ensure that the Administrators are not personally liable for any debts incurred under the Loan Agreement in the event that the indemnity under s 443D is insufficient to meet those debts. The third is to ensure that the equitable lien that will be held by the Administrators to secure their indemnity has appropriate priority.

25 Counsel for the Administrators submits that orders in similar terms have frequently been made in circumstances where the court is satisfied that an administrator has entered into a loan agreement or other arrangement to enable the company's business to continue to trade for the benefit of the company's creditors: see, for example, Re Ansett Australia Ltd and Mentha [2001] FCA 1806; (2001) 115 FCR 376, in particular (Goldberg J) at [48].

26 The Administrators submit that provision of the funding under the Loan Agreements is essential if the potential of projects carried out under the relevant schemes is to be realised. If external funding is not immediately sourced the Administrators will be forced to disclaim the various leases relevant to the schemes. Without access to the leased land it is the Administrators' view that there is little chance that the schemes can be restructured or recapitalised. That is not in the interests of the creditors of RPL or the members of the scheme.

27 The Administrators submit that in the current circumstances orders should be made so as to limit the Administrators' personal liability in relation to the Loan Agreements for three reasons. First, the reasons for entering into the Loan Agreements are consistent with the operation and objects of pt 5.3A of the Act. Secondly, the Loan Agreements have been entered on the basis of the Administrators' view that they form part of a strategy for maximising the chances of the companies being restructured or recapitalised for the benefit of the creditors of the companies. Thirdly, the making of the orders sought is not opposed by any relevant party.

28 Further, the Administrators submit that they will have a right of an indemnity in equity in relation to the funds advanced that are secured by an equitable lien. Counsel has taken me in that regard to the decision of the Court of Appeal in Coad v Wellness Pursuit Pty Ltd (in liq) [2009] WASCA 68; (2009) 71 ACSR 250. The Administrators submit that given the breadth of the scope of s 447A, the importance of the Loan Agreements to the short term viability of the companies and the schemes and the circumstances surrounding the bringing of this application by the Administrators, including the fact that making the order is a precondition to the availability of funding, it is appropriate that this entitlement of the Administrators be recognised by way of judicial order.

29 I am satisfied that it is appropriate to make the orders sought with one qualification. That qualification concerns the form of the orders sought in [1(d)] and [2(d)]. Those orders or directions relate to the entitlement of the Administrators to an indemnity out of the schemes and a lien over the scheme property. Similar matters were considered by Robson J in Re Great Southern Managers Australia Ltd [2009] VSC 642; (2009) 77 ACSR 9. In that case Robson J said:

As to the lien direction, in my view I am not in a position to authorise that the receivers be indemnified out of the trust assets and that such indemnity be supported by an equitable lien over the trust property. The lien arises as a matter of law. In my view, the law is clear on this issue. By operation of equitable principles the receivers will be entitled to a lien in priority to all other charges and securities in respect of the expenditure they reasonably incur in protecting and preserving the trust assets. This right is not governed by any direction I may give. It simply arises from the expenditure. In my view, the appropriate direction is that the receivers are justified in carrying out their duties as receivers and managers and proceeding on the basis that they will be entitled to a lien over the trust property preserved or protected by their reasonable expenditure, including their reasonable remuneration [16] - [17].

At [21] Robson J sounded the following note of caution:

I should sound a note of caution at this point. I am only giving judicial advice by direction at this stage. My advice will not bind third parties. Someone may wish to establish that the lien goes further than the trust property. If that happens my decision will not have determined that issue.

30 I wish to sound a similar note of caution at this point. I am not making any declarations at this time that will be binding upon third parties. My function is to give advice to the Administrators and they are the orders I will make.

31 The orders made by Robson J included the following form of order:

Pursuant to section 424 of the Act the first to fourth plaintiffs are justified in carrying on their duties as receivers and managers of the fifth plaintiff and proceeding on the basis that if they incur reasonable expenditure and reasonable remuneration in the care, preservation, protection and/or realisation of the scheme property referred to in the paragraph above they will be entitled to indemnify themselves for their expenditure out of the scheme property and the product thereof and be entitled to a lien over the scheme property and the product thereof to secure the same and priority to all other charges thereon [26].

32 Mr Peters SC for the Administrators accepted that a similar form of order was appropriate in this case and proposed that the order in [1(d)] and [2(d)] should be varied from that set out in the originating process or the minute of proposed orders by adding, after the words 'order under section 447A and direction under section 447D of the Corporations Act', the following words: 'that the second to fourth plaintiffs are justified in proceeding with the Berry Loan Agreement on the basis that'. Similarly in [2(d)] should be added the words, 'the second to fourth plaintiffs are justified in proceeding with the General Loan Agreement on the basis that'.

33 So far as the orders sought in [1(e)] are concerned, as I have said the Administrators have reached an agreement with Global Rewards Pty Ltd and as a consequence do not press for relief in those terms. So far as the relief sought under [1(f)] and [2(e)] of the originating process are concerned the Administrators submit and I accept that the orders that are there sought should be made by the court for the same reasons as I have detailed in relation to the earlier orders.

34 I am satisfied that it is appropriate to make those orders. For those reasons I will make the orders that I have indicated.