Re Timbercorp Securities Limited (in liq) [2009] VSC 590 (11 December 2009)

Bezencon and Timbercorp Growers Group Committee Inc.

1 The third and fourth plaintiffs ("the liquidators"), in their capacity as liquidators of the first plaintiff ("TSL") and the second plaintiff ("Almond Management") seek orders and directions of the Court pursuant to s 511 of the Corporations Act 2001 ("the Act") in relation to a sale process for assets managed by TSL and Almond Management.

2 TSL and Almond Management are part of the Timbercorp group of companies. TSL is currently the responsible entity of seven Almond Schemes which are registered managed investment schemes under Part 5C of the Act. Almond Management is the manager of one Almond Scheme, which is not registered and not required to be registered under Part 5C of the Act because it was only offered to sophisticated or professional investors. The purpose of the Almond Schemes is the cultivation of almonds for commercial sale. These Almond Schemes are operated on land owned by Timbercorp group entities and land owned by the Timbercorp Primary Industry Infrastructure Fund through two of its wholly owned sub trusts, Timbercorp Orchard Trust #3 ("TOT#3") and Timbercorp Orchard Trust #5 ("TOT#5"). The receivers and managers of the charged assets of TOT#3 and TOT#5 have entered into contracts ("the Receivers' sale contracts") for the sale of the land and infrastructure and other assets used by the Almond Schemes. The contracts provide for the land and assets to be sold unencumbered by the rights of the members of the schemes ("the growers' rights"), which include contractual rights and rights to use and enjoy the land under sub-leases and licences. The orders and directions sought by the liquidators relate to whether the liquidators would be justified in effecting the extinguishment of the growers' rights to enable the completion of the Receivers' sale contracts. The orders and directions sought are effectively advisory and do not bind third parties. As Goldberg J observed in Re Ansett v Mentha:[1]

Essentially what a court is doing when giving directions ... in relation to a question whether an administrator or liquidator should enter into an agreement, or whether an administrator or liquidator should give effect to an agreement, is to provide the administrator or liquidator with protection against claims that he or she acted inappropriately or unreasonably in entering into, and performing, the agreement.

3 The liquidators, in their capacity as liquidators of TSL and Almond Management, previously applied to the Court for, and obtained, similar directions to enable the completion of contracts for the sale, on an unencumbered basis, of the Timbercorp owned land and assets used by the Almond Schemes, which the liquidators had entered into with Olam Orchards Australia Pty Ltd ("Olam Orchards") as purchaser. It was a condition precedent of those sales that the liquidators obtain from the Court directions that they were justified in extinguishing all the growers' rights to enable the completion of the sale agreements. Robson J made orders and directions to that effect on 8 October 2009.[2]

4 The role of the Court in proceedings of this kind is not to venture into the commercial arena and to substitute its own commercial judgment for that of the liquidators. Indeed, the Court should generally defer to a liquidator's commercial judgment.[3] The Court's function here is supervisory, that is to say, to consider whether there may be some legal impediment to what is proposed or whether there may be some impropriety or other good reason which may indicate that the liquidators may be acting inappropriately or unreasonably, if they permitted the land and assets to be sold on an unencumbered basis and exercised their powers, whether under the Scheme Constitutions or the Act, to terminate the growers' rights.[4] The liquidators have indicated they will not exercise those powers, without a direction from the Court.

5 I am satisfied on the basis of the material before the Court that the orders and directions sought should be made. I am fortified in my view by the orders and reasons for decision of Robson J in Re Timbercorp Securities Limited (In Liquidation) (No 3).[5]

6 At the hearing I was assisted by legal representatives on behalf of the liquidators, the receivers, Timbercorp Growers Group Committee Inc and D. Cross and D. Butterfield, growers. No opposition was made to the orders and directions that are sought. The Australian Securities and Investments Commission ("ASIC") did not appear but I was handed email correspondence from ASIC to the solicitors for the plaintiffs advising that ASIC neither consented to, nor opposed, the orders sought and had no submissions that it wished to make.

7 The relevant land owned by TOT#3 and TOT#5 is property referred to as "Liparoo" ("the Liparoo property") and property referred to as "Yungera" ("the Yungera property"). The liquidators say that TSL and Almond Management are hopelessly insolvent and are unable to continue managing the Almond Schemes conducted on those properties. Moreover, I am told that neither the liquidators, nor OIM#2 as trustee for TOT#3, nor OIM#5 as trustee for TOT#5 have any funds to pay for the maintenance of the almond orchards. Presently Select Harvests Limited ("Select") is maintaining the orchards pursuant to a crop sale arrangement but has indicated that it is not prepared to continue maintaining the orchards in the absence of regular funding. Regular maintenance is required to ensure that the health of the almond orchards is not materially impaired.

8 In September 2009, Australia and New Zealand Banking Group Limited ("ANZ") appointed David Laurence McEvoy and Paul William Kirk ("the Receivers") of PricewaterhouseCoopers as the receivers and manager of the charged assets of OIM#2 as trustee for TOT#3 and OIM#5 as trustee for TOT#5. Shortly after their appointment, the Receivers commenced a marketing process for the sale of the Liparoo and Yungera properties. They advertised widely, including offshore. Expressions of interest were received from 16 parties. Of those parties, 13 signed a confidentiality deed. On 8 October 2009, the Receivers issued an information memorandum ("IM") to the interested parties which described the assets available for purchase. Section 3.6 of the IM referred to the proceedings then on foot before Robson J in Re Timbercorp Securities Limited (In Liquidation) (No 3)[6] and indicated that the Receivers intended to commence discussions with the liquidators of TSL and Almond Management to investigate a possibility of reaching an agreement for the termination, surrender or extinguishment of all growers' rights relating to the sale of the Liparoo property and the Yungera property by the Receivers. The IM stated that, in the context of these observations, the Receivers were prepared to consider all offers and offer structures by interested parties, including offers to purchase assets as currently encumbered by the Almond Scheme lease structure (including the growers' sub-leases and licences) and offers to purchase the assets on an unencumbered basis. The IM set out a timetable for the sale or recapitalisation process and stipulated the deadline for submissions and final offers as at 5:00pm Australian Eastern Standard Time on Friday 30 October 2009. Four bids were received and on 9 November 2009, the Receivers selected Olam Orchards as the preferred purchaser out of the interested parties who had placed bids. Mr McEvoy deposed in paragraph 41 of his affidavit as follows:

Having carefully considered all of the proposals, we have formed the view that the terms and conditions that Olam Orchards offered were clearly the most favourable for a number of reasons, including the following:

(a) Olam Orchards' bid offers a total purchase price of $160 million, which is more than any other bidder.

(b) Olam Orchards' bid is fully funded, in contrast to all other offers. For example, one bidder required 3 separate funding streams to fund its offer.

(c) Olam Orchards' purchase of the Liparoo and Yungera properties is guaranteed by Olam. I understand from the public information available to me that Olam Orchards is a listed entity on the Singapore Stock Exchange with a market capitalisation of $4.2 billion. Olam Orchards is a global leader in the supply chain management of agricultural products and food ingredients. It operates in 60 countries, has over 10,000 staff and more than 6,000 customers. Olam Orchards has recently raised, via debt and equity, in the order of $1.0 billion. I believe that Olam Orchards has the financial capacity to complete the purchase and to manage the Liparoo property and Yungera property.

(d) Olam Orchards' bid was the least conditional of all of the offers and therefore has the lowest execution risk. Many of the other bids were conditional upon obtaining finance and the undertaking of further due diligence.

(e) Olam Orchards was in a position to execute and settle the purchase of the Liparoo and Yungera properties on a very accelerated timeframe, which means that the sale proceeds will be obtained, and the risk in relation to the Liparoo and Yungera properties (including with respect to the maintenance of the almond orchards) will be transferred, at the earliest opportunity.

(f) Importantly, Olam Orchards has agreed to provide interim funding for the care and maintenance of the almond orchards on the Liparoo and Yungera properties in the period between execution and settlement of the Sale Contracts. Given the loss of value that would occur if the almond orchards were allowed to waste, this interim funding (and Olam Orchards' demonstrated ability to deliver on such funding in the case of the Almond Land SPD) was a significant factor in determining Olam Orchards as the superior bidder.

9 Mr McEvoy has deposed that the total purchase price of $160 million has been allocated as follows:

The purchase price includes a 10% deposit and what is described as the "Vendor Buyback Amount" and "Trustee Buyback Amount". Mr McEvoy has explained what these amounts are in paragraph 49 of his affidavit as follows:

In summary, the Vendor Buyback Amount and the Trustee Buyback Amount represent the amounts payable to the land owners (i.e. OIM#2 as trustee for TOT#3 and Trust Company as custodian for TOT#5) to buy back the almond crop sold to those companies under crop sale agreements entered into with Select Harvests Limited (Select), the Liquidators and certain Timbercorp Group companies for the purposes of securing the interim management of the almond orchards on the Liparoo and Yungera properties (Crop Sale Agreements). The Vendor Buyback Amount and the Trustee Buyback Amount are equivalent to the use and occupancy fees payable to the land owners for the period of the Crop Sale Agreements as a substitute for the receipt of rental payments.

10 Olam Orchards has also agreed to pay at settlement, in addition to the price of $160 million, an amount to Select equivalent to the amount required to buy back the 2010 crop sold to Select for the purpose of securing Select's funding of the care and maintenance on the Liparoo and Yungera almond orchards, and an amount to Almond Land Pty Ltd, a Timbercorp company, equivalent to the amount required to buy back the 2010 crop sold to Almond Land under various bee funding agreements for the purpose of securing Almond Land's funding of the pollination of the Liparoo and Yungera almond orchards. Almond Land's funding of the pollination under those agreements was, in turn, funded by ANZ. Mr McEvoy has deposed that both the Crop Sale Agreements and the Bee Funding Agreements were essential for securing the maintenance and pollination of the almond orchards on the Liparoo and Yungera properties in order to maximise the value of the 2010 crop.

11 Settlement of the Receivers' sale and purchase agreements with Olam Orchards is conditional upon each of the following having occurred:

(i) The Court directing that the liquidators of TSL are justified in procuring TSL, in its capacity as responsible entity of those Almond Schemes, to extinguish all of the rights of growers in respect of the property the subject of the sales contracts, including the growers' sub-leases or licences ("grower licences"); and

(ii) The Court making orders determining the rights of all and any persons to all or any part of the net proceeds of the sale under the sale contracts, or ordering that those net proceeds be held on trust until the rights of those persons are determined by a further order of the Court;

(i) The liquidators of Almond Management having obtained a direction from the Court that they are justified in procuring Almond Management, in its capacity as project manager of the unregistered Almond Scheme, to extinguish all of the rights of the growers in respect of the land and associated assets, including the grower licences; and

(ii) The liquidators of Almond Management having obtained a direction from the Court that they are justified in disclaiming the Project Management Agreements and grower licences and, to the extent necessary, have leave to do so pursuant to s 568(1A) of the Act; and

(iii) The Court making orders determining the rights of all or any persons to all or any part of the net proceeds of the sale under the contract, or ordering that those net proceeds be held on trust until the rights of those persons are determined by a further order of the Court.

In view of the decision of Robson J in Re Timbercorp Securities Limited (In Liquidation) (No 3)[7] the liquidators do not press for an order for the allocation of the net proceeds of sale but, rather, a direction that such proceeds be held on trust pending the determination of the claims or rights to those proceeds. In my view, that is the appropriate course of action to adopt.

12 It is the liquidators' view that it is appropriate to extinguish the growers' rights because the Receivers' sale contracts cannot proceed without it and the assets are at risk of wasting, if the contracts are terminated. The liquidators have not been involved in the sale process but the material before me bears out, in my opinion, the Receivers' view that they have conducted "a robust sale process" and "have attracted a financially able purchaser, Olam Orchards".[8]

13 In the Receivers' view, the orders sought by the liquidators are essential to achieving settlement of the sale to Olam Orchards in realising the maximum value for the sale of the Liparoo and Yungera properties for the benefit of those persons whom the Court determines are entitled to all or part of the net proceeds of sale.

14 I am satisfied that the Receivers and liquidators have given careful consideration to the proposed sales. Although the sale process involves the termination or surrender of the Growers' rights, the material before the Court justifies why the proposed actions are not inappropriate or unreasonable. Importantly those growers who were represented in this application did not oppose the orders and directions. Furthermore I am satisfied that the liquidators have the legal ability under the Constitutions of the registered Almond Schemes to extinguish the rights of the growers.[9] In the circumstances, it is appropriate, in my view, to make the orders and directions sought.

15 Subject to any further submissions, the orders that I propose to make are as follows:

1. The Third and Fourth Plaintiffs (in their capacity as liquidators of the First Plaintiff) are justified in procuring the First Plaintiff as responsible entity of the managed investment schemes listed in Schedule 1 of this order (Registered Almond Schemes) to terminate or surrender each relevant Grower sub-lease or licence and joint venture agreement and extinguishing all of the rights of Growers' (investors in the schemes set out in Schedules 1 and 2 of this order) in respect of the assets the subject of the Liparoo Sale Contract and Yungera Sale Contract (Grower Rights).

2. The Third and Fourth Plaintiffs (in their capacity as liquidators of the Second Plaintiff) are justified in procuring the Second Plaintiff as manager of the managed investment scheme listed in Schedule 2 of this order (Unregistered Almond Scheme) to extinguish all of the Grower Rights.

3. The Third and Fourth Plaintiffs (in their capacity as liquidators of the Second Plaintiff) are justified in disclaiming in respect of the Unregistered Almond Scheme the Project and Management Agreement as defined in the affidavit of Mark Anthony Korda sworn 30 November 2009 (PMA) and the licence and joint venture agreement and to the extent necessary have leave to do so pursuant to section 568 of the Act.

4. The Third and Fourth Plaintiffs (in their capacity as liquidators of the First and Second Plaintiffs) are justified in making, doing and executing such documents or things to give effect to the extinguishment of all of the Grower Rights in order to enable OIM#2 and the Receivers to perform the Liparoo Sale Contract.

5. The Third and Fourth Plaintiffs (in their capacity as liquidators of the First Plaintiff) are justified in making, doing and executing such documents or things to give effect to the extinguishment of all of the Grower Rights in order to enable OIM#5 and the Receivers to perform the Yungera Sale Contract.

6. Upon completion of any sale under the Liparoo Sale Contract the net proceeds of sale (after payment of the Receivers' selling costs and expenses, retentions, if any), the costs and expenses of the Receivers referable to the preservation and realisation of the assets the subject of the Liparoo Sale Contract, and the costs and expenses of the liquidators of the First and Second Plaintiff which are to be reimbursed by the Receivers in accordance with the TPIF Grower Rights Deed (as defined in the McEvoy Affidavit) (Net Liparoo Proceeds) are to be held by the Receivers of OIM#2 in an interest bearing trust account with an Australian bank (as defined in s 9 of the Act), pending the hearing and determination by the Court of a proceeding to determine which person or persons have any rights to all or any part of the Net Liparoo Proceeds, and to be held on trust for the person or persons who are able to establish such a right, or until further order of the Court.

7. Upon completion of any sale under the Yungera Sale Contract the net proceeds of sale (after payment of the Receivers' selling costs and expenses, retentions, if any), the costs and expenses of the Receivers referable to the preservation and realisation of the assets the subject of the Yungera Sale Contract, and the costs and expenses of the liquidators of the First and Second Plaintiff which are to be reimbursed by the Receivers in accordance with the TPIF Grower Rights Deed (as defined in the McEvoy Affidavit) (Net Yungera Proceeds) are to be held by the Receivers of OIM#5 in an interest bearing trust account with an Australian bank (as defined in s 9 of the Act), pending the hearing and determination of a proceeding to determine which person or persons have any rights to all or any part of the Net Yungera Proceeds, and to be held on trust for the person or persons who are able to establish such a right, or until further order of the Court.

8. Insofar as the ANZ has any rights to the assets the subject of the Sale Contracts, whether under its securities over those assets or otherwise, nothing in the release of those securities upon completion of the Liparoo Sale Contract and Yungera Sale Contract will prejudice those rights for the purposes of its claim to all or any part of the Net Liparoo Proceeds and/or Net Yungera Proceeds.

9. Insofar as the Growers have any rights to the assets the subject of the Liparoo Sale Contract and Yungera Sale Contract nothing in orders 1-5 above, or any action taken thereunder by the Third and Fourth Plaintiffs, will prejudice those rights for the purposes of their claim to all or any part of the Net Liparoo Proceeds and/or Net Yungera Proceeds.

10. Exhibits DLM-10, DLM-13, DLM-14, DLM-15, DLM-16 and DLM-17 to the McEvoy Affidavit be kept confidential.

TIMBERCORP SECURITIES LIMITED (IN LIQUIDATION) (ACN 092 311 469) IN ITS CAPACITY AS RESPONSIBLE ENTITY OF EACH OF THE MANAGED INVESTMENT SCHEMES LISTED IN SCHEDULE 1

ALMOND MANAGEMENT PTY LTD (IN LIQUIDATION) (ACN 094 468 845) IN ITS CAPACITY AS MANAGER OF THE UNREGISTERED MANAGED INVESTMENT SCHEME LISTED IN SCHEDULE 2

1. 2001 Timbercorp Almond Project (ARSN 095 649 746)

2. 2002 Timbercorp Almond Project (ARSN 099 611 935)

3. 2003 Timbercorp Almond Project (ARSN 103 197 299)

4. 2004 Timbercorp Almond Project (ARSN 108 336 670)

5. 2005 Timbercorp Almond Project (ARSN 112 935 092)

1. 2002 Timbercorp Almond Project (Private Offer No 1)

[1] [2001] FCA 1439; (2001) 39 ACSR 355, 370.

[2] Re Timbercorp Securities Limited (In Liquidation) (No 3) [2009] VSC 510 (Unreported, Robson J, 8 October 2009).

[3] Re Ansett Australia Ltd v Mentha [2001] FCA 1439; (2001) 39 ACSR 355, 371 (Goldberg J).

[4] Re Spedley Securities Ltd (In Liq) (1992) 9 ACSR 83, 85-6 (Giles J); Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109, 118 (Austin J).

[5] [2009] VSC 510 (Unreported, Robson J, 8 October 2009).

[6] [2009] VSC 510 (Unreported, Robson J, 8 October 2009).

[7] [2009] VSC 510 (Unreported, Robson J, 8 October 2009).

[8] Affidavit of David Laurence McEvoy sworn 27 November 2009 [61].

[9] Re Timbercorp Securities Limited (In Liquidation) (No 3) [2009] VSC 510 (Unreported, Robson J, 8 October 2009) 20.