Supreme Court of WA|2010-09-02|Before: Mr J, Miere J

REWARDS LAND PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) -v- MARTIN BRUCE JONES, ANDREW JOHN SAKER AND DARREN GORDON WEAVER IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF REWARDS PROJECTS LTD, REWARDS GROUP LTD, REWARDS LAND PTY LTD, REWARDS MANAGEMENT PTY LTD, ORD PACKERS PTY LTD, BERRY PACKERS PTY LTD [2010] WASC 233 (2 September 2010)

CITATION : REWARDS LAND PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) -v- MARTIN BRUCE JONES, ANDREW JOHN SAKER AND DARREN GORDON WEAVER IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF REWARDS PROJECTS LTD, REWARDS GROUP LTD, REWARDS LAND PTY LTD, REWARDS MANAGEMENT PTY LTD, ORD PACKERS PTY LTD, BERRY PACKERS PTY LTD [2010] WASC 233

MATTER : Rewards Projects Ltd (Administrators Appointed), Rewards Group Ltd (Administrators Appointed (Receivers and Managers Appointed), Rewards Land Pty Ltd Administrators Appointed) (Receivers and Managers Appointed), Rewards Management Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed), Ord Packers Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed), Berry Packers Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed), The ARK Fund Ltd (Administrators Appointed) (Receivers and Managers Appointed)

BETWEEN : REWARDS LAND PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED)

THE ARK FUND LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED)

JAMES GERARD THACKRAY, PETER McKENZIE ANDERSON AND WILLIAM JAMES HARRIS IN THEIR CAPACITY AS JOINT AND SEVERAL RECEIVERS AND MANAGERS OF REWARDS LAND PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) THE ARK FUND LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED)

MARTIN BRUCE JONES, ANDREW JOHN SAKER AND DARREN GORDON WEAVER IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF REWARDS PROJECTS LTD, REWARDS GROUP LTD, REWARDS LAND PTY LTD, REWARDS MANAGEMENT PTY LTD, ORD PACKERS PTY LTD, BERRY PACKERS PTY LTD

Corporations - Companies under administration - Application by receivers for leave pursuant to Corporations Act 2001 (Cth) s 440C - Whether final or interlocutory - Objects of Corporations Act 2001 (Cth) s 435A - Leave to take possession - Maintenance of properties - Maintenance to be assessed on lease by lease basis - Likelihood of deed of company arrangement - Whether further proceedings likely - Balance of interests

Air Services Australia v Transfield Pty Ltd [1999] FCA 886; (1999) 92 FCR 200

Canberra International Airport Pty Ltd v Ansett Australia Ltd [2002] FCA 329; (2002) 41 ACSR 309

Ex Parte Britt [1987] 1 Qd R 221

Hamilton v National Australia Bank Ltd (1996) 14 ACLC 1202

Lewandowski v Lovell (1991) 4 WAR 311

Re Ansett Australia Ltd (Admin Appointed); Intrepid Aviation Partners VII LLC v Ansett Australia Ltd (Admin Appointed) [2001] FCA 1360; (2001) 115 FCR 175

Re Atlantic Computer Systems Plc [1992] Ch 505; (1992) 2 WLR 367

Re David Meek Plant Ltd [1993] BCC 175

Re Java 452 Pty Ltd (Admin Appointed); Permanent Trustee Australia Ltd (as trustee of Advanced Property Fund) v Stout [1999] VSC 252; (1999) 32 ACSR 507

Salter Rex & Co v Ghosh [1971] 2 QB 597

Tay Bok Choon v Tahansan Sdn Bhd (1987) 3 BCC 132

Waller v Waller [2009] WASCA 61

1 Rewards Projects is the responsible entity of a large number of schemes (the Schemes) which are registered managed investment schemes under ch 5C of the Corporations Act 2001 (Cth) (the Act). The purpose of the Schemes is the commercial cultivation of fruit or timber for and on behalf of the Scheme members who are known as growers.

2 Each of the Schemes is conducted on land in Western Australia, Queensland or Victoria owned by Rewards Land Pty Ltd and The ARK Fund Ltd (ARK) and some unrelated companies or persons. The land owned by Rewards Land and ARK on which the Schemes are carried on was leased to Rewards Projects.

3 Rewards Projects, a wholly owned subsidiary of Rewards Group Ltd, as the responsible entity of a number of the Schemes, has responsibility for the operation and administration of those Schemes. Rewards Management, another wholly owned subsidiary of Rewards Group, is the manager of the scheme projects under a contract with Rewards Projects and is responsible for establishing, managing, harvesting and selling the fruit or timber from the projects.

4 Martin Jones, Andrew Saker and Darren Weaver were appointed as administrators of Rewards Group and its subsidiaries including Rewards Projects, Rewards Land and Rewards Management, pursuant to s 436A of the Act on 16 May 2010. Subsequently they were appointed administrators of ARK.

5 On 19 May 2010 Peter Anderson, William Harris and James Thackray were appointed as receivers and managers of Rewards Group and Rewards Land by the National Australia Bank, a secured creditor of each of those companies. On 1 June 2010 the National Australia Bank appointed them as receivers and managers of Rewards Management and on 2 June 2010 as receivers and managers of ARK.

6 The plaintiffs in this proceeding are Rewards Land and ARK and the receivers and managers of those companies, who I will sometimes refer to as the Receivers. The defendants, who I will sometimes refer to as the Administrators, are the administrators of those companies and of Rewards Projects, Rewards Group, Rewards Management and the other subsidiaries of Rewards Group. The plaintiffs seek orders under s 440C of the Act for leave to take possession of the properties currently in the possession of the Administrators.

7 About 9,000 investors have invested a total of approximately $300 million in the Schemes. The nature of the interest held by the investors in each scheme is that of a 'grower' of the primary product eg teak, strawberries etc. Each grower subleased from Rewards Projects groves or woodlots of 0.5 ha and entered into an agreement with Rewards Projects, as responsible entity for the scheme, to plant, establish and maintain the timber or fruit. Profits from the harvest are distributed according to each grower's holdings in the scheme.

8 Rewards Growers Advocacy Group Inc (RGAG) is an association incorporated under the Associations Incorporation Act 1981 (VIC). The founder members of the association were financial advisors to the investors in the various schemes. The association consists of the founder members, dealer members, advisor members and grower members, that is, the growers or investors in the schemes.

9 The first meeting of creditors for each company in the Rewards Group was held on 26 May 2010. The Administrators applied to the court in COR 95 of 2010 seeking an extension of the convening period prescribed by s 439A(5) of the Act for the second meeting of creditors of the Group. On 10 June 2010 the court made an order extending the convening period from 14 June to 14 September 2010. On 29 June 2010 on the application of the Receivers, and with the consent of the Administrators, I ordered that the extension of the convening period previously approved by the court be brought back to 9 August 2010.

10 Section 440C provides that during the administration of a company, the owner or lessor of property that is used or occupied by, or is in the possession of, the company cannot take possession of the property or otherwise recover it except with the administrator's written consent or with the leave of the court. The effect of extending the convening period is that, except with the administrator's consent or leave of the court, the plaintiffs cannot take possession of the leased properties until the administration ends.

11 In COR 110 of 2010 the Administrators sought orders or directions from the court approving the entry by the Administrators into loan agreements in their capacity as administrators of Rewards Projects and other related directions. In an affidavit in support of the application Mr Jones swore that external funding was essential so that the maintenance and operating 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. On 25 June 2010 the Administrators entered into two agreements. The first was a facility agreement with RGAG in relation to various timber and horticultural projects forming part of the Schemes but excluding the berry and viticulture projects.

12 The second was a facility agreement with Berry Connection Pty Ltd (the Connection Group) in schemes described as the 2007 Berry Project and the 2008 Berry Project. The Connection Group entered into an agreement with the Administrators to loan money to facilitate the maintenance and harvesting of the berry crops located in Caboolture in the harvest period running between 1 June 2010 and 31 October 2010.

13 On 30 June 2010 I made the orders and directions sought by the Administrators. I accepted Mr Jones' evidence that unless funding could be immediately sourced from third parties, Rewards Projects and the Administrators had insufficient funds to continue the operation of the Schemes and, as a result, the funding provided under the loan agreements was necessary to keep the schemes operating in the short term.

14 The present proceeding was commenced by the plaintiffs by way of interlocutory process. The Receivers claim:

the immediate delivery up or otherwise the recovery of the property (as described in schedule A of the application) currently in possession of the defendants; and
the delivery up or otherwise the recovery of the property (as described in schedules B to E of the application) currently in possession of the defendants, for which notices of default have been issued by ARK or Rewards Land on the day immediately after the expiry of the notice period given in respect of the relevant default(s).

Schedule A lists five properties owned by ARK. ARK has given notices of default in relation to each of those properties and the notice period had expired at the time the interlocutory process was filed. Schedules B to E list a large number of properties owned by ARK or Rewards Land in respect of which the Receivers or ARK had given notice of default and the notice periods expired after the interlocutory process was filed but before the hearing of this application.

15 At the hearing of the present proceeding counsel appeared for the Administrators, RGAG and two individual growers and the Connection Group to oppose the orders sought by the plaintiffs.

16 Counsel for the Administrators objected to some of the evidence sought to be adduced by the plaintiffs on the grounds that it was inadmissible hearsay. Counsel for the plaintiffs submitted that the proceeding is an interlocutory proceeding and hearsay is admissible pursuant to O 37 r 6(2) of the Rules of the Supreme Court 1971 (WA) which provide that an affidavit used for the purposes of interlocutory proceedings may contain statements of information or belief. Counsel for the Administrators and RGAG each submitted that the proceeding is not an interlocutory proceeding.

17 Difficult questions often arise as to whether a particular application is final or interlocutory: see Waller v Waller [2009] WASCA 61. It has been held that the appropriate test of what is an interlocutory application for the purpose of this rule is the same test which determines whether or not an order appealed against is interlocutory: Lewandowski v Lovell (1991) 4 WAR 311, 316; Ex Parte Britt [1987] 1 Qd R 221, 226. The distinction between final and interlocutory orders for the purpose of the rules relating to appeals depends on the nature of the order made, not the nature of the application made to the court. The test is: does the judgment or order, as made, finally dispose of the rights of the parties? Licul v Corney [1976] HCA 6; (1976) 180 CLR 213, 225 (Gibbs J).

18 There is a difficulty in applying that test to determine whether an application is interlocutory for the purpose of O 37 r 6(2). Order 37 r 6 provides that an affidavit may contain statements of information or belief where this is used for the purposes of interlocutory proceedings. In Licul v Corney Gibbs J referred to two tests:

One view - which was preferred by the Court of Appeal in Salter Rex & Co v Ghosh [1971] 2 QB 597 - is that the test depends on the nature of the application made to the court. The other view which, since Hall v Nominal Defendant [1966] HCA 36; (1966) 117 CLR 423, should, I think, be regarded as established in Australia, depends on the nature of the order made; the test is: does the judgment or order, as made, finally dispose of the rights of the parties? (225).

In Salter Rex & Co v Ghosh [1971] 2 QB 597, Lord Denning MR referred to the two different tests as to what is final and what is interlocutory. Lord Denning said:

Lord Esher's test [the nature of the application to the court and not the nature of the order which the court eventually made] has always been applied in practice ... so I would apply Lord Esher's test to an order refusing a new trial. I look to the application for a new trial and not to the order made (601).

In determining whether a proceeding is interlocutory for the purpose of O 37 r 6 it is the nature of an application for an order under s 440C that is determinative, not the order that is eventually made.

19 The essential distinction between interlocutory proceedings and final proceedings is that interlocutory proceedings do not finally dispose of the rights of the parties and final proceedings do. The only matter in issue between the parties in this proceeding is whether the court will give the plaintiffs leave to take possession of the companies' property during the administration of the companies. The affidavits containing hearsay evidence are being used for the purposes of a proceeding to determine that question. The proceeding is final in nature, not interlocutory.

20 Counsel for the Receivers submitted that the grant of leave under s 440C is an incident of the exercise of judicial power in relation to the rights of the Receivers to take possession of the property of the companies. Counsel said that if leave is granted under s 440C the Receivers will then have to commence substantive proceedings to recover possession of the relevant property. Thus, counsel submitted, the present proceedings are incidental to the proceedings to recover possession of the relevant property and are interlocutory. Counsel drew an analogy with an application for discovery from non-parties or potential parties. Although in form an application for discovery from a potential party is a discrete proceeding, such an application is as a matter of substance properly to be regarded as interlocutory in character in that it does not, and is not intended to, determine finally the rights amongst themselves of the parties to the substantive application: Waller v Waller [2009] WASCA 61. The function of such applications is to assist in that determination when or if the substantive application is brought consequent upon what is revealed in the preliminary discovery itself: Air Services Australia v Transfield Pty Ltd [1999] FCA 886; (1999) 92 FCR 200 (Finn J) [25] - [27].

21 An application for leave under s 440C is not, as a matter of substance, properly to be regarded as incidental to subsequent substantive proceedings in which the Receivers might seek to recover possession of property of a company. Section 440C imposes a moratorium on the recovery of property from a company in administration. Where leave is granted under s 440C the moratorium ends. The owner of the property is then at liberty to exercise its rights in relation to the property. The owner does not have to commence any further proceedings to assert those rights. Indeed, s 440D prevents the owner from beginning a proceeding except with the administrators' consent or leave of the court. Proceedings for leave under s 440C may not be properly regarded as incidental to the final determination of the rights of the owner and the company in administration in relation to the property in question. The present proceedings are final. The hearsay evidence objected to by the Administrators is inadmissible.

22 Section 440C is found in div 6 of pt 5.3A. The object of pt 5.3A is to provide for the business, property and affairs of an insolvent company to be administered in a way that:

(a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or

(b) if it is not possible for the company or its business to continue in existence - results in a better return for a company's creditors and members than would result from an immediate winding up of the company: s 435A.

23 Part 5.3A was inserted in the Act by the Corporate Law Reform Act 1992 (Cth). The explanatory memorandum to the Corporate Law Reform Bill 1992 (Explanatory Memorandum) stated that:

The proposed new Part 5.3A will provide for an administrator to take over the affairs of a company, with a view to developing a 'deed of company arrangement', under which the company might be restored to financial health.

24 Division 6 deals with 'protection of company's property during administration'. Under s 435C a company ceases to be under administration once the creditors makes a decision about its future. Until that decision a moratorium applies. The moratorium:

prevents the company being wound up;
prevents charges being enforced;
prevents an owner or lessor recovering property which is being used by the company; and
prevents proceedings against the company and any enforcement action in relation to proceedings already taken

The overall effect of these provisions will be that, during the moratorium; a company will be shielded from actions which might be taken against it by creditors and owners and lessors of property used by the company. This will enable creditors to decide the company's future in an orderly fashion, and without having the position of the company undermined further by individual creditors proceeding against the company during the administration.

25 Section 440B provides that during the administration of a company a person cannot enforce a charge on property of the company except with the administrators' written consent or with the leave of the court. The Explanatory Memorandum at [519] - [520] outlines s 440C:

Proposed section 440B will deal with property owned by the company which is subject to a charge, and will protect that property against enforcement of the charge. It will also be necessary, however, to protect property which, though not owned by the company, is essential to its operation. For example, a company may own the land upon which its factory is located but may have leased a key piece of machinery in that factory. Proposed section 440C will prevent the owner or lessor of property that is used by the company from taking possession of that property, except with the written consent of the administrator or the leave of the Court.

As with proposed section 440B, there will be set out in proposed Division 7 exceptions to the general rule in proposed section 440C. The most important of these exceptions relates to situations where the owner or lessor of property has already begun to exercise rights to repossess the relevant property before the administrator was appointed (proposed section 441F).

26 In determining whether the court should grant leave under s 440C to an owner of property that is used by or in the possession of a company in administration to take possession of the property or otherwise recover it the court must have regard to the objects of pt 5.3A expressed in s 435A.

27 Some further assistance in relation to the issue of leave may be drawn from a decision of the England and Wales Court of Appeal in Re Atlantic Computer Systems Plc [1992] Ch 505; (1992) 2 WLR 367 dealing with s 11(3)(c) of the Insolvency Act 1986 (UK), which is similar to and has a similar effect as s 440C. Care must be exercised because of the different legislative regimes between the United Kingdom and Australia. A number of relevant distinctions are discussed by Robinson WC in 'Statutory Moratoriums on Proceedings Against a Company' (1996) 24 ABLR 429, 439 - 440. The principles advanced by the Court of Appeal in Re Atlantic Computer Systems was favourably considered in Hamilton v National Australia Bank Ltd (1996) 14 ACLC 1202, 1219.

28 In Re Atlantic Computer Systems the court made some general observations regarding cases where leave under s 11 of the Insolvency Act (UK) is sought to exercise existing proprietary rights against the company in administration. The court said it was reluctant to give guidance on the principles to be applied on applications for the grant of leave under s 11 for three reasons:

Parliament has left at large the discretion given to the court, and it is not for the Court of Appeal to cut down that discretion;
Section 11(3)(c) and (d) applies to a very wide range of steps and proceedings and the circumstances in which leave is sought will vary almost infinitely; and
It is for judges who sit in the companies court who have practical experience of the difficulties arising in the working out of this new jurisdiction, not the members of the Court of Appeal.

29 Having expressed its reluctance to do so the court then made some general observations on the principles to be applied on an application for the grant of leave under s 11 of the Insolvency Act (UK). The following observations are potentially relevant to the present case:

(1) It is in every case for the person who seeks leave to make out a case for him to be given leave.

(2) The prohibition in section 11(3)(c) and (d) is intended to assist the company, under the management of the administrator, to achieve the purpose for which the administration order was made. If granting leave to a lessor of land or the hirer of goods (a 'lessor') to exercise his proprietary rights and repossess his land or goods is unlikely to impede the achievement of that purpose, leave should normally be given.

(3) In other cases when a lessor seeks possession the court has to carry out a balancing exercise, balancing the legitimate interests of the lessor and the legitimate interests of the other creditors of the company: ... It must be kept in mind that the exercise under section 11 is not a mechanical one; each case calls for an exercise in judicial judgment, in which the court seeks to give effect to the purpose of the statutory provisions, having regard to the parties' interests and all the circumstances of the case. As already noted, the purpose of the prohibition is to enable or assist the company to achieve the object for which the administration order was made. The purpose of the power to give leave is to enable the court to relax the prohibition where it would be inequitable for the prohibition to apply.

(4) In carrying out the balancing exercise great importance, or weight, is normally to be given to the proprietary interests of the lessor. Sir Nicolas Browne-Wilkinson VC observed in Bristol Airport Plc v Powdrill [1990] Ch 744, 767D-E that, so far as possible, the administration procedure should not be used to prejudice those who were secured creditors when the administration order was made in lieu of a winding up order. The same is true regarding the proprietary interests of a lessor. The underlying principle here is that an administration for the benefit of unsecured creditors should not be conducted at the expense of those who have proprietary rights which they are seeking to exercise, save to the extent that this may be unavoidable and even then this will usually be acceptable only to a strictly limited extent.

(5) Thus it will normally be a sufficient ground for the grant of leave if significant loss would be caused to the lessor by a refusal. For this purpose loss comprises any kind of financial loss, direct or indirect, including loss by reason of delay, and may extend to loss which is not financial. But if substantially greater loss would be caused to others by the grant of leave, or loss which is out of all proportion to the benefit which leave would confer on the lessor, that may outweigh the loss to the lessor caused by a refusal...

(6) In assessing these respective losses the court will have regard to matters such as: the financial position of the company, its ability to pay the rental arrears and the continuing rentals, the administrator's proposals, the period for which the administration order has already been in force and is expected to remain in force, the effect on the administration if leave were given, the effect on the applicant if leave were refused, the end result sought to be achieved by the administration, the prospects of that result being achieved, and the history of the administration so far.

(7) In considering these matters it will often be necessary to assess how probable the suggested consequences are. Thus if loss to the applicant is virtually certain if leave is refused, and loss to others a remote possibility if leave is granted, that will be a powerful factor in favour of granting leave.

(8) This is not an exhaustive list. For example, the conduct of the parties may also be a material consideration in a particular case ...

(9) The above considerations may be relevant not only to the decision whether leave should be granted or refused, but also to a decision to impose terms if leave is granted.

(10) The above considerations will also apply to a decision on whether to impose terms as a condition for refusing leave. ... Cases where leave is refused but terms are imposed can be expected to arise frequently. For example, the permanent loss to a lessor flowing from his inability to recover his property will normally be small if the administrator is required to pay the current rent. ...

(11) ...

(12) In some cases there will be a dispute over the existence, validity or nature of the security which the applicant is seeking leave to enforce. It is not for the court on the leave application to seek to adjudicate upon that issue, unless (as in the present case, on the fixed or floating charge point) the issue raises a short point of law which it is convenient to determine without further ado. Otherwise the court needs to be satisfied only that the applicant has a seriously arguable case (542 - 544).

30 In Re David Meek Plant Ltd [1993] BCC 175 Weeks J questioned the importance given to some of the guidelines discussed in Re Atlantic Computer Systems. His Honour said:

It seems to me that taken in isolation some of the statements in those paragraphs may be putting the matter rather high: for instance, the statement at the beginning of para (5), that it will normally be a sufficient ground for the grant of leave if significant loss would be caused to the lessor by a refusal. It appears to me almost inevitable in the scheme of the Act that a refusal may cause the lessor significant loss. If the lessor is not going to suffer significant loss by not repossessing (for example if the administrators are continuing the full hire-purchase payments), then the lessor has no real incentive to apply to the administrators for consent and still less reason for spending time and money in applying to the court for leave (189).

31 In Re Java 452 Pty Ltd (Admin Appointed); Permanent Trustee Australia Ltd (as trustee of Advanced Property Fund) v Stout [1999] VSC 252; (1999) 32 ACSR 507 Byrne J referred to the observations of the Court of Appeal in Re Atlantic Computer Systems. His Honour observed that the discretion under s 440C is given to the court without qualification and it would not be appropriate for the court to set out, even as guidelines, a list of matters which might fetter its discretion. Byrne J also observed that the English legislation is in terms different from pt 5.3A but noted that the problems and conflicts which it seeks to address are familiar to practitioners working within the Australian regime. His Honour said that it is for the lessor wishing to take possession to satisfy the court on an application under s 440C that this is the appropriate course and that it may be appropriate where it is shown that the taking of possession will not in any practical way affect the availability of the options which the creditors must consider or their decision on those options. In that case the lessor applied for an order under s 440C because it apprehended that a deed of company arrangement might be proposed at the meeting of creditors that was imminent. Byrne J said:

An examination of the scheme of Part 5.3A shows that, far from being a reason for granting the leave sought, the imminence of the creditors' meeting and the prospect that they might be asked to consider a proposal for a deed of company arrangement, was a powerful reason not to disturb the status quo. The intention of the legislation is that creditors should be given every opportunity to consider such a proposal and s 440C is to prevent the lessor from pre-empting their decision by disturbing the company's possession of premises which may be essential to the success of the proposal contained in the deed (517).

His Honour considered that the circumstances in that case pointed to a refusal of the application so that the creditors might have the fullest opportunity to consider their options.

32 In Re Ansett Australia Ltd (Admin Appointed); Intrepid Aviation Partners VII LLC v Ansett Australia Ltd (Admin Appointed) [2001] FCA 1360; (2001) 115 FCR 175 (the Intrepid Case) Goldberg J said that in deciding an application for leave under s 440C the court is entitled to have regard to interests other than those of the owner or secured creditor and the company under administration. His Honour considered that he was entitled to take public interest considerations into account as part of the exercise of his discretion.

33 In Canberra International Airport Pty Ltd v Ansett Australia Ltd [2002] FCA 329; (2002) 41 ACSR 309 Canberra International Airport (CIA) applied to the court for leave, pursuant to s 440C, to recover the Ansett terminal at Canberra Airport leased to Ansett. Breaches of covenants under the lease and failure to pay rent were alleged to have occurred at the date Ansett went into administration. CIA gave the administrators a notice of termination of the leases and then made a written demand for possession. The administrators opposed the grant of leave because there remained, in their opinion, the possibility of finding a purchaser of the company's business, or part of it, and they intended to propose to the creditors that they propound a deed of company arrangement. Kenny J stated that it is for the applicant for leave under s 440C to satisfy the court that leave should be given and then continued:

Besides the objects set out in s435A, the court will necessarily consider the interests of the parties in the circumstances of the case. If the lessor establishes that, in the circumstances of the case, a grant of leave to repossess is unlikely to inhibit the company in meeting the objects of the administration, then leave may very well be given: see Atlantic Computer at 542 ... [23].

After referring to the observation of Bryne J in Re Java, to which I have already referred, Kenny J continued:

The discretion conferred by s440C is a broad one: see Re Ansett Australia Ltd (Administrator Appointed); Intrepid Aviation Partners VII LLC v Ansett Australia Ltd (Administrator Appointed) [2001] FCA 1360; (2001) 39 ACSR 255 (the Intrepid Case) at 257 and Re Java at 516. Leave may be granted if the statutory restraint imposed on the lessor will occasion the lessor loss or detriment (financial or otherwise) of a relevant kind. The loss or detriment may be regarded as relevant to a grant of leave where the court considers it is greater than any benefit or advantage that might enure to the creditors by reason of the statutory restraint. The outcome of a grant of leave may depend on the history of the administration, the conduct of the parties, and whether terms may practically be imposed on a grant or refusal of leave to protect competing interests [24].

Kenny J held that the applicant had not established that it should be given leave. Her Honour concluded:

The creditors should, so it seems to me, be allowed full opportunity to consider their options at the forthcoming creditors' meeting. The administrators have indicated that they intend to propose a deed of arrangement. That proposal should be considered by the creditors fully. As Byrne J said in Re Java at 517 'the imminence of the creditors' meeting and the prospect that they might be asked to consider a proposal for a deed of company arrangement' was 'a powerful reason not to disturb the status quo'. The intention of the legislation is that creditors be given a full opportunity to consider their options and that a lessor not be permitted to pre-empt that position by disturbing the company's possession of premises. The fact that the applicant may suffer some further delay in re-taking possession does not lead me to a contrary conclusion [63].

34 The plaintiffs seek leave under s 440C so that they might take possession of the plantation properties owned by Rewards Land and ARK. The Receivers say that the properties are being allowed to degrade, requiring appropriate management to preserve their intrinsic value. The Receivers wish to take possession of the properties so as to prevent continuing loss and damage and mitigate, as far as they reasonably can, the significant damage that they say has already occurred. The Receivers have issued notices of termination or default, depending on the lease instrument, over each of the properties leased by Rewards Land or ARK to Rewards Projects. Each of the notices has now expired and the Receivers say that they are entitled to possession of the properties subject only to s 440C.

35 The Receivers have led evidence in support of their contention that the leased properties are unprotected and deteriorating due to non-performance of required maintenance. Between 4 - 18 June 2010 the Receivers, accompanied by qualified horticultural staff of Rewards Management, undertook a visual inspection of a number of properties owned by Rewards Land and ARK. Mr Thackray in his affidavit sworn 18 June 2010 says that those visual inspections disclosed:

(a) evidence of a white scale infestation at multiple properties in Childers and Mareeba in Queensland;

(b) an immediate need of spraying treatment of the Childers Property (at an estimated cost of $18,000 per month for the next 6 months);

(c) evidence of rapid weed growth on at least 6 properties (located in far north Queensland), which it is estimated will cause strangulation and starvation of the junior teak plantations within 2 - 4 weeks;

(d) citrus trees at Kununurra require immediate spraying; and

(e) an ongoing need to irrigate all stone fruit and mango trees, the costs of which are presently being borne by Rewards Land and the Ark and general maintenance, which is presently being borne by Rewards Management without contribution from Rewards Project (including significant staff costs exceeding $30,000 per week).

The Receivers prepared an overview of the work that they considered was required to be undertaken urgently to avoid serious damage to leased properties of Rewards Land and ARK or the crops planted on those properties. They estimated a total expenditure of $445,924 was required to undertake the weeding, pruning and spraying that would be required. Mr Thackray says that the Administrators failed to arrange for the continued management of the properties, either by making appropriate arrangements with Rewards Management or otherwise. The Receivers prepared an update which detailed urgent tasks they considered to be completed on the properties and the costs of completing those tasks. As at 21 June 2010 they estimated the total costs of completing those urgent tasks to be approximately $694,067. Employees of Rewards Management, with the assistance of horticultural professionals, compiled an estimate of the costs of removing and replanting trees across the various projects. They estimated the cost varied from $2,560 to $41,000 per hectare for direct costs without taking into account further indirect costs. Mr Thackray swore on 18 June 2010 that the deterioration of the properties exposed Rewards Land and ARK to the prospect of claims from adjoining landholders, State instrumentalities and local government authorities.

36 Mr Thackray referred to an email from the Department of Agriculture to Rewards Land requesting plans for dealing with unharvested fruit in the Kununurra region by 25 June 2010. The email refers to obligations under the Plant Diseases Act 1914 (WA). Mr Thackray estimated the costs of complying with the landholders' obligations to be approximately $50,000.

37 In his affidavit sworn 23 July 2010 Mr Thackray referred to correspondence and discussions between the Receivers and the Administrators concerning maintenance of the properties occupied by Rewards Projects. On 12 July 2010 Mr Thackray wrote to one of the Administrators, Mr Jones. Mr Thackray said that the Administrators had failed to implement the minimum maintenance works necessary in an attempt to preserve and maintain the relevant leased properties and guard against the prospect of contamination and other environmental risks and required the Administrators' urgent response including an undertaking to immediately implement the schedule of words previously forwarded by the Receivers. Mr Thackray referred to 'a specific example of the extreme urgency associated with the overdue maintenance works, and the potential effect of your continued inactivity in this regard', in the form of a report and some photographs. Mr Thackray said that the report indicated that there is a liability to the occupiers and owners of the properties regarding the urgent need to eradicate prescribed weeds and prevent liability claims from neighbouring properties. Mr Thackray asserted that no maintenance or other necessary work had been carried out by the

Administrators other than some minor work at Kununurra and said that they had not received any evidence of the Administrators having a maintenance programme for any of the properties.

38 On 22 July 2010 Mr Thackray wrote to Mr Jones referring to various ARK and Rewards Land teak properties located near Tully in far north Queensland. Mr Thackray attached two notices received on 21 July 2010 from the Queensland Government regarding weed infestation and recommendations regarding prevention of the spread of the weeds and a letter dated 21 July 2010 from Queensland Fire and Rescue Services in relation to fire prevention work, mainly firebreaks and the reduction of fuel loads ahead of the fire season in Ingham commencing in mid-August. Mr Thackray asserted that the Administrators had failed to undertake care and maintenance as required by the leases and asserted that the Administrators had failed to carry out any of the maintenance for the teak properties described in a programme previously forwarded by the Administrators. Mr Thackray said that the Administrators 'seem to be being "drip fed" funds as maintenance becomes an emergency which has given rise to the issue of formal statutory notices' and that 'your funding does not appear to be secure'. Mr Thackray swore on 23 July 2010 that he had not received a maintenance works programme from the Administrators for the week commencing 26 July 2010 and the Administrators had not indicated their intentions as to maintenance from 25 July 2010. Mr Thackray swore that he was extremely concerned that the project properties are continuing to deteriorate.

39 The Administrators submit that the evidence does not establish that the leased properties are unprotected and deteriorating due to non-performance of required maintenance. The Administrators submit that the Receivers contention needs to be assessed on a lease by lease basis. I accept that submission. The fact there may be maintenance issues in relation to a particular property cannot provide a basis to retake possession of all of the properties. The Receivers' evidence does not deal with the properties on a lease by lease basis. Counsel for the Administrators submitted that the evidence does not permit findings to be safely made as to what, if any, maintenance is required on a particular property that will not be adequately performed while the property remains in the possession of Rewards Projects.

40 There is evidence that the Administrators have secured temporary funding. At the time Mr Jones swore his affidavit on 27 July 2010 RGAG had advanced approximately $1.3 million to the Administrators pursuant to the loan agreement approved by the court on 30 June 2010. Further, Mr Jones says that further funds are available to the Administrators for maintenance. The funds include maintenance funds held in trust which existed at the date of the Administrators' appointment. In relation to the tropical fruit schemes the Administrators have received management fees from the growers. The Connection Group has continued to fund the operations of the berries schemes and harvesting of berries. The Connection Group has paid the Administrators a total of approximately $525,000 at 27 July 2010. Mr Jones swore on 27 July 2010 that as far as he was aware the Receivers had made no complaints about maintenance on the properties on which the berries schemes are conducted. Mr Jones says that the sources of short term funding available to the Administrators are:

management fees levied in relation to the tropical fruit schemes;
part of the funds held in the reserve maintenance accounts; and
funding to be provided by the RGAG pursuant to the interim loan agreement.

41 Mr Jones swore that all leasing commitments of Rewards Projects to Rewards Land and ARK had been paid up to 31 July 2010. That was not contested by the plaintiffs. The plaintiffs' complaint is that Rewards Projects has failed to properly maintain the properties and has no or no adequate maintenance programme in place. The Administrators say that a programme is in place to ensure maintenance obligations are observed. The Administrators engaged an independent agricultural consultant to report on the maintenance works required on the properties. The Administrators have developed a plan and commenced to carry it out.

42 The competing contentions give rise to complex factual issues. It is not possible to resolve those issues on the affidavit evidence before the court. The evidence discloses that there is reason for the Receivers of Rewards Land and ARK to be concerned that some of the properties have not been adequately maintained. However, the Administrators have a programme in place to carry out necessary maintenance. There is temporary funding in place.

43 This is an unusual case in that the applications for leave under s 440C are pursued by the receivers of Rewards Land and ARK and the application is resisted by the administrators of Rewards Projects who are also the administrators of Rewards Land and ARK. The Receivers' primary concern is to gather in, manage and realise the assets charged with a view to liquidating the secured creditors' debt. The primary interest of the secured creditor is to obtain repayment of its debt. The evidence does not go so far as to establish that the value of the leased land is deteriorating such that if it remains in the possession of the administrators of Rewards Projects the realisable value of the land is likely to be less than the amount required to discharge the debt to the secured creditor.

44 There is conflicting evidence about whether the leased properties are being adequately maintained and whether the Administrators have in place adequate arrangements for the maintenance of the leased properties over the next few weeks or months. There was no cross-examination that would enable me to resolve any disputes of fact. Counsel for RGAG referred to Tay Bok Choon v Tahansan Sdn Bhd (1987) 3 BCC 132 where Lord Templeman on behalf of the members of the Privy Council said:

If allegations are made in affidavits by the petitioner and those allegations are credibly denied by the respondent's affidavits, then in the absence of oral evidence or cross-examination, the judge must ignore the disputed allegations. The Judge must then decide the fate of the petition by consideration of the undisputed facts (419).

45 The plaintiffs' contentions that the properties occupied by Rewards Projects are not being adequately maintained is disputed by the Administrators. I do not ignore the evidence presented by the plaintiffs. However, I am not able to resolve the conflict in the evidence. It is for the plaintiffs to satisfy the court that leave should be granted. It is for the plaintiffs to satisfy the court that the statutory restraint imposed on the plaintiffs by s 440C will occasion them significant loss if leave is not granted. The plaintiffs have not established that.

46 The Administrators submit that leave under s 440C should be refused because:

The plaintiffs have waived any default under the leases by demanding and accepting rent and hence are not entitled to retake possession of the leased properties even if leave were granted under s 440C.
Leave will frustrate and hinder Rewards Projects in meeting the objectives of pt 5.3A to the detriment of creditors including growers, in that if the Receivers of Rewards Land and ARK take possession of the leased properties there will be no prospect of a deed of company arrangement.

47 There has been considerable argument concerning the Administrators' submission that the plaintiffs have waived any default under the leases by demanding and accepting rent and hence are not entitled at general law to retake possession of the properties. I do not consider it is necessary or appropriate to determine that issue. In Re Atlantic Computer Systems Lord Nicholls on behalf of the court said:

In some cases there will be a dispute over the existence, validity or nature of the security which the applicant is seeking leave to enforce. It is not for the court on the leave application to seek to adjudicate upon that issue, unless (as in the present case, on the fixed or floating charge point) the issue raises a short point of law which it is convenient to determine without further ado. Otherwise the court needs to be satisfied only that the applicant has a seriously arguable case (544).

48 In this case there is a dispute over the right of Rewards Land and ARK to possession of the leased properties if it was given leave under s 440C. I am satisfied that the plaintiffs have a seriously arguable case on that point and it is not necessary to determine the matter further. Nevertheless, there is a real issue whether the plaintiffs have the right to take possession of the leased properties if they are given leave under s 440C. It is likely that if leave was given there will be a dispute between the plaintiffs and the Administrators concerning the plaintiffs' entitlement to possession of the leased properties. That may take some time to be resolved and may not be resolved until the administration is complete. The plaintiffs may not be able to take possession of the leased properties without commencing further proceedings to establish their entitlement to possession. Indeed, in submitting that the present application is an interlocutory proceeding counsel for the plaintiffs submitted that such further proceedings were likely. Section 440D prevents the plaintiffs from beginning such proceedings except with the Administrators' consent or with the leave of the court. The objects of pt 5.3A include shielding a company in administration from actions which might be taken against it by owners of property used by the company so as to enable creditors to decide the company's future in an orderly fashion, without having the position of the company undermined further by proceedings against the company during the administration: see Explanatory Memorandum [513] referred to above. That is a factor that weighs against the grant of leave.

49 The Administrators submit that if the plaintiffs retake possession of the leased lands it will be practically impossible for the administrators of Rewards Projects to propound a deed of company arrangement that will enable the Schemes to continue in some form. The plaintiffs submit that the evidence in support of that contention is insufficient.

50 In his affidavit sworn on 27 July 2010 Mr Jones swore:

I am concerned that there will be enormous prejudice to unsecured creditors and growers if the Receivers' application is successful as there will be no prospect of a deed of company arrangement if [Rewards Projects] is not able to continue in possession of the lands the subject of the head leases.

51 Counsel for the Administrators and counsel for RGAG submitted that Mr Jones' evidence is uncontradicted and in those circumstances the court should accept it. The evidence of Mr Jones is a statement of opinion. No objection was taken to it. It is credible. Having regard to the evidence concerning the nature of the projects it is inherently plausible that a deed of company arrangement will not be able to be pursued if Reward Projects does not remain in possession of the leased land. There is evidence from Mr Bugelly, of RGAG, of negotiations for the purpose of Rewards Projects entering into a deed of company arrangement. Mr Bugelly is a chartered accountant with expertise in agri-businesses, including valuation of agri-business assets. He is the chairman of RGAG. He has undertaken extensive research into the financial affairs and the viability of the scheme projects. Mr Bugelly swore in his affidavit of 29 July 2010 that on 28 July 2010 he met with a company with significant forestry holdings who indicated to him that they would make a proposal to provide short term funding to pay current expenses and long term funding to pay out secured creditors under the terms of a deed of company arrangement. It is inherently likely that such negotiations for a deed of company arrangement are not likely to result in a deed of company arrangement being proposed to the creditors if Rewards Projects ceases to be in possession of the leased land.

52 It is for the plaintiffs to satisfy the court that leave should be given. The evidence satisfies me that if leave is granted it is unlikely that a deed of company arrangement would be presented to the creditors of Rewards Projects and it is unlikely that Rewards Projects or the business carried on by Rewards Projects as responsible entity of the Schemes would continue in existence. Granting leave would not advance the objects of pt 5.3A set out in s 435A. To the contrary, granting leave would impede the chances of Rewards Projects, or as much as possible of its business, continuing in existence.

53 It is necessary to consider whether it is appropriate to grant leave having regard to the legitimate interests of the Rewards Land and ARK on the one hand and the legitimate interests of the creditors of Projects Rewards and the growers on the other. It was submitted on behalf of RGAG that the growers are creditors of Rewards Projects on a number of grounds. In any event, the court is entitled to have regard to the interests of the growers: see the Intrepid Case. The court must give weight to the proprietary interests of Rewards Land and ARK. The court must have regard to the detriment to Rewards Land and ARK if leave is not granted against the detriment to the growers and other creditors of Rewards Projects, and the effect on the chances of Rewards Projects, or its business, continuing existence, if leave is granted.

54 I find that the balance is in favour of refusing leave. The Receivers are concerned at the adequacy of the maintenance that has been carried out by the Administrators and their assurance that maintenance will continue to be carried out. However, there is evidence that the Administrators have a maintenance programme and at least temporary funding for the purposes of maintenance. RGAG, or some of its members, have carried out investigations with a view to a deed of company arrangement being put to the creditors. There is a likelihood that a deed of company arrangement may be put to the creditors which will involve the business carried on by Rewards Projects as responsible entity of the Schemes, or some part of the business continuing. If leave is granted and the Receivers take possession of the leased properties there is no realistic likelihood of a deed of company arrangement being put to the creditors or any substantial part of the business carried on by Rewards Projects otherwise continuing. The objects of pt 5.3A will be advanced by refusing leave. That will give the creditors of Rewards Projects the opportunity to consider their options at the forthcoming creditors' meeting, including the possibility of entering into a deed of company arrangement. The moratorium which restrains Rewards Land and ARK from taking possession of the leased properties is likely to continue for a relatively short period. Once the administration ends the Receivers will be able to exercise their rights at general law. In the meantime the rent for the leased properties is continuing to be paid and the Administrators are maintaining the properties, although not to the satisfaction of the Receivers. The evidence does not establish that the leased properties are deteriorating to the extent that there is a serious risk that the value of the land will be seriously diminished or that Rewards Land and ARK will be exposed to substantial liabilities if the Receivers are not able to take possession of the properties before the end of the administration which is likely to be in the reasonably near future.

55 The application for leave under s 440C is refused.

Incorporation Act 1981

At a glance

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Before

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Judgment (109 paragraphs)

Legislation Cited (3)

Cases Cited (5)