MATTER : Rewards Projects Ltd (Administrators Appointed)

BETWEEN : REWARDS PROJECTS LTD (ADMINISTRATORS APPOINTED) IN ITS CAPACITY AS THE RESPONSIBLE ENTITY OF THE REWARDS GROUP TROPICAL FRUIT PROJECT 2006, REWARDS GROUP TROPICAL FRUIT PROJECT 2007 AND REWARDS GROUP TROPICAL FRUITS PROJECT 2008

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

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

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

Corporations - Managed investment scheme - Application for directions by the administrators

Corporations Act 2001 (Cth), s 435A, s 442C, s 443A, s 443D, s 447A, s 447D

Trustees Act 1962 (WA), s 92

Coad v Wellness Pursuit Pty Ltd (in liq) [2009] WASCA 68; (2009) 40 WAR 53

Great Southern Managers Australia Ltd (in liq) v Thackray [2010] WASC 138

Re Ansett Australia Ltd (No 1) [2001] FCA 1806; (2001) 115 FCR 376

Re Ansett Australia Ltd (No 3) [2002] FCA 90; (2002) 115 FCR 409

Re Ansett Australia Ltd [2001] FCA 1439; (2001) 39 ACSR 355

Re Malanos [2007] NSWSC 865

Re Spyglass Management Group Pty Ltd [2004] FCA 1469; (2004) 51 ACSR 432

Rewards Group Ltd; Ex parte Rewards Projects Ltd [2010] WASC 276

Rewards Land Pty Ltd v Jones [2010] WASC 233

1 LE MIERE J: The plaintiffs brought proceedings by way of originating process dated 22 September 2010, by which they seek various directions and orders concerning a Crop Deed. The Crop Deed seeks to facilitate the harvest of fruit crops associated with certain managed investment schemes known as the Rewards Group Tropical Fruit Project 2006, the Rewards Group Tropical Fruit Project 2007, and the Rewards Group Tropical Fruits Project 2008 (Tropical Fruit Projects). On 24 September 2010 I made orders substantially in terms of the plaintiffs' minute of proposed orders dated 24 September 2010. These are my reasons.

2 Rewards Projects Ltd is in administration pursuant to pt 5.3A of the Corporations Act 2001 (Cth) (the Act). On 16 May 2010 Mr Saker, Mr Jones and Mr Weaver (Administrators) were appointed joint and several administrators of Rewards Projects Ltd. On 19 May 2010, Mr Thackray, Mr Anderson and Mr Harries (Receivers) were appointed receivers and managers of Rewards Land Pty Ltd. On 2 June 2010 the Receivers were appointed receivers and managers of The Ark Fund Ltd. Rewards Projects is the responsible entity for various managed investment schemes, including the Tropical Fruit Projects. The Tropical Fruit Projects are conducted on land in Queensland and Western Australia that is leased from The Ark Fund and Rewards Land. The leases between Rewards Projects and the growers provide that the growers are entitled to the fruit grown on each grower's lot but Rewards Projects is engaged to harvest, market and sell that fruit on behalf of each grower. The Ark Fund and Rewards Land have purported to terminate the leases. Whether there has been an effective termination is in dispute: Rewards Land Pty Ltd v Jones [2010] WASC 233 [48]. At present, Rewards Land remains in possession of the land on which the Tropical Fruit Projects are conducted.

3 The Administrators entered into two interim funding agreements which were approved by the court in COR 110 of 2010, known as the General Loan Agreement and the Berry Loan Agreement: Rewards Group Ltd; Ex parte Rewards Projects Ltd [2010] WASC 276. The Administrators now require additional funding to pay rent for, harvest and sell the fruit that is currently growing on the Tropical Fruit Properties. The 2010 fruit crop, the subject of the Tropical Fruit Projects will spoil unless harvested and costs to date will have been wasted. Failure to harvest may also have a long term detrimental effect on the properties and future crops. The Administrators have received a proposal from Food and Beverage Australia Ltd (FABAL) offering to pay rent for, carry out the immediate maintenance requirements on and harvest, market and sell the fruit from most of the Tropical Fruit Properties. A Crop Deed has been executed between Rewards Projects, the Administrators, FABAL and the Rewards Growers Advocacy Group (RGAG).

4 The Crop Deed contemplates Rewards Projects, by the Administrators, disposing of the fruit crop to FABAL, FABAL being entitled to repayment of funds advanced and payment for its services out of the proceeds of the sale of the fruit crop, on a scheme-by-scheme basis, and accounting to the Administrators for the balance, the proceeds of sale being applied as per cl 4.6, cl 4.7 and cl 4.9 of the Crop Deed. Any net balance of the proceeds from the realisation of the fruit crop remaining after payment of all costs is to be held on trust pending determination of the competing claims to the crop. The operation of most clauses of the Crop Deed is conditional on the court making the orders sought in this application. The Administrators have not received any other proposals regarding the funding, harvesting and sale of the Tropical Fruit Projects.

5 The Application was brought on for urgent hearing on 24 September 2010. The Administrators have filed affidavits in support of their application. There is the affidavit of Mr Martin Jones sworn 22 September 2010 (The Jones Affidavit), an affidavit of Mr Jones sworn 25 June 2010 in COR 110 of 2010, an affidavit of Mr Jones sworn 29 June 2010 in COR 110 of 2010 and the supplementary affidavit of Mr Jones sworn 24 September 2010. RGAG appeared by counsel and read the affidavit of Mr Bugelley sworn 24 September 2010 in support. The Receivers, who appeared by counsel, oppose the application.

Section 447D of the Act and s 92 Trustees Act

6 Under s 447D of the Corporations Act 2001 (Cth) (the Act) an administrator may apply to the court for directions about a matter arising in connection with the performance or exercise of any of the administrator's functions and powers. So far as Rewards Projects is, as responsible entity, a trustee in respect of the managed investment schemes' property there is similar power to seek directions under s 92 of the Trustees Act 1962 (WA). The Administrators seek a direction that they may properly and justifiably enter into, and give effect to, the Crop Deed.

7 A direction that an external administrator may properly and justifiably enter into and give effect to a proposed course of conduct is used to signify that it is appropriate that he or she do so. It is implicit in such an order that the court is approving the proposed conduct: Re Ansett Australia Ltd [2001] FCA 1439; (2001) 39 ACSR 355 [85].

8 In Re Ansett Australia Ltd (No 3) [2002] FCA 90; (2002) 115 FCR 409 Goldberg J held:

There must be something more than the making of business or commercial decision before a court will give directions in relation to, or approving of, that decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised [65].

9 Such issues exist with regards to directions allowing entry into and giving effect to the Crop Deed. Firstly, the contemplated modification to s 442C of the Act concerns a question of empowerment and therefore requires authorisation by the court. The question of empowerment arises as it is not known who at present the relevant owner of the property is. Further, the Administrators are being permitted to dispose of property in the possession of Rewards Projects, but in respect of which other persons are the owners. Secondly, the Administrators are realising the property of another, just who being uncertain, giving rise to issues of reasonableness and propriety.

10 The Administrators also seek directions that they are entitled to an indemnity out of the Tropical Fruit Properties and a lien over the property. Those directions concern legal issues of substance as those orders sought are concerned with questions of propriety or reasonableness.

11 The plaintiffs also seek orders under s 447A(1) of the Act to modify the operation of pt 5.3A in relation to Rewards Projects. The plaintiffs wish to provide a modified regime as to disposal of the fruit crop under the Crop Deed, exclusion of personal liability for borrowing under the Crop Deed, and entitlement to indemnity out of a lien over property concerning the Crop Deed.

12 Under s 447A(1) of the Act 'the court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company'. However, s 447A is not to be viewed as some general source of power. The exercise of power under s 447A must be consistent with the object of pt 5.3A as found in s 435A: Re Ansett Australia Ltd (No 1) [2001] FCA 1806; (2001) 115 FCR 376 [52]. Importantly, s 447A(1) empowers the court to make orders which may alter the operation of other provisions of pt 5.3A: Re Ansett Australia Ltd (No 1) [53]. In other words, in an appropriate case, the court can order that, in respect of a particular company, another provision within pt 5.3A is to operate 'as if' it provided for something other than it does in the ordinary course.

13 COR 110 of 2010 concerned a similar application by the same plaintiffs in relation to the General Loan Agreement and the Berry Loan Agreement. On 30 June 2010 I made orders in COR 110 of 2010 as to those agreements, property and managed investment schemes': Rewards Group Ltd; Ex parte Rewards Projects Ltd. Those orders were, other than in one respect, largely in terms of the orders sought in the present application. The material difference between the two applications concerns the relief sought by [2(a)] of the originating process. Amongst other things, [2(a)] concerns the possible dispute between the growers in the Tropical Fruit Projects and Rewards Land and the Ark Fund as to ownership of the fruit crop to be harvested under the Crop Deed. The Administrators seek orders under s 447A(1) of the Act modifying the operation of pt 5.3A so as to deal with that dispute and preserve the parties' respective positions.

14 I now turn to consider the particular orders sought buy the Administrators in the present application. First I will consider order [2(a)].

15 The Administrators seek orders from the court which will allow entry into and give effect to the Crop Deed. The operation of most clauses of the Crop Deed is conditional on the court making the orders sought in the application. If the orders are not granted, the commercial opportunity presented by the Crop Deed would then fall away. Harvest and sale of the fruit crop under the Tropical Fruit Projects would then be unlikely to proceed as the Administrators have not received any other proposals from other interested parties regarding the funding, harvesting and sale of the Tropical Fruit Projects and neither RGAG or the Administrators have sufficient funds to continue the operations and conduct the harvests of the Tropical Fruit Projects without funding from third parties.

16 The interests of the competing claimants are adequately protected by the proposal that the net balance of the proceeds of the fruit crop sale after meeting costs, on a scheme-by-scheme basis, if any, be held on trust pending determination as to entitlement.

17 In terms of the authorisation and the direction as to propriety, as are also sought in [2(a)], the Administrators submit that the Crop Deed is to the overall benefit of Rewards Projects and in the interests of the company's creditors, including the growers and Rewards Land and the Ark Fund. In Mr Jones' affidavit he states that if the Administrators do not enter into the Crop Deed, the Administrators will be left with no choice but to disclaim the leases of the Funded Properties. He deposes that if this is to occur, then the possibility of the Tropical Fruit Projects being restructured for the benefit of growers and creditors would be remote. I am satisfied that the action of the Administrators in entering into and giving effect to the Crop Deed are both reasonable and justified in all the circumstances and that directions in those terms should be made.

18 The next orders sought are those in [2(b)] and [2(c)]. The Administrators require the orders to ensure that any liabilities incurred by the Administrators 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 orders also seek to ensure that the Administrators are not personally liable for any debts incurred under the Crop Deed in the event that the indemnity under s 443D is insufficient to meet those debts.

19 Section 447A(1) empowers the court, in an appropriate case, to modify the operation of s 443A to exclude personal liability on the part of a voluntary administrator, and to provide that a loan taken by the company via the voluntary administrator is repayable on a limited recourse basis. Counsel for the Administrators submits that orders in such terms are frequently 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 (No 1) [48] (Goldberg J); Re Spyglass Management Group Pty Ltd [2004] FCA 1469; (2004) 51 ACSR 432 [6]; Re Malanos [2007] NSWSC 865 . Accordingly, the relevant interests in the current proceedings are those of Rewards Projects' unsecured creditors.

20 The Administrators submit three reasons why this is an appropriate case in which to exercise the power under s 447A(1). Firstly, the s 447A(1) modification order sought will not disadvantage or prejudice Rewards Projects' unsecured creditors and, so far as it enables the Administrators to consider whether to implement the proposed transaction, is in the interests of the company's creditors. Secondly, it is open for the Administrators to conclude, and they have done, that the Crop Deed is to the overall benefit of Rewards Projects and in the interests of the company's creditors including the growers and the first and second defendants as landlords of the properties on which the Tropical Fruit Projects are carried out. Thirdly, the Rewards Projects' committee of creditors has approved entry into the Crop Deed.

21 I am satisfied that it is appropriate to make the orders sought. An order of the court under s 447A(1) relieving the Administrators from personal liability in respect of the proposed loan facilitates the making of the Administrators' commercial decision. It permits the Administrators to make the commercial decision of what is in the best interests of the company's creditors uninfluenced by concerns of personal liability. The importance of the Crop Deed 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, make it appropriate that this entitlement of the Administrators be recognized by way of judicial order.

22 The next orders sought are those in [2(d)] and [3]. The orders provide for a lien over the trust fund and provide for a transparent mechanism for the distribution of the proceeds of the sale agreement. 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: Coad v Wellness Pursuit Pty Ltd (in liq) [2009] WASCA 68; (2009) 40 WAR 53. Orders in terms of [2(d)] were made in COR 110 of 2010. In that matter I stated that I was satisfied to make the orders sought subject to a qualification, that is, that 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: Rewards Group Ltd; Ex parte Rewards Projects Ltd [29] - [30]. Orders in terms of [3] are similar to the orders I made in Great Southern Managers Australia Ltd (in liq) v Thackray [2010] WASC 138. The orders provide that the net proceeds be held on trust pending the determination by the court of the rights to the proceeds.

23 The Receivers object to the orders sought in [2(c)], [2(d)], and [3]. The Receivers raise concerns with [2(d)] in that that will have the effect of the lien having priority over everything else, including any priority the Receivers might have. In regards to [3] the Receivers say it is not clearly understood from the material what those payments might be and what the quantum of those payments might be. The Receivers submit this is a concern, which could possibly be resolved, but due to the urgent nature of the application it has not.

24 The Receivers submit that the matters raised in [2(c)], [2(d)] and [3] should be 'parked' so as to give the Receivers more time to consider the application.

25 Counsel for RGAG submitted that the Receivers concerns could be accommodated by an additional order in the following terms:

3A. The Administrators must not make any payment pursuant to 3(b) of this order without giving 7 days prior written notice to the first and second defendants accompanied by written details of the proposed payments and if an application for directions is taken out by the first to second defendants within 7 days the Administrators must not make payment until directions are given in relation to those proposed payments.

26 The effect of [3A] is that no money goes out until the Receivers are informed and told of the details. If the Receivers do not agree with the proposed payments then they can put on an application. The Administrators then hold the money until the court has ruled on the matter. This is an effective way of 'parking the issue'. Further, counsel for RGAG also submitted that the words 'subject to 3A' be inserted before [3(b)]. I am of the opinion that it is appropriate that this entitlement of the Administrators be recognised by way of judicial order with the amendments as outlined above.

27 I am satisfied that it is appropriate to make orders in terms of the plaintiffs' minute of proposed orders with the amendments as outline above.