Supreme Court of WA|2010-06-11|Before: Mr J

REWARDS PROJECTS LTD (ADMINISTRATORS APPOINTED) -v- THE ARK FUND LTD [No 2] [2010] WASC 136 (11 June 2010)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : REWARDS PROJECTS LTD (ADMINISTRATORS APPOINTED) -v- THE ARK FUND LTD [No 2] [2010] WASC 136

BETWEEN : REWARDS PROJECTS LTD (ADMINISTRATORS APPOINTED)

REWARDS GROUP LTD (ADMINISTRATORS APPOINTED) (RECEIVERS & MANAGERS APPOINTED)

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

REWARDS MANAGEMENT PTY LTD (ADMINISTRATORS APPOINTED)

LANCINO CANDACE NOMINEES PTY LTD as trustee for THE S L DOBSON FAMILY TRUST, THE CRAIG DOBSON FAMILY TRUST and THE LACHLAN DOBSON FAMILY TRUST

NOONGAR PROPERTY HOLDINGS PTY LTD as trustee for THE NOONGAR PROPERTY TRUST

Corporations Act 2001 (Cth) - Application by administrators to extend time to consider leasehold interest - Turns on own facts

Receivers & Managers of Second Plaintiff : Mr J L Sher

Receivers & Managers of Third Plaintiff : Mr J L Sher

Receivers & Managers of Fourth Plaintiff : Mr J L Sher

Receivers & Managers of First Defendant : Mr J L Sher

Receivers & Managers of Second Plaintiff : Clayton Utz

Receivers & Managers of Third Plaintiff : Clayton Utz

Receivers & Managers of Fourth Plaintiff : Clayton Utz

Receivers & Managers of First Defendant : Clayton Utz

1 MASTER SANDERSON: On 21 May 2010, on the application of the administrators of the nine plaintiffs in this matter, I granted the administrators an extension of time within which to give notice to lessors under s 443B of the Corporations Act 2001 (Cth). By interlocutory process lodged 4 June 2010 the administrators sought a further extension to 17 June 2010. After hearing argument on the matter I indicated I would grant the further extension and publish reasons for doing so. These are those reasons.

2 As is to be expected in a matter as complicated as this, things have changed significantly since I made the orders on 21 May 2010. This present application was brought only by the administrators of the first plaintiff. Receivers and managers have been appointed to the other named plaintiffs. As a result, counsel appeared representing the receivers and managers of the second, third and fourth plaintiffs and the first defendant to oppose the granting of the extension.

3 In support of the application the plaintiffs relied on three affidavits of Martin Bruce Jones. Two of those affidavits were sworn 4 June 2010. One of the affidavits was what counsel for the first plaintiff described as an 'open affidavit'. The other affidavit counsel described as the 'confidential affidavit'. These descriptions are apt and I will use them in these reasons. As part of the orders sought by the first plaintiff in its application the confidential affidavit was to be placed in a sealed envelope and only inspected with leave of a judge or master. However, discussions took place between counsel and counsel for the first plaintiff did provide a copy of the confidential affidavit to opposing counsel. This move was entirely proper and appropriate and was done after undertakings from counsel as to who would see the affidavit and what disclosures would be made as to its contents. The advantage, of course, was the hearing proceeded with everyone knowing what the evidence was, thus allowing for an informed decision.

4 The open affidavit of Mr Jones discloses since 21 May 2010 considerable work has been undertaken in relation to the administration. In par 4 of his open affidavit, Mr Jones describes what has been done in the following way:

Since the hearing on 21 May 2010, the Administrators have:

(a) received a number of expressions of interest from parties proposing to replace Rewards Projects Limited (RPL) as the responsible entity for various Schemes;

(b) received a number of proposals to fund some of the Schemes, including:

(i) two proposals for funding on tropical fruit, teak and sandalwood projects; and

(ii) three proposals for funding and crop sales on strawberry projects;

(c) commenced negotiations and due diligence processes with the parties making the proposals mentioned in sub-paragraph (b). These negotiations have involved numerous discussions and meetings with the various parties in Victoria, New South Wales and Western Australia, and have also involved providing proposed funding parties with fully costed budgets for restructure of the relevant Schemes and corporate overheads. A copy of a budget summary as provided to each one of the proposed funding parties will be attached to my confidential affidavit to be filed in these proceedings;

(d) engaged solicitors to draft and review draft funding and other agreements in relation to funding proposals;

(e) continued the urgent assessment of the viability of each Scheme, including reviewing each lease agreement; and

(f) written to the lessors on 1 June 2010 advising that an extension was granted by the Supreme Court of WA on 21 May 2010, and advising that meetings of the creditors of the Companies was held on 26 May 2010. The extension was also discussed at these meetings, and no objections were noted from creditors.

5 Mr Jones at par 9 of his open affidavit then says:

I believe that we will not be in a position to make an informed decision regarding each of the leases entered into by the first Plaintiff until:

(a) a review has been completed of each Scheme and related lease agreement, with a view to deciding whether to continue with or terminate the lease; and

(b) negotiations with potential funding parties are concluded. As set out above, negotiations and preparation of appropriate agreements are well advanced but it has not been possible, in the time available, to finalise these negotiations and the agreements, given the complexity of the Rewards group and its operations.

6 It is clear from this affidavit and from the confidential affidavit the administrators are making considerable efforts to find someone to fund the managed investment schemes. Given the number of projects involved and their complexity, it is no doubt a difficult and time-consuming task. It must also be acknowledged that the tenor of both Mr Jones' affidavits suggests finding potential funders and having them commit to the projects is at present the administrators' dominant purpose.

7 It was this that was picked up by counsel for the parties opposing the extension. By detailed reference to the affidavits, particularly the open affidavit, counsel submitted, in reality, this application had nothing to do with time to review the various leases. Rather, it was said, the administrators were seeking to delay making a decision in relation to the leases so funding arrangements could be pursued. That was an improper purpose. Although there might be provisions of the corporations law which could assist the administrators who were looking for funding, s 443B was not available.

8 I accept the affidavit material does show the dominant interest of the administrators is to find funders for the various projects. But I also accept as part of this process the administrators are still considering the position with the leases. In my view, there is nothing in s 443B which requires consideration of the leases to be the sole or dominant purpose before an extension of time can be granted. Of course, it may be the case, in certain administrations, the lease position is simple and administrators within a very limited time would have a clear idea of the company's position in relation to those leases. Then it would be inappropriate to grant an extension of time under s 443B when all that was being done was to provide the administrators with time for purposes not associated with understanding the position with respect to leases. But that is not this case. I am satisfied that the evidence establishes the administrators have not fully ascertained the company's position with respect to the leases and a further extension should be granted.

9 In making this decision I was mindful of the prejudice which may flow to other parties and, in particular, the companies in the group to which receivers and managers have been appointed. Appearing as annexure MBJ 12 to Mr Jones' open affidavit is a letter from McGrath Nicol, the receivers and managers of various companies. This letter sets out the risks the receivers and managers see in the grant of an extension. The complaints are not without substance. However, mindful of the difficulties occasioned by the grant of an extension, I was satisfied in all the circumstances such an extension was appropriate. On this basis then, I made the following orders:

The time for service of this application be abridged so that the application can be heard as a matter of urgency.
Service of this application and the affidavits filed herewith may be effected by electronic or facsimile transmission.
Pursuant to section 447A of the Corporations Act 2001 (Cth) ('the Act'), Part 5.3A of the Act is to operate in relation to the First Plaintiff as if, subject to order 5 of these orders, s 443B(2)(a) of the Act provided in relation to the First Plaintiff a period 'that begins after Thursday, 17 June 2010'.
Pursuant to section 447A of the Act, Part 5.3A of the Act is to operate in relation to the First Plaintiff as if s 443B(3) of the Act provided in relation to the First Plaintiff,

'By Thursday, 17 June 2010, the administrator may give to the owner or lessor a notice that specifies the property and states that the company does not propose to exercise rights in relation to the property.'

Unless the seventh to ninth plaintiffs give notice under section 443B(3) of the Act by Thursday, 17 June 2010, they shall be liable to the relevant owner or lessor in relation to leases entered into by the First Plaintiff for so much of the rent and other amounts as would have been payable to that owner or lessor if these orders had not been made.
The Confidential Affidavit of Martin Jones and the annexures attached to that affidavit:

(a) be placed in a sealed envelope marked 'Confidential - Not to be accessed for inspection except in so far as the Court orders';

The parties have liberty to apply.
The costs of this application be costs in the administrations of the First Plaintiff.

REWARDS PROJECTS LTD (ADMINISTRATORS APPOINTED) -v- THE ARK FUND LTD [No 2] [2010] WASC 136 (11 June 2010)

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REWARDS PROJECTS LTD (ADMINISTRATORS APPOINTED) -v- THE ARK FUND LTD [No 2] [2010] WASC 136 (11 June 2010)