Sanderson v Classic Car Insurances Pty Ltd

(As Deed Administrators of the Companies and as former Administrators of the Companies)

REASONS FOR JUDGMENT 1 The plaintiffs ("the administrators") who are the deed administrators and former administrators of the companies set out in Schedule A to these reasons which comprise thirty‑six of the forty‑one companies in the Ansett group ("the companies"), have applied to the Court for an order pursuant to s 447A and s 447D of the Corporations Act 2001 (Cth) ("the Act") that the Court direct that they may properly and justifiably execute and give effect to an agreement between the administrators and Sydney Airports Corporation Limited ("SACL") made on 2 May 2002 whereby the administrators agreed to sell the lease of the Sydney Airport Ansett Domestic Terminal ("the Sydney Terminal") to SACL. Although the expression "sell" has been used to describe the transaction, it is more correctly described in general terms as an agreement to surrender the lease and sell the assets described in the lease as "the Lessee's Facilities". 2 The application is not opposed and although notice of the application was given to a considerable number of parties, to whom I shall refer, who might be thought to have had an interest in the application, no other party appeared at the hearing. On 14 May 2002, I gave a direction that the administrators may properly perform and give effect to the agreement. I now publish my reasons for giving that direction. 3 The administrators were appointed administrators of the companies and other companies in the Ansett group on 17 September 2001 (with the exception of one company of which they were appointed administrators on 4 October 2001) pursuant to an order of the Court made that day which took effect on the resignation of the three persons who had been appointed administrators of the various companies in the Ansett group on 12 and 14 September 2001, pursuant to the provisions of Pt 5.3A of the Act. 4 The provisions of s 439A of the Act required the administrators to convene a second meeting of creditors of each of the companies by 12 or 14 October 2001. That date was extended by order of the Court to 22 January 2002. On 16 January 2002, the administrators convened a second meeting of creditors of each of the companies to be held on 29 January 2002. The first report of the administrators (required by s 439A(4)) was published to creditors on or about 16 January 2002. The second meeting of creditors of each of the companies was held on 29 January 2002 and the creditors of each company resolved, inter alia, as follows: "That the creditors approve the sale of the Ansett mainline airline to Tesna Holdings Pty Ltd as described in the First Report to Creditors with a completion date of 31 January 2002 or such other date as the Administrators may agree." The creditors also resolved to adjourn the second meeting of creditors of each of the companies for a period of up to sixty days. 5 The resolution to sell the Ansett mainline airline business to Tesna Holdings Pty Ltd ("Tesna Holdings") had its genesis in discussions the administrators had with a number of parties prior to 8 November 2001. A number of parties had expressed an interest in acquiring the Ansett mainline airline business or the assets being used by the Ansett group in operating that business. These parties were: (a) Tesna Holdings, a consortium led by Messrs Lindsay Fox and Solomon Lew; (b) ANStaff representing the interests of Ansett staff who were predominantly pilots; (c) Singapore Airlines Limited ("Singapore Airlines") which had been invited by the administrators to participate in the sale process; (d) Patrick Corporation Limited ("Patrick") (formerly Lang Corporation Limited). Singapore Airlines did not submit an offer for the Ansett mainline airline business but agreed to provide consultancy services to the administrators. ANStaff made an offer on 14 November 2001 to buy the Ansett mainline airline business but that offer was withdrawn the following day. Patrick initially expressed an interest in acquiring certain of the Ansett group's assets but it subsequently advised the administrators that its interest was being expressed on behalf of Virgin Blue Airlines Pty Ltd ("Virgin Blue") and that it would not be maintaining the Ansett mainline airline business. 6 On 8 November 2001, Tesna Holdings made a written offer to the administrators to purchase the Ansett mainline airline business. The administrators accepted that offer on the same day. The offer was subject to the satisfaction of a number of conditions precedent. Between 8 November 2001 until about 25 February 2002, the administrators were engaged in the process of implementing the sale of the Ansett mainline airline business to Tesna Holdings. 7 Pursuant to the Tesna sale contract, the Ansett group was to transfer to Tesna Holdings, or its nominees, the assets which were identified in the sale contract. For present purposes, the only relevant assets to be transferred were leases held by the Ansett group of the premises comprising the Ansett domestic airline terminals at Sydney, Melbourne, Brisbane, Perth, Coolangatta, Cairns, Townsville, Rockhampton, Adelaide, Hobart, Darwin, Alice Springs and Canberra. There were many other assets to be transferred, but they are not relevant for present purposes. 8 On 26 February 2002, Tesna Holdings withdrew from the sale process. Thereafter, the administrators recommenced the process of seeking to sell the Ansett group's key assets, including the leases of the domestic terminals. 9 On 15 March 2002, the administrators published their second report to creditors. In accordance with s 439A(4)(b) of the Act, the administrators expressed their opinion that it would not be in the interests of creditors for the administration of the companies to end or for the companies to be wound up, but that it would be in the interests of the creditors of each company for each company to execute a deed of company arrangement which was outlined in the report. The object and purpose of the proposed deed of company arrangement was, in substance, to provide for a moratorium on all creditors taking action against the companies and for the orderly sale and realisation of the assets of the companies, including the leases of the domestic terminals. 10 The second report referred to difficulties perceived by the administrators surrounding the proposed assignment of the leases of the domestic terminals. The leases of the Ansett domestic terminals at Melbourne, Sydney, Brisbane, Adelaide and Perth are in substantially the same general form. Each of them contains what have been called buy‑back provisions. The lease of the Sydney Terminal is recorded in an agreement made 31 December 1987 between the Commonwealth of Australia (the predecessor in title to SACL) and Ansett Transport Industries (Operations) Pty Ltd (now Ansett Australia Limited) ("the lease"). Clause 8.1(c) of the lease provides, inter alia, that if the lessee: "shall become bankrupt or make any assignment of the Lessee's estate for the benefit of or any composition or arrangement with the creditors of the Lessee …", then the lessor may re‑enter upon the premises and enjoy the premises as if the lease had not been made. 11 Clause 8.10 of the lease relevantly provides: "(a) On the Designated Date [the date of the expiry or sooner determination of the term of the lease] the Lessor shall either: (i) itself acquire; or (ii) procure that some other person acquires, the Lessee's Facilities then existing, (other than Lessee's Facilities included in the Lessor's Facilities) at their then fair market value as determined as at the Designated Date either: (iii) by agreement between the Lessor and the Lessee; or (iv) if the Lessor and Lessee do not reach agreement as provided for in paragraph (iii) above within six (6) weeks of the Designated Date, in accordance with paragraph (c) below. The monies payable under this paragraph (a) to the Lessee shall be paid not later than six (6) months after the Designated Date." Clause 8.10(c) provides for the fair market value to be determined by two valuers or an umpire in default of a determination by the valuers. 12 The "Lessee's Facilities" are defined as meaning: "(a) so much of the Premises, including fixtures and other improvements at the Commencement Date, as have been provided at the Lessee's expense; (b) all Lessee's Significant Improvements and other alterations, extensions, additions, fixtures, fittings and refurbishment to the Premises made on or after the Commencement Date at the Lessee's expense; and (c) so much of the Premises as, under the terms of any Existing Commercial Lease, would but for this Lease vest or be vested in the Lessor." The Melbourne, Brisbane, Adelaide and Perth domestic terminal leases held by the companies contain similar buy‑back provisions. 13 In their second report, the administrators referred to issues which had arisen in relation to the buy‑back provisions in the leases of the domestic terminals. They stated that they had received legal advice that the buy‑back mechanism was not triggered by the appointment of the administrators or by the companies entering into the proposed deeds. 14 The administrators formed the view that the fair market value of the Lessee's Facilities determined in accordance with cl 8.10(a) of the lease by a valuer according to valuation principles might be substantially less than the price which could be achieved in an open competitive market environment. 15 Prior to the holding of the adjourned second meeting of creditors of the companies on 27 March 2002, SACL and its solicitors informed the administrators and their solicitors of their view that the entry by the companies into a deed of company arrangement would constitute an event giving SACL the right to re‑enter upon the leased premises, terminate the lease and would trigger the buy‑back provisions of the lease of the Sydney Terminal. 16 On 21 March 2002, the administrators published an advertisement in the Australian Financial Review inviting expressions of interest for the purchase of the leases of the Ansett domestic terminals at Sydney, Melbourne, Brisbane, Adelaide and Perth. 17 The adjourned second meeting of creditors of the companies was held on 27 March 2002. In the course of the meeting, the administrators informed the creditors of the buy‑back provisions of the leases of the domestic terminals and said that they had received advice from a Queen's Counsel that the proposed deeds of company arrangement may not trigger the buy‑back provisions in the leases and that some of the terminal owners disagreed with that legal advice. In the course of the meeting, the administrators outlined to the creditors the advantages and disadvantages of the proposed deeds of company arrangement and certain amendments to the outline of the deeds they were prepared to make which had been enclosed with the second report to creditors. 18 In the course of the meeting, a representative of SACL told the meeting: "It is Sydney Airport's view that the fact of entry into the Deed of Company Arrangement does give Sydney Airport should it decide to do so, a legal right to re‑enter and take possession of the terminal and buy‑back the terminal facility at Sydney Airport at fair market value." The administrators responded to this comment and emphasised that, in their view, it was in the interests of creditors to preserve the assets of the companies, including the leases of the domestic terminals, and to maximise their value by sale in a competitive market. 19 After further discussion, the creditors passed a resolution that each of the thirty‑six companies execute a deed of company arrangement in accordance with the outline provided with the second report to creditors with certain amendments, not relevant for present purposes. 20 As a result of the passing of that resolution on 27 March 2002, each of the thirty‑six companies was required, in accordance with s 444B(2) of the Act, to execute the deed of company arrangement within twenty‑one days, namely by 17 April 2002, unless the Court extended the time for so doing. 21 On 10 April 2002, the administrators' solicitors received a proposal from the solicitors for Virgin Blue which contained the framework of an offer to the administrators to acquire the interest of Ansett Australia Limited in a number of assets, including the leases of some of the domestic terminals. Fourteen other parties also expressed an interest at various times in acquiring various of the leases of the domestic terminals. 22 On 15 April 2002, the administrators filed an application with the Court ("the first extension application") seeking an extension of time for seven days after 17 April 2002 within which the companies could execute the deeds of company arrangement. On 17 April 2002, I extended the time within which the companies could execute the deeds of company arrangement for seven days until 24 April 2002. On 17 April 2002, the administrators filed an application with the Court ("the second extension application") seeking to extend the time within which the companies could execute the deeds of company arrangement for a further period of one month to allow for the completion of a competitive sale process in relation to the assets of the companies. The second extension application was heard on 23 and 24 April 2002. On 24 April 2002, I reserved my decision on the application and ordered that, pending the determination of the application, the time by which the companies could execute the deeds of company arrangement was extended to three days after the determination of the application. On 29 April 2002, I dismissed the application with the result that the time by which the companies could execute the deeds of company arrangement was extended to, and including, 2 May 2002. The circumstances and relevant matters in respect of those extension applications are set out in Mentha, in the matter of Ansett Australia Limited v Sydney Airports Corporation Limited [2002] FCA 530. 23 On 17 April 2002, Mr Mark Korda, one of the administrators, and the Chief Executive Officer of SACL agreed to enter into a status quo agreement for seven days to enable the administrators' solicitors to draft a selling protocol which would prescribe the period of time in which the administrators would offer Ansett Australia Limited's interests in the lease of the Sydney Terminal for sale and a period of time within which interested parties could respond to that proposal so as to enable the sale of the lease of the Sydney Terminal to be concluded by 24 May 2002. 24 On the same day, 17 April 2002, Qantas Airways Ltd ("Qantas") made an indicative offer to acquire Ansett Australia Limited's interest in the lease of the Sydney Terminal. 25 On 19 April 2002, Mr Korda wrote a letter to each of the fifteen parties who had expressed an interest in acquiring the interests of the companies in the domestic terminal leases. The letter was in the following terms: "I refer to your expression of interest in Ansett's domestic terminal leases (DTLs). As you may be aware, the Ansett Administrators have been in discussions with Sydney Airport Corporation Limited (SACL) and the Commonwealth Government with the objective of clearing the way for an efficient and orderly sale of Ansett's Sydney DTL. I am pleased to advise that an in‑principle agreement has been reached with SACL which may enable the Ansett Sydney DTL sale process to proceed consistent with these objectives. As it is the Administrators' intention to offer for sale the Sydney, Melbourne, Brisbane, Adelaide and Perth DTL's either individually or as a package, the agreement in-principle with SACL and the Commonwealth will also facilitate the broader DTL sale process. The in-principle agreement with SACL is for a transparent, timely and equitable sale process. In this context, we have agreed the following sale timetable: Milestone Date Tender close date 6 May 2002 Clarification of tenders 7 May 2002 Announcement of preferred buyer 8 May 2002 Completion date 17 May 2002 (or 24 May 2002 if a staged completion is required)

Whilst the timetable is tight, given the high level of understanding of both the Australian aviation market and Sydney Airport which already exists amongst most participants in the sale process, the Administrators are of the view that a concise sale timetable is reasonable and appropriate. SACL supports the sale process. This should encourage participants to proceed with a greater degree of confidence. The timetable set out above will apply to the sale process for all 5 major capital city DTLs. We will forward to you shortly the following documents: 1. A Bid Conditions Document which sets out the terms and conditions of participation in the sale process. The terms and conditions contained in the Bid Conditions Document are relevant to SACL's agreement to the sale process and will not be negotiable; and 2. A pro forma Sale of Assets Agreement; 3. A pro forma Deed of Assignment of the DTL's; 4. A pro forma Deed of Surrender of the leases. Airport owners may prefer this conveyance mechanism to a Deed of Assignment. To the extent a bidder would prefer to acquire the DTL's and associated assets via a purchase of the shares in Ansett Australia Limited (Administrators Appointed), the relevant DTL's may be isolated in, and unrelated liabilities may be removed from, Ansett Australia Limited by using the draft Deed of Assignment of Assets and Deed Poll of Novation of Liabilities. These documents are available upon request. To the extent bidders have queries in relation to the pro forma documentation (other than the Bid Conditions) or wish to substantially depart from those documents, they are encouraged to raise these matters prior to the closing date for submission of tenders. This will be important in seeking to meet the timetable for completion of the sale process. Bidders are also advised that in addition to the Information Memorandum and Appendices, data rooms are also open in Sydney and in Melbourne. Access to the data rooms is available upon request. We look forward to your continuing participation in the sale process. Should you have any queries in relation to the process, please contact me on +614 142 62 530 or Berrick Wilson on +61 419 997 481." The conditions for bidding for the sale of the key assets of the Ansett group contemplated a sale process which would conclude by 24 May 2002. 26 An infrastructure institution also expressed an interest in acquiring Ansett Australia Limited's interest in the lease of the Sydney Terminal and a memorandum was then prepared by the administrators' solicitors setting out how it could acquire shares in Ansett Australia Limited and thereby take control of the lease of the Sydney Terminal without the consent of SACL. 27 The administrators led evidence in the second extension application from an experienced valuer who expressed the opinion that Ansett Australia Limited would obtain a greater return from the result of a competitive tender for the purchase of the lease of the Sydney terminal than from SACL exercising a right under the buy‑back provisions of the lease. 28 On 24 April 2002, the solicitor for the administrators sent a letter either by email or facsimile transmission to each of the fifteen parties who had expressed an interest in purchasing assets of the Ansett group informing them that if the administrators were unsuccessful in their application for a further extension of time within which to have the companies execute the deeds of company arrangement, they would consider selling the Ansett group's interest in the leases of the domestic terminals before 2 May 2002, being the last day on which the deeds of company arrangement could be executed by the companies. The letter was in the following terms: "As you know, the Administrators have expressed a preference to sell the domestic terminal lease assets ('DTL's') in an open and transparent sale process. As you also know, Sydney Airport Corporation Ltd ('SACL') and other DTL landlords assert that by signing a Deed of Company Arrangement ('DOCA') Ansett Australia Ltd ('AAL'), the tenant, will have breached the relevant lease. The Administrators deny this. The Administrators have been concerned that in order for them to sell the DTL's as part of an open and transparent process, it is preferable to obtain appropriate court relief so as to avoid any arguments about whether or not AAL's interests in the DTL's may have been terminated by the Administrators signing the DOCA. In Federal Court Application No. 3605 of 2002 ('Second Extension Application'), the Administrators have sought an extension of the time to sign the DOCA's until 31 May 2002 with the intent that the sale process may be completed within that timeframe. This is the Administrators' preference. The Second Extension Application was commenced to protect the status quo to allow for an orderly sale process. SACL and Brisbane International Airport Pty Ltd opposed the further extension. On 24 April 2002 Justice Goldberg indicated that he presently intends to deliver his judgment next Monday, 29 April 2002. However, in the meantime, he ordered that the time in which the Administrators must execute the DOCA's be extended to three (3) days after his determination. It is possible that the Court may not provide any further extension beyond next Wednesday, 1 May 2002. If the Court does not provide a further extension and some agreement cannot be reached with SACL and the other DTL lessors, the Administrators may be prepared to sell one or more of Ansett's interests in the DTL's on a pre-emptive basis, that is prior to the process previously announced. The purpose of this letter is to give you notice of these issues. The Administrators will notify you of the outcome of the hearing before Justice Goldberg when he delivers his judgment. The judgement and other Court documents relating to the Second Extension Application can also be obtained from the Ansett website namely, www.abl.com.au/administrator under the heading 'Further Extension of Time for Execution of DOCA'. The Administrators will be happy to discuss this matter further should you wish to do so. Please contact Mark Korda, Quentin Law or Berrick Wilson at Ansett." 29 On 29 April 2002, I delivered reasons for judgment in the second extension application and dismissed that application. Immediately after the dismissal of the application the administrators, their solicitors and other persons assisting them in the administration notified nine of the fifteen parties, who had expressed an interest in acquiring the interests of the Ansett group in the domestic terminal leases, of the dismissal of the application and that the administrators may elect to sell the leases of the domestic terminals prior to the companies executing the deeds of company arrangement. These nine parties were also told that if they wished to make a bid for any of these assets, they should do so by no later than midnight on 1 May 2002. Six of the fifteen interested parties were not so informed as by 29 April 2002 they had either indicated to the administrators or the persons assisting them that they were no longer interested in acquiring the interests of the companies in the domestic terminal leases, or they had failed to express any continuing interest in acquiring those interests. All fifteen of those parties were given notice of this proceeding and the principal supporting affidavit, but none of them appeared at the hearing. 30 On 30 April 2002, Qantas announced that as a result of the indication from the Australian Competition and Consumer Commission ("the ACCC") that it would oppose Qantas acquiring the interest of Ansett Australia Limited in the lease of the Sydney Terminal, it no longer intended to make an offer to acquire that interest. The ACCC informed the administrators' solicitors that it would oppose any transaction whereby Qantas acquired that interest. 31 At about midnight on 1 May 2002, the administrators received a draft offer from SACL for Ansett Australia Limited, inter alia, to surrender its interest in the lease of the Sydney Terminal. The offer did not contain the amount which SACL was prepared to pay for such surrender. Prior to midnight on 1 May 2002, the administrators had also received offers from other prospective purchasers for the purchase of various assets of the Ansett group including the leases of the domestic terminals. 32 Between midnight and 2.00am on 2 May 2002, the Chief Executive Officer of SACL and Mr Korda negotiated an agreement whereby, in general terms, Ansett Australia Limited surrendered its interest in the lease of the Sydney Terminal and in a Development Zone Agreement entered into between Ansett Australia Limited and SACL in consideration of a payment by SACL on 1 July 2002 of $192 million. It was a term of the agreement that SACL would release its claims against Ansett Australia Limited in respect of pre‑administration debt, that is to say that it would forgive any arrears of aeronautical charges or lease payments of about $4m and would waive the payment of rent and outgoings for the months of May, June and July 2002 which were of the order of between $3m and $4m. SACL also agreed that it would not seek to set‑off against the price agreed to be paid any damages it had suffered in respect of which it might have a claim against the Ansett group. The agreement was reduced to writing in the form of a letter from SACL to the administrators and was executed at about 5.00am on 2 May 2002. It is a term of the agreement that it is conditional on a court directing that the administrators may properly and justifiably execute and give effect to the agreement. 33 On 2 May 2002, subsequent to the execution of the agreement for the surrender of the lease of the Sydney Terminal, the companies executed the deeds of company arrangement. 34 A number of issues have arisen in relation to the sale of the interests of the Ansett group in the leases of the domestic terminals and, in particular, the lease of the Sydney terminal. It is the existence of these issues which have moved the administrators to seek the direction that they may properly and justifiably execute and give effect to the agreement. 35 On 26 April 2002, Mr Leon Zwier, the solicitor for the administrators, foreshadowed to Mr Henry Carr, the solicitor for the Commonwealth of Australia, the possibility of the sale of the lease of the Sydney Terminal being consummated in the three days following 29 April 2002. Mr Carr told Mr Zwier that the Commonwealth had serious concerns about a sale process being concluded within a short three day time span. Mr Carr has since told Mr Zwier that the concerns of the Commonwealth related to the proceeds of the sale of the lease of the Sydney Terminal rather than the sale process itself. 36 On 25 April 2002, the solicitors for Virgin Blue wrote to the administrators complaining about their asset sale process and, in particular, referred to the letter from the administrators' solicitors sent on 24 April 2002 (referred to in par [28] above). On 1 May 2002, Aviation By Design Pty Ltd sent a letter by facsimile transmission to the administrators asking them to provide an itemised summary of the value of assets proposed to be sold, including the leases of the domestic terminals and the asking price. When a representative of Aviation By Design Pty Ltd was informed that the lease of the Sydney Terminal had been sold to SACL, he informed one of the persons assisting the administrators that Aviation By Design Pty Ltd may commence proceedings against the administrators to stop the sale to SACL because it did not regard the sale process as being appropriate. Both Virgin Blue and Aviation By Design Pty Ltd were given notice of this application, but neither of them has sought to be heard in relation to the direction sought from the Court. 37 During the hearing of the second extension application, counsel for SACL submitted that it was not appropriate for the administrators to sell the leases of the domestic terminals in the period between the holding of the adjourned second meeting of creditors of the companies on 27 March 2002 and the execution of the deeds of company arrangement. The submission was expressed in the following terms: "Secondly, the further effect of granting the relief sought would be to deny, or to deny substantially, the effect of the resolution (or resolutions) passed on 27 March 2002 that the companies enter into a deed of company arrangement. Where the deed takes as its principal focus the sale of assets (including the domestic terminal leases which represent the major assets) Ex MAK7 - clauses 3.1 and 12), and the administrators wish to avoid executing the deed until there has been a sale of the major assets, the application effectively negates the operation of s.439C and the right thereunder for the creditors to choose the destiny of the companies." SACL has informed the administrators' solicitor that it was not submitting that the administrators did not have the power to sell the leases of the domestic terminals. Rather, the submission appeared to be that it was inappropriate for the administrators to sell assets before the execution of deeds of company arrangement once the creditors had resolved that the companies execute deeds of company arrangement under which those assets were to be sold by the administrators as the deed administrators. 38 The administrators have expressed their concern that it is generally unusual to conduct a sale process of assets such as the lease of the Sydney Terminal over such a limited period of time. The administrators said that they elected to do so because of their perception of the serious consequences if a court subsequently determined that the execution of the deeds of company arrangement triggered the buy‑back provisions for the leases of the domestic terminals and the possible set‑off by SACL of $73 million by way of damages. 39 McDonald's Family Restaurants Pty Ltd ("McDonald's") and Travelex Australia Pty Limited which are sub‑tenants of Ansett Australia Limited at the Sydney Terminal had also raised issues in relation to the surrender of the lease of the Sydney Terminal, but those issues have now been resolved. 40 The administrators believe that their commercial decision to surrender the interest of Ansett Australia Limited in the lease of the Sydney Terminal to SACL was appropriate and, in a confidential submission, they have set out their commercial reasons for so doing. It is not necessary to consider that submission in any detail as it is sufficient for the Court's consideration that the administrators have made a commercial decision based on commercial grounds. Ordinarily a court will not revisit a commercial decision made by an administrator unless an issue arises as to the propriety of the decision: In the matter of Ansett Australia Limited and Korda [2002] FCA 90; Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 at 117; Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85. 41 However, the administrators have sought a direction from the Court that they may properly and justifiably enter into an agreement to sell the lease of the Sydney Terminal for the following reasons: (a) SACL had raised an issue as to whether the administrators ought to dispose of the lease of the Sydney Terminal prior to Ansett Australia Limited executing the deed of company arrangement; (b) it is the view of the administrators that the sale process should take place over a longer period of time and in a more structured manner; (c) it might be considered unusual if one of the prospective purchasers, SACL, should have attended at the administrators' premises on the evening that the bids were closed, although for the reasons set out in the confidential submission, they believe it was appropriate in the circumstances; (d) Aviation By Design Pty Ltd has threatened to commence proceedings in relation to the sale process; (e) Virgin Blue has complained about the timeliness of the sale process; (f) the Commonwealth of Australia has expressed concerns about the sale process. 42 Notice of this application has been given to the Australian Securities and Investments Commission, the ACCC, each of the fifteen interested parties, the members of the Committees of Creditors of the companies, Aviation By Design Pty Ltd, the solicitors for Virgin Blue, the Commonwealth of Australia, the solicitors for the Australian Council of Trade Unions and twelve unions who represent employees and former employees of the Ansett group, the solicitors for SACL, Canberra International Airport Pty Ltd, Brisbane International Airport and a number of lessors of aircraft, the solicitors for Melbourne Airport Corporation Pty Ltd and McDonald's. 43 I am satisfied that the circumstances leading up to the agreement entered into between the administrators and SACL early in the morning on 2 May 2002 warrant the Court giving a direction that the administrations may properly perform and give effect to that agreement. The justification for reaching this conclusion is not that the Court should give approval to, or sanction, the commercial decision reached by the administrators but, rather, that the propriety of the decision has been called into question or, at the least, has been publicly subjected to doubt and that other issues have arisen in relation to the process leading up to the decision made by the administrators. 44 The Court does not have express powers in Pt 5.3A of the Act to give a direction that administrators or deed administrators appointed and acting pursuant to Pt 5.3A of the Act may properly perform and give effect to an agreement entered into by them. Nevertheless, the power conferred upon the Court by s 447A of the Act enables the Court to make an order that the directions which the Court may give an administrator appointed pursuant to Pt 5.3A of the Act include a direction that the administrator may properly perform and give effect to an agreement, which is the subject matter of an application for directions: Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 at 279‑280; In the matter of Ansett Australia Limited and Mentha [2001] FCA 1439 at [82]. 45 A direction given to an administrator that the administrator may properly perform and give effect to an agreement is not a direction which approves the specific terms of the agreement, but is rather a direction which protects the administrator from any subsequent allegation of breach of duty in entering into and performing the agreement or any subsequent allegation that the administrator has not acted properly or reasonably in entering into or performing the agreement. The only caveat to this protection is that the administrator must have made full and fair disclosure to the Court: Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674; Mentha v GE Capital Ltd (1997) 145 ALR 565. 46 It is well accepted, and it was acknowledged by the administrators, that the Court should not give directions on an issue which is no more than whether or not the decision made by the administrators is a commercial decision: Sanderson v Classic Car Insurances Pty Ltd (supra); Re Spedley Securities Ltd (in liq) (supra); In the matter of Ansett Australia Limited and Korda (supra). However, where issues as to the propriety or reasonableness of the conduct undertaken, or the decision made, by an administrator is called in question, it is open to the Court to give a direction which, in substance, sanctions or approves the conduct undertaken, or decision made, by the administrator. In In the matter of Ansett Australia Limited and Korda (supra) I said at [65]: "This review of the authorities satisfies me that the prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the 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. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance. There must be some issue which arises in relation to the decision. A court should not give its imprimatur to a business decision simply to alleviate a liquidator's or administrator's unease. There must be an issue calling for the exercise of legal judgment." 47 In the present circumstances, issues have been raised as a matter of public record which bear upon the reasonableness and the propriety of the administrators entering into, and performing, the agreement made on 2 May 2002. The issue was specifically raised by counsel for SACL in the second extension application. Although SACL did not submit that the administrators did not have a power to sell the leases of the domestic terminals, I am satisfied that the submission made by counsel for SACL on the hearing of the second extension application was to the effect that it was inappropriate for the administrators to sell assets prior to the execution of a deed of company arrangement where there had been a resolution of the creditors of the company that the deed of company arrangement be executed, and where a principal objective or purpose of the deed was to enable the sale of the same assets. The decision made by the administrators was a commercial decision. However, the issue raised by SACL on the second extension application did not simply go to the commerciality of the decision but, rather, to its propriety. Although SACL is now obviously in favour of the implementation of the agreement, the issue of propriety still remains. 48 There is also the issue that the administrators had given evidence in the first extension application and the second extension application that in order to maximise the return to creditors, the process of the sale of the leases of the domestic terminals was one that should take place in an open competitive market environment over a period of time during which there would be an opportunity for all interested purchasers to submit bids. In the circumstances which occurred after the dismissal of the second extension application, the administrators took a commercial view that in order to avoid any argument arising as to the crystallisation of the buy‑back provisions in cl 8.10 of the lease of the Sydney Terminal, it was necessary to enter into a transaction disposing of Ansett Australia Limited's interest in the lease prior to the execution of the deed of company arrangement. 49 This was a commercial decision made by the administrators in order to maximise the return to creditors from the disposition of the leases of the Sydney Terminal. However, it exposed two issues which arguably give rise to doubts about the propriety of that course of conduct. One issue centred around the fact that fifteen potentially interested parties had been informed of a proposed tender process which involved the closing of tenders on 6 May 2002 and a completion date of the tender on or after 17 May 2002. The same parties were informed on 24 April 2002 that if the second extension application was refused, the administrators might be prepared to sell one or more of the interests of the Ansett group in the leases of the domestic terminals on a pre‑emptive basis prior to the process previously communicated to the parties. That situation occurred, but not before those parties who had expressed an interest in purchasing the leases of the domestic terminals, and who had continued to maintain an interest, had been told that if they wished to make a bid for any of the domestic terminal leases they should do so by no later than 1 May 2002. 50 That sequence of events gives rise to the question whether or not this was a proper course of conduct to undertake, having regard to the previously announced process. It might be said, for example, that the administrators had engaged in misleading and deceptive conduct by proposing an extended period for the tender process and then cutting it short, albeit on notice to all interested parties. It is not necessary to make a final determination on this issue, but I note that the administrators had expressed the view that the sale process should take place over a longer period of time and in a more structured manner. In these circumstances, I consider it appropriate to give a direction, in substance, that notwithstanding this issue the administrators may properly perform and give effect to the agreement. I take into account the fact that all the fifteen interested parties who had been notified of the proposed tender process on 19 April 2002 have been given notice of this application and copies of the principal affidavit in support of the application, and that none of them has appeared at the hearing or made any submissions that the direction sought by the administrators should not be made. 51 The second issue which bears upon the propriety of the conduct undertaken by the administrators on 1 and 2 May 2002 is that the administrators have expressed the view that it might be considered unusual that, in circumstances where competitive bids have been sought for the purchase of an asset, one of the prospective purchasers, namely SACL attended at the administrators' premises on the evening that the bids were closed. I express no view on the propriety of this conduct, other than to note that it occurred in circumstances where the other fourteen interested parties had been put on notice that if they wanted to put in a bid, they should do so by midnight on 1 May 2002. In all the circumstances, it is appropriate to give a direction that, notwithstanding this issue, the administrators may properly perform and give effect to the agreement. Again, I take into account the fact that although put on notice of the application, the other fourteen interested parties have not sought to participate in the proceeding. 52 In deciding to make the direction which has been sought, I have taken into account the circumstance that Aviation By Design Pty Ltd has threatened to commence proceedings in relation to the sale process. The complaint by Virgin Blue did not bear upon the sale of the lease of the Sydney Terminal but, rather, bore upon the sale of other assets. That complaint has not given rise to any issue as to the propriety of the administrators in entering into, or seeking to perform and give effect to the agreement. Neither has the concern expressed by the Commonwealth of Australia which was subsequently clarified as relating to the disposition of the proceeds of sale rather than the process of sale itself. 53 I have not taken into account the claim by SACL that it had a claim for unliquidated damages against Ansett Australia Limited which it might be able to set off against any payment it was required to make to Ansett Australia Limited under the buy‑back provisions of cl 8.10 of the lease. That claim has been compromised and disposed of by the terms of the agreement, but it did not involve Ansett Australia Limited or the administrators abandoning any claim which they had for unliquidated damages. 54 Insofar as it might be thought that it is implicit in my reasons for directing that the administrators may properly perform and give effect to the agreement that there is approval for the commercial decision taken by the administrators, that is a necessary and inevitable consequence of a consideration of the propriety and reasonableness of the conduct of the administrators in entering into and seeking to perform and give effect to the agreement. As I observed in In the matter of Ansett Australia Limited and Korda (supra) at [66]: "From time to time, the Court is necessarily drawn into a consideration of commercial issues where there is a matter giving rise not only to the need to make a business or commercial decision, but also to issues of propriety, power, reasonableness of conduct, contested issues of legal principle or procedure or challenges to the decision made by the liquidator or administrator. Such a situation arose, for example in Re Codisco Pty Ltd [[1974] CLC ¶40‑126], Sanderson v Classic Car Insurances Pty Ltd (supra) and Re Addstone Pty Ltd (in liq) [(1997) 25 ACSR 357]." The feature which exists in the present proceeding which did not appear in that decision was the existence of issues as to the propriety and reasonableness of the conduct undertaken by the administrators. 55 It was for these reasons that I gave the direction on 14 May 2002 that the administrators may properly perform and give effect to the agreement. Although the administrators sought a direction in the terms that "they may properly and justifiably execute and give effect" to the agreement, I do not consider it appropriate in the circumstances to give a direction that they may execute the agreement when it has already been entered into. I am also not disposed to direct that they may "justifiably" enter into the agreement as the justification for doing so depends upon commercial considerations which are for the administrators to evaluate. I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg.

Associate: Dated: 20 May 2002 Counsel for the plaintiffs: S P Whelan QC & S Sharpley

Solicitor for the plaintiffs: Arnold Bloch Leibler

SCHEDULE A Ansett Australia Limited (ACN 004 209 410) 501 Swanston Street Pty Ltd (ACN 005 477 618) Airport Terminals Pty Ltd (ACN 053 976 444) Aldong Services Pty Limited (ACN 000 258 113) Ansett Aircraft Finance Limited (ACN 008 643 276) Ansett Australia Holdings Limited (ACN 004 216 291) Ansett Aviation Equipment Pty Ltd (ACN 008 559 733) Ansett Carts Pty Limited (ACN 055 181 215) Ansett Equipment Finance Limited (ACN 006 827 989) Ansett Finance Limited (ACN 006 555 166) Ansett Holdings Limited (ACN 065 117 535) Ansett International Limited (ACN 060 622 460) Ansett Australia and Air New Zealand Engineering Services Ltd (ACN 089 520 696) Bodas Pty Ltd (ACN 002 158 741) Brazson Pty Limited (ACN 055 259 008) Eastwest Airlines (Operations) Ltd (ACN 000 259 469) Eastwest Airlines Limited (ACN 000 063 972) Kendell Airlines (Aust) Pty Ltd (ACN 000 579 680) Morael Pty Ltd (ACN 003 286 440) Northern Airlines Limited (ACN 009 607 069) Northern Territory Aerial Work Pty Limited (ACN 009 611 321) Rock-it-Cargo (Aust) Pty Ltd (ACN 003 004 126) Anst Show Pty Ltd (formerly Show Group Pty Ltd) (ACN 002 968 989) South Centre Maintenance Pty Ltd (ACN 007 286 660) Spaca Pty Ltd (ACN 006 773 593) Traveland International (Aust) Pty Limited (ACN 000 275 936) Anst Travel International Pty Ltd (formerly Traveland International Pty Limited) (ACN 002 275 936) Traveland New Staff Pty Ltd (ACN 080 739 037) Anst Travel Pty Ltd (formerly Traveland Pty Limited) (ACN 000 240 746) Walgali Pty Ltd (ACN 005 258 921) Westintech Limited (ACN 009 084 039) Westintech Nominees Pty Ltd (ACN 009 302 158) Whitsunday Affairs Pty Ltd (ACN 009 694 553) Whitsunday Harbour Pty Limited (ACN 010 375 470) Wridgway Holdings Limited (ACN 004 449 085) Wridgways (Vic) Pty Ltd (ACN 004 153 413)

Strictly Private & Confidential BY HAND Mr M Mentha & Mr M Korda Administrators Ansett Australia Limited (Administrators Appointed) 501 Swanston Street Melbourne VIC 3001

Attention: Mr M Korda OFFER TO ACQUIRE ANSETT SYDNEY DOMESTIC TERMINAL SACL wishes to put in a proposal to accept a surrender by Ansett Australia Limited of the DTL at Sydney Airport and on termination of the DTL to acquire the Lessee's Facilities as defined in the DTL in accordance with clause 8.10 of the DTL (and all other existing equipment or items on the premises), and on the terms and conditions set out below. It is the express intention of the parties that this letter records and constitutes an immediately binding agreement between the parties notwithstanding that at the same time the parties contemplate that this letter will be engrossed in more perfectly drafted documentation which the parties will and hereby agree to execute.

1. Price * $192 million for the Assets. Apportionment to SACL benefit.
2. Assets to be acquired * The Assets will comprise: a) the Lessee's Facilities; b) Terminal plant end equipment on a walk in walk out basis; c) Surrender of the DTL/DTI/Development Zone Agreements, and Hangar 83/92 leases; d) Alliance Terminal documentation (ie: all intellectual property), and e) The Catering Building and Domestic Freight will be assigned to a purchaser nominated by the Administrator.
3. Contract Process The parties acknowledge that SACL may wish to carry out further due diligence prior to 14 May 2002 and the Administrators will use best endeavours to expedite and assist, however, this transaction is in no way subject to any due diligence condition.

Parties to negotiate in good faith on an exclusive basis with a view to executing formal surrender (effective on the settlement date) and ancillary contracts ("Contract") by 5.00pm on Wednesday, 15 May 2002 ("Contract Exchange Date").

Contract will provide for a Settlement Date of Monday, 1 July 2002.

Contract will attach a final agreed inventory list of plant and equipment and fixture and fittings, and will require inspection and verification 1 week prior to the Settlement Date.

On the Contract Exchange Date, SACL will pay a non‑refundable deposit calculated as 10% of the Price, exclusive of GST. The balance of the purchase price will be paid at settlement on 1 July 2002.

No interest is payable in relation to any of the consideration under the Contract. No rent or outgoings are payable by the Administrators for the months of May, June and July 2002 under the DTL/DTI Agreements.

Any Contract would include, amongst other things, the usual representations and warranties included in an administrator asset sale agreement, and appropriate releases as between SACL and the Administrators. 4. Assumptions SACL has based its Price on a number of key assumptions including: a) The plant and equipment as identified in a Plant and Equipment Register is entirely owned by Ansett in its integrated form free from encumbrances and any other interests. b) All of the Lessee's Facilities are owned by Ansett free from encumbrances and any other interests, with the exception of the Lease from Thorn in relation to the FIDS monitors; c) Ansett has all of the requisite rights to rectify any residual building defects through the benefit of the usual contractual warranties and the benefit of these warranties will be novated to SACL; d) Ansett has all of the requisite software licences required for operation of the Terminal and these licences will be novated to SACL; and e) Ansett has effectively terminated all leases with retail concessionaires within the Terminaland will absorb any claims from retail tenants of the Terminal. All existing Ansett ownedretail fit‑out will be included as part of the plant and equipment, fittings and fixturesinventory. SACL agrees to discuss in good faith arrangements with existing tenants. 5. Conditions The following are some key conditions underlying this offer: a) Ansett will use its best endeavors to assign to SACL or have novated in its favour the benefit of all warranties (express or implied) currently in favour of Ansett, including any warranties in relation to the most recent redevelopment of the Terminal; b) SACL/Ansett to unconditionally release the other from any and all existing or future claims including cost orders; c) Any licences authorisations or approvals necessary to conduct the terminal business held by Ansett must be available to SACL; and d) SACL makes no warranties or representations other than as contained in this letter. 7. Forbearance Until the Contract Exchange Date, SACL agrees to forebear from seeking to re‑enter the DTL premises under clause 8.1(c) of the DTL or to challenge the deed of company arrangement ('standstill agreement'). If the contract is not executed by 15 May 2002, SACL reserves its legal rights, including termination. If the contract is executed by 15 May 2002, SACL will agree to maintain the standstill agreement until the Settlement Date. Both parties will use their best endeavors to execute the contract as soon as possible. 8. SACL's intent SACL intends to purchase the Assets as a going concern on a walk‑in walk‑out basis. It is intended that formal documentation will be structured to maximise the benefit to both parties including in relation to, stamp duty, depreciation and GST issues and the Price reflects this approach. 9. General a) Each party will consult with each other in relation to media statements concerning the acquisition of the Terminal by SACL. Both parties agree to a half day embargo (until 2pm today, 2 May 2002) on any public/media announcement in order for SACL to brief its shareholder and affected Government agencies. b) There will be no public suggestion that either party has acted improperly in relation to this transaction and during the administration as a whole. c) This letter creates legally binding obligations on both parties. d) This agreement is conditional upon a Court directing that the Administrators may properly and justifiably execute and give effect to the contract and the Administrators will provide to SACL the form of the Application and any supporting affidavits relating to SACL at least 24 hours before filing. e) If there is any dispute between the parties regarding any suggested omission or uncertainty in the terms of this letter or if there is any dispute between the parties in the course of preparation of the more perfectly drafted documentation regarding the form or substance of such documentation, such dispute will be submitted to Tony Stuart and Mark Korda for mediation, and failing mediation by determination of a mutually agreed arbitrator.

Chief Executive Officer The terms are accepted on behalf of Ansett Australia Limited (Administrators Appointed) in accordance with clause 1.

……………………………………………….. Mark Korda Joint Administrator