Sev.en Gamma a.s. v IG Power Callide Pty Ltd

Federal Court of Australia|2024-07-23|Before: Ms J, Halley J, Derrington J

Pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (Corporations Act) and s 90- 15 of the Insolvency Practice Schedule (Corporations) (being Sch 2 to the Corporations Act), Pt 5.3A of the Corporations Act is to operate in relation to the Second to Fifth Plaintiffs such that to the extent that the First Plaintiffs would otherwise be personally liable, by reason of the operation of s 443A of the Corporations Act, for debts incurred which arise out of the following agreements: (a) the Services Agreement dated 8 April 2024 (as assigned) and any variation to the Services Agreement; (b) any future contracts entered into for the purpose of the Staged Return to Service and approved by the previous administrators, Richard Hughes and Grant Sparks, as that term is used in paragraph 8.a.ii. of the Orders of Justice Halley made on 25 May 2023 in QUD 155 of 2023; (c) any agreements entered into between 24 March 2023 and 27 June 2024 (inclusive) in relation to the Staged Return to Service: (i) any agreements entered into by the Second to Fifth Plaintiffs; (ii) any agreements that Richard Hughes and Grant Sparks caused the Second to Fifth Plaintiffs to enter into; or (iii) any agreements that Richard Hughes and Grant Sparks caused the Second to Fifth Plaintiffs to approve entry into by Callide Power Management Pty Ltd; (d) the Joint Venture Agreement dated 11 May 1998 (as amended) between Callide Energy Pty Limited, the Fifth Plaintiff and Callide Power Management Pty Ltd, including for cash calls issued under the Joint Venture Agreement by Callide Power Management Pty Ltd to the Fifth Plaintiff, the First Plaintiffs will not be personally liable for such debt to the extent that the First Plaintiffs incurred the debt on behalf of any of the Second to Fifth Plaintiffs, where that Plaintiff does not have sufficient available property with which to indemnify the First Plaintiffs in respect of the debt pursuant to s 443D of the Corporations Act.
Pursuant to ss 447A(1) and 443B(8) of the Corporations Act and s 90-15 of the Insolvency Practice Schedule (Corporations), Pt 5.3A of the Corporations Act is to commence operation in relation to the First Plaintiffs' personal liability under ss 443A(1) and 443B(2) of the Corporations Act from 26 July 2024, such that the First Plaintiffs are not personally liable for any debts or other amounts payable by the Second to Fifth Plaintiffs incurred with respect to: (a) the four leases (as varied) between CS Energy Ltd as lessor and Callide Energy Pty Ltd and the Fifth Plaintiff as lessee dated between 14 December 1999 and 1 November 2001 of the property on which the Callide C Power Station is situated on at 959 and 1092 Biloela Callide Road, Mount Murchinson, Queensland; and (b) any other property hired, leased, used or occupied, by any of the Second to Fifth Plaintiffs.

Introduction 1 This application is necessitated by the furthering evolution of the administration of the second to fifth plaintiffs, IG Energy Holdings (Australia) Pty Ltd (Administrators Appointed), IG Power Holdings Limited (Administrators Appointed), IG Power Marketing Pty Ltd (Administrators Appointed) and IG Power (Callide) Ltd (Administrators Appointed) (IGPC) (the Companies). In particular, it follows upon an order of this Court made on 27 June 2024 which appointed the first plaintiffs, Mr John Park and Mr Benjamin Campbell, as the administrators of the Companies. Prior to that appointment, Mr Park and Mr Campbell were the "special purpose administrators" of IGPC, whilst Mr Richard Hughes and Mr Grant Sparks were the "general purpose administrators" of each of the Companies. In these reasons, Mr Park and Mr Campbell will simply be referred to as "the administrators". 2 On taking control of the administrations of the Companies, the administrators have become concerned to protect themselves in relation to any potential liability which might attach to them in the carrying out of their functions. Therefore, by an originating process filed on 22 July 2024, they sought orders under s 443A of the Corporations Act 2001 (Cth) (Corporations Act) relieving them from any personal liability which might otherwise be imposed upon them, for debts incurred to the extent that IGPC, or any of the other Companies, do not have sufficient assets available to indemnify them in respect of any such liabilities. In particular, those orders are sought pursuant to ss 447A and 443B(8) of the Corporations Act as well as s 90-15 of the Insolvency Practice Schedule (Corporations) (being Sch 2 to the Corporations Act) (IPS). 3 Applications of this nature are by no means unusual. Indeed, the erstwhile administrators were themselves the beneficiaries of similar orders made by Halley J on 25 May 2023: see Sparks, in the matter of IG Energy Holdings (Australia) Pty Ltd [2023] FCA 538. 4 There are four categories of agreements in respect of which the administrators seek to limit their liability. They are: (a) the services agreement entered into by the general purpose administrators, Genuity Services Pty Ltd (Genuity) and the Companies for the provision of essential operating services to IGPC, including administration services, accounting, IT, trading services for the sale of electricity and the like (the Services Agreement); (b) any contracts which were, or might have been, entered into by the general purpose administrators between 24 March 2023 and 27 June 2024 relating to the staged return to service of the Callide Power Station and the Rebuild Contract between Callide Power Management Pty Ltd (CPM) (the manager under the Joint Venture Agreement referred to below) and a third party contractor. Any of those would be substantial contracts concerning the rebuilding of the power units at the Callide Power Station. These agreements can be referred to generally as the "Staged Return to Service Agreements"; (c) the Joint Venture Agreement dated 11 May 1998 between IGPC, Callide Energy Pty Ltd (CEPL) and CPM. In particular, the administrators seek to limit their liability in respect of cash calls issued to IGPC by CPM as manager under the Joint Venture Agreement; and (d) four leases between CS Energy Ltd (CSEL) as lessor and CEPL and IGPC as lessees, dated between 14 December 1999 and 1 November 2001 - which relate to the property on which the Callide C Power Station operates - and any other agreements or debts relating to property leased, hired, used or occupied by the Companies. This category of agreements can be referred to as the "Property Agreements". 5 The administrators also seek certain ancillary orders to permit them to continue the administration without interruption following the replacement of the general purpose administrators. Before dealing with each of these matters, it is useful to set out some brief background to the present proceeding.

The administration 6 The history of the administration of the Companies is set out in an affidavit of Mr Campbell affirmed on 19 July 2024. There, he identified that the Companies were put into administration on 24 March 2023, on which date Mr Hughes and Mr Sparks of Deloitte Financial Advisory Pty Ltd were appointed as joint and several administrators. 7 Throughout 2023 and in the course of their appointment, Messrs Hughes and Sparks obtained orders relieving them from personal liability in respect of contracts which they approved the entry into or caused the Companies to enter into. 8 On 29 January 2024, Messrs Campbell and Park were appointed as special purpose administrators of IGPC. There is no need to detail here the circumstances of that appointment, which are set out in Sev.en Gamma a.s. v IG Power Callide Pty Ltd (Administrators Appointed) [2024] FCA 30. 9 On 27 June 2024, orders were made removing Messrs Hughes and Sparks as general purpose administrators of each of the Companies and appointing Messrs Campbell and Park in their stead. 10 It cannot be doubted that the administration of the Companies is a substantial undertaking. It involves numerous issues, not in the least because the Companies, in particular IGPC, held interests in pieces of vital infrastructure, being two power units at the Callide Power Station, which suffered significant failures that caused them to go offline. Those failures, in particular the failure of unit C4, have caused consequential problems, not only in the attempt to rebuild the power station, but also in ascertaining the liabilities of, and any claims against, those responsible for the failure of the power station. 11 Since the administrators assumed complete control of the administrations, they have undertaken numerous tasks to facilitate the transition of the administration from the general purpose administrators, including by arranging the transfer of funds from the general purpose administrators to themselves, gathering information regarding the status of the Companies, and engaging with the key stakeholders of the Companies. In that way, they have sought to preserve the Companies' assets while stabilising the Companies' business pending the power units being brought back online. On any view, the administration of IGPC and the associated companies is at a delicate stage. 12 The evidence indicates that the power units will be brought back online within a month or so, which will be a significant and substantial step in the future of the Companies, particularly IGPC. 13 The purpose of the orders sought by the administrators on this application is to alleviate the risk of personal liability which they may encounter in furthering the administrations. They seek the relief so that they are able to freely take steps to continue to trade the business of the Companies as a going concern, continue to investigate the viability of participating in a staged return to service of the power station, continue to progress their investigations, including investigating any claims that might be available in relation to the circumstances in which the power units failed, and to undertake a process by which IGPC and its related companies might return to operation via recapitalisation, or the sale of the business or part of it.

Liability of the administrators 14 Whilst the administrators are entitled to an indemnity for their conduct in the course of their administration under s 443D of the Corporations Act, they are concerned that, due to its complexity, the nature of the operations of the Companies, and the limited time which they have had since their appointment, they have been unable to determine the present value of the Companies' assets or estimate the debts that will become payable under existing agreements in respect of which they might be liable. If that uncertainty remains, they may be unable to pursue their tasks in a comprehensive or fulsome manner and, as the administration is at a delicate stage, they have quite rightly indicated that they will not be able to take steps to progress the Companies' business without first attempting to ascertain the extent of, or obtaining orders limiting, their personal liability. 15 Presently, IGPC has cash resources in a sum of approximately $50.2 million, which the administrators estimate will be expended by the end of August 2024. Although that is about the time when it is expected that there will be some staged return to service of the power units, they may nevertheless be left exposed to a personal liability. Indeed, the cash calls expected to be made pursuant to the Joint Venture Agreement in the future total an amount much higher than IGPC's present resources. 16 As to the other three companies' assets, the administrators understand that the second plaintiff, IG Energy Holdings (Australia) Pty Ltd, operated as a holding company and its primary source of income was through distributions from the third plaintiff, IG Power Holdings Limited. IG Power Holdings Limited also operated as a holding company and its primary source of income was any distributions from IGPC. The primary business of the fourth plaintiff, IG Power Marketing Pty Ltd, was entering into agreements to enable IGPC to hedge its share of the output of the power station. The administrators are in control of approximately $4.3 million in cash in the bank account of IG Power Marketing Pty Ltd. 17 Since their appointment, the administrators have determined that the general purpose administrators approved the entry into, or caused a relevant party to enter into, a number of contracts involving the Companies. 18 Due to the operation of the orders previously sought and obtained by the general purpose administrators in May and August 2023, they will not be personally responsible for any liabilities which arise out of those contracts to the extent that the relevant company does not have any assets to satisfy those debts. However, that freedom from liability does not extend to the current administrators upon their appointment because they were not parties to the previous orders, and they were not made in respect of them.

Applicable principles 19 Section 443A of the Corporations Act has the effect of imposing personal liability on administrators after their appointment for debts incurred by them or incurred by companies under their control in the course of the administration and in the exercise of their powers and functions as administrators in particular categories: Re Strawbridge (in their capacity as joint and several voluntary administrators of each of Virgin Australia Holdings Ltd (admins apptd)) (No 2) (2020) 144 ACSR 347, 386 [87], 397 [134] (Virgin Australia). The categories in which liabilities can be incurred include services rendered, goods bought, property hired, leased, used or occupied, including property consisting of goods that are subject to leases or which might give rise to a security interest under the Personal Property Securities Act 2009 (Cth), the repayment of money borrowed, interest in respect of money borrowed and borrowing costs. 20 Section 447A of the Corporations Act empowers the Court to make orders as it sees fit as to the way in which Pt 5.3A of the Corporations Act ought to operate in relation to a particular company. The broad powers given by that section can be used in a wide variety of contexts: Re Mentha (in their capacities as joint and several administrators of the Griffin Coal Mining Company Pty Ltd (admins apptd) (2010) 82 ACSR 142, 145 - 146 [27] - [29] (Griffin Coal Mining): and it is well established that the powers can be used to modify the operation of s 443A by excluding or limiting the personal liability of administrators ex post: Virgin Australia at 386 - 387 [89], citing Re Unlockd Ltd (administrators apptd) [2018] VSC 345. They can also be used to avoid future liability before it is imposed: Virgin Australia at 388 [91], citing Silvia v FEA Carbon Pty Ltd (2010) 185 FCR 301, 304 [14]. 21 In relation to an administrator's liability for payments for property used or occupied by, or in the possession of, a company in administration, s 443B imposes a five-day period for an administrator to form a view as to whether the company should, for example, continue to use or occupy the property. If the five-day period elapses without the administrator disowning the property, the administrator will assume personal liability for the use of the property, whether that be rent or payments for use or occupation: In the matter of Mothercare Australia Limited (administrators appointed) [2013] NSWSC 263 [2]. 22 In many administrations, the five-day period is sufficient. However, in more complex cases, such as where the corporate structure or the business is complex, as in this case, the five-day period is often far too short. In such cases, the Court is empowered under s 443B(8), even after the five-day period has expired, to extend the time for investigation under s 447A: Algeri (Administrator), in the matter of Murray & Roberts Pty Ltd (Administrators Appointed) [2022] FCA 1506 [66] (Murray & Roberts). A similar power exists in s 90-15 of the IPS, by which the Court can make any orders in relation to the administration of a company, including resolving any questions which arise in the course of an administration: Murray & Roberts [44], [63]. 23 There is no doubt that the developed rationale for the operation of these provisions is that administrators should not be expected to expose themselves to substantial personal liabilities in the performance of their statutory duties, and orders made relieving them of potential liability will permit them to conduct the commercial operations of the relevant company or companies uninfluenced by concern for their personal liability. 24 Necessarily, any orders made pursuant to s 447A of the Corporations Act or s 90-15 of the IPS must be in accordance with, and coherent with, the object of Pt 5.3A. That object is set out in s 435A. It contemplates that the purpose of Pt 5.3A is that the business, property and affairs of a company will be administered in a way which maximises the chances of the company or its business continuing in existence or, if that is not possible, in a way which results in the best return to the company's creditors and members than that which would result from an immediate winding up. 25 In that respect, and in summary, on an application for orders under s 447A to vary the liability of administrators under s 443A, the Court ought to consider whether: (a) the proposed arrangement is consistent with the object of Pt 5.3A of the Corporations Act and otherwise for the benefit of the company's creditors; (b) the company's creditors are not disadvantaged or prejudiced by the proposed arrangement and stand potentially to benefit from it; (c) the proposed arrangement will enable the company's business to continue to trade for the benefit of the company's creditors; and (d) notice has been given to those who may be affected by the proposed order. See Griffin Coal Mining at 146 [30], citing Re Great Southern Infrastructure Pty Ltd; Ex Parte Jones [2009] WASC 161 and Re Malanos [2007] NSWSC 865. 26 Each of the orders sought in the originating application are dealt with in turn below.

The Services Agreement 27 The first order, being that sought in paragraph 1(a) of the originating process, relates to the administrators' liability under the Services Agreement. As mentioned, that agreement was between the general purpose administrators, the Companies and Genuity. Under the Services Agreement, Genuity provides critical operation services to the business of the Companies. Necessarily, it is important that those services continue to be provided. The monthly amount payable by the Companies in respect of the Services Agreement has been estimated as being approximately $320,000. 28 The evidence shows that, on 5 July 2024, the administrators took an assignment of the Services Agreement to ensure that the Companies would continue to receive the services and would acquire the rights of the general purpose administrators under it. The term of the Services Agreement was varied to end on 26 July 2024 to provide the administrators with time to investigate and consider the arrangement with Genuity and to determine whether the agreement should be extended further. 29 The order sought in relation to the Services Agreement will relieve the administrators from personal liability under it and any future variations of it, to the extent that there is no available property of the Companies to satisfy any debts incurred. Critically, it will enable the administrators to extend the Services Agreement, should they consider it appropriate to do so, which will assist them to continue the businesses of IGPC and of the related companies. That is no doubt consistent with the objects of Pt 5.3A of the Corporations Act. 30 It is relevant to note that, in the Services Agreement, Genuity acknowledged the operation of the orders of Halley J in relation to the limitation of the general purpose administrators' liability, and the similar effect for the administrators in the assignment deed. It was also notified of the present application, and notably did not express any opposition to the orders sought. 31 In the circumstances, it is appropriate to make an order in the terms proposed in paragraph 1(a) of the originating process.

Future contracts 32 By paragraph 1(b) of the originating process, the administrators seek to limit their liability in respect of any contracts that may have been entered into by the general purpose administrators for the purpose of the staged return to service of the power station. This order replicates in substance the effect of the orders made by Halley J in relation to the general purpose administrators. The contracts dealt with there were referred to in paragraph 8(a)(ii) as "future contracts". 33 Presently, the administrators remain in the process of obtaining all relevant information in connection with the staged return to service and the status of the power station more generally. The purpose of this order is to relieve them of liability under any of these future contracts in circumstances where the general purpose administrators were not personally liable. It is not intended to apply to future contracts that the administrators may enter into for the rebuild of the power station because it is expected that such work will be completed by August 2024. 34 In broad terms, a question arises as to whether or not the new administrators would be liable for debts incurred under agreements entered into by the general purpose administrators, if they were to carry on those agreements. In this sense, the order sought is largely prophylactic in nature, there being a real question whether any liability would arise in the first place.

The Staged Return to Service Agreements 35 By paragraph 2 of the originating process, the administrators seek relief in relation to agreements entered into by the general purpose administrators from the time of their appointment in March 2023 until 27 June 2024, for the purpose of the staged return to service of the power station. In particular, the administrators have identified the Rebuild Contract dated 22 June 2023 between CPM and Industrial Water Cooling Australasia Pty Ltd, the construction work under which is expected to be completed in August 2024. 36 As mentioned, and as is explained in more detail below, CPM issues cash calls to IGPC under the Joint Venture Agreement for amounts payable, including for payment under the Rebuild Contract. In an affidavit relied upon by the administrators, Mr Campbell deposed that it was expected that the costs payable by IGPC to CPM in the next few weeks under the Rebuild Contract would be approximately $40.5 million. Again, the order sought in this respect replicates the effect of the orders made by Halley J on 25 May 2023. 37 It is appropriate to make the orders proposed in paragraphs 1(b) and 2 of the originating process. Without them, the administrators could not be expected to continue to pursue the staged return to service of the power station.

Cash calls under the Joint Venture Agreement 38 Paragraph 3 of the originating process concerns the cash calls issued by CPM to IGPC under the Joint Venture Agreement. 39 In his affidavit, Mr Campbell explained IGPC's financial obligations under the Joint Venture Agreement, particularly the making of the cash calls. Essentially, CPM issues IGPC with weekly cash calls based on a programme and budget which is revised on a six monthly basis. The calls are to cover amounts needed by CPM for operational purposes, including the rebuild of the power station. If IGPC fails to pay a called sum, a default occurs under the Joint Venture Agreement which gives rise to a debt owing to CPM. CPM is entitled to exercise its rights under a Joint Venture Deed of Cross Charge between it, IGPC and CEPL to any charged property consisting of money payable to IGPC in order to pay the called sum. CEPL may pay IGPC's cash calls, and any amounts paid become a debt due to CEPL and secured under the cross-charge. Interest also accrues on any unpaid called sums. 40 Based on cash flows and forecasts provided by the manager to date, it is anticipated that, over the next few months, IGPC will be liable for some $74.1 million in called sums. Necessarily, the simple math is that IGPC will not have sufficient funds to meet the cash calls after the funds it presently holds are exhausted. The consequence of this would be the potential liability of a substantial amount for the administrators. It is necessary for the purposes of allowing the administrators to continue to pursue the administration that their liability for such large amounts be avoided. The order sought in paragraph 3 of the originating process ought to be made.

The Property Agreements 41 The relief sought by paragraph 4 of the originating process relates to the leases for the land on which the power station operates and any other property that is used or occupied by the Companies. Presently, the administrators are continuing to investigate the status of those arrangements. The power station still operates on the leased premises and it appears from current investigations that the general purpose administrators were not paying rent to the lessor, CSEL, during their appointment. 42 The administrators seek orders to extend the five-day time period in s 443B(2) of the Corporations Act in relation to those leases. In particular, the orders sought are to the effect that ss 443A(1) and 443B(2) not commence operation in relation to the administrators' personal liability until 26 July 2024. That will afford them sufficient time to identify the assets which are necessary to preserve, enhance and maximise the value of the Companies' operations as part of any potential restructure of IGPC's business. 43 CSEL was notified of the present application, and did not indicate any opposition to it. In all the circumstances, it is appropriate to allow the administrators additional time to determine the best way forward in relation to those leases, which are essential to the continuing operation of the power station and the business of the Companies.

The convening of the meeting of creditors 44 The next orders sought are the ancillary orders relating to the issue of whether the administrators were required to convene a meeting of creditors under s 436E of the Corporations Act. Under that section, administrators of a company are required to convene a meeting of the company's creditors within eight business days after the administration begins in order to determine whether to appoint a committee of inspection and, if so, who is to be on the committee. In this respect, by paragraph 5 of the originating process, the administrators seek an order that they are justified in continuing the administration without interruption, including on the basis that their statutory obligations under s 436E have been complied with by reason of the general purpose administrators having convened a first meeting of creditors at the commencement of their appointment. 45 This order is sought to avoid uncertainty about whether the administrators were required to call a meeting of creditors upon taking over of the administrations of the Companies. Although there is some uncertainty, the weight of statutory construction likely favours the view that there is no need to call a second first meeting of creditors. There is, however, no need for that issue to be fully determined at this point. 46 It is sufficient to observe that there exists doubt that a requirement to call another meeting of creditors would be an unnecessary expense and distraction in the administration. As there has already been a first meeting of creditors, and as the administration has been inordinately complex to date, the most efficient and cost-effective way of proceeding would be to allow Pt 5.3A to operate so that there is no need for the administrators to call another first meeting of creditors, if that were required. 47 In the circumstances, it is appropriate that the Court make the order sought.

Disposition 48 It is in the best interests of the creditors to make the orders sought by the administrators. They will allow them to continue working to maximise the chances of the Companies continuing in existence or, if that is not possible, to achieve a better return for creditors and members than that which would be achieved in an immediate winding up. 49 Any person who can demonstrate a sufficient interest in the orders is entitled to apply to the Court to have them varied or discharged. The administrators are also required to take reasonable steps to give all parties who might be affected notice of the orders. 50 The plaintiffs' costs of the application should be treated as costs in the administration of each of the second to fifth plaintiffs, jointly and severally, and be paid out of the assets of those companies. 51 Confidentiality orders are sought in relation to some of the affidavit material relied upon in support of the present application. Necessarily, in the making of applications of this nature, administrators must disclose commercial-in-confidence information and other price-sensitive information. The preservation of confidentiality of such information is vital in the further conduct of the administrations and their resolutions in the best interest of the creditors. It is appropriate to make the confidentiality order sought in relation to exhibit BPC-2 to the affidavit of Mr Campbell affirmed on 19 July 2024. I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington.

SCHEDULE OF PARTIES QUD 403 of 2024 Plaintiffs Fourth Plaintiff: IG POWER MARKETING PTY LTD ACN 082 413 867 (ADMINISTRATORS APPOINTED) Fifth Plaintiff: IG POWER (CALLIDE) LTD ACN 082 413 885 (ADMINISTRATORS APPOINTED)

At a glance

Court

Decision date

Before

Source

Judgment (13 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (8)

Cited By (1)