- Shield Mercantile v Citigroup

The parties' submissions and the case law as to the s 444GA application

Turning now to the parties' submissions and the applicable case law. Mr Grace, who appears as I noted above for the company and the deed administrators, refers to the factual background of the application and the creditors' vote in favour of the DOCA proposed by the Ampac consortium at the second meeting of creditors, and also refers to the information provided to creditors in that respect to which I have referred above.
He notes that s 444GA of the Act provides that the deed administrators may transfer shares in a company, with the written consent of the owners of the shares, which has not been obtained, or with the leave of the Court. He rightly recognises that the Court can only give such leave if it is satisfied that the transfer would not unfairly prejudice the interests of members of the Company, and refers to case law concerning that provision, including Lewis, in the Matter of Diverse Barrel Solutions Pty Ltd (Subject to a Deed of Company Arrangement) [2014] FCA 53 and the subsequent decision of Brereton J in Re Statewide Office Furniture Pty Ltd [2018] NSWSC 1393. Mr Johnson also points out, rightly, that the case law as to these principles is consistent, both in decisions in this Court and in decisions in other courts dealing with corporations matters in Australia, and I summarised that case law in my decision in Ten Network Holdings Ltd [2017] NSWSC 1529 at [32]ff; (2017) 123 ACSR 253, I adopt that summary without repeating it for the purposes of this application.
On the face of it, and subject to the submissions put by Mr Shields, it is apparent that there is no value in the equity in the Company in a liquidation, and that a liquidation is the only alternative to the DOCA, given the Company's insolvency, its deficiency of assets, and the fact that it was in default in its loan owed to WBC, prior to being placed in voluntary administration. The question then arises as to whether the matters raised by Mr Shields in his written outline of submissions, and particularly the suggested value of the repatriation claims, displace that result.
Turning to those submissions, Mr Shields appears to accept that liquidation is the only alternative to the DOCA, but suggests that an "indefinite winding up" of the Company would promote the interests of Pt 5.3A of the Act because it would allow the realisation of assets of value, implicitly, the repatriation claims. The reference to an "indefinite winding up" appears to relate to a winding up which is stayed for an indefinite period, and I will point below to the difficulties with that proposition. A second difficulty with this submission is that, of course, a winding up, whether indefinite or otherwise, is an alternative to a voluntary administration or deed of company administration, and does not promote the interests of Pt 5.3A of the Act.
Mr Shields also refers to the relevant factual background, but relies on the evidence of Mr Beattie for his account of it, and that account cannot extend beyond the evidence of Mr Beattie to which I have referred above. Mr Shields refers to the fact that the Company sent invoices to four banks in respect of these claims, for the amount of no less than $93 million. As I have noted above, there is no evidence to support the basis of these claims led by Mr Shields, still less evidence to indicate that they have the enormous value which he attributes to them in submissions. Mr Shields indicates that the claims are based on law derived from a prior legal case, Shield Mercantile v Citigroup [2013] NSWSC 117. Mr Johnson points out that, unfortunately for that proposition, that case resulted in a modest recovery by the Company, less by many orders of magnitude than the amount now claimed, and no order for costs in favour of the Company. Mr Grace also points out that, obviously enough, the fact that a Company may once have a claim against one bank, recovering a modest amount, does not demonstrate that it has claims against four other banks, many years later, in respect of other transactions, in any amount, still less in an amount of $93 million.
Mr Shields in turn referred to references in the voluntary administrator's report to creditors, and their supplementary report to creditors, which he seeks to treat as endorsing the value of the claims. It seems to me that, as Mr Grace pointed out, they do not have that effect, where the then voluntary administrators had made clear that they had not been provided information to support the claims and were unable to assess them, but merely referred to the value which Mr Shields had attributed to the claims. That, of course, does not demonstrate that that value is well-founded.
Mr Shields in turn refers to the test adopted in Lewis, Re Diverse Barrel Solutions Pty Ltd above in respect of an order under s 444GA of the Act, and submits, by a somewhat complex submission, that there is value to be realised from the repatriation claims within a reasonable time in the future. That turns, in part, upon the proposal that the claims should be assigned to Mr Shields under the DOCA but that proposition has the difficulty that the claims will only be assigned to Mr Shields if the transfer which he opposes goes forward over his opposition. Second, after advancing various criticisms of the mechanism adopted under the DOCA, which it is not necessary for me to address, Mr Shields submits that the alternative course is for the Company to be placed in liquidation, and for the liquidation to then be stayed indefinitely. He submits that this would provide a significantly better outcome to creditors than an immediate winding up, and would retain shareholder value. That proposition, however, seems to me without substance. The Company is plainly insolvent, on the evidence that has been led by the deed administrators; and, where the Company is plainly insolvent, there is no prospect that the Company would, at once, be placed in liquidation because of its insolvency, and then that liquidation would permanently be stayed, or indefinitely stayed, so as to permit an insolvent company going about the business of pursuing the repatriation claims against the several banks. That, of course, is inconsistent with both the nature of a winding up and the circumstances in which a winding up may be stayed.
For these reasons, it seems to me that Mr Shields has not established, even taking his submissions on their face, that there is value in the equity of the Company in a liquidation, if the DOCA does not go forward. However, as Mr Grace rightly points out, those submissions are in any event undermined by the complete lack of any evidentiary support for the propositions advanced, and the lack of any identification of the legal basis of the repatriation claims against the banks, which is more significant where Mr Shields had the opportunity to, but did not, lead evidence to establish the value of the claims in the application.
For these reasons, I am satisfied that the order under s 444GA of the Act should be made.

Costs

The Plaintiffs seek, but I am presently not inclined to make, an order that Mr Shields pay the Plaintiffs' costs of the s 444GA application as agreed or as assessed. Subject to hearing from Mr Grace, I would not make such an order, where Mr Shields' participation in the application has ultimately involved little more than submitting a set of written submissions, and the deed administrators have led the evidence which they needed to lead, in order to establish the basis of the orders sought under s 444GA of the Act, which is no greater in circumstances had Mr Shields opposed the application than it would have been had he taken no role in respect of it.
Mr Grace sought to be heard in opposition to the tentative view that I had expressed that no order for costs should be made against Mr Shields in respect of the s 444GA application. He submitted that such an order should be made on the basis that Mr Shields had not consented to the acquisition of his shares, and in that respect had put the deed administrators to the costs of the proceedings. It seems to me that there are two difficulties with that proposition. The first is that Mr Grace does not refer to any previous example where costs orders have been made against a shareholder who have opposed such an application, and there appear to be at least some recent cases where such orders have not been made. The second, which may explain the first, is that Mr Grace's submission seems to me to neglect the fact that Mr Shields was not under any obligation to consent to the acquisition of his shares. It was no breach of duty by him to the deed administrators to say that he did not wish to have his shares acquired, and he was entitled to take that view, just as shareholders in some previous cases have taken that view. The legislature has addressed that question by providing a mechanism, under the Act, for a deed administrator to obtain the Court's approval for such an acquisition, and the deed administrators have properly invoked that mechanism. The fact that they have been required to do so, because Mr Shields would have preferred to retain his shares, does not seem to me to be a sufficient basis, irrespective of any aspect of the conduct of the proceedings, to support an order for costs against Mr Shields.
I am, however, satisfied that this application was properly brought by the deed administrators in the performance of their role and, for that reason, there should be an order that the Plaintiffs' costs of these proceedings be costs in the deed administration.

At a glance

Court

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Judgment (8 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (4)

Cited By (2)