Silvia v FEA Carbon Pty Ltd

(delivered ex tempore, revised from the transcript)

A INTRODUCTION 1 This is an ex parte application which has come on urgently in my capacity as Duty Judge. 2 The application is brought by the first plaintiffs, Messrs Andrew Cummins, Stefan Dopking, Peter Krejci and Jonathon Keenan, who are the joint and several administrators (Administrators) of the second to eighth plaintiff companies (Companies). 3 In broad terms, the Administrators seek orders today pursuant to ss 443B(8) and 447A(1) of the Corporations Act 2001 (Cth) (Corporations Act) to extend the decision period in which the Administrators are not personally liable for rent or other amounts payable for property leased, used or occupied by any of the Companies until 25 January 2024. The extension is sought on an urgent basis because under s 443B(2), the decision period is set to expire today. 4 The proceeding was commenced by way of an originating application dated 3 January 2024 (originating process) and is supported by an affidavit sworn by Mr Keenan on the same date (Keenan Affidavit). 5 Before addressing the relief sought by the Administrators, it is useful to sketch some background to the proceeding and the circumstances giving rise to the application today.

B.1 The Companies 6 The second plaintiff (New Wilkie) operates the Wilkie Creek Coal Mine, a thermal coal mine in the Surat Basin in Queensland. As of December 2023, the mine employed over 140 staff and contractors. The third to seventh plaintiffs are entities related to the second plaintiff, being either holding entities, finance vehicles and/or special purpose vehicles. The eighth plaintiff (Corvus) operated a coal mine as part of the broader Wilkie group.

B.2 Appointment of Administrators 7 The Administrators were appointed as voluntary administrators of the Companies on 27 December 2023. 8 According to information provided to the Administrators by the Chief Executive Officer of New Wilkie, Mr Chris Coombes, the circumstances giving rise to the appointment of the Administrators were, in summary (Keenan Affidavit at [14]): (1) underperformance of coal handling and preparation plant onsite; (2) excessive coal handling costs; (3) inadequate transport and infrastructure; (4) suboptimal operational and financial management; and (5) financial pressures from trade creditors. 9 New Wilkie has been wholly funded by an international lending syndicate. On or about 22 December 2023, the lending syndicate withdrew its line of funding. The Administrators opine that the withdrawal of funding resulted in New Wilkie becoming insolvent, leading to the appointment of the Administrators. 10 The financial viability of the third to seventh plaintiffs is said to be wholly dependent and interconnected with the operation of the mine by New Wilkie, and, based on information available to date, the Administrators consider that Corvus is also likely insolvent (Keenan Affidavit at [17]).

B.3 PPSR Interests 11 According to searches undertaken by the Administrators, the Companies have approximately 240 PPSR security interests over the assets of six of the seven Companies' (Keenan Affidavit, Exhibit JK-1 (at 122-147)). The Administrators understand from discussions with key personnel that there are numerous concerns about the registrations which require resolution. 12 Four parties hold "all present and after-acquired property" (ALLPAP) security interests over the assets of New Wilkie, as follows: (1) Global Loan Agency Services Australia Specialist Activities (GLAS); (2) Javelin Global Commodities (UK) Ltd (Javelin); (3) Peabody Australia Mining Pty Limited (Peabody); and (4) Perpetual Royalty Syndicate Pty Limited (Perpetual) (collectively, Priority Lenders). 13 The Companies hold approximately 130 pieces of plant and equipment, most of which are owned by other entities and subject to lease payments. It is said that the Administrators have located and are reviewing several lease agreements relating to this plant and equipment but are not able provide a current list of all assets subject to leasing arrangements (Keenan Affidavit at [22]). 14 The Companies also hold, as issued by the Queensland Government: (1) seven Mining Leases; (2) two Mining Development Licences; and (3) two Exploration Permits (Coal) (collectively, Mining Tenements). 15 Presently, the Administrators are yet to determine what impact the Administration has on the liability to meet the rent under the Mining Tenements.

B.4 The Administration 16 Since the commencement of the administrations, I am told that the Administrators have done the following, among other things (Keenan Affidavit at [27]): (a) attended the Mine site and conducted an urgent assessment of the inventory (coal stockpiles) and other assets held on site; (b) met with key suppliers, operational partners and the main personnel to understand the position on site and more broadly; (c) assessed the financial position in as much detail as possible with the information available to us, noting that there are potential deficiencies in the books and records that still need to be investigated; (d) issued the first report to creditors, a copy of which is at pages 223 to 273 of Exhibit JK-1; (e) attempted to obtain copies of the security documentation from the Priority Lenders; (f) attempted to engage with the Priority Lenders in terms of funding (discussed further below); (g) engaged Gordon Brothers Group, professional valuers, to assess the value of all of the assets in the possession of, or otherwise known to belong to, the Companies at this point; (h) sent letters to all registered PPSR secured parties, to which minimal responses have been received, presumably because of the time of year. 17 The Administrators consider that it is premature to estimate with certainty the quantum of creditor claims as against the value of the assets held by the Companies, though, I am told, it may be in the region of $300 million across the Companies (including secured creditors) (Keenan Affidavit at [28]). 18 Further, based on preliminary calculations, it is estimated the mine will cost approximately $2 million to run per week of the administration. That estimate is said to be subject to several variables, which include (and are impacted by) whether it is necessary and appropriate to re-commence mining operations to preserve the value of the Companies. 19 In these circumstances, the Administrators seek to obtain a comprehensive administration facility funding agreement to meet the ongoing costs and expenses of the mine (which requires the written consent of the Priority Lenders and the Court's approval). 20 On 30 December 2023, a summary email containing trading projections prepared by the Administrators was issued (Keenan Affidavit, Exhibit JK-1 (at 274-277)), following which an indemnity was obtained from S B Invest NWE Pty Limited (indemnity). 21 The indemnity has enabled the Administrators to proceed with an initial period of trading to preserve the value of the Companies. I am told, however, that negotiations in respect of the proposed funding agreement are still en train due to key decision-makers being on leave (Keenan Affidavit at [34]-[35]). 22 The Administrators anticipate that such a funding agreement will be executed and approved by creditors and the Court within ten business days of the application before the Court today.

C THE APPLICATION 23 By the originating process, the Administrators seek the following orders: 1. An order pursuant to section 443B(8) and section 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to each of the Second to Eighth Plaintiffs as if: a. the personal liability of the First Plaintiffs (the Administrators) under sections 443A(1)(c) and 443B(2) of the Act begins on 25 January 2024 or such other date as the Court consider appropriate, such that the Administrators are not personally liable for any liability with respect to any property leased, used or occupied by any of the companies (including amounts payable pursuant to any leases entered into by any of the companies), from any lessors, in the period from 5 January 2024 to 24 January 2024 inclusive: and b. the words "within five business days after the beginning of the administration" in section 443B(3) of the Act instead read 'by 24 January 2024'. 2. An order that, within two business days of the orders being made, the Administrators are to take all reasonable steps to give notice of these orders to creditors of each of the Second to Eighth Plaintiffs (including persons claiming to be creditors) by means of a circular: a. to be published on the website maintained by the Administrators in respect of the administration of the Second Plaintiff; and b. to be sent by email or by post to all known creditors of the Second to Eighth Plaintiffs. 3. An order that the Plaintiffs' costs of and incidental to this application be costs in the administration of the Second to Eighth Plaintiffs. 4. Such further or other order as this honourable Court deems appropriate.

D THE RELEVANT LAW 24 It is necessary first to set out the relevant provisions. Section 443A of the Corporations Act provides: (1) The administrator of a company under administration is liable for debts he or she incurs, in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers as administrator, for: (a) services rendered; or (b) goods bought; or (c) property hired, leased, used or occupied, including property consisting of goods that is subject to a lease that gives rise to a PPSA security interest in the goods; or (d) the repayment of money borrowed; or (e) interest in respect of money borrowed; or (f) borrowing costs. (2) Subsection (1) has effect despite any agreement to the contrary, but without prejudice to the administrator's rights against the company or anyone else. 25 Section 443B provides: Payments for property used or occupied by, or in the possession of, the company Scope (1) This section applies if, under an agreement made before the administration of a company began, the company continues to use or occupy, or to be in possession of, property of which someone else is the owner or lessor, including property consisting of goods that is subject to a lease that gives rise to a PPSA security interest in the goods. General rule (2) Subject to this section, the administrator is liable for so much of the rent or other amounts payable by the company under the agreement as is attributable to a period: (a) that begins more than 5 business days after the administration began; and (b) throughout which: (i) the company continues to use or occupy, or to be in possession of, the property; and (ii) the administration continues. (3) Within 5 business days after the beginning of the administration, the administrator may give to the owner or lessor a notice that: (a) specifies the property; and (b) states that the company does not propose to exercise rights in relation to the property; and (c) if the administrator: (i) knows the location of the property; or (ii) could, by the exercise of reasonable diligence, know the location of the property; specifies the location of the property. (4) Despite subsection (2), the administrator is not liable for so much of the rent or other amounts payable by the company under the agreement as is attributable to a period during which a notice under subsection (3) is in force, but such a notice does not affect a liability of the company. (5) A notice under subsection (3) ceases to have effect if: (a) the administrator revokes it by writing given to the owner or lessor; or (b) the company exercises, or purports to exercise, a right in relation to the property. (6) For the purposes of subsection (5), the company does not exercise, or purport to exercise, a right in relation to the property merely because the company continues to occupy, or to be in possession of, the property, unless the company: (a) also uses the property; or (b) asserts a right, as against the owner or lessor, so to continue. Restrictions on general rule (7) Subsection (2) does not apply in relation to so much of a period as elapses after: (a) a receiver of the property is appointed; or (b) under an agreement or instrument under which a security interest in the property is created or arises: (i) the secured party appoints an agent to enter into possession, or to assume control, of the property; or (ii) the secured party takes possession, or assumes control, of the property; but this subsection does not affect a liability of the company. (8) Subsection (2) does not apply in so far as a court, by order, excuses the administrator from liability, but an order does not affect a liability of the company. (9) The administrator is not taken because of subsection (2): (a) to have adopted the agreement; or (b) to be liable under the agreement otherwise than as mentioned in subsection (2). 26 Section 447A(1) provides that: (1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company. 27 As Finkelstein J explained in Silvia v FEA Carbon Pty Ltd [2010] FCA 515; (2010) 185 FCR 301 (at 304 [10]), the rationale behind s 443B is clear. The administrator of a company under administration is the company's agent: s 437B. At common law, an agent would not be liable for rent due under a lease entered into by his principal, whether or not the rent fell due before or after his appointment, unless, by his conduct, the agent has adopted the lease. 28 This had been thought to be unacceptable in respect of property which the administrator used during the administration in circumstances where s 440C places a bar on an owner or lessor taking possession of his property without the administrator's consent or the Court's leave. Accordingly, if the administrator allows the company in administration to continue to use leased property for the purposes of the administration, it was thought only fair that the administrator be personally liable for the rent. 29 The administrator, however, is given a "period of grace" or decision period, namely five business days within which to investigate the company's affairs and decide whether or not he wishes to avoid liability to pay rent. If so, the administrator must give notice: s 443B(3). 30 As Finkelstein J noted in Silvia v FEA (at 304 [12]-[13]), often five business days will not be enough time in which to conduct the necessary investigation to decide whether the administrator thinks it is best to retain or give up possession of leased property. For this reason, subsection (8) allows the Court to excuse the liability imposed by s 443B to pay rent after the initial grace period. 31 The principles governing the Court's power to extend the notice period under s 443B(3) were conveniently summarised by Markovic J in Strawbridge (Administrator), in the matter of CBCH Group Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 472, where her Honour referred to Finkelstein J's observations in Silvia v FEA and noted (at [39]): Section 447A(1) of the Act also gives the Court ample power to alter the operation of s 443B(2) and (3) of the Act: see Re Mothercare Australia Ltd (admins apptd) [2013] NSWSC 263 at [6]. Alternatively, s 443B(8) gives the Court an additional power to alter the operation of s 443B(2) and (3): see Silvia v FEA Carbon Pty Ltd (admins apptd) (recs and mgrs apptd) (2010) 185 FCR 301; [2010] FCA 515 (Silvia v FEA) at [13]. The usual rationale behind the extension of the five business day period in s 443B(2) and (3) or the exercise of the power in s 443B(8) is because the administrator has had insufficient time to conduct the necessary investigations to decide whether he or she thinks it best to retain or give up possession of leased property … 32 As Beach J explained in Algeri, in the matter of WBHO Australia Pty Ltd (Administrators Appointed) [2022] FCA 169, it is well established that s 447A confers power on the Court to make orders limiting the administrators' liability. Section 447A has broad application where to make orders would serve the objects of Pt 5.3A. Further, in terms of the Court's discretion under s 443B(8), that discretion is wide, but it must be exercised judicially and having regard to the impact on creditors (see Wells Fargo Trust Co, National Association (as trustee) v VB Leaseco Pty Ltd (administrators appointed) [2020] FCA 1269 (at [169] per Middleton J)). 33 In that case, Beach J further observed (at [25]) that courts have granted extensions of the decision period which have been greater than or equal to the period sought by the Administrators here.

E CONSIDERATION 34 I am satisfied in the present case that the Administrators have not had sufficient time to conduct the investigations necessary to gain a proper understanding of the business and whether it is in the best interests of creditors for trading to continue. The extension proposed by the Administrators is consistent with the objects of Pt 5.3A, for the following reasons. 35 First, the extension will maximise the prospect of the Companies continuing in existence or generating a better return for creditors because it will facilitate the continuation of mining operations in the short term, thereby preserving the Companies' central asset as a going concern. 36 Secondly, the administration does not relate to a straightforward business. As noted above, there are numerous leasing arrangements, some of which may be controversial. Accordingly, the extension will enable the Administrators to identify with greater accuracy the precise nature and extent of the assets of the Companies and leasing obligations, which will enable a more informed assessment of whether it is appropriate for trading to continue. 37 Thirdly, if the extension is not granted, it would be necessary for the Administrators to consider immediately issuing s 443B(3) notices which, in the Administrators' view, may be detrimental to creditors and impede the prospects of effecting a successful sale or restructure of the business. 38 I should note finally that counsel for the Administrators, Mr Karam, contended that an additional order should be made to provide liberty to any creditors or interested persons (notably, ASIC) to apply to vary or discharge the orders or for any other purpose in connexion with the administration of the Company. 39 A similar order was made by Beach J in Algeri and by Davies J in McCallum, in the matter of TM Lewin Australia Pty Ltd (Administrators Appointed) [2020] FCA 992. Draft short minutes incorporating such an order were provided to my Chambers prior to the hearing and I am satisfied that an order in similar terms should be made.

F CONCLUSION 40 Accordingly, the Court will make orders broadly in the terms sought by the Administrators. I am grateful for the comprehensive and helpful submissions of counsel today, which made it possible to deliver these reasons expeditiously. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Lee.

SCHEDULE OF PARTIES NSD 4 of 2024 Plaintiffs Fourth Plaintiff: NWE COAL PTY LIMITED (ADMINISTRATORS APPOINTED) (ACN 664 827 016) Fifth Plaintiff: NWE FINANCE PTY LIMITED (ADMINISTRATORS APPOINTED) Sixth Plaintiff: NEW RENEWABLE ENERGY PTY LIMITED (ADMINISTRATORS APPOINTED) (ACN 164 937 633) Seventh Plaintiff: NEC NO. 2 PTY LIMITED (ADMINISTRATORS APPOINTED) (ACN 164 937 704) Eighth Plaintiff: CORVUS COAL PTY LIMITED (ADMINISTRATORS APPOINTED) (ACN 621 700 472)