Tucker, in the matter of Quintis Leasing Pty Ltd [2023] FCA 1673

SCOTT BRADLEY KERSHAW IN HIS CAPACITY AS JOINT AND SEVERAL ADMINISTRATOR OF QUINTIS LEASING PTY LTD (ADMINISTRATORS APPOINTED) (ACN 080 978 721) Second Plaintiff

QUINTIS LEASING PTY LTD (ADMINISTRATORS APPOINTED) (ACN 080 978 721) Third Plaintiff

order made by: FEUTRILL J DATE OF ORDER: 22 DECEMBER 2023

1. Pursuant to s 447A(1) of the Corporations Act 2001 (Cth), Part 5.3A of the Act be modified insofar as it applies to the first and second plaintiffs (in their capacities as joint and several administrators of the third plaintiff) and the third plaintiff (as a company under administration) such that: (a) s 443B(2)(a) of the Act operates as if the expression 'that begins more than 5 business days after the administration began' were replaced with the expression 'that begins on 30 January 2024'; and (b) s 443B(3) of the Act operates as if the expression 'Within 5 business days after the beginning of the administration' were replaced with the expression 'By 30 January 2024'.
2. The plaintiffs must take all reasonable steps to cause notice of these orders to be given to each known creditor of the third plaintiff and each known owner or lessor and each known sub-lessee of property affected by paragraph 1 of these orders (collectively, affected persons) and the Australian Securities Investments Commission, within three (3) business days after the making of these orders, by: (a) notifying each affected person via email of the making of the orders and providing a link to a website where the affected person may download the orders, using the email address of each affected person at such email address as is recorded in the books and records of the third plaintiff; (b) where an email address is not recorded in the books and records of the third plaintiff but a postal address is recorded, notifying each such affected person in writing of the making of the orders and providing a link to a website where that affected person may download the orders, using the postal address for each such affected person recorded in the books and records of the third plaintiff; (c) placing a copy of the sealed orders on the website maintained by the first and second plaintiffs at https://www.kordamentha.com/creditors; and (d) sending a copy of the sealed orders to ASIC at its email address.
3. The plaintiffs and any person who can demonstrate a sufficient interest (including any affected person) have liberty to apply on two (2) business days' notice being given to the plaintiffs and the Court to modify or discharge paragraphs 1 and (or) 2 above.
4. The plaintiffs' costs of, or incidental to, this application be costs in the administration of the third plaintiff.
5. The matter be listed for a hearing on 30 January 2024 in respect of any further application by the plaintiffs for orders under sections 443B(8) and 447A(1) of the Act and (or) section 90-15 of Schedule 2 of the Act, Insolvency Practice Schedule (Corporations), or otherwise. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 On 20 December 2023 the first plaintiff (Mr Tucker) and second plaintiff (Mr Kershaw) were appointed joint and several administrators of Quintis Leasing Pty Ltd (which is the company the subject of the proceedings and the third plaintiff) by resolution of its sole director pursuant to s 436A of the Corporations Act 2001 (Cth). On the evening of their appointment, the administrators and the company lodged an originating process and requested an urgent hearing for orders to be made under s 447A(4)(c) and 443B(8) and s 90-15 of Schedule 2 - Insolvency Practice Schedule (Corporations) of the Act. The primary relief sought in the originating process would have the effect of modifying the manner in which s 443B(2) and s 443B(3) operate in relation to the administration of the company so as to delay the commencement of the period for which the administrators are personally liable for rent in respect of property the company uses, occupies or possesses to 30 January 2024 and also to extend the period for the administrators to give the owner or lessor notice that the company does not propose to exercise rights in relation to that property to 30 January 2024. 2 Quintis Leasing is a wholly owned subsidiary of Quintis (Australia) Pty Limited. Its ultimate holding company is Quintis HoldCo Pty Ltd. There are a number of other companies which are subsidiaries or related bodies corporate of Quintis Australia including Sandalwood Properties Limited (SPL), Quintis Forestry Pty Ltd and Quintis Sandalwood Pty Ltd. The Quintis Australia group has global operations involving the supply of sandalwood products. It has operations in Fuijian Province in China and Albany, Kununurra, Katherine and Burdekin in Australia. It has offices in China and Australia and business development teams in the United States, France, India, China, Japan and Australia. 3 SPL holds an Australian Financial Services Licence and is the responsible entity of a number of registered managed investment schemes. The managed investment schemes involve Indian sandalwood plantations, a wood processing facility and an oil distillery. Quintis Forestry is the project/forest manager for scheme and non-scheme plantations. Quintis Sandalwood is a purchaser of sandalwood from the schemes. 4 Quintis Leasing is the lessee of the land upon which sandalwood plantations have been established. The lessors of that land are SPL and unrelated third parties. Quintis Leasing, in turn, sub-leases the land to unrelated third-party growers. Quintis Leasing has no employees. 5 Although there was no direct evidence of the fact, it is evident that SPL made an application in the Supreme Court of Western Australia on 19 December 2023 in which it sought orders for the managed investment schemes to be wound up on the grounds that the schemes are not financially viable. That event appears to have been the catalyst for the director resolving to appoint the administrators to Quintis Leasing. Administrators have not been appointed to any other company in the Quintis Australia group of companies. 6 Having regard to the object of Part 5.3A of the Act, administrators are often required to act quickly to protect the interests of creditors and at times when the administrators have less than perfect information available to them. The circumstances of the administrators' application in these proceedings is such a case. Accordingly, I listed the application for hearing on an urgent basis on 22 December 2023 and made orders on that day. These are my reasons for those orders.

Materials 7 The administrators' application is supported by two affidavits of Mr Tucker affirmed on 20 December 2023 and an affidavit of Zachary Sharp affirmed 22 December 2023. The administrators read and relied upon those affidavits at the hearing of the application. The administrators also filed and relied upon a written outline of submissions in support of the application dated 20 December 2023. The administrators and the company appeared and made oral submissions on 22 December 2023. No other person appeared or sought leave to appear at the hearing.

Relevant facts 8 There are 11 managed investment schemes of which SPL is the responsible entity. All schemes operate in a similar manner as follows. (a) Quintis Leasing leases from SPL or a third-party land upon which it is entitled to plant, cultivate, harvest and sell sandalwood. (b) The land leased is divided into separate lots which are sub-leased to growers. (c) The sandalwood is harvested when the plantations reach maturity. (d) Growers may choose to take their proportionate share of sandalwood harvested, or pool their share with other growers' shares for sale through a process SPL manages as the responsible entity. (e) Growers have a proportionate interest in the scheme equivalent to the number of lots they have purchased. 9 The administrators have identified 14 head leases and six sub-leases. There are ten unrelated counterparties to the leases or sub-leases. 10 An example of a head lease with an unrelated third party and sub-lease over the land the subject of the head lease were exhibits to Mr Tucker's second affidavit. The head lease has an initial term of 16 years and an option to renew for a further 16 years. Amongst other things, under the terms of the head lease Quintis Leasing is obliged to pay the lessor rent and the lessor may terminate the lease for non-payment of rent, by notice, in certain circumstances. Further, if terminated, the sandalwood trees planted on the property will become the property of the lessor notwithstanding any sub-lease to a grower. Amongst other things, SPL guarantees performance of Quintis Leasing's obligations under the lease. The head lease is registered under the provisions of the Transfer of Land Act 1893 (WA). 11 The sub-lease is also registered under the Transfer of Land Act. It has a term of 15 years and 11 months. The sub-lease is styled 'lease and management agreement' and deals with management of the sandalwood plantation by SPL, as the responsible entity, in addition to a sub-lease of the land. Amongst other things, the grower is obliged to pay rent. However, the rent is payable to SPL and not Quintis Leasing, as sub-lessor. SPL, as responsible entity, is entitled to an annual management fee for the provision of certain services to the grower and SPL is also entitled to the rent. The growers have an option of electing to defer payment of the annual management fee and rent. If the grower elects to defer payment, then SPL becomes entitled to a fee calculated as a percentage of the gross proceeds of sale of sandalwood in the year of deferral. 12 As is evident from the provisions of the head lease and sub-lease, Quintis Leasing is obliged to pay the head lessor rent, but the sub-lessee is not obliged to pay rent to Quintis Leasing. Therefore, to meet its obligations under the head lease, Quintis Leasing must obtain funding or finance from some other source. Mr Tucker deposes that Quintis Leasing generates revenue from sub-leasing land to growers. If so, the terms of other head leases and sub-leases must be in materially different terms to the example head lease and sub-lease in evidence. However, assuming other head leases and sub-leases are in similar terms, it seems unlikely that Quintis Leasing generates any substantial revenue from sub-leases. 13 In keeping with the above observation, Mr Tucker deposes that the administrators have not been able to reach a determination as to the future status of the leases, including whether or not it is best to retain or give up the head leases. Mr Tucker deposes to a number of obstacles the administrators face attempting to make that determination within the five-business day period. These include: the number of leases; the number of counterparties to the leases; ongoing and significant liabilities associated with the head leases; the likely complexity of the administration and interaction between the company and other companies within the Quintis Australia group and SPL and the managed investment schemes; ongoing uncertainty as to the nature of the property the subject of the leases; the precise nature of the obligations associated with the leases; the use and value of the property the subject of the leases; and practical difficulties due to weather conditions that will prevent certain work being performed under the leases until the end of March 2024. Mr Tucker also deposes that the difficulties will be compounded by the Christmas and New Year period due to the unavailability of staff and likely unavailability of counterparties at that time of the year. Mr Tucker deposes that for these reasons the administrators formed the view that it was necessary to seek an extension as it will not be possible for them to make a decision as to whether it is necessary or desirable in the interests of preserving the company's operations to exercise rights in relation to the property the subject of the leases. He estimates that it will take until at least 30 January 2024 to do so. He also deposes that additional time is likely to promote the interests of the company's creditors, members and other interested parties. 14 Mr Tucker deposes that Quintis Leasing will become liable for rent under the head leases in the sum of approximately $1.2 million during the statutory period for the administrators to convene the second meeting of creditors. He deposes that the company has approximately $5,000 remaining cash at bank. The administrators are not willing to incur personal liability for rent in circumstances where the company cannot meet that liability out of cash or other liquid assets. Accordingly, in the absence of an extension of time, it is likely that the administrators would give notice under s 443B(3) stating that the company does not propose to exercise rights in relation to the property the subject of the head leases. While understandable, that may not be in the best interests of the company's creditors as a whole.

Notice to interested parties 15 Landowners who have leased their land to Quintis Leasing were given notice of the application to wind up the managed investment schemes on 19 December 2023. By letters dated 20 December 2023 the administrators gave SPL and other lessors notice of their appointment, that they intended to occupy the land the subject of the lease while they developed a plan for the future of the company, that they would be making an application to extend the period stipulated under s 443B and that they intended to request the Court to list that application for hearing on 22 December 2023. By circular to creditors dated 21 December 2023 SPL, other lessors and other known creditors were given notice that the originating process had been filed and of the hearing listed on 22 December 2023. The circular provided a link to the KordaMentha website where a copy of the originating process could be downloaded along with other information relevant to the administration of the company. On 21 December 2023 the administrators published a copy of the originating process on the KordaMentha website. 16 On 21 December 2023 the administrators provided notice of the originating process and hearing to Global Loan Agency Services Limited which is evidently a secured creditor of Quintis Leasing and other companies within the Quintis Australia group. Notice was also given to Clifford Chance who are understood to be the solicitors for certain noteholders of the Quintis Australia group (including Quintis Leasing). 17 On 20 December 2023 the Australian Securities and Investments Commission was given notice that the originating process had been filed. Otherwise, there is no evidence that ASIC was provided with notice of the hearing on 22 December 2023. 18 The responses the administrators received from lessors were not positive. Understandably, certain of the lessors expressed concern about the short period of time within which they had to consider and respond to the administrators' notice. At least six lessors positively expressed objection and opposition to an extension of the five-business day period to 30 January 2024. Otherwise, as at the time of the hearing, the administrators had not received responses from SPL or other lessors, Global Loan Agency Services, noteholders or ASIC. 19 On the whole, it may be inferred that many lessors are opposed to the application and would prefer that the administrators became personally liable for rent after the five-business day period ends. Further, due to the urgency of the application and time of the year, many interested parties would not have had sufficient time to consider their positions and attend and make submissions in support or in opposition to the administrators' application.

Applicable principles 20 In general, administrators of a company under administration are liable for the debts they incur in the performance or purported performance or exercise of any of their functions and powers as administrators for, amongst other things, property leased, used or occupied: s 443A(1). However, the administrators have a right of indemnity out of the company's property (subject to an exception that is not presently relevant) for such debts: s 443D(a). Subject to s 556 (priorities in a winding up), the right of indemnity under s 443D has priority over all the company's unsecured debts and certain PPSA security interests and debts secured by circulating securities interests. The administrators also have a statutory lien over the company's property to secure the right to the indemnity: s 443F. 21 Section 443B of the Act provides: 443B 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. … (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. … 22 Section 447A(1) of the Act confers power on the Court to make such orders as it thinks appropriate about how Pt 5.3A is to operate in relation to a particular company. The Court also has power to make such orders as it thinks fit in relation to the external administration of a company: s 90-15 IPSC. 23 It is well established that the power of the Court conferred under s 447A(1) extends to modifying the manner in which s 443D operates to order an indemnity where the statutory indemnity is insufficient or in doubt and the manner in which s 443A operates so as to limit an administrator's personal liability: Mentha, in the matter of Griffin Coal Mining Co Pty Ltd (administrators appointed) [2010] FCA 1469; (2010) 82 ACSR 142 at [28]-[29] (Gilmour J) (and the authorities there cited). See, also, Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717; (2020) 144 ACSR 347 at [87]-[91] (Middleton J) (and the authorities there cited). 24 The power conferred under s 447A(1) also extends to modifying the operation of s 443B(2) and s 443B(3) in an appropriate circumstance to extend the period limiting an administrator's liability for rent and for giving notice to a lessor: In the matter of Mothercare Australia Ltd (Administrators Appointed) [2013] NSWSC 263 at [6] (Black J). Additionally, the Court has power to excuse administrators from liability incurred for rent by operation of s 443B: s 443B(8). That power may be exercised after the five-business day period has expired: Strawbridge (Administrator), in the matter of CBCH Group Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 472 at [39] (Markovic J) (citing Silvia v FEA Carbon Pty Ltd [2010] FCA 515; (2010) 185 FCR 301 at [13]). 25 Orders are commonly sought to limit an administrator's liability under s 443A where a company borrows funds from an external financier to fund the ongoing trading of the business during the administration: Virgin Australia Holdings (No 2) at [90] (Middleton J) (citing Korda, in the matter of Ten Network Holdings Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2017] FCA 1144 at [42] (Markovic J)). Sloss J summarised the well-established principles that apply in cases of that nature in Re Unlocked Ltd (administrators appointed) [2018] VSC 345 at [60]-[64] and these need not be repeated. See, also, Virgin Australia Holdings (No 2) at [89]-[91] (Middelton J). Similar principles apply to an application for an order modifying the operation of Pt 5.3A to extend the period for which an administrator is not liable for rent under s 443B(2) and the period for giving a lessor notice under s 443B(3). Otherwise, I respectfully adopt the applicable principles and nature of the Court's power to extend the time stipulated in s 443B or to excuse an administrator from liability for rent as summarised by Markovic J in CBCH Group at [36]-[39]. 26 Specifically with respect to modification of s 443B, Black J observed in Mothercare Australia (at [2]-[3]) that s 443B(3) operates in a relatively straight-forward manner in circumstances in which the company occupies a single or small number of properties. The five-business day period assumes that the administrator will be in a position, by the exercise of appropriate diligence, to form a view as to whether the company should continue to occupy the premises and whether or not to assume personal liability for the rent of the premises within that period. However, there may be circumstances which prevent the administrator from being in a position to form a view within the specified time. There are many examples in the authorities where due to complexity or for some other good reason the period stipulated in s 443B was extended: by way of example only, see, Mothercare Australia (Black J); CBCH Group (Markovic J); Currie, in the matter of The Country Wellness Group [2018] FCA 1455 (Derrington J); Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) [2020] FCA 571 (Middleton J); Algeri (Administrator), in the matter of Murray & Roberts Pty Ltd (Administrators Appointed) [2022] FCA 1506 (Banks-Smith J). 27 A material consideration to be drawn from these authorities is whether modifying the operation of s 443B would be in the interests of creditors as a whole and otherwise consistent with the objects of Pt 5.3A of the Act (as set out in s 435A). Further, a relevant consideration is whether any potential prejudice to creditors or other interested parties can be accommodated by making provision for interested parties to apply for variation or dissolution of an order modifying the operation of s 443B.

Consideration 28 I accept the administrators' submissions and evidence to the effect that the five-business day period is insufficient, in the context of and circumstances of the administration of Quintis Leasing, for them, exercising appropriate diligence, to form a view as to whether the company should continue to use or occupy or be in possession of the property the subject of the leases. I am satisfied that coming to grips with the nature of Quintis Leasing's business, its interaction with managed investment schemes that are the subject of winding up applications and the responsible entity of those schemes, SPL, and the terms and legal effect of the leases and possibly other agreements between related parties in the Quintis Australia group through which the schemes were operated will not be straight-forward and will be complex, time consuming and likely to require significant legal advice. Undertaking work of that nature within five business days would be difficult at any time of the year, but that difficulty will be compounded by the Christmas and New Year holiday period. 29 I also accept that an extension would permit the administrators to assess the leases and company's business and make rational decisions about the continuing use or occupation or possession of the property the subject of the leases: The Country Wellness Group at [27] (Derrington J). I take into account that, in general, it is not to be expected that voluntary administrators should expose themselves to substantial personal liability: Re Unlocked at [62] (Sloss J) (and the authorities there cited). I also take into account that relieving the administrators of personal liability for a further period will permit them to make commercial decisions about the leases by focusing on what is in the best interests of creditors uninfluenced by concerns of personal liability: Re Unlocked at [62] (Sloss J, citing Secator, in the matter of Fletcher Jones and Staff Pty Ltd (administrators appointed) [2011] FCA 1493 (Gordon J)). 30 Ultimately, the material consideration on an application such as this is whether exercising the power to modify the operation of s 443B or excuse the administrators from liability is in the interests of the company's creditors: Re Unlocked at [63]-[64] (Sloss J) (and the authorities there cited). I am satisfied on the evidence that it is appropriate to exercise the Court's power under s 447A(1) of the Act to modify the manner in which s 443B(2) and s 443B(3) are to operate in relation to the administration of Quintis Leasing. On balance, such a modification is in the interests of the company's creditors. In this respect, I accept that it is appropriate that due weight should be given to the administrators' own view of what is in the interests of the creditors of a company under administration as a whole: Bumbak (Administrator), in the matter of Duro Felguera Australia Pty Limited (Aministrators Appointed) [2020] FCA 422 at [32] (Gleeson J) (and the authorities there cited); CBCH Group at [48] (Markovic J, citing In the matter of Renex Holdings (Dandenong) 1 Pty Ltd (administrators appointed) [2015] NSWSC 2002 at [9] (Black J)). 31 Notwithstanding that I accept the administrators' submissions and evidence of their inability to form the required view within five-business days, an extension to 30 January 2024 is a significant modification of the operation of s 443B. Mr Tucker's first affidavit foreshadows the possibility of a further application to modify the operation of s 443B. Although that application, if made, must be considered on its merits, given the extension already granted, I would expect good reason to be shown for a further extension and interested parties to be given reasonable and adequate notice of such an application before it is heard. 32 I have taken into account that a number of lessors have expressed disquiet and general opposition to this application and any extension of the five-business day period. Also, that interested parties had little notice and opportunity to appear and make submissions on the application. In substance, it was heard as an ex-parte application. Nonetheless, the understandable opposition expressed by lessors must be balanced against the interests of the creditors as a whole (including the lessors) and the object of Pt 5.3A. 33 To the extent that any lessor (or sub-lessee/grower) is adversely affected by modification of the operation of s 443B, the orders are framed in such a way as to permit any person with a sufficient interest (which would include lessors and sub-lessees/growers) to apply to the Court to vary or dissolve the orders. The ability of lessors to make such an application is a relevant consideration in the exercise of the Court's power under s 447A(1): e.g., The Country Wellness Group at [29]; Virgin Australia Holdings (No 1) at [51]. 34 It follows that I consider it appropriate to exercise the Court's power under s 447A(1) of the Act to modify the operation of s 443B so as to extend the time within which the administrators have to give notice to lessors to 30 January 2024 and that the administrators' personal liability for rent in that period should be excluded. It is unnecessary to exercise power under s 443B(8) of the Act or s 90-15 of the ISPC. There is ample power in s 447A(1) to make the requested orders. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Feutrill.