REASONS FOR JUDGMENT
1 There are two applications before the Court brought by the administrators of Vision (Brisbane) Pty Limited (Vision Brisbane), and Vision Developer (Qld) Pty Limited (Vision Developer). On 15 January 2010, the first plaintiffs, John Greig, Simon Cathro and Christopher Campbell (the Administrators), were appointed joint and several administrators of Vision Brisbane and Vision Developer (the Vision Companies) pursuant to s 436A of the Corporations Act 2001 (Cth) (the Act). The Vision Companies are members of the Austcorp Group of companies (the Austcorp Group), which undertook a diversified property development and funds management business. The Austcorp Group is involved in property development projects in Victoria, New South Wales, and Queensland across the commercial residential retirement and industrial sectors.
2 On 6 May 2009, Messrs Brian Silvia and Martin Green were appointed as administrators of Austcorp Group Limited (AGL). AGL is a holding company for the Austcorp Group. On 16 October 2009, Messrs Christopher Palmer and Bryan Collis were appointed as administrators of Austcorp International Limited (AIL). AIL is the ultimate holding company of the Austcorp Group.
3 One of the projects that the Austcorp Group was undertaking was known as the Vision Project. The Vision Project was planned as a mixed-use building development in the central business district of Brisbane on the property known as 131 Mary Street, Brisbane. Austcorp incorporated ten companies for the purpose of conducting and carrying out the Vision Project. Those companies included the Vision Companies. Each of the ten companies was incorporated to carry out a specific aspect of the Vision Project. Vision Brisbane was incorporated to purchase and own the property that was to be developed. Vision Developer was incorporated to exercise the rights to develop the property in accordance with the development approval granted by Brisbane City Council. Vision Developer engaged Grocon Constructors (Qld) Pty Ltd as a building contractor to develop the property in accordance with the development approval. The only substantial asset of Vision Brisbane is the property, which is currently being maintained as an excavated site by Grocon.
4 The development approval included excavations to prepare foundations and build a seven level car park and to construct a 72 storey residential and commercial building. On 30 March 2007, an early works deed was entered into between Vision Brisbane and Grocon. That deed dealt with excavation on the property and the shoring up of the excavation. The shoring up process comprised building concrete walls and a floor in the excavated area and inserting rock anchors through the concrete walls into the surrounding rock.
5 The first rock anchor was put in place on or about 31 January 2008. The rock anchors have a design life of two years. The Administrators have requested from Grocon and their engineers the recommendations and costing in relation to either a monitoring program for the rock anchors or a replacement program. The Administrators intend to appoint independent engineers to provide a recommendation and review the builder's report on the rock anchors.
6 On 27 January 2010 the insurer of the property informed Vision Brisbane's insurance broker that the insurance policy of the property would be cancelled with effect from 4 pm on 31 January 2010. That decision was said in part to be because of the design life of the rock anchors expiring and no funded anchor replacement program being able to be implemented. Vision Brisbane does not have sufficient funds to commence a regime of replacing the rock anchors.
7 There are several fixed and floating charges registered over the assets of Vision Brisbane. The combined value secured by the charges is approximately $217 million, including some $116 million in contingent liabilities. The five chargees are BOS International (Securities) Pty Limited (BOSI), Austcorp Capital Limited, QBE Insurance (Australia) Limited, Merrill Lynch Asian Real Estate Opportunity Fund Pte Ltd, and Vision Capital Pty Limited. A subordination deed of 17 May 2008 gives priority to BOSI over the other parties who hold charges. In addition to the secured creditors, there are unsecured creditors to the value of approximately $51 million.
8 Vision Developer is trustee of the Vision Developer Unit Trust. On 18 June 2008 the trust purchased the rights attached to the development approval from Vision Brisbane for the sum of $137 million. At the date of the appointment of the Administrators, the trust had presold some 287 units in the development, having a total value of approximately $266 million. Deposits amounting to $24,200,000 have been collected in relation to those presales, either in cash or in bonds.
9 At the date of the appointment of the Administrators the only work that had been undertaken on the property pursuant to the development approval was the excavation, to which I have referred. No work has been undertaken since the appointment of the Administrators because there are no funds available to do so.
10 There is now a need for the Administrators to incur significant site maintenance and insurance costs for the property. Site maintenance costs include regular dewatering, regular monitoring and testing of the rock anchors, supervision of the site to ensure safety, engineering reports and reviews and project management. Insurance costs include public and products liability insurance, builder's insurance for site maintenance work and site insurance.
11 In addition to the costs related to the maintenance of the site, the Administrators wish to conduct a sale process for the property, which will incur additional costs for legal fees, data room costs, data collection and marketing and agency costs. Since their appointment, the Administrators have carried out a wide range of tasks, including investigating and ascertaining the financial position of each of the companies, dealing with the issues involving insurance and negotiating with Grocon.
12 Balance sheets for Vision Brisbane and Vision Developer show net assets of $16,700,000 and $10,200,000 respectively. However, those balance sheets include, as assets, loans to related parties and development rights. The Administrators have significant doubt as to the value attributed to assets. The Administrators consider that the cash and liquid assets of the Vision Companies are not sufficient to carry out the administration or to conduct the marketing and sales process that they wish to undertake. BOS International Australia Pty Ltd (BOSI Australia), which is related to BOSI, has offered to lend to the Administrators the sum of $2,500,000 to meet the costs of marketing and selling the property, together with legal fees, engineering fees and expenses, insurance and other costs relating to the administration of the Vision Companies.
13 The Administrators and BOSI Australia have entered into a loan agreement which provides, inter alia, that the loan is limited recourse against the assets of Vision Brisbane, that the Administrators have no liability under the loan agreement and that, notwithstanding the provisions of s 443E of the Act in addition to the existing statutory priority in favour of the Administrators, the Administrators' statutory indemnity under s 443D of the Act is to have priority over the debts of BOSI secured by the fixed and floating charge in favour of BOSI.
14 On 19 January 2010 the Administrators sent a circular to creditors of the Vision Companies in connection with the proposed first meeting of creditors to be held on 28 January 2010. On that day the first meetings of creditors were held and the creditors resolved that the meeting be held jointly. The creditors were informed of the possibility that the Administrators may approach the Court for an extension of the convening period before conducting the second meeting of creditors. At the first meeting the creditors were also informed of the intention of the Administrators to approach the Court to make an extension application for up to three months. No question was asked and no objection was raised by any of the creditors at the meetings.
15 There were four creditors of Vision Brisbane entitled to vote at the first meeting. Those creditors had combined debts representing approximately 42.6% of the total estimated debts. In addition, there were two creditors who attended by telephone as observers, having a total estimated debt of approximately 14.8% of the total debts. Those creditors were unable to participate in voting because they had not provided the necessary proxies. There were three creditors of Vision Developer entitled to vote at the first meeting, whose combined debts represented approximately 34% of the total estimated debts. In addition, there was another creditor who attended by telephone as an observer whose debt represented approximately 11.3% of the total debts. The reason for that observer not participating was also because a proxy had not been provided.
16 The minutes of the meetings show that all queries and concerns raised by the observers were addressed during the meeting, including, as I have said, reference to the proposal to make an application to the Court for an extension of the convening period. The question of the Administrators entering into the proposed loan agreement was also raised with creditors. No creditors asked any question or raised any objection to the proposal for the Administrators to enter into the loan agreement.
17 Section 439A(1) of the Act provides that the administrator of a company under administration must convene a meeting of the company's creditors within the convening period as fixed by section 439A(5) or extended under section 439A(6). The administrator must convene the meeting by giving written notice of the meeting to the creditors at least five business days before the meeting. The notice must be accompanied by a report of the administrator about the company's business, property affairs and financial circumstances and a statement setting out the administrator's opinion about each of the following matters:
(1) Whether it would be in the creditors' interests for the company to execute a deed of company arrangement.
(2) Whether it would in the creditors' interests for the administration to end.
(3) Whether it would be in the creditors' interests for the company to be wound up.
The statement must also set out the administrator's reasons for those opinions and such other information known to the administrator as will enable the creditors to make an informed decision about each of those matters. If a Deed of Company Arrangement is proposed, a statement must also be included setting out details of the proposed deed.
18 The convening period for the Vision Companies will expire on 15 February 2010 in accordance with the provisions of s 439A(5). However, under s 439A(6), the Court may extend the convening period on an application made during or after the period. This application was brought within the period.
19 Section 443A of the Act provides that the administrator of a company under administration is liable for debts that the administrator incurs in the performance or exercise or purported performance or exercise of any of the administrator's functions and powers as administrator for, inter alia, the repayment of money borrowed, interest in respect of money borrowed or borrowing costs. That provision has effect despite any agreement to the contrary, but without prejudice to the administrator's rights against the company or anyone else.
20 Under s 443D, the administrator of a company under administration is entitled to be indemnified out of the company's property for debts for which the administrator is liable under, inter alia, s 443A. Under s 443E, the right of the indemnity under s 443D has priority over all the company's unsecured debts, and subject to the further provisions of s 443E, over debts of the company secured by a floating charge. The provisions of ss 443E(2), 443E(3), and 443E(4) outline circumstances where the rights of a secured creditor under a floating charge may take priority over the right of indemnity of the administrator.
21 The two applications before the Court relate to an extension of the convening period and an order under s 447A varying the way in which the Part 5.3A of the Act is to operate in relation to the proposed loan agreement, and, in particular, in relation to the personal liability of the Administrators.
22 So far as the second matter is concerned, the loan agreement proposed to be entered into between the Administrators and BOSI Australia provides in clause 3.2(b) that a liability arising pursuant to, or in connection with, the agreement can only be enforced against the Administrators to the extent to which it can be satisfied out of the Administrators' right of indemnity pursuant to sections 443D, 443E and 443F of the Act (Administrators' Right of Indemnity) and to the extent that the Administrators are actually indemnified for those liabilities out of the Administrators' Right of Indemnity.
23 Clause 3.2(c) provides that the limitation of the liability of the Administrators pursuant to that clause applies despite any other provision of the agreement and any Transaction Document, as defined, and extends to all liabilities and obligations of the Administrators in connection with any representation, warranty, action, inaction, agreement, omission, conduct, or transaction in, from, or in relation to the agreement. The effect of clause 3.2 would be overridden by the operation of the s 443A(2), which, as I have said, provides that the personal liability provision has effect despite any agreement to the contrary. Clearly, the parties to the proposed loan agreement, which refers expressly to the provisions of the Act, consent to the making of an order and support the application to the Court for an order under s 447A, which provides that the Court may make such order as it thinks appropriate as to how Part 5.3A, which deals with voluntary administration, is to operate in relation to a particular company.
24 The Administrators consider that it is in the interest of the creditors of Vision Brisbane for it to enter into the proposed loan agreement since there is no cash or liquid asset that can be realised to fund the costs of holding the property and conducting a sales process. Further, given the usual issues affecting the property are unknown, including factors such as the life of the rock anchors, it may be that a purchaser will only offer to provide deferred payment consideration for the sale. There is therefore some uncertainty as to whether there will be cash to meet the costs of the voluntary administration. Furthermore, the Administrators are not prepared to undertake personal liability for the loan. Hence their negotiation of the agreement with the proposed lender that their liability be limited to the extent of their indemnity against the assets of the Vision Companies. In the circumstances, I consider that it is appropriate to make an order under s 447A that the liability of the Administrators in their capacities as joint and several administrators be limited in the way provided for in clause 3.2 of the proposed loan agreement.
25 As I have said, the major realisable assets of the Vision Companies are the property and the development approval. Since their appointment, the Administrators have taken steps to market the property with a view to selling it. They have formed the opinion that the best way to maximise the value of the assets and to maximise the returns of creditors is to sell the property and the development approval together. They have approached a number of prospective selling agents, each of whom has provided a proposal to market and sell the property.
26 The proposals reveal recommendations of a period to prepare information and market the property of between 11 and 18 weeks. The Administrators consider that 18 weeks is longer than is necessary, since much of the material has been prepared and is available for interested parties to inspect. They consider that the period should be approximately ten weeks from the week beginning 8 February 2010 in order to obtain the best return to creditors. That process would end on 16 April 2010. The Administrators have engaged joint selling agents to engage in a marketing campaign, both in Australia and in countries in the Asian region.
27 The Administrators have had preliminary discussions with parties who may be interested in purchasing the property. They understand that restructuring the Vision Companies is an option that may be commercially viable. It is unlikely that any creditor will achieve a recovery, other than the first secured and possibly the second secured creditor, which may receive partial recovery. However, the Administrators consider that it may be possible to achieve a return for other creditors with a deed of company arrangement where profits from the development are paid to creditors over time. If that is the case, the Administrators may need to consider a proposal for either of the Vision Companies to enter into a deed of company arrangement in the light of the provisions of deeds of company arrangement entered into by AGL.
28 On 23 December 2009 AGL entered into a deed of company arrangement which contemplates that a number of the subsidiaries of AGL may need to enter into deeds of company arrangement in order to maximise the interests of their respective creditors. Those companies include Vision Brisbane. The AGL deed of company arrangement and the structure of the Austcorp Group, to which I have briefly referred, add significantly to the complexity of the administration of the Vision Companies. The Administrators have not yet had the opportunity of giving full consideration to the impact of the AGL deed of company arrangement upon the administration of the Vision Companies and have not yet formed a final view as to how the conditions of the AGL deed of company arrangement may affect potential sales of the assets of the Vision Companies or any deed of company arrangement for those companies that may be proposed.
29 As I have already said, the Administrators are required to provide a report that contains sufficient information about the business property affairs and financial circumstances of the Vision Companies to enable creditors to be able to be as fully informed as possible about the matters on which the Administrators must express an opinion. Their opinion as to the appropriate future for the Vision Companies will be determined largely by the outcome of the marketing and sale process of the property. They consider that the sale of the property is likely to achieve a better price and a better return to creditors if it is sold by the Administrators as opposed to being sold by a liquidator. In their experience the assets of a company, when sold in liquidation, return significantly less than when sold in administration.
30 A prospective purchaser of the property will need to consider the potential benefits of a possible deed of company arrangement rather than a straight purchase of the property, in order to preserve tax losses and minimise transactional costs. The Administrators have therefore formed the view that an extension of the convening period for the second creditors' meeting of up to three months is in the interests of creditors. The regime contemplated by Part 5.3A contemplates a swift resolution of the questions that are to be put to the creditors. That is, whether the company should be wound up, whether it should be given back to the directors or whether it should be the subject of a deed of company arrangement. However, the regime proposed by Part 5.3A is flexible. It is designed to assist the creditors and in an appropriate case, such as this, although it should not be thought to occur as a matter of course, it is appropriate to extend the convening period.
31 I am satisfied, having regard to the matters to which I have referred, that it is appropriate to make an order extending the convening period for the period of three months proposed up to 15 May 2010.
I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.