Weaver and Others in their capacity as Joint and Several Deed Administrators of Midwest Vanadium Pty Ltd v Noble Resources Ltd

Some relevant background 3 OLERS has carried on business as a solar energy utility installer and provider to commercial businesses. Its directors are Mr Anders Marcus and Mr Alan Vippond. The issued share capital in OLERS is owned equally by Obton Solenergi, another company registered in Denmark, and OLE. 4 Mr Marcus and Mr Vippond are also the directors of OLE. OLE has two classes of shares. The single B class share is owned by Obton A/S. The ordinary A class shares are held in equal shares by Obton A/S and Lotus Energy Co-Operative Limited (Lotus). 5 On 24 October 2023 Obton A/S appointed the plaintiff as voluntary administrator of OLERS pursuant to section 436C of the Act. It did so on the basis that it was a secured creditor of OLERS and entitled to enforce a security interest in and over the whole of OLERS' assets and undertaking. 6 The then administrator's preliminary assessment of OLERS's solvency indicated that it had inadequate working capital from at least 30 June 2020, was unable to pay its debts as and when they fell due from at least December 2022, and was reliant on the financial support of Obton A/S to trade. That support was withdrawn in September 2023. 7 The then administrator assessed the realisable value of OLERS' assets at $978,000. This is substantially less than the total value of the assets recorded in the financial statements of OLERS, being approximately $12m as at 24 October 2023. The main reason for the difference between the book value of the assets and their realisable value is the following. 8 The primary asset of OLERS recorded in the books and records is plant and equipment valued at approximately $8.2 million. That plant and equipment comprises the capitalised costs of installed solar panel systems at customers' premises. The costs of removing the solar power systems installed at customer premises would exceed their realisable value. 9 Further, the then administrator's investigations revealed that OLERS had ordinary unsecured trade creditors totalling $65,875. Further, OLERS owed the sum of $11.2m to Obton A/S, secured by a charge over the property of OLERS registered on the Personal Property Security Register. Further, Obton A/S has an indirect interest in OLERS through its shareholding in OLE.

The deed proposal and subsequent DOCA 10 In late November 2023, Obton A/S proposed a deed of company arrangement for OLERS. The salient features of the DOCA proposal were that a Creditors' Trust would be established and that the Creditors' Trust fund would comprise the inventory, cash at bank, and receivables of OLERS as at the date of the DOCA, as well as a deed contribution by Obton A/S. 11 The deed contribution by Obton A/S would be the amount owing to unsecured creditors and the trading liabilities of the deed administrator, to the extent that there were insufficient funds from the cash at bank held by the deed administrator. 12 The purpose of the Creditors' Trust was to enable unsecured creditors to be paid out at 100 cents in the dollar. 13 In his second report to creditors on 21 November 2023, the then administrator expressed the opinion that it was in the interests of creditors to vote in favour of the DOCA proposal. His reasoning included the following matters. The return to unsecured creditors under the DOCA would be 100c in the dollar. But if OLERS was wound up, the return to unsecured creditors would be between nil and 5c in the dollar. Further, the return under the DOCA would be distributed more quickly than any return in a liquidation. Moreover, the DOCA would allow the business operations of OLERS to continue. 14 On 28 November 2023 the second meeting of creditors was held. The resolution to accept the DOCA proposal and to execute the DOCA was passed by a majority of creditors by both number and value. Three creditors including Obton A/S voted in favour of the DOCA proposal, two abstained, and none voted against the proposal. 15 On 5 December 2023 the DOCA and a Creditors' Trust Deed were executed. Completion of the DOCA is conditional upon the deed administrator obtaining leave to transfer the shares in OLERS held by OLE to Obton A/S or its nominee. 16 Now the deed administrator sought the consent of OLE to the transfer of its shares in OLERS to Obton A/S, but that consent was not provided. The directors of OLE were split on the question. Mr Marcus provided his consent, but Mr Vippond did not.

The position of Mr Vippond 17 Mr Vippond opposes this application on the basis that the DOCA "has been orchestrated by the majority shareholder, Obton A/S, a Danish entity to appropriate the shareholding in OLERS without consideration to minority shareholders". 18 Mr Vippond says that Obton A/S has "taken an equity contribution into the enterprise, [and] applied it as debt to approve a DOCA". He says that the reason for this is "not to restructure an insolvent enterprise as suggested, but to remove minority shareholders for the benefit of Obton A/S". 19 Mr Vippond sought an adjournment of the deed administrator's application in order to apply to set aside or terminate the DOCA. I refused the adjournment given his significant and unexplained delay and also the prejudice that would be caused if there was delay. 20 First, he has been aware of the proposal for the DOCA since late November 2023. Indeed he received the then administrator's report to creditors dated 21 November 2023 which discussed the proposal. Further, he attended the meeting of creditors on 28 November 2023 where the DOCA was agreed to, yet he said nothing of note in opposition to the then proposal. 21 Second, he has provided no sufficient excuse for delaying in applying to set aside or terminate the DOCA. 22 Third, if the DOCA was to be set aside or terminated, the likely result would be the liquidation of OLERS, which would not be of benefit to the unsecured creditors who in a liquidation would be likely to receive at most 5c in the dollar and more likely nothing. Contrastingly, with the DOCA in place and completion of the transactions contemplated, the unsecured creditors are to receive 100 cents in the dollar by way of return. 23 Fourth, Mr Vippond's assertion that if the DOCA was set aside there would be balance sheet solvency is spurious. Even on the best view of valuing the discounted value of the future cash flow streams under various contracts, there would still be a substantial deficiency. The secured debt is more than $11.2 million, yet the valuation of the future cash flow streams would at most be around $5 million. Now Mr Vippond sought to assert that some of the secured debt had been converted to equity. But this assertion had no substance to it. There are no contemporaneous documents supporting it, including relevant entries on the share register. Further, Mr Vippond was a director of OLERS, yet at no time has he sought to rectify OLERS' records to reflect his assertion. Moreover, at no stage has Mr Vippond ever sought to challenge the relevant proof of debt concerning Obton A/S. 24 Fifth, the adjournment sought by Mr Vippond was for an unspecified number of weeks. Yet if completion under the DOCA was not effected by 12 January 2024, then the DOCA would terminate with automatic liquidation (see clauses 6.1, 18.1, 18.2 and 18.4(a)). Completion requires the relevant transfer of shares in OLERS to occur from OLE to Obton A/S (clause 6.1(a)). 25 And if the DOCA was terminated that would substantially cause prejudice to the unsecured creditors. The Creditors' Trust would not proceed. Obton A/S would not make the relevant contribution to the Creditors' Trust. The unsecured creditors would be accordingly prejudiced. As I have said, instead of receiving 100 cents in the dollar they would likely get little or nothing in a liquidation. 26 Sixth, there is an air of unreality to Mr Vippond's position. He has never provided a report as to the activities and property of OLERS as requested by the notice given to him by the then administrator on 25 October 2023. He has never put forward a rival DOCA. Further, he has not offered any suggestions to deal with the parlous financial state of OLERS let alone a proposal for either re-capitalisation or debt funding. As I say, if the DOCA was set aside, liquidation would be the likely scenario which is disadvantageous to all. 27 For all of these reasons I refused the adjournment sought. Let me next turn to the standing question. 28 Mr Vippond asserts that he has standing as an "interested person" (see s 444GA(2)(c)) to oppose the application. But I must say that I have significant difficulty with this. 29 First, he says that he has standing as a director of OLE. But he does not control OLE and is not authorised to speak for it. He is one of two directors, the other being Mr Marcus who has consented to the deed administrator's application. Further, although he is associated with a shareholder of OLE, being Lotus, neither he nor Lotus has a controlling shareholding in OLE. The one B class share in OLE is held by Obton A/S. And as for the A class shares in OLE, they are divided equally between Lotus and Obton A/S as I have said. 30 Second, he has not asserted standing as a creditor of OLERS or, obviously, as a shareholder in OLERS. The only shareholders of OLERS are OLE (50%) and Obton Solenergi (50%). 31 Third, on any view his 25% indirect economic interest in OLERS through OLE and ultimately Lotus is remote. Now he says that if the transfer goes through, then his 25% economic interest will be worthless. But on the evidence, it is valueless now. OLE's shareholding in OLERS is valueless given that OLERS has negative net assets; and derivatively, Lotus' corresponding interest is valueless. But I appreciate that this is something that Mr Vippond still wants to debate. I should note that the deed administrator says that this is not relevant prejudice for the purposes of s 444GA in any event. But of course I am for the moment just dealing with a standing question. But on the merits of the s 444GA application, I agree that it is irrelevant prejudice. 32 In summary, I very much doubt that Mr Vippond has standing. But rather than rule upon this, it is more convenient to proceed by assuming that he does.

Analysis 33 A deed of company arrangement combined with a transfer of shares under section 444GA is a well-established vehicle for recapitalising an insolvent company. And the central consideration is whether a compulsory transfer of the shares would result in unfair prejudice to the members of the company as a whole in their capacity as members; see Weaver and Others in their capacity as Joint and Several Deed Administrators of Midwest Vanadium Pty Ltd v Noble Resources Ltd (2010) 41 WAR 301 at [73] to [74] per Martin CJ. 34 In Weaver, Martin CJ observed (at [79]) that: … If the shares have no value, if the company has no residual value to the members and if the members would be unlikely to receive any distribution in the event of a liquidation, and if liquidation is the only alternative to the transfer proposed, then it is difficult to see how members could in those circumstances suffer any prejudice, let alone prejudice that could be described as unfair. 35 The deed administrator bears the onus of demonstrating that the discretion to allow the share transfer should be exercised in favour of transfer. 36 In Lewis, in the matter of Diverse Barrel Solutions Pty Ltd (Subject to a Deed of Company Arrangement) [2014] FCA 53, White J said (at [19]): … Whether or not "unfair prejudice" will result from a transfer of the shares is to be determined having regard to all the circumstances of the case and to the policy of the legislation. Relevant matters would seem to include whether the shares have any residual value which may be lost to the existing shareholders if the leave is granted; whether there is a prospect of the shares obtaining some value within a reasonable time; the steps or measures necessary before the prospect of the shares attaining some value may be realised; and the attitude of the existing shareholders to providing the means by which the shares may obtain some value or by which the company may continue in existence. A relevant comparison will be between the position of the shareholders if the proposal does not proceed and their position if leave to transfer shares is granted. 37 The policy of the Act is embodied in s 435A and includes maximising the chances of the company, or so much as possible of its business, continuing in existence, and obtaining a better return for the company's creditors and members than would result from an immediate winding up. 38 The existence of prejudice to members as a result of a compulsory transfer largely turns on the identification of some residual value residing in the shares in the company. In the present case the evidence establishes that the shares in OLERS are worthless. Clearly there will be no unfair prejudice if the shares have no value, and there would be no distribution to members in the event of a liquidation, which is the only realistic alternative to the proposed transfer. 39 The liabilities of OLERS far exceed the realisable value of its assets. The liabilities also well exceed any value that could be obtained by selling the business as a going concern. 40 Further, OLERS was dependent upon the continued financial support of Obton A/S to trade as a going concern. That support is no longer offered absent the proposed recapitalisation of OLERS. 41 Moreover, there is no evidence of any alternative course of action open to OLERS that might result in a return to its members. No alternative has been proposed. The only realistic alternative to the completion of the DOCA is liquidation. And on the evidence, there is no prospect of any return to members in a liquidation scenario. 42 Bluntly put, the shareholders are out of the money. Accordingly, they can suffer no prejudice by reason of the compulsory transfer of shares contemplated by the DOCA. And given that there is no identifiable prejudice, questions of unfairness do not arise. But if it needs to be said, I agree with Mr Mitchell Grady, counsel for the deed administrator, that there is nothing inherently unfair about Obton A/S, upon whose support OLERS relies, conditioning its continued support of OLERS on its recapitalisation. 43 Further, the proposed transfer is consistent with the purpose and policy of the Act. The counterfactual is stark. If the shares are not transferred and OLERS is placed into liquidation, unsecured creditors will receive little to nothing. Under the DOCA, unsecured creditors will be paid in full. So, the DOCA results in an overwhelmingly better return for creditors and allows OLERS and its business to continue in existence, which furthers and facilitates the legislative objectives of the voluntary administration regime. 44 Finally, if it needs to be said, Mr Vippond's 25% economic interest argument and asserted prejudice thereto is an irrelevance. Section 444GA(3) makes it plain that the focus is on the shareholders in OLERS being OLE and Obton Solenergi, rather than Lotus. 45 Accordingly, I propose to give the deed administrator leave to transfer the shares held in OLERS by OLE to Obton A/S as contemplated by the DOCA. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Beach.