Weaver & Ors in their capacity as joint and several deed administrators of Midwest Vanadium Pty Ltd v Noble Resources Ltd

The evidence in support of the application

1. I will first refer to the evidence in support of the application, then to the relevant legal principles and then to the submissions made by Mr Simpson, who appears on behalf of the administrators in the application. The application is primarily supported by an affidavit of one of the deed administrators, Mr Gleeson, dated 19 September 2017. Mr Gleeson refers to his and Mr Soire's appointment as joint and several administrators of Holdings as well as several other companies within the Elite Logistics Group.
2. Mr Gleeson's evidence is that the current shareholders of Holdings are Arrovest, which held 550 ordinary shares, and is the deed proponent; EWL, which held 1,008 ordinary shares, and, as I noted above, is the Defendant but has not appeared to oppose the application; and NA & JA Consulting Pty Limited which held 32 ordinary shares and has consented to the transfer of its shares to Arrovest. Mr Gleeson refers to, and I have been taken to, the administrators' report under s 439A of the Corporations Act to creditors in respect of Holdings, and I have also been taken to several administrators' reports in respect of other entities within the Elite Logistics Group, which in turn indicate the expected return from those companies on either liquidation or a deed of company arrangement.
3. Mr Gleeson in turn refers to the terms of a deed of company arrangement proposed by Arrovest, and subsequently executed with Arrovest, which provided for the establishment of a deed fund to which Arrovest would make a contribution of some $50,000 within seven days of execution of the deed of company arrangement; and which contemplated that the deed administrators were to transfer all of Holdings' shares to Arrovest or its nominee, with either the consent of shareholders or the Court's approval if necessary.
4. Mr Gleeson also sets out the history of the Elite Logistics Group and notes, inter alia, that Holdings acted as the ultimate holding company of the Elite Logistics Group and was the sole shareholder of each of several subsidiaries, and, at the time of the administrators' appointment, did not actively trade, had no bank accounts in its name and did not have any employees. It appears that any distribution to Holdings, in a liquidation or under a deed of company arrangement, is likely to depend upon the realisation of the value of shares in its subsidiaries, which could only arise if the creditors of those subsidiaries could be paid in full, such as then to permit a distribution of a surplus to Holdings as a shareholder. Mr Gleeson also refers to a meeting of creditors held on 4 May 2017 which resolved to execute a deed of company arrangement in respect of Holdings, and also in respect of several subsidiaries, and to the execution of the deed of company arrangement on 23 May 2017. Mr Gleeson also refers to correspondence with shareholders, and specifically EWL, by two of its directors, in respect of its attitude to the transfer of its shares to Arrovest. I will refer to that correspondence below.
5. Mr Gleeson refers to a report as to affairs provided by a director of Holdings which indicated that it had assets totalling $7,802 and liabilities totalling $169,176, but also refers to the fact that Holdings was owed an amount of $3,517,119 by another entity within the Elite Logistics Group, which is also now in administration or subject to a deed of company arrangement, and from which Holdings would receive a dividend of no more than two cents in the dollar, which would not result in a return to unsecured creditors on a liquidation. Mr Gleeson notes, consistent with the information contained in the s 439A report to creditors of Holdings, that the anticipated return to creditors in a liquidation of Holdings is between nil and two cents in the dollar and the anticipated return to creditors under the deed of company arrangement is marginally higher, between 0.3 and four cents in the dollar. Mr Gleeson expresses the view, consequential upon the figures to which he has referred, that shareholders of Holdings would not receive anything, on either a deed of company arrangement or a liquidation, which is the necessary consequence of the fact that claims of non-priority creditors will not be discharged in full.
6. As I noted above, I have been taken to the several s 439A reports to creditors for each of Holdings and several of its subsidiaries which in each case demonstrate that there will be a small return to creditors under a deed of company arrangement, and typically no return to creditors under a liquidation, such that distributions from those subsidiaries would not bring about any substantial return to Holdings, on either a deed of company arrangement or on a liquidation. I have also been taken to the minutes of the second meeting of creditors, held on 4 May 2017, which resolved to execute deeds of company arrangement in respect of each of Holdings and the several subsidiaries, and to the deed of company arrangement dated 23 May 2017 in respect of Holdings, which, as I noted above, contemplates a transfer of shares in Holdings to Arrovest as proponent of the deed of company arrangement.
7. I have also been taken to correspondence by which the deed administrators sought the consent of shareholders to the transfer of shares in Holdings to Arrovest. By email dated 20 June 2017, one of the directors of EWL, Mr Herrman, referred to the work and capital which shareholders had put into obtaining the shares, and indicated that shareholders would be happy to arrive at consideration agreeable to both parties as to the value of their shares. It is, of course, understandable that shareholders of a company in administration, or deed administration, which have devoted resources and work to that company, would prefer to sell their shares for value if it is possible to do so. However, that course is often not commercially practicable in circumstances in which s 444GA of the Corporations Act may apply, where those shares no longer have value.
8. By a further letter dated 28 June 2017, the deed administrators' solicitors drew EWL's attention to the relevant legal principles. By an email dated 1 July 2017, another director of EWL responded that, as it was the majority shareholder in the Elite Logistics Group, it may be best that Arrovest transferred its share to EWL and EWL take the companies back from the administrators. Plainly, that proposal had little regard to the fact that Arrovest, and not EWL, had contributed the funds to the deed of company arrangement which would facilitate an economic return to creditors on the implementation of the deed of company arrangement.

The applicable principles

1. I now turn to the relevant principles, which have been considered in several cases and to which Mr Simpson refers in submissions. I have referred to the scope of s 444GA of the Corporations Act above, and Mr Simpson refers, in submissions, to Weaver & Ors in their capacity as joint and several deed administrators of Midwest Vanadium Pty Ltd v Noble Resources Ltd [2010] WASC 182; (2010) 41 WAR 301; 79 ACSR 237 where Martin CJ noted the possibility that the transfer of shares, where a company was subject to a deed of company arrangement, may give rise to unfair prejudice to members if there was some residual equity in the company, and also referred to the meaning that had been given to the term "unfairly prejudicial" in the case law and observed (at [80]) that: "a mere transfer of shares without compensation cannot of itself constitute unfair prejudice, otherwise the section's operation would be significantly constrained. So, something more would have to be established before it could be said that unfair prejudice to the members of the company would arise."
2. Mr Simpson also refers to the consideration of the relevant principles in Lewis, in the matter of Diverse Barrel Solutions Pty Ltd (subject to a deed of company arrangement) [2014] FCA 53 at [19] and by me in Re Nexus Energy Ltd (subject to deed of company arrangement) [2014] NSWSC 1910; (2014) ACSR 246 at [21], which both adopt the approach taken in Weaver v Noble Resources Ltd above.
3. I have since reviewed the relevant principles again in Re Kupang Resources Ltd (subject to deed of company arrangement) (recs and mgrs apptd) [2016] NSWSC 1895, where I again adopted the observations of Martin CJ in Weaver v Noble Resources Ltd above. As I there noted, s 444GA of the Corporations Act was introduced by the Corporations Amendment (Insolvency) Act 2007 (Cth) and reflected a recommendation of the Legal Committee of the Companies and Securities Advisory Committee Report on Corporate Voluntary Administration (June 1998) that the law should grant deed administrators the ability to compulsorily transfer company shares where necessary for the purposes of implementing a deed of company arrangement under which payment of creditors' debts was dependent upon such a transfer occurring. I referred, as had Martin CJ in Weaver v Noble Resources Ltd above, to the Explanatory Memorandum, which contemplated that the question of residual value in the company would be significant in determining whether a sale would prejudice the interests of shareholders. I also referred to Weaver v Noble Resources Ltd above and the further decision of Digby J in Re BCD Resources (Operations) NL (subject to deed of company arrangement) [2014] VSC 259; (2014) 100 ACSR 450 at [55]-[57] and observed, by reference to those cases, that: "the case law seems to me to establish that there would not ordinarily be any prejudice, or no prejudice that has the requisite quality of 'unfairness', if the shares to be transferred have no value, and there would be no distribution in the event of a liquidation which is the only realistic alternative to the proposed transfer."

The Plaintiffs' submissions and determination

1. In this case, Mr Simpson submits that there is no unfair prejudice to EWL in the proposed transfer of shares because there is no suggestion that there is any alternative to a liquidation of Holdings other than the deed of company arrangement, which contemplates the transfer of those shares, and Holdings' creditors would achieve a worse result and Holdings' shareholders no better a result in liquidation than under the deed of company arrangement.
2. Mr Simpson points to several matters that are established by Mr Gleeson's evidence, and the s 439A reports to creditors of Holdings, namely that Holdings did not actively trade at the relevant time and each of the subsidiaries of Holdings has been placed in voluntary administration with insufficient assets to meet the claims of its creditors or to bring a return to Holdings as a shareholder in the subsidiaries; that the returns to Holdings, whether under a deed of company arrangement or under liquidation, and taking into account any distribution of the debt amount owed to it by another company within the Elite Logistics Group, would not be sufficient to discharge the claims of its non-priority creditors; and that, on any available alternatives, the shareholders of Holdings would not receive any value for their shares.
3. In these circumstances, it seems to me that the evidence establishes that the value of the shares in Holdings in a liquidation is nil, and there is no alternative to a liquidation that would allow any other basis of valuation to be adopted. Mr Simpson submits, and I accept, that there is therefore no prejudice, and a fortiori no unfair prejudice, to EWL in granting leave for transfer of the shares to Arrovest where, as I have noted above, the shares have no residual or other value. The absence of compensation to EWL does not in itself constitute prejudice, or unfair prejudice, where the shares have no value, and the grant of that leave will promote the interests of the deed administration, and more specifically, the interests of Holdings' creditors by increasing, albeit by a modest extent, the return which will be available to them in the administration.
4. For these reasons, I will make the order which is sought. I note, for completeness, that the Plaintiffs did not press an order for costs against EWL. The question whether such an order can be made against a dissenting shareholder in an application of this kind was raised, but not determined, in Re Nexus Energy Ltd above, and the correspondence with EWL had not specifically drawn its attention to the fact that an order for costs might be sought against it. I would not have entertained a costs application without specific notice of the application for that order having been given to EWL to allow it to be heard in respect of that question. The deed administrators seek an order that the costs of this application be their costs in the deed administration. That order is appropriate, where this application is fairly and properly brought in implementing the deed administration.
5. Accordingly, I make the following orders:
6. Order that the Plaintiffs be granted leave to transfer all of the Defendant's shares in the Elite Logistics Holdings Pty Ltd ACN 611 511 874 (subject to deed of company arrangement) to Arrovest Pty Ltd ACN 117 953 205 in accordance with the Deed of Company Arrangement dated 23 May 2017.
7. The costs of this application be the Plaintiffs' costs in the deed administration.

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