Weaver v Noble Resources Ltd

WHITE J: 1 I am dealing with an application seeking leave of the Court under s 444GA(1)(b) of the Corporations Act 2001 (Cth) for the transfer of all the shares in Goldus Pty Ltd (Goldus) to Roncane Pty Ltd (Roncane). 2 Goldus is subject to a Deed of Company Arrangement (DOCA). The application is made by Mr Duncan and Mr Powell in their capacities as the joint and several administrators of Goldus and as administrators of the DOCA. 3 On 9 October 2017, the then single director of Goldus resolved, pursuant to s 436A of the Corporations Act, to appoint administrators to it. Mr Duncan and Mr Powell were then appointed as joint and several administrators. 4 At a meeting on 12 April 2018, the creditors of Goldus resolved that it should enter into a deed of company arrangement, and the DOCA was executed on 11 May 2018. The essential terms of the DOCA are these: (a) a Mr John Hillam, and companies controlled by or associated with him (referred to as the Hillam Entities) are to pay, by instalments, $550,000 into a DOCA Fund as follows; (i) $150,000 within seven days of the execution of the DOCA; and (ii) $400,000 on satisfaction of certain conditions; (b) all of the shares in Goldus are to be transferred for no consideration to a company nominated by Mr Hillam (which is Roncane) and it will then have control of Goldus; (c) the payment and transfer are contemplated to occur by 2 July 2018; (d) the DOCA Fund is to include the current assets of Goldus in the form of cash at bank and debtors as well as the proceeds recovered from claims by it against persons other than the Hillam Entities. However, all its other assets, including exploration licenses and mineral licenses will remain as assets of Goldus and, accordingly, will be assets over which Roncane will obtain control; (e) the Hillam Entities are to pay the costs incurred in respect of the application to this Court, and in respect of the transfer of the shares; (f) the DOCA Fund is to be applied in the manner contemplated by s 556 of the Corporations Act; (g) Goldus is to be released from the debts of the participating creditors; (h) the Hillam Entities which are also creditors of Goldus, are not to participate in distribution from the DOCA Fund; (i) there are to be multiple mutual releases from further claims by Goldus against the Hillam Entities and vice versa, and by other entities; and (j) if the transfer of shares does not occur by 2 July 2018, then, subject to the Hillam Entities paying the total of $550,000, the administrators are to transfer all of the minerals and exploration licenses held by Goldus to Roncane. 5 Sections 444G and 444GA of the Corporations Act provide as follows: 444G Effect of deed on company, officers and members A deed of company arrangement also binds: (a) the company; and (b) its officers and members; and (c) the deed's administrator. 444GA Transfer of shares (1) The administrator of a deed of company arrangement may transfer shares in the company if the administrator has obtained: (a) the written consent of the owner of the shares; or (b) the leave of the Court. (2) A person is not entitled to oppose an application for leave under subsection (1) unless the person is: (a) a member of the company; or (b) a creditor of the company; or (c) any other interested person; or (d) ASIC. (3) The Court may only give leave under subsection (1) if it is satisfied that the transfer would not unfairly prejudice the interests of members of the company. 6 The effect of s 444GA(2) is that the only persons entitled to oppose an application under subs (1) for the grant of leave to transfer shares are the members or creditors of the Company. The effect of subs (3) is that the Court must be satisfied that the transfer will not unfairly prejudice the interests of members of the Company. 7 In support of the application, the Plaintiffs rely upon the affidavit of Mr Powell made on 29 May 2018. 8 At the first case management hearing on the application on 6 June 2018, the Court directed the Plaintiffs to give notice to each of the 14 members of Goldus, to each of its 18 creditors, and to the Australian Securities and Investments Commission (ASIC). In addition, the Court directed that notice of the application and of today's hearing be published in The Australian and The Advertiser newspapers. 9 An affidavit of service made by Ms Young, an accountant within the Plaintiffs' office, indicates that two members of Goldus have not been served. In one case, that is because it, being a New Zealand registered company, has had its registration removed, and in another case, being an Australian registered company, it has been deregistered. In all other cases, the members (or their legal personal representatives), were served by email or mail, and in one case by both means. All of the creditors received notification by email. Notices of today's hearing and of the application, were published in The Australian and in The Advertiser newspapers on 8 June 2018. ASIC has been served with notice of the proceedings. 10 No person has attended today to oppose the grant of leave, and I accept the assurance of Mr Williams for the Plaintiffs that they have not received notice of opposition to the application from any party. 11 The matters which inform the exercise of the Court's discretion to grant leave under s 444GA(1) have been considered in a number of the authorities, commencing with the decision of Martin CJ in Weaver v Noble Resources Ltd [2010] WASC 182; (2010) 41 WAR 301. As Martin CJ noted, s 444GA was introduced into the Corporations Act to give effect to a recommendation made in the report of the Corporations and Markets Advisory Committee (CAMAC) on Corporate Voluntary Administration. That recommendation was that deed administrators should have the power to transfer the shares in a company without the consent of shareholders when necessary for the purposes of implementing a deed of company arrangement accepted by the creditors and when the creditors would not receive payment without the shares being sold. The CAMAC Report indicated that the leave of the Court for the transfer should be required in order to avoid abuse by "opportunistic creditors" seeking to acquire a company's shares. 12 The authorities recognise that unfair prejudice of the kind contemplated by s 444GA(3) may arise if the shares have some residual value. Thus, in Weaver v Noble Resources, Martin CJ said: [79] [T]he notion of unfairness only arises if prejudice is established. 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. … [80] … I would also observe 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 said that unfair prejudice to the members of the company could arise. 13 In Lewis, in the matter of Diverse Barrel Solutions Pty Ltd (Subject to a Deed of Company Arrangement) [2014] FCA 53, I noted that s 444GA(3) contemplates that a transfer of shares may result in some prejudice to the interests of members of the company. The matter to which subs (3) directs attention is prejudice which may be "unfair". I then 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. 14 Many of the authorities were reviewed by Black J in Re Nexus Energy Ltd (subject to a Deed of Company Arrangement) [2014] NSWSC 1910, (2014) 105 ACSR 246, and In the matter of Paladin Energy Limited (subject to a Deed of Company Arrangement) [2018] NSWSC 11. 15 In Re Nexus Energy, Black J noted that s 444GA contemplates that two interrelated considerations will be considered on the question of whether or not there would be unfair prejudice to the members of the company. The first is the interests of the shareholders themselves. The second is the broader purposes of Pt 5.3A of the Corporations Act, and the interests of others who may be affected by the administration of the company. 16 In the present case, there is no indication that the shares in Goldus have any residual value. The Plaintiffs' report to creditors of 6 April 2018 indicated that, in the event of liquidation, Goldus would have a deficit of liabilities over assets of between $1.69 million and $1.74 million. Even with the payment of the $550,000 by the Hillam Entities under the DOCA, the deficit was still expected to be of the order of $590,000. 17 Mr Powell has deposed, and I accept: (a) the DOCA negotiated with Hillam Entities is the only DOCA which has been proposed for Goldus and, had it not been proposed or approved by the creditors, Goldus would have gone into liquidation; (b) had Goldus gone into liquidation, creditors would not have received payment in full and there would not have been any funds available for distribution to members; and (c) accordingly, the shares in Goldus do not have any residual value and there is no difference in the position of the members in the event that the transfer of shares occurs and the position in the event that the transfer does not occur. 18 Mr Powell also deposes, and I accept, that the Hillam Entities paid the first instalment of $150,000 due under the DOCA on 18 May 2018. 19 Accepting those matters, and subject to the matter to be mentioned next, I am satisfied that the members will not be unfairly prejudiced by the compulsory transfer of their shares. I note again that no persons have attended today to indicate opposition to the grant of leave. 20 It is, however, appropriate to mention one matter. Clause 4.2 of the DOCA provides for the payment of the second instalment by the Hillam Entities. On my understanding of the clause, the Hillam Entities are not required to pay the second instalment of $400,000 until the matters set out in cl 5 have been achieved and they are not, in any event, required to make the payment before 2 July 2018. On the other hand, cl 5.6 requires the administrators in the company to do all they reasonably can to ensure that the transfer of the shares will occur on or before 2 July 2018. Read together, those clauses seem to allow for the possibility that the administrators may be called upon to make the transfer, even before the payment of the second instalment by the Hillam Entities. 21 Counsel for the Plaintiffs has submitted that they will act with ordinary commercial prudence in giving effect to the grant of leave and will not effect the transfers until the payment of the second instalment of $400,000 has been received. In support of that submission, the Plaintiffs proffered an undertaking to the Court that the transfer of shares will not be effected unless payment of the second instalment of $400,000 has been received. I consider it appropriate for the Court to accept that undertaking. 22 Accordingly, noting the undertaking, the Court grants leave to the Plaintiffs to transfer the shares in Goldus to Roncane. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White.