ANDREW JOHN SAKER & MARTIN BRUCE JONES as Joint and Several Voluntary Administrators of CONQUEST CROP PROTECTION PTY LTD (Administrators Appointed) and FARMWORKS MERCHANDISE SERVICES PTY LTD (Administrators Appointed)
[2012] WASC 473
•5 DECEMBER 2012
ANDREW JOHN SAKER & MARTIN BRUCE JONES as Joint and Several Voluntary Administrators of CONQUEST CROP PROTECTION PTY LTD (Administrators Appointed) and FARMWORKS MERCHANDISE SERVICES PTY LTD (Administrators Appointed) [2012] WASC 473
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2012] WASC 473 | |
| Case No: | COR:177/2012 | 13 NOVEMBER 2012 | |
| Coram: | MASTER SANDERSON | 5/12/12 | |
| 7 | Judgment Part: | 1 of 1 | |
| Result: | Application granted | ||
| B | |||
| PDF Version |
| Parties: | ANDREW JOHN SAKER & MARTIN BRUCE JONES as Joint and Several Voluntary Administrators of CONQUEST CROP PROTECTION PTY LTD (Administrators Appointed) and FARMWORKS MERCHANDISE SERVICES PTY LTD (Administrators Appointed) |
Catchwords: | Corporation law Application by administrators to modify law so they would not be liable for money borrowed Turns on own facts |
Legislation: | Nil |
Case References: | Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270 Brash Holdings Ltd (Administrators Appointed) v Katile Pty Ltd [1996] 1VR 24 Deputy Commissioner of Taxation v Portinex Pty Ltd (Subject to DOCA) [2000] NSWSC 99; (2000) 34 ACSR 391 Mentha, Re Spyglass Management Group Pty Ltd (Administrators Appointed) [2004] FCA 1469; (2004) 51 ACSR 432 Re Ansett Australia Ltd (No 3) [2002] FCA 90; (2002) 115 FCR 409 Re KASH Aboriginal Corporation (Administrators Appointed) (No 2) [2012] FCA 789 Re One.Tel Network Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83 Secatore, Re Fletcher Jones & Staff Pty Ltd (Administrators Appointed) [2011] FCA 1493 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
and
IN THE MATTER of FARMWORKS MERCHANDISE SERVICES PTY LTD (ACN 098 350 308) (Administrators Appointed)
- Plaintiffs
(Page 2)
Catchwords:
Corporation law - Application by administrators to modify law so they would not be liable for money borrowed - Turns on own facts
Legislation:
Nil
Result:
Application granted
Category: B
Representation:
Counsel:
Plaintiffs : Ms A L Wade
Solicitors:
Plaintiffs : Lavan Legal
Case(s) referred to in judgment(s):
Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270
Brash Holdings Ltd (Administrators Appointed) v Katile Pty Ltd [1996] 1VR 24
Deputy Commissioner of Taxation v Portinex Pty Ltd (Subject to DOCA) [2000] NSWSC 99; (2000) 34 ACSR 391
Mentha, Re Spyglass Management Group Pty Ltd (Administrators Appointed) [2004] FCA 1469; (2004) 51 ACSR 432
Re Ansett Australia Ltd (No 3) [2002] FCA 90; (2002) 115 FCR 409
Re KASH Aboriginal Corporation (Administrators Appointed) (No 2) [2012] FCA 789
Re One.Tel Network Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83
Secatore, Re Fletcher Jones & Staff Pty Ltd (Administrators Appointed) [2011] FCA 1493
(Page 3)
1 MASTER SANDERSON: This was an application made under s 447A and s 447D of the Corporations Act 2001 (Cth) (the Act) for orders varying the operation of pt 5.3A of the Act to limit the liability of the plaintiffs under s 443A(1) of the Act. After hearing argument I made the orders sought by the plaintiffs. I indicated I would publish reasons for that decision. These are those reasons.
2 The plaintiffs are the joint and several voluntary administrators of Conquest Crop Protection Pty Ltd and Farmworks Merchandise Services Pty Ltd. The plaintiffs were appointed on 5 October 2012 by GE Commercial Corporation (Australia) Pty Ltd pursuant to s 436C(1) of the Act.
3 The companies are both wholly owned subsidiaries of Conquest Agri Ltd which is a publically listed company. Conquest Agri is in the business of providing rural merchandise and services to Australia's agricultural industry. Conquest Agri's main business division, Conquest Crop Protection, specialises in the re-distribution and sales of crop protection products which are provided to the broadacre and horticultural industries. Conquest Crop Protection is the trading company through which Farmworks Merchandise Services and Conquest Agri (among other subsidiaries) operate.
4 Since their appointment to the companies, the plaintiffs have been in control of the companies' operations and have ensured that the companies continued to trade. The plaintiffs have kept in place, to the extent necessary, employment contracts with existing employees. To assist with the operations of the companies on or about 15 October 2012 the plaintiffs and the companies entered into a loan agreement with Ningbo Yihwei Chemicals Co Ltd and JiangSu Sevencontinent Green Chemical Co Ltd. A copy of the loan agreement appears as annexure A to the affidavit of the first-named plaintiff sworn in support of the application.
5 The plaintiffs entered into the loan agreement so as to obtain funding of $200,000 for the purpose of paying the companies' operating costs and employee wages to ensure the companies could continue to trade. It is the evidence of Mr Saker, which I accept, the companies would have been unable to continue to trade without the loan. The loan agreement anticipates limiting the plaintiffs' liability. The plaintiffs say if their liability is not limited in the manner contemplated in the loan, then the facility will not take effect. If that comes to pass, the plaintiffs will not have sufficient funds to enable them to continue to trade the companies. It would follow, the plaintiffs would not be able to sell the companies as a
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- going concern. Further, the plaintiffs would not be able to adequately investigate the affairs of the companies nor would they be able to adequately consider and explore recovery and reconstruction options for the companies.
6 Section 447A of the Act gives the court broad powers, including the power to alter what would otherwise be the operation of pt 5.3A of the Act in relation to a particular company: see Brash Holdings Ltd (Administrators Appointed) v Katile Pty Ltd [1996] 1VR 24, 26 - 27; Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270. In Australasian Memory the High Court in a joint judgment said:
Section 447A(1) speaks of orders about how 'this Part' is to operate. ... In its context, the reference to 'this Part' is to be understood as a reference to each of the provisions in it, for it is the provisions of the Part which give it the operation which an order under s 447A(1) may affect. And although the examples given in s 447A(2) cannot be taken as exhaustive of the scope, or as controlling the meaning, of s 447A(1) (s 109L), it is clear from those examples that they assume that orders under s 447A(1) may alter the operation of other provisions of the Part. That is, the orders contemplated in the examples go beyond a curial determination of what is the effect of existing provisions of the Part on a particular company in the circumstances that may be established in a proceeding; the orders contemplated are orders that alter how the Part is to operate in relation to a particular company, not how the Part does operate in relation to that company (279 - 280).
7 Section 447A has been interpreted as conferring upon the courts an extremely wide jurisdiction to make any order considered appropriate for the operation of the regime. In Deputy Commissioner of Taxation v Portinex Pty Ltd (Subject to DOCA) [2000] NSWSC 99; (2000) 34 ACSR 391, a number of propositions concerning the section were set out [30]. These propositions include the following:
1. The power is not to be read down or confined to curing defects or remedying consequences of departures from other provisions of pt 5.3A of the Act;
2. The section permits the court to make orders with respect to a particular provision of pt 5.3A of the Act, altering the operation of that provision, even where the provision would on its separate construction exclude such an order; and
3. The section is not confined to filling in the gaps in the legislative scheme of pt 5.3A of the Act.
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8 Section 447D of the Act provides that an administrator of a company under administration may apply to the court for directions about a matter arising in connection with the performance or exercise of any of the administrator's functions and powers. The administrator's power to approach the court for directions under this section is designed to facilitate the administrator's functions and should be interpreted widely to give effect to that intention: see generally Re One.Tel Network Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83.
9 However the section is not without its limitations. In giving directions Goldberg J said in Re Ansett Australia Ltd (No 3) [2002] FCA 90; (2002) 115 FCR 409:
There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised [65].
10 Under s 443A(1) of the Act, the administrator of a company under administration is liable for the debts he or she incurs in the performance or exercise of any of his or her functions and powers as administrator for services rendered, goods brought, or property hired, leased, used or occupied and for the repayment of money borrowed, interest thereon and borrowing costs. It is worthy of note orders limiting an administrator's liability for debts by way of loans and interest have previously been made by various courts: see Mentha, Re Spyglass Management Group Pty Ltd (Administrators Appointed) [2004] FCA 1469; (2004) 51 ACSR 432; and Secatore, Re Fletcher Jones & Staff Pty Ltd (Administrators Appointed) [2011] FCA 1493.
11 Section 443A(2) provides that s 443A(1) of the Act has effect despite any agreement to the contrary, but without prejudice to the administrator's rights against the company or anyone else. Section 443D of the Act provides the administrator is entitled to be indemnified out of the company's property for, among other things, the debts for which the administrator is liable under div 9, subdivision A of the Act. Section 443F of the Act provides that to secure the right of indemnity under s 443D, the administrator has a lien on the company's property.
12 In this case the lenders provided the loan to the plaintiffs on a limited recourse basis, limited to the available assets of the companies. It was a condition subsequent of the loan agreement that the plaintiffs seek orders from the court to modify the effect of s 433A(2) of the Act. In the present
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- case, the alteration sought is to limit the liability of the plaintiffs under s 443A(1) of the Act to the companies' property for which they can be indemnified under s 443D, and which can be secured by the lien under s 443F of the Act.
13 Finkelstein J in Mentha, Re Spyglass Management Group made an order where the facts were very similar to those in this case. In the course of his reasons Finkelstein J said:
The second order sought is for the administrators' benefit. It will have the effect of converting the loan into a 'non-recourse' loan. As the lenders have agreed to a loan of this kind, there is no reason why the order should not be made. Practically speaking the creditors have no interest in the second order because they cannot be disadvantaged by it. On the other hand, they stand to benefit if the loan goes ahead. That is a sufficient reason to make the second order [6].
14 To the extent this alteration is affected by the loan agreement, s 443A(2) of the Act would also have to be altered to permit 'contracting out' of the full extent of liability which would be imposed by s 443A of the Act. I accept that to exclude an agreement from the operation of that subsection is an alteration of the operation of that subsection which s 447A of the Act permits.
15 In reaching this conclusion, I had in mind a number of matters. First, the administration is in its early stages and the plaintiffs have not yet formed final views as to the most appropriate outcome for the companies. The use of the loan funds will facilitate not only the continued trading of the companies, with all the benefits that they should have for the future, but will also allow examination of all other matters to be considered by the administrators. In short, making the orders sought by the plaintiffs seemed to me to offer the best chance of all parties receiving maximum returns.
16 Finally, the plaintiffs pointed out, due to the urgency of the application, they had not yet notified the companies' creditors of the application. My attention was drawn to the recent decision of Collier J in Re KASH Aboriginal Corporation (Administrators Appointed) (No 2) [2012] FCA 789. His Honour said:
I am concerned that, on the submissions of the Applicants, none of the unsecured creditors of KASH have been given notice of this application, and accordingly none have been given notice of their opportunity to oppose this interlocutory application. However I am satisfied that, by the terms of the orders sought, creditors of KASH may apply to vary or
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- discharge these orders should they see fit to make such application. In light of the apparent urgency of the application before me I consider that this entitlement of the creditors provides adequate protection of their interests [19].
17 The plaintiffs proposed the companies' creditors be notified and have liberty to apply to set aside the orders presently sought. In an ideal world creditors would have been notified of this application, but it is easy to understand why the matter was urgent. In my view there was no real alternative but for the plaintiffs to make the urgent application, and being satisfied it was proper and appropriate to do so, the court made the orders sought. It must be accepted it is difficult to see now how the orders made could be undone. In theory at least that is possible - a creditor may be able to point to some fact which would show the orders were inappropriate, but that would involve unscrambling the egg. However, mindful of these difficulties, it is still my view it was proper to make the orders sought by the plaintiffs.
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