CAMERON HUGH SHAW as joint and several administrator of G N CONSTRUCTION (AUST) PTY LTD (ADMINISTRATORS APPOINTED), IKONSTRUKT PTY LTD (ADMINISTRATORS APPOINTED), MAIN ADMINISTRATION SERVICES PTY LTD...
[2024] WASC 86
•22 MARCH 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: CAMERON HUGH SHAW as joint and several administrator of G N CONSTRUCTION (AUST) PTY LTD (ADMINISTRATORS APPOINTED), IKONSTRUKT PTY LTD (ADMINISTRATORS APPOINTED), MAIN ADMINISTRATION SERVICES PTY LTD (ADMINISTRATORS APPOINTED) [2024] WASC 86
CORAM: STRK J
HEARD: 8 MARCH 2024 & ON THE PAPERS
DETERMINED : 8 MARCH 2024 & 11 MARCH 2024
PUBLISHED : 22 MARCH 2024
FILE NO/S: COR 31 of 2024
MATTER: IN THE MATTER OF RE G N CONSTRUCTION (AUST) PTY LTD (ADMINISTRATORS APPOINTED) & ORS
EX PARTE
CAMERON HUGH SHAW as joint and several administrator of G N CONSTRUCTION (AUST) PTY LTD (ADMINISTRATORS APPOINTED), IKONSTRUKT PTY LTD (ADMINISTRATORS APPOINTED), MAIN ADMINISTRATION SERVICES PTY LTD (ADMINISTRATORS APPOINTED)
First Plaintiff
RICHARD ALBARRAN as joint and several administrator of G N CONSTRUCTION (AUST) PTY LTD (ADMINISTRATORS APPOINTED), IKONSTRUKT PTY LTD (ADMINISTRATORS APPOINTED), MAIN ADMINISTRATION SERVICES PTY LTD (ADMINISTRATORS APPOINTED)
Second Plaintiff
HANSON CONSTRUCTION MATERIALS PTY LTD
Interested Party
Catchwords:
Corporations - Application to extend convening period - Application to limit administrators' liability - Modification of the operation of s 443A of the Corporations Act 2001 (Cth) - Application for leave to be granted to the members of committees of inspection to derive a profit or advantage from the external administrations of the companies pursuant to s 80-55(5)(b) of the Insolvency Practice Schedule (Corporations) - Turns on own facts
Legislation:
Corporations Act 2001 (Cth) s 439A, s 443A, s 443D and s 447A
Insolvency Practice Schedule (Corporations), s 80-55(5)(b) and s 90-15
Rules of the Supreme Court 1971 (WA), O 67B r 5(3)
Supreme Court (Corporations) (WA) Rules 2004, r 2.8(3)
Category: B
Representation:
Counsel:
| First Plaintiff | : | B H Taylor |
| Second Plaintiff | : | B H Taylor |
| Interested Party | : | P J Hannon |
Solicitors:
| First Plaintiff | : | Mills Oakley |
| Second Plaintiff | : | Mills Oakley |
| Interested Party | : | Patane Lawyers |
Cases referred to in decision:
Algeri (Administrator), in the matter of Murray & Roberts Pty Ltd (Administrators Appointed) (No 2) [2022] FCA 1563
Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270
Brash Holdings Ltd (Administrator Appointed) v Katile Pty Ltd [1996] 1 VR 24
Cameron Shaw and Richard Albarran in their Capacity as Joint and Several Administrators of Home Art Building Group Pty Ltd (Administrators Appointed) v Home Art Building Group Pty Ltd (Administrators Appointed) [2016] WASC 274
Correa v Whittingham [2013] NSWCA 263; (2013) 278 FLR 310
Deputy Commissioner of Taxation v Portinex Pty Ltd [2000] NSWSC 99; (2000) 156 FLR 453
Flynn v Theobold [2008] WASC 263
Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 234 ALR 765
Mighty River International Ltd v Hughes [2017] WASCA 152; (2017) 52 WAR 1
R v Toohey; Ex parte Northern Land Council [1981] HCA 74; (1981) 151 CLR 170
Re Bosnjak Holdings Pty Ltd [2005] FCA 275; (2005) 53 ACSR 8
Re Daisytek Pty Ltd (administrators appointed) (2003) 45 ACSR 446
Re Geographe Workforce Pty Ltd (Administrators Appointed) [2022] WASC 250
Re Malanos [2007] NSWSC 865
Re New Tel Ltd (in liq) [2004] FCA 1154; (2004) 210 ALR 270
Re Reid Group Pty Ltd (Administrators Appointed); Ex parte Kirman & Bauer [2017] WASC 219
Re Riviera Group Pty Ltd (Admins Apptd) (Recs and Mgs Apptd) [2009] NSWSC 585; (2009) 72 ACSR 352
Re Spyglass Management Group Pty Ltd (admin apptd) [2004] FCA 1469; (2004) 51 ACSR 432
Re Windimurra Vanadium Ltd & Midwest Vanadium Pty Ltd [2009] WASC 71
Strawbridge, Re Virgin Australia Holdings Ltd (admins apptd) (No 2) [2020] FCA 717
STRK J:
Introduction
Cameron Hugh Shaw and Richard Albarran are the joint and several administrators of G N Construction (Aust) Pty Ltd (administrators appointed), Ikonstrukt Pty Ltd (administrators appointed), and Main Administration Services Pty Ltd (administrators appointed).
By an originating process filed on Wednesday, 6 March 2024, the administrators sought various orders on an urgent basis. In particular, they sought to extend the convening period for the companies in administration; to limit their personal liability pursuant to certain agreements; and for leave to be granted to members of the committee of inspection for each of Ikonstrukt and Main Administration Services to derive a profit or advantage from the external administrations of those entities.
As the application was accompanied by a certificate which recorded that it was of an urgent nature, the application was listed for hearing on Friday, 8 March 2024. In addition to the evidence filed in support of the application (described below), the application was supported by a minute of proposed orders and an outline of written submissions filed on Thursday, 7 March 2024.
Prior to the hearing of the application, a notice of appearance was filed on behalf of Hanson Construction Materials Pty Ltd which recorded that it was a creditor of G N Construction (Aust) in the amount of $3,221,145.99. At the hearing of the application, counsel for Hanson Construction Materials indicated that it only sought to be heard in relation to that part of the application that concerned the possible limitation of the administrators' personal liability pursuant to certain agreements; and that the issue it sought to agitate concerned matters also confidential to Multiplex Constructions Pty Ltd in circumstances where Multiplex Constructions had no notice of the issue intended to be agitated by Hanson Construction Materials, and was entitled to be heard.
The court was informed that while Hanson Construction Materials did not seek to stand in the way of the orders sought on behalf of the administrators, it pressed for access to an affidavit deposed by Mr Shaw in support of the applications, particularly access to certain subcontracts which Mr Shaw had annexed to his affidavit, in circumstances where the administrators had foreshadowed seeking an order limiting access to Mr Shaw's affidavit on the basis that it contained confidential and commercially sensitive information.
In circumstances where the court was informed that the G N Construction (Aust) was subject to a contractual obligation in favour of Multiplex Constructions to keep the terms of the subcontracts confidential, that part of the application which concerned the possible limitation of the administrators' personal liability was adjourned to allow for conferral and for Multiplex Constructions to be given notice of Hanson Construction Materials' position with respect to access to the subcontracts. That is, in the circumstances, that part of the application that concerned the possible limitation of the administrators' liability was adjourned to Monday, 11 March 2024, and on 8 March 2024 I proceeded to hear and determine the remainder of the application.
After hearing counsel for the administrators, I granted the relief sought (save for that part of the application that concerned the possible limitation of the administrators' liability, which had been adjourned to 11 March 2024). I indicated that I would publish my reasons, which are set out below. The orders made on 8 March 2024 are reproduced at sch A to these reasons.
Prior to the re‑listing of the application on 11 March 2024, the court was informed that the controversy between the administrators and Hanson Construction Materials as to access to the confidential affidavit of Mr Shaw had been resolved, and that the balance of the application could be determined on the papers filed and the affidavits read on 8 March 2024. For the reasons set out below, I was prepared to grant the remaining relief sought on behalf of the administrators. The orders made on 12 March 2024 are reproduced at sch B to these reasons.
Evidence
Three affidavits were filed in the proceeding and read in support of the application. Set out below is an overview of the evidence that was before the court. It is not intended to be a comprehensive description of all of the evidence.
The first Shaw affidavit
The first was the affidavit of Mr Shaw sworn on 6 March 2024 to which Mr Shaw annexed 11 documents marked CHS-01 to CHS-11. Among other things, Mr Shaw deposed to the appointment on 10 February 2024 of the administrators by resolution of the directors of each of the companies now in administration, and deposed that the administrators had made the application in circumstances where:
(a)G N Construction (Aust) continued to be involved in complex construction projects with estimated completion dates between July 2024 and February 2025;
(b)the administrators were required to conduct significant investigations into related party loans and transactions of the companies in administration;
(c)multiple legal claims had been identified as against third parties that required investigation; and
(d)there were discussions that were ongoing with the directors of the companies in administration regarding a potential deed of company arrangement (DOCA) for those companies.
Mr Shaw also described the business conducted by each of the companies in administration as at the appointment date.
As to G N Construction (Aust), among other things Mr Shaw deposed that it operates the business known as 'G N Construction', which has been involved in construction of commercial, industrial and residential buildings (the Business); currently holds contracts in relation to complex construction projects including the Joondalup Health Campus Stage 2 Redevelopment and Nine The Esplanade (Elizabeth Quay Lot 6) (together the Projects); operates from premises located at Main Street, Osborne Park; and employs approximately 198 employees, of which 76 are permanent employees and 22 are casual employees.
As to Main Administration Services, among other things, Mr Shaw deposed that it also operates from premises located at Main Street, Osborne Park; provides administration services to G N Construction (Aust), Ikonstrukt, and other companies within the group, including payroll and administration services; and employs approximately 10 employees, of which none are permanent full‑time employees and one is a permanent part‑time employee.
As to Ikonstrukt, among other things, Mr Shaw deposed that it has been involved in the construction of commercial and industrial buildings, including projects for which G N Construction (Aust) had been engaged; also operates from premises located at Main Street, Osborne Park; and employs approximately eight employees, of which four are permanent full‑time employees and four are employed on a casual basis.
While adjudication of claims made by creditors of the companies had not occurred, save for voting purposes at the initial meeting of creditors, Mr Shaw deposed that he had reviewed the books and records of the companies in administration to obtain an understanding of the amounts claimed, including secured amounts owed to the National Australia Bank Limited. He deposed to the registrations on the Personal Property Security Register and the estimated amounts owed to employees.
Mr Shaw further deposed to the assets held by G N Construction (Aust) as at the date of appointment; the tasks undertaken by the administrators since their appointment; and that as at the date of his affidavit, the administrators intended to continue to trade on the Business pending the outcome of the second meeting of creditors.
Proposed extension of the convening period
Mr Shaw deposed to the holding of the first meeting of creditors; that in the initial information circular to creditors for each of the companies and at the first meeting, creditors were advised that it was the administrators' intention to apply to extend the convening period by up to two months; and that no concerns or objections were raised by creditors either prior to or at the first meeting.
Mr Shaw deposed to the complexities in the administration; to the preliminary investigations that had been undertaken by the administrators, some of which were at a preliminary stage and would require additional time to investigate; to the concerns that had been raised by the Construction, Forestry and Maritime Employees Union (CFMEU) with respect to member employees and the obligations of the companies with respect to redundancy contributions; that it was unlikely that the administrators would be in a position to complete their investigations in relation to the affairs of, and options available to the companies before the end of the convening period; that the administrators had formed the opinion that it was necessary to extend the convening period for the second meeting of creditors in order to complete the necessary investigations that would enable them to express an opinion as to what outcome would be in the interest of the creditors at the second meeting.
As to the need for an extension to the convening period, Mr Shaw deposed to the status of a proposed DOCA proposal and the work the administrators would need to complete so as to form a view as to whether a DOCA proposal would be preferable to liquidation; the estimate of time the administrators believed would be sufficient for that purpose; and to his belief as to the likely impact on creditors.
Mr Shaw deposed that he held the opinion that it was critical for the administrations that the Business continue to operate as a going concern to maximise its value, and that he and Mr Albarran continue to have the benefit of the statutory moratorium under pt 5.3A of the Corporations Act.
Mr Shaw further deposed that he had formed the view that an extension of the convening period was necessary not merely to facilitate effective reporting to the creditors, but also to directly improve the ability to maximise the value of the companies' assets available for the benefit of creditors. In this regard, he deposed to his belief that the extension sought would likely increase the possibility of a greater return to the majority of the creditors by allowing sufficient time to explore and negotiate a potential DOCA for the companies; that the extension would not unduly prejudice the creditors; and the basis for his belief.
Proposed limitation of personal liability of the administrators
As to the application to limit the administrators' personal liability, Mr Shaw noted in his first affidavit that two tripartite agreements had been entered into between GN Construction (Aust), Multiplex Constructions and Hanson Construction Materials (which agreements he described in greater detail and annexed to his second confidential affidavit).
Mr Shaw in his first affidavit noted that while the details of the tripartite agreements continued to be commercially sensitive, it was a condition of the agreements that the parties agreed that the administrators had not adopted the subcontracts for the Projects, and were otherwise to be released from any and all personal liability. He deposed that both Multiplex Constructions and Hanson Construction Materials had been provided advance notice of the administrators' intention to formalise the parties' agreement regarding the liability of the administrators on the terms provided for in the tripartite agreements.
Further, Mr Shaw deposed to his belief that:
(a)the tripartite agreements were in the interests of the companies' creditors and consistent with the objectives of pt 5.3A of the Corporations Act;
(b)the tripartite agreements did not disadvantage or prejudice the creditors; and
(c)the tripartite agreements enabled the Business to continue to trade for the benefit of creditors in circumstances where G N Construction (Aust) ceasing to trade would lead to the termination of the Projects and a significant increase in that entity's liabilities.
Proposed leave for committee of inspection members to derive profit or advantage
Mr Shaw deposed that at the first creditors meeting for each company in administration, a committee of inspection was formed in respect of each company, which committees constitute creditors, including employees, who continue to be engaged in the ongoing trading of the Business. He further deposed that in his view, it was possible that some members of the committees of inspection, in their capacity as creditors or contingent creditors, may be counterparties to ongoing negotiations during the course of the administrations; and this was particularly so in respect to the ongoing performance of the Projects.
Mr Shaw deposed that the creditors of G N Construction (Aust) had resolved that members of that entity's committee of inspection could derive a profit or advantage from the external administration of G N Construction (Aust) in accordance with s 80-55(3) of the Insolvency Practice Schedule (Corporations) (which schedule forms sch 2 to the Corporations Act), but through inadvertence on his part, a similar resolution had not been sought from creditors of either lkonstrukt or Main Administration Services at the first meeting of the creditors of those entities.
In seeking leave, various limitations and procedural protections were proffered. Leave was sought in circumstances where:
(a)members of the committee would not be permitted to receive any gift or remuneration from the administrations;
(b)the administrators would keep a schedule of each agreement entered into by the administrators on behalf of each entity with a member of its committee of inspection or any related entity of a member; and
(c)administrators would provide an update to the committee of inspection at each of its meetings as to each agreement that the administrators had entered into with a member of the committee of inspection.
The second confidential Shaw affidavit
The second was the affidavit of Mr Shaw also sworn on 6 March 2024 which had been marked 'confidential', and to which Mr Shaw had annexed four documents marked CHS‑01 to CHS‑04. The annexed documents included the subcontracts for the Projects, and the tripartite agreements described by Mr Shaw in his first affidavit.
I was satisfied that Mr Shaw's second affidavit contained confidential information, and it was appropriate to restrict access to it. I made an order pursuant to the Rules of the Supreme Court 1971 (WA) Order 67B r 5(3) that Mr Shaw's second affidavit be marked 'confidential' and not published or accessed except pursuant to an order of the court.
These reasons have been prepared so as to not disclose the substance of the confidential information before the court, which I weighed in the balance in the determination of the application.
Affidavit of LE Pye
The third was the affidavit of Lucy Elizabeth Pye sworn on 7 March 2024 to which Ms Pye annexed four documents marked LEP‑01 to LEP‑04.
In summary, Ms Pye deposed to notice of the originating process having been given to creditors of the companies in administration, and to the communications that had been received from Multiplex Constructions and Hanson Contracting Materials in response to having received notice of the same.
Notice to ASIC
By the originating process, the administrators sought orders and relief pursuant to various provisions, including s 90-15 of the Insolvency Practice Schedule (Corporations).
The Supreme Court (Corporations) (WA) Rules 2004 r 2.8(3) provides that unless the court otherwise orders, if an application is made pursuant to s 90-20 for an order under s 90-15 of the Insolvency Practice Schedule (Corporations), the applicant must serve on the Australian Securities and Investments Commission (ASIC) a reasonable time before the hearing of the application, a copy of the originating process and supporting affidavit in respect of the application.
At the hearing on 8 March 2024 counsel for the administrators acknowledged that service on ASIC had not occurred, but informed the court that steps would be taken to promptly attend to service.
In circumstances where the court had been informed that ASIC would promptly be served, where there would be liberty to apply, and where the orders sought pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) were auxiliary to the order sought pursuant to s 80‑55(5)(b), an order was made on 8 March 2024 waiving compliance with Supreme Court (Corporations) (WA) Rules 2004 r 2.8(3) pursuant to sub‑rule 3. An order was also made requiring the applicants to forthwith serve ASIC with a copy of the originating process and supporting affidavits in respect of the application, together with a copy of the orders then made.[1]
[1] Orders 1 and 8 of the orders made on 8 March 2024 (see sch A to these reasons).
Proposed extension of the convening period
In considering whether to allow an extension of the convening period, I had regard to the objects and scheme of pt 5.3A of the Corporations Act, and the court's function as discernible from that part.[2] I also had regard to and apply the following principles:[3]
(1)The short time frames are an element of the scheme of the [Corporations Act], the purpose being that creditors should be fully informed about the company's position and have the opportunity to vote as soon as possible.
(2)However, the prospects of a better return to creditors may outweigh the expectation and desirability of prompt resolution. The exercise of power under s 439A(6) involves a balancing of these considerations.
(3)In considering an application for an extension, the court must take into account the detriment to third parties, including the suspension of rights and remedies of secured creditors, lessors, and others.
(4)An important question on such an application is whether an extension is necessary to enable the administrator to prepare reports and to come to the opinion required by s 439A(4) to inform creditors as to the appropriate choice between the options of a deed on company arrangement for the administration to end or for the company to be wound-up.
(5)Any extension should be for no longer than is necessary for an informed decision to be made as to whether to enter into a deed of company arrangement, winding‑up the company, or end the administration.
[2] As observed by Banks-Smith J in Re Reid Group Pty Ltd (Administrators Appointed); Ex parte Kirman & Bauer [2017] WASC 219 [4], the objects and scheme of pt 5.3 of the Corporations Act were outlined in Flynn v Theobold [2008] WASC 263 [36] ‑ [53]; and Re Windimurra Vanadium Ltd & Midwest Vanadium Pty Ltd [2009] WASC 71 [2] ‑ [9]. As to the court's function, see Mighty River International Ltd v Hughes [2017] WASCA 152; (2017) 52 WAR 1, 29 - 30 [124] - [125] (Buss P), referring to Re Riviera Group Pty Ltd (Admins Apptd) (Recs and Mgs Apptd) [2009] NSWSC 585; (2009) 72 ACSR 352, 354 ‑ 357 [8] - [18].
[3] Re Reid Group Pty Ltd (Administrators Appointed): Ex parte Kirman & Bauer [4(1) - (5)], citing Cameron Shaw and Richard Albarran in their Capacity as Joint and Several Administrators of Home Art Building Group Pty Ltd (Administrators Appointed) v Home Art Building Group Pty Ltd (Administrators Appointed) [2016] WASC 274 [18].
I also had regard to, and applied the principles set out at pars 15 ‑ 19 of the administrators' written outline of submissions, and I was satisfied that an extension of time was warranted in all of the circumstances.
As to the reasons which grounded this application for extension, I was satisfied that they fell within recognised categories for relief, and I particularly had regard and gave weight to the considered judgment of the administrators as deposed to by Mr Shaw. Mr Shaw's evidence as to the status of a proposed DOCA proposal, and his belief that it would likely be viable or, at the very least, would warrant further investigation by the administrators (which I accepted would require further time), weighed heavily in favour of the requested extension.
I also had regard to the complexities of the administration, which also weighed in favour of granting the requested extension. I proceeded on the basis that it was appropriate that creditors be fully informed about the position of each of the companies, including in relation to related party loans and transactions; the claims made by third parties against G N Construction (Aust); the claims made by G N Construction (Aust) against third parties; and the redundancy contributions owed to employees in relation to the Projects (concerns having been raised on behalf of employee members of the CFMEU in relation to the same). On the evidence, I was satisfied that the requested extension was necessary to enable the administrators to properly discharge their obligations.
I was cognisant that third parties might suffer detriment, including those who would remain subject to the statutory moratorium. However, the extension requested was relatively short. Further, I was satisfied that the need for extension was not a result of the administrators sitting on their hands; that additional time would facilitate sensible and constructive actions directed to maximising the return for creditors; and that the companies' creditors had received notice of the application, and no objection from any notified party had been received.
I was also cognisant that the orders promoted by the administrators contemplated that they would promptly provide creditors with a copy of the orders (including persons or entitles claiming to be creditors). In the end, such an order was made,[4] in addition to an order expressly granting any person affected by the orders liberty to apply.[5]
[4] Order 7 of the orders made on 8 March 2024 (see sch A to these reasons).
[5] Order 13 of the orders made on 8 March 2024 (see sch A to these reasons).
The administrators continue to trade on the Business, and the extension was sought in a context where Mr Shaw had deposed to there being a real prospect of a DOCA proposal emerging, such that on the evidence before me, the potential benefits to creditors associated with a proposal appeared to outweigh the possible prejudice to creditors impacted by any extension to the statutory moratorium which might arise due to an extension of the convening period. Taking into account all of the evidence before me, and the submissions made, I was satisfied that the convening period should be extended.
The administrators also sought a 'Daisytek order' under s 447A of the Corporations Act, being an order to the effect that the second creditors' meetings may be held at any time within the extended convening period or the period of five business days thereafter, notwithstanding the effect of s 439A(2) of the Corporations Act.[6] (The effect of s 439A(2) of the Corporations Act is that the second creditors meeting must be held within five business days before, or within five business days after, the end of the convening period.)
[6] Re Daisytek Pty Ltd (administrators appointed) (2003) 45 ACSR 446.
I was prepared to make such an order (as had been proposed in order 2 of the originating process), and in doing so I applied the principles to be applied when exercising the power afforded by s 447A, which I summarise below at [55] to [58].
Absent such an order, the administrators would have been obliged to hold the second meetings of creditors within five business days after the end of the extended convening period. The meetings could not be held prior to the end of the extended convening period even if the administrators were ready to proceed, and it was convenient and desirable that they not wait.
I accepted that s 447A(1) gave the court sufficient power to make a 'Daisytek order' as promoted on behalf of the administrators.[7] It had a clear nexus with how pt 5.3A was to operate with respect to the companies in administration. Further, as a matter of discretion, I considered it appropriate that the administrators be enabled to convene the meetings to be held on a date prior to the extended convening period if this is thought desirable, rather than being compelled to wait, which I considered to be in the interests of the creditors.
[7] Order 3 of the orders made on 8 March 2024 (see sch A to these reasons).
Proposed leave for committee of inspection members to derive profit or advantage
Pursuant to s 80‑55(1) of the Insolvency Practice Schedule (Corporations), a member of a committee of inspection must not derive a profit or advantage from the external administration of that entity unless, in accordance with s 80-55(3), creditors resolve otherwise or, pursuant to s 80-55(5), the Corporations Act or the court otherwise permits.
As was deposed by Mr Shaw, while creditor approval was granted to the members of the committee of inspection for G N Construction (Aust), through inadvertence on his part a similar resolution was not sought from creditors of either lkonstrukt or Main Administration Services at the first meeting of the creditors of those entities.
As was observed by counsel for the administrators, the relevant principles for the court making an order permitting a member to derive a profit or advantage were considered by Middleton J in Strawbridge, Re Virgin Australia Holdings Ltd (admins apptd) (No 2) [2020] FCA 717 at [178] ‑ [181]. As was noted by Banks‑Smith J in Algeri (Administrator), in the matter of Murray & Roberts Pty Ltd (Administrators Appointed) (No 2) [2022] FCA 1563 at [46]:
… His Honour explained the reasons for restrictions on members of a committee of inspection receiving profits, based on their prevenance in committees in liquidations, where because of the nature of a liquidation a company usually no longer trades. In contrast, in an administration, it is not uncommon for trading to continue in the interests of creditors, and such trading may involve committee members. His Honour explained as follows:
[178]Section 80-55 of the [Insolvency Practice Schedule (Corporations)], prohibits, without the approval of the creditors or the leave of the Court, a member of the Committee of Inspection deriving a profit or advantage from the company. The section operates broadly and the words 'profit or advantage' capture a transaction 'for or on account of' the company.
[178]The statutory predecessors to that provision were s 551 of the Corporations Act and s 435 of the Companies Code 1982 (NSW) (and its equivalents). Those provisions applied when the company was being wound up and the proscriptive obligations imposed on committee members were consistent with the principle that members of committees of inspection are regarded as occupying fiduciary positions relative to the creditors, such that the section was directed to avoiding a conflict between interest and duty: Re F.T. Hawkins & Co., Ltd [1952] 2 All ER 467; In the matter of DH International Pty Ltd (in liq) (No 2) [2017] NSWSC 871 at [30], [34] (Gleeson JA).
[180]However, the 2017 amendments to the Corporations Act, by the repeal of s 551 and the insertion of s 80-55 of the [Insolvency Practice Schedule (Corporations)], have brought about a change to the practical operation of that provision. Previously, it operated only where the company was in liquidation; it now applies to an 'external administration', which includes where the company is under administration.
[181]In an administration, the business of a company may continue to be traded; whereas, in a winding up, a company's business comes to an end as part of the realisation of all its assets. Thus, in the case of a winding up, there would not be the potential for ongoing dealings between the company and its creditors. But the position is often different in the case of an administration, where the business is continuing to trade.
The application in Algeri (Administrator), in the matter of Murray & Roberts Pty Ltd (Administrators Appointed) (No 2) was prosecuted in circumstances where the members of the committee of inspection represented some substantial creditors, including employees.[8] In that context, it was submitted on behalf of the administrators that it was inevitable that some of the members, in their capacity as creditors or contingent creditors, would be counterparties to ongoing negotiations during the administrations; and that in the absence of any order giving leave to those members, directly or indirectly, to derive any profit or advantage from the administrations, the administrators were concerned that the negotiation of ongoing arrangements with creditors and potential purchasers of the businesses might be hampered.[9] In circumstances where various entities continued to trade and a sale process was underway, Banks-Smith J concluded that it was appropriate that the court permit members to derive a profit or advantage.
[8] Algeri (Administrator), in the matter of Murray & Roberts Pty Ltd (Administrators Appointed) (No 2) [47].
[9] Algeri (Administrator), in the matter of Murray & Roberts Pty Ltd (Administrators Appointed) (No 2) [47] ‑ [48].
In this case, the court had before it the identity of the members which constitute the committee of inspection for each company in administration.[10] Further, the court was informed that each of committee constitutes creditors, including employees, who continue to engage in the ongoing trading of the Business.
[10] First affidavit of CH Shaw sworn 6 March 2024, CHS-08 (pages 226, 268 and 276).
In circumstances where there had been an inadvertent error on the part of Mr Shaw in not seeking creditor approval in accordance with s 80‑55(3) with respect to two of the three committees of inspection; in light of Mr Shaw's evidence that it is possible that some of the members may be counterparties to ongoing negotiations during the administration of either lkonstrukt or Main Administration Services; and in light of the limits and conditions proffered by the administrators, I considered it appropriate to grant the relief sought. The conditions proffered were reflected in the orders made on 8 March 2024.[11]
[11] Orders 5 and 6 of the orders made on 8 March 2024 (see sch A to these reasons).
Proposed limitation of personal liability of the administrators
As noted above, that part of the application that concerned the possible limitation of the administrators' liability was adjourned to 11 March 2024, and in the end was determined on the papers that had been filed.
Relief was sought pursuant to s 447A of the Corporations Act, which empowers the court to make such orders as it thinks appropriate about how pt 5.3A is to operate in relation to a particular company. Section 447A gives the court broad powers, including the power to alter what would otherwise be the operation of pt 5.3A in relation to a particular company.[12]
[12] Brash Holdings Ltd (Administrator Appointed) v Katile Pty Ltd [1996] 1 VR 24, 26 - 27; Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270; Re Bosnjak Holdings Pty Ltd [2005] FCA 275; (2005) 53 ACSR 8 [9].
The courts have interpreted s 447A as a provision conferring upon them an extremely wide jurisdiction to make any order considered appropriate for the operation of the regime. In this regard, Austin J in Deputy Commissioner of Taxation v Portinex Pty Ltd [2000] NSWSC 99; (2000) 156 FLR 453 at [30], noted that the proper interpretation of s 447A was in issue in Australasian Memory Pty Ltd v Brien, and that twelve propositions emerge from the cases, which relevantly include the following:
(a)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;
(b)the section permits the court to make orders with respect to a particular provision of pt 5.3A, altering the operation of that provision, even where the provision would on its separate construction exclude such an order; and
(c)the section is not confined to filling in the gaps in the legislative scheme of pt 5.3A.
While I accepted that the power is broad, I also proceeded on the basis that the power was not unlimited.[13] It is well‑established that the power vested in a court by s 447A is a statutory power which may be exercised only for the purpose for which it was granted.[14] As was noted by Brereton J in Honest Remark Pty Ltd v Allstate Explorations NL at [66], in reliance on Re New Tel Ltd (in liq) at [7], 'an order under s 447A must have a nexus with how pt 5.3A is to operate in relation to a particular company'. Further, Barrett JA in Correa v Whittingham at [4] observed:
… The 'nexus' with the operation of Pt 5.3A to which reference is made in the decided cases must be understood accordingly. The relevant purpose is to be ascertained by reference to the language of the statute, its subject matter and objects and the consequences of a decision that the power has been exceeded: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355. The principal source of constraint and limitation upon the power is therefore the statement of the object of Pt 5.3A in s 435A, coupled with the nature, incidents and aims of the particular form of external administration as gathered from the provisions of Pt 5.3A as a whole.
[13] Correa v Whittingham [2013] NSWCA 263; (2013) 278 FLR 310 [2] - [8] (Barrett J), [97] - [105] (Gleeson JA), [304] (Tobias AJA), citing Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 234 ALR 765 and Re New Tel Ltd (in liq) [2004] FCA 1154; (2004) 210 ALR 270.
[14] R v Toohey; Ex parte Northern Land Council [1981] HCA 74; (1981) 151 CLR 170, cited in Correa v Whittingham [4] (Barrett J).
I accepted that any order granted pursuant to s 447A must be designed to achieve in relation to a particular company the objects of pt 5.3A as stated in s 435A of the Corporations Act.[15]
[15] Australasian Memory Pty Ltd v Brien; Re Greg Sewell Forgings Pty Ltd (1995) 17 ACSR 602; Correa v Whittingham [4] (Barrett J).
Applying the principles summarised above, in considering whether to grant the relief sought on behalf of the administrators, I found as follows.
Standing
By operation of s 447A(4)(c) of the Corporations Act, the administrators had standing to apply for an order pursuant to s 447A(1).
Power
By the application, the provision in pt 5.3A of the Corporations Act the operation of which was sought to be modified was s 443A of the Corporations Act. Section 443A(1) provides that an administrator of a company is liable for debts he or she incurs in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers as administrator, for services rendered; or goods bought; or property hired, leased, used or occupied, including property consisting of goods that is subject to a lease that gives rise to a Personal Property Securities Act 2009 (Cth) security interest in the goods; or the repayment of money borrowed; or interest in respect of money borrowed; or borrowing costs.
Section 443A(2) of the Corporations Act provides that the liability of an administrator under s 443A(1) of the Corporations Act cannot be excluded by any agreement; and s 443A(1) of the Corporations Act does not otherwise prejudice an administrator's rights to bring an action or make a claim as against the company or anyone else.
By the application, pursuant to s 447A of the Corporations Act the administrators sought that pt 5.3A of the Corporations Act operate such that:
(a)the liabilities of the administrators in their capacity as the joint and several administrators of G N Construction (Aust) pursuant to the terms of the tripartite agreements dated on or about 5 March 2024 between Hanson Construction Materials, Multiplex Constructions and G N Construction (Aust) be limited to the assets of G N Construction (Aust);
(b)the operation of s 443A(2) of the Corporations Act be modified, so far as it applies to the liability of the administrators in their capacities as administrators of G N Construction (Aust) pursuant to the tripartite agreements, so as to permit the liability of the administrators to be limited to the assets of G N Construction (Aust); and
(c)the operation of s 443A(1) of the Corporations Act be modified, so far as it applies to the liability of the administrators in their capacities as administrators of G N Construction (Aust) pursuant to the tripartite agreements, such that if the indemnity of the administrators under s 443D of the Corporations Act from G N Construction (Aust) is insufficient to meet any amount for which the administrators may be liable arising out of or in connection with the tripartite agreements, whether before the making of the order sought or after, then the administrators will not be personally liable to repay such debts or satisfy such liabilities to the extent of that insufficiency.
The courts have been willing to grant orders similar to those sought in this application in circumstances where the court has been satisfied that the administrator entered into the arrangement to enable the company's business to continue to trade for the benefit of the creditors of the company.[16] I accepted that the court had the power to make the orders promoted on behalf of the administrators, which had a clear nexus with how pt 5.3A was to operate in relation to G N Construction (Aust).
[16] By way of example, see Re Spyglass Management Group Pty Ltd (admin apptd) [2004] FCA 1469; (2004) 51 ACSR 432 [3]; Re Malanos [2007] NSWSC 865; as referenced in Re Geographe Workforce Pty Ltd (Administrators Appointed) [2022] WASC 250 [42].
Further, I accepted that the orders proposed on behalf of the administrators were designed to achieve in relation to the companies in administration the objects of pt 5.3A as stated in s 435A of the Corporations Act. I was satisfied that the tripartite agreements and the orders sought promoted the administration of the affairs of the companies in administration in a way that maximised the chances of them and the Business continuing in existence.
Discretion
There did not appear to be any significant discretionary factors which counted against making the orders sought on behalf of the administrators pursuant to s 447A of the Corporations Act.
The orders were sought for the benefit of the administrators, relieving them of personal liability. I accepted that such orders would facilitate the Business trading on for the benefit of creditors, uninfluenced by any concerns as to personal liability on the part of the administrators.
While the details of the tripartite agreements continue to be commercially sensitive, I noted that it was a condition of the agreements that the parties agreed that the administrators had not adopted the subcontracts for the Projects, and were otherwise to be released from any and all personal liability. Mr Shaw had deposed that both Multiplex Constructions and Hanson Construction Materials had also been provided advance notice of the administrators' intention to formalise the parties' agreement regarding the liability of the administrators on the terms provided for in the tripartite agreements. As Hanson Construction Materials and Multiplex Constructions had agreed to the condition, had advance notice of the application, and in the end did not seek to be heard in opposition to the relief sought, which position was entirely consistent with their proposed contractual arrangements, there was no reason why the orders ought not have been made.
Further, I gave particular weight to the evidence of Mr Shaw that he had formed the view that the tripartite agreements were in the interests of the companies' creditors and consistent with the objectives of pt 5.3A of the Corporations Act; did not disadvantage or prejudice the creditors; and would enable the Business to continue to trade for the benefit of creditors in circumstances where if G N Construction (Aust) ceased to trade, that would lead to the termination of the Projects and a significant increase in that entity's liabilities.
Finally there was no evidence of any prejudice to the creditors of G N Construction (Aust), or to the creditors of the other administration entities, by the orders sought. The creditors had received notice of the application and no creditor sought to be heard in relation to the same. I included in the orders made a requirement that the administrators serve the orders on the creditors of G N Construction (Aust), and expressly granted to any person affected by the orders liberty to apply on the giving of two business days' notice to the administrators.[17]
[17] Orders 2 and 7 of the orders made on 12 March 2024 (see sch B to these reasons).
Weighing all of these matters in the balance, I was prepared to make the orders sought.
Confidentiality
As noted above, on 8 March 2024 I was satisfied that the second confidential affidavit of Mr Shaw contained confidential information, and the application for a confidentiality order was appropriately made. In all of the circumstances, having given careful consideration to the matters deposed by Mr Shaw and the documents annexed to his second affidavit, I was satisfied that it was appropriate to restrict access to it pursuant to the Rules of the Supreme Court O 67B r 5(b). I ordered that the affidavit would be treated as confidential and not published or disclosed except pursuant to an order of the court.
As the foreshadowed challenge to the making of a confidentiality order was not in the end maintained by Hanson Construction Materials, on 12 March 2024 I did not disturb the confidentiality order.
Costs
At the conclusion of the hearing on 8 March 2024, I was satisfied that it was appropriate that the administrators' costs of and incidental to the application (save with respect to proposed order 3 of the originating process) be their costs in the administrations of each of the companies and be paid out of the assets of those companies, and I ordered that such costs be so treated.
Given that proposed order 3 of the originating process was adjourned, at the conclusion of the hearing on 8 March 2024, the costs of Hanson Construction Materials were reserved.[18]
[18] Order 11 of the orders made on 8 March 2024 (see sch A to these reasons).
As noted above, after considering the application with respect to proposed order 3 of the originating process on the papers on 12 March 2024, which only concerned G N Construction (Aust) and no other entity, I concluded that it was appropriate to grant the substantive relief sought. I was also satisfied that administrators' costs of and incidental to the application with respect to proposed order 3 of the originating process ought be their costs in the administration of G N Construction (Aust), and be paid out of the assets of that company, and made an order to that effect.[19]
[19] Order 4 of the orders made on 12 March 2024 (see sch B to these reasons).
As to the reserved costs of Hanson Construction Materials, the court was informed that the administrators and Hanson Construction Materials had reached an agreement, and consistent with that agreement, it was ordered that Hanson Construction Materials' costs of attendance at the hearing on 8 March 2024 were to be a cost in, and paid out of, the administration of G N Construction (Aust), fixed in the amount of $2,500.[20]
[20] Order 5 of the orders made on 12 March 2024 (see sch B to these reasons).
Conclusion and orders
For these reasons, I determined it was appropriate for the court to grant to the administrators all of the relief sought by the originating process filed on 6 March 2024, with minor variations to the orders promoted on their behalf. The orders made on 8 March 2024 and on 12 March 2024 are reproduced at sch A and sch B to these reasons.
Sch A - Orders made on 8 March 2024
Sch B - Orders made on 11 March 2024
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
SE
Associate to the Honourable Justice Strk
22 MARCH 2024
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