Carson, in the matter of Hastie Group Limited (No 4)
[2012] FCA 968
•16 August 2012
FEDERAL COURT OF AUSTRALIA
Carson, in the matter of Hastie Group Limited (No 4) [2012] FCA 968
Citation: Carson, in the matter of Hastie Group Limited (No 4) [2012] FCA 968 Parties: IAN MENZIES CARSON, DAVID LAURENCE MCEVOY AND CRAIG DAVID CROSBIE IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF HASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040, HASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040 and 43 OTHERS File number: NSD 749 of 2012 Judge: EMMETT J Date of judgment: 16 August 2012 Legislation: Corporations Act 2001 (Cth) ss 437A(1)(d), 438A, 449E(1), 459P, 461(1)(k), 462(2)(a), 465A, 467(3)(b), Part 5.3A Date of hearing: 16 August 2012 Place: Sydney Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 38 Counsel for the plaintiffs: J Hynes Solicitor for the plaintiffs: Henry Davis York
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 749 of 2012
BETWEEN: IAN MENZIES CARSON, DAVID LAURENCE MCEVOY AND CRAIG DAVID CROSBIE IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF HASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040
First to Third PlaintiffsHASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040 and 43 OTHERS
Fourth to Forty-Seventh Plaintiffs
JUDGE:
EMMETT J
DATE OF ORDER:
16 AUGUST 2012
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The plaintiffs be granted leave to file an interlocutory process in the form initialled and dated by Emmett J.
2.The interlocutory process be returnable instanter before Emmett J.
3.In relation to Hastie Saudi Pty Limited (administrators appointed) ACN 133 090 490:
a. pursuant to section 447A(1) of the Corporations Act 2001 (Cth) (the Act), the administration of the company is to end;
b. the administrators’ remuneration and the payment for disbursements in respect of the company for the period 28 May 2012 to 10 August 2012 be fixed in the amount of $40,375.08;
c. pursuant to section 461(1)(k) of the Act, the company be wound up on the ground that it is just and equitable;
d. Ian Menzies Carson, David Laurence McEvoy and Craig David Crosbie be appointed joint and several liquidators of the company;
e. the requirements contained in s 465A of the Act be dispensed with, pursuant to s. 467(3)(b) of the Act;
f. the requirements contained in r 9.2(2) of the Federal Court (Corporations) Rules 2000 (Cth) be dispensed with; and
g. the costs of the application be the costs in the administration of the company.
4.In relation to Hastie International Pty Limited (administrators appointed) ACN 116 080 838:
a.pursuant to section 447A(1) of the Act, the administration of the company is to end;
b.the administrators’ remuneration and the payment for disbursements in respect of the company for the period 28 May 2012 to 10 August 2012 be fixed in the amount of $198,849.46;
c.pursuant to section 459P of the Act, the company be wound up in insolvency;
d.Ian Menzies Carson, David Laurence McEvoy and Craig David Crosbie be appointed joint and several liquidators of the company;
e.the requirements contained in s 465A of the Act be dispensed with, pursuant to s 467(3)(b) of the Act;
f.the requirements contained in r 9.2(2) of the Federal Court (Corporations) Rules 2000 (Cth) be dispensed with; and
g.the costs of the application be the costs in the administration of the company.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 749 of 2012
BETWEEN: IAN MENZIES CARSON, DAVID LAURENCE MCEVOY AND CRAIG DAVID CROSBIE IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF HASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040
First to Third PlaintiffsHASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040 and 43 OTHERS
Fourth to Forty-Seventh Plaintiffs
JUDGE:
EMMETT J
DATE:
16 AUGUST 2012
PLACE:
SYDNEY
REASONS FOR JUDGMENT
On 28 May 2012, Messrs Ian Carson, David McEvoy and Craig Crosbie (the Administrators) were appointed as joint and several administrators under Part 5.3A of the Corporations Act 2001 (Cth) (the Act) of Hastie Group Limited and 43 of its subsidiary companies (together, the Hastie Group). The Hastie Group carried on a diverse range of mechanical, engineering, plumbing, electrical and services activities, with an emphasis on construction projects and maintenance services. It operated in Australia and internationally, particularly in the United Kingdom, New Zealand and the Middle East. The Hastie Group was divided into three divisions, being the Services Division, the Mechanical, Engineering and Plumbing Division and the International Operations Division. The latter division operated both through overseas companies and Australian companies trading overseas.
The Hastie Group was not integrated operationally. Accordingly, asset registers were held by each individual entity rather than by the head office. Contracts were also held by each individual entity. General administrative functions were not centralised and day-to-day operational decisions were made by each individual entity.
The Administrators are in sole control of the 33 companies that comprise the Mechanical, Engineering and Plumbing Division. That division included Hastie International Pty Ltd (Hastie International) and Hastie Saudi Arabia Pty Ltd (Hastie Saudi). I will refer to those companies together as the Companies. The Administrators have applied to the Court for relief under various provisions of the Act in connection with the Companies.
In order to put the application into context, it is necessary to say something about the affairs of the Companies, to the extent that the Administrators have been able to ascertain information about their affairs. The Companies operated solely in the Middle East, primarily in the United Arab Emirates, Qatar, Oman and the Kingdom of Saudi Arabia. The Companies do not have any business assets or operations in Australia. The business of Hastie International was operated through local branches registered in Abu Dhabi and in Dubai. Hastie International also holds shares in Hastie International LLC, which is registered in Oman, and Hastie International Qatar LLC, which is registered in Qatar (together, the Subsidiaries). Hastie International owned 70 per cent of Hastie International LLC and 49 per cent of Hastie International Qatar LLC. Hastie Saudi conducted no business of its own. Its only asset seems to be a 50 per cent shareholding in a joint venture company, Hastie Saudi Arabia LLC.
The administration of the Companies and the Administrators' investigations into the affairs of the Companies have been restricted by a lack of reliable information in relation to the business, operations, assets and liabilities of the Companies. That has been exacerbated by a lack of funding. In addition, there appear to have been significant accounting irregularities in the books and records of all of the companies in the Hastie Group.
Further, Hastie International's former senior management have departed from the Middle East. There has also been disruption of other members of Hastie International's management team. There have been difficulties for the Administrators in appointing local agents in the Middle East to assist with their investigations and there is doubt as to whether the appointment of the Administrators would be recognised in the relevant jurisdictions in the Middle East. The Administrators, therefore, consider that the voluntary administration process is inappropriate for each of the Companies. They consider that the objectives of Part 5.3A of the Act will not be achieved in relation to either of the Companies and that the immediate liquidation of each of the Companies would be the appropriate course to be taken and would be in the best interests of all interested parties.
The major financiers of the Hastie Group consisted of a syndicate of seven banks (the Syndicate), which engaged ANZ Fiduciary Services Pty Limited (the Security Trustee) to act as security trustee for the syndicate. The Security Trustee has security in the form of a charge over all of the assets of 41 of the companies within the Hastie Group, including Hastie International. However, the Security Trustee does not have security over the assets of Hastie Saudi.
On 28 May 2012, the Security Trustee appointed Messrs Joseph Hayes, Peter Anderson, Jason Preston and Matthew Caddy (the Receivers) as receivers and managers of 11 entities within the Hastie Group, including Hastie Holdings. The Receivers and the Syndicate have been informed of the present application by the Administrators and they have indicated, through their solicitors, that they neither consent to nor oppose the orders sought by the Administrators.
The affairs of Hastie Saudi are less complex than those of Hastie International. It appears that Hastie Saudi was established solely for the purpose of facilitating the formation of a joint venture in Saudi Arabia with Sharqawi Co, Electromechanical Contractor (the Joint Venture Partner). Hastie Saudi owns 50 per cent of the shares in Hastie Saudi Arabia LLC (the JV Company) and the Joint Venture Partner owns the other 50 per cent. It appears that the JV Company continues to trade in Saudi Arabia and is continuing to work on its main project, which is due to be completed in September 2012. The only asset of Hastie Saudi is its shareholding in the JV Company. The value of that shareholding is presently unknown, and the Administrators have been unable to clarify what, if any, liabilities Hastie Saudi has.
There is evidence to suggest that other members of the Hastie Group, including Hastie Group Limited and Hastie Holdings Pty Ltd, may be creditors of Hastie Saudi. The only material as to the value of the shareholding in the JV Company is a balance sheet as at 31 December 2011. That suggests that the total partners' equity is some 7,698,197 Saudi riyals. I have no information as to the present exchange rate, but that amount suggests that there may be some significant value in the shareholding in the JV Company.
The majority of the business records of Hastie Saudi have been kept in Northern Ireland and the Administrators have been unable to locate a copy of any joint venture agreement governing the relationship between Hastie Saudi and the Joint Venture Partner. Very limited financial information concerning the business affairs of the JV Company has been located by the Administrators. On 16 June 2012, the Administrators engaged Ernst & Young to assist with the disposal of, amongst other assets, Hastie Saudi's 50 per cent shareholding in the JV Company. Ernst & Young have been negotiating with the Joint Venture Partner, with respect to the possible sale of the shareholding. The Joint Venture Partner has a first right of refusal in respect of the shares held by Hastie Saudi. The discussions with the Joint Venture Partner are continuing and it is hoped that a sale of the shares can be agreed to within the next few months.
Upon sale of the shares, the only asset of Hastie Saudi would be the proceeds of sale. The Administrators have formed the view that they are not in a position to comply with their obligations under the Act to identify any further the business of Hastie Saudi, its property and affairs and the reason for its failure, or to identify whether any persons failed in their duties with respect to Hastie Saudi. They do not believe that the continued administration of Hastie Saudi serves any useful purpose. As I have said, they have formed the view that Hastie Saudi appears to have no creditors, other than possible intercompany debt, and it operates, and has operated, no business of its own. It has no employees.
The Administrators have formed the view that no person would be willing to act as a director of Hastie Saudi and consider there is no prospect of a deed of company arrangement being proposed in respect of Hastie Saudi. Accordingly, the only sensible outcome for Hastie Saudi is for it to be wound up. They have formed the view that that should occur now, following the end of the administration. The Administrators are satisfied that, if there are any creditors of Hastie Saudi, their interests would not be prejudiced by an immediate winding- up. They do not believe that a winding-up will prejudice or give rise to any impediment in relation to the sale of Hastie Saudi’s shareholding in the JV Company.
The affairs of Hastie International are somewhat more complex. The administration of Hastie International has been complex and time-consuming, despite steps taken by the Administrators to endeavour to minimise the costs by attempting to suspend the business of Hastie International. They have spent some 286 hours in relation to the affairs of Hastie International alone. As I have said, the business and operations of Hastie International were conducted through two branches, one registered in Dubai and one in Abu Dhabi. Those branches operated under commercial business licences regulated by local laws, regulations and customs. Its shareholdings in the Subsidiaries were assets independent of the businesses conducted through the branches. It appears that the businesses of the Subsidiaries were operated and managed separately from the business of the branches.
Because of a lack of funding, the Administrators have been unable to secure proper representation in the Middle East or in the United Arab Emirates to assist with the administration of Hastie International. Immediately prior to the appointment of the Administrators, they engaged in discussions with FTI Consulting, a global firm of accountants, with a view to retaining FTI Consulting as their agent in the Middle East, for the purpose of dealing with and investigating the affairs of Hastie International. However, proposed arrangements with FTI Consulting were never finalised. The Administrators were unable to obtain indemnity from the Syndicate in respect of fees that might be involved.
Their endeavours to exert some control over the businesses in the Middle East have been thwarted. Immediately following their appointment on 28 May 2012 at 7 am, a memorandum was sent to all staff, informing them of the appointment. In particular, the memorandum was sent to the staff of Hastie International in the Middle East. Although no formal arrangement was made with FTI Consulting, a member of the staff of FTI Consulting attended the Dubai office of Hastie International and met key staff from the Dubai branch. The FTI Consulting representative informed the staff of Hastie International who were present at the meeting of the appointment of the administrators and of the fact that there were insufficient funds to continue operations or to satisfy employee entitlements.
On 29 May 2012, the Administrators received an email from FTI Consulting indicating that the estimate of costs of funding the extraction of non-Western expatriate employees was approximately US$750,000. The email also indicated that representatives of Global Petroleum Business and Trading Est (the Sponsor), Hastie International’s local sponsor, were also in attendance at the meeting. The Sponsor suggested that FTI Consulting and the Administrators were breaking local law by telling employees that their entitlements may not be paid. The FTI Consulting representative then left Dubai, since he was unable to obtain satisfactory legal advice to alleviate concerns that FTI Consulting might have been in breach of local law by accepting the role as agent of the Administrators.
Despite the fact that the Administrators had sent emails to various employees and managers of Hastie International, confirming that Hastie International appeared to be insolvent and that all operations should immediately cease, the Administrators received a response from the general manager of the Abu Dhabi branch indicating that, amongst other things, Hastie International was operating in Abu Dhabi on a business as usual basis, until instructed by an official representative of the Administrators.
On 1 June 2012, an email was sent to a general manager of Hastie International Qatar LLC and other members of staff of the Hastie Group in the Middle East, confirming the appointment of the Administrators and confirming the nature of the role of the Administrators in relation to each of the Companies. On 3 June 2012, the Administrators received an email from Mr Charles Lever, a member of the senior management team, acknowledging the instructions to cease employment, but stating that he had received instructions from the Sponsor to continue operations. The Administrators understand that Mr Lever and other members of the senior management team have, from that time, complied with the Sponsor’s instructions and have continued to operate the business, despite the contrary instructions from the Administrators. The Administrators subsequently obtained specialist legal advice from Norton Rose (Middle East) LLP. The essence of that advice is that it is unlikely that the courts in the United Arab Emirates will recognise the appointment of the Administrators. The United Arab Emirates courts are likely to consider matters relating to insolvent companies according to principles of local law.
It appears that foreign traders who operate through branches within the United Arab Emirates are subject to the bankruptcy regime contained in the Commercial Transaction Law. Norton Rose advised that it is unlikely that the Administrators would have any standing to submit a bankruptcy petition in the courts in the United Arab Emirates, either in respect of the Subsidiaries or of the branches of Hastie International that are located in the United Arab Emirates. It appears that the right to petition for bankruptcy under the Commercial Transaction Law is restricted to the trader itself or to creditors of the trader and the public prosecutor.
Under the law of the United Arab Emirates, it appears that a branch or subsidiary that operates in the United Arab Emirates is most likely to be subject to that bankruptcy regime. That would involve the Court appointment of a trustee in bankruptcy to administer the bankruptcy. The Administrators have been unable to obtain a copy of the business licences for the branches of Hastie International. However, they have been informed that the business licence for each branch would state the individuals who are entitled to act on behalf of the branch. As the Administrators are not named on those licences, that would limit their capacity to act, or be recognised, as representatives for the branches for the purposes of making any application under the Commercial Transaction Law.
It appears that there is a process that can be undertaken to replace the persons presently named on the business licence with one of the Administrators or one of their agents. That process, however, is complex and there is no guarantee that the authority of the Administrators would be recognised. The Administrators have been advised that, by undertaking the process, they may place themselves at considerable personal risk of being considered to be de facto general managers of the branches and of being held liable for a negligent bankruptcy, if they were to travel to the United Arab Emirates at some time in the future.
The Administrators have attempted to conduct investigations into the business and operations of Hastie International since their appointment. However, they have been able to locate only limited information about the business and operations of Hastie International. The former chief executive officer of Hastie Group, the Syndicate, the Receivers and the Australian Securities and Investments Commission have concerns about the accuracy of the accounting records maintained for the Hastie Group generally, and Hastie International in particular. Thus far, the Administrators have received no “Report as to Affairs” from the director of Hastie International.
The Administrators consider that they have been unable to obtain sufficient information to enable them to comply with their statutory obligations to investigate the affairs of Hastie International, as required by s 438A of the Act. They do not have sufficient information to allow them to investigate the business, property and affairs of Hastie International. The Administrators understand that foreign entities in the United Arab Emirates operating a business through local branches require a local person or company to sponsor the foreign company’s operations, who is responsible for the liabilities attaching to the employees, the employees’ entitlements and visas. The Administrators have been unable to confirm the rights, entitlements, obligations and powers of the Sponsor.
Although the Administrators have been unable to locate detailed and adequate information concerning the affairs of Hastie International, they understand that Hastie International employs approximately 1,100 employees, the majority of whom are likely to be employed by contracts that are subject to the law of the United Arab Emirates. Of those employees, approximately 220 were in management or administrative roles, and the remainder were labourers. The employees are largely Filipino, Bangladeshi and Indian nationals. While the estimated cost of paying all employee entitlements is likely to be significant, the Administrators are unable to give any useful estimate of what the total entitlements might be.
Despite the Administrators' instructions that employees be stood down, they understand that some employees have continued to work and have taken direction from the former management team and from the Sponsor, without the authority of the Administrators. The Administrators have received conflicting reports as to whether work on Hastie International's projects has ceased. They have formed the view that the position in the Middle East, in relation to Hastie International, is unworkable and has broken down entirely.
Hastie International appears to have leased certain assets from third parties. The assets included accommodation for staff and workers and motor vehicles. The Administrators have been unable to locate a complete list of leased assets. They understand that Hastie International was also in possession of personal property, such as furniture and IT equipment. There is no complete asset register in respect of the assets of Hastie International and the Administrators have been unable to inspect any assets or determine their value.
Under the terms of the syndicated facility agreement, the Syndicate agreed to provide financial accommodation to Hastie Group Limited in the amount of at least A$100 million. Certain of the companies within the Hastie Group, including Hastie International, provided cross-collateralised guarantees supported by registered charges over all of their assets and undertakings to support the obligations of, amongst others, Hastie Group Limited to the Syndicate. The Syndicate is presently owed some $536 million by the Hastie Group, including Hastie International, under the cross-guarantees. That sum of $536 million consists of debt of $266 million and contingent liabilities under bond facilities of some $270 million. It appears reasonably likely that those bond facilities will be called.
For the reasons indicated above, the Administrators have been unable to obtain adequate information as to the value of the assets of Hastie International. They are confident, however, that the value will be insufficient to satisfy the amounts owing to the Syndicate and any other creditors. They have formed the view that there is no evidence to indicate that Hastie International is in a position to pay all of its debts as and when they become due and payable. Accordingly, they consider that Hastie International is insolvent. The Administrators consider that they are unable to comply with their obligations under the Act to investigate the business, property and affairs of Hastie International and the reasons for its failure. Considerable time and resources would be required for them to ascertain whether any insolvent, void and voidable transactions may have occurred.
The Administrators do not consider that the continued administration of Hastie International would serve any useful purpose. They consider that no person would be willing to act as a director of Hastie International and that there is no prospect of a deed of company arrangement being proposed in respect of Hastie International. They have therefore formed the view that the only reasonable course open would be for the administration to end and for Hastie International to be wound up in insolvency.
It is against that background that the present applications have now been made on behalf of each of the Companies, that is, Hastie Saudi and Hastie International. The application by Hastie Saudi is that it be wound up under s 461(1)(k), on the ground that it is just and equitable to do so. The application in respect of Hastie International is that it be wound up in insolvency under s 459P of the Act. Certain ancillary relief is also claimed in respect of the two companies.
Under s 437A(1)(d), where a company is under administration, the administrator may perform any function, and exercise any power, that the company or any of its officers could perform or exercise if the company were not under administration. That provision would authorise the administrators to bring these applications on behalf of the two Companies.
Under s 459P(1)(a), a company may apply to the Court for the company to be wound up in insolvency. Under s 461(1)(k), the Court may order the winding-up of a company, if the Court is of opinion that it is just and equitable that the company be wound up. Under s 462(2)(a), the company may apply for an order to wind up the company under s 461.
I am satisfied that, in the circumstances outlined above, it is just and equitable that Hastie Saudi be wound up. I am also satisfied that Hastie International is insolvent and that it should be wound up in insolvency under s 459P of the Act. Messrs Carson, McEvoy and Crosbie have consented to be appointed as joint and several liquidators of both of the companies. It is appropriate that they be appointed as joint and several liquidators.
Section 465A of the Act provides that a person who applies for a company to be wound up under s 459P or s 462 must lodge notice in the prescribed form that the application has been made, serve a copy of the notice on the company and advertise the application as prescribed by the rules. In all of the circumstances, I consider that it is appropriate to waive compliance with that requirement. Under s 467(3)(b), the Court may, on an application coming on for hearing, dispense with any notices being given or steps being taken that are required by the Act or by the rules or by any order of the Court.
The Administrators also seek an order under s 449E(1)(c) of the Act that their remuneration as administrators be fixed. Under s 449E(1), the administrator of a company under administration is entitled to receive such remuneration as is determined by the Court, if there is no agreement between the administrator and the committee of creditors or resolution of the company's creditors.
The Corporations Rules provide for notification of creditors and a process for creditors to be heard in respect of an application for the fixing of remuneration by the Court. However, as I have indicated, it appears that Hastie Saudi has no creditors, while Hastie International appears to have many creditors. It is clear that the only creditors who have an interest in whether the remuneration sought should be paid will be the Syndicate. It is clear that there will be no assets of Hastie International available for distribution to unsecured creditors. As I have already indicated, the Syndicate have, through their solicitors, said that they do not oppose the orders now sought by the Administrators. The administrators rely on the evidence of Mr Crosbie’s affidavit of 15 August 2012 concerning the quantum of remuneration sought to be fixed. I am satisfied that the remuneration sought relates to work that was undertaken and necessary for the further progression for the administration of the two Companies.
I am also satisfied that the rates claimed for that work are reasonable. Mr Crosbie has provided a summary of the receipts and payments made during the administration and a detailed summary of the work in respect of which remuneration is claimed. While I have not given that schedule the detailed examination that might be required of a taxing officer, the schedule, on the face of it, appears to indicate work that would be reasonably attributable to the administration of the two Companies. Mr Crosbie's affidavit indicates that the administrators seek remuneration in the sum $40,345.08 in respect of Hastie Saudi and $197,934.08 in respect of Hastie International. I consider that it is appropriate to fix their remuneration in those amounts. I also consider that it is appropriate to approve the disbursements claimed in the sum of $30 for Hastie Saudi and $915.38 for Hastie International.
I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate:
Dated: 16 October 2012
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