Galaxy Resources Limited v Robert Michael Kirman and Robert Conry Brauer as joint and several administrators of Alita Resources Limited (Receivers and Managers Appointed) (Administrators Appointed)
[2020] WASC 484
•11 JANUARY 2021
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: GALAXY RESOURCES LIMITED -v- ROBERT MICHAEL KIRMAN and ROBERT CONRY BRAUER as joint and several administrators of ALITA RESOURCES LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) [2020] WASC 484
CORAM: HILL J
HEARD: 22 DECEMBER 2020
DELIVERED : 22 DECEMBER 2020
PUBLISHED : 11 JANUARY 2021
FILE NO/S: COR 154 of 2020
BETWEEN: GALAXY RESOURCES LIMITED
Plaintiff
AND
ROBERT MICHAEL KIRMAN and ROBERT CONRY BRAUER as joint and several administrators of ALITA RESOURCES LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
First Defendants
ROBERT MICHAEL KIRMAN and ROBERT CONRY BRAUER as joint and several administrators of LITHCO NO 2 PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
Second Defendants
ROBERT MICHAEL KIRMAN and ROBERT CONRY BRAUER as joint and several administrators of TAWANA RESOURCES PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
Third Defendants
AUSTROID CORPORATION
Interested Party
Catchwords:
Corporations Law – Voluntary Administration – Application for extension of time to hold second meeting of creditors - Application for interlocutory injunction to restrain holding of second meeting of creditors - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), pt 5.3A, s 444GA, s 447A, Sch 2, s 90-15
Result:
Application dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | G R Donaldson SC |
| First Defendants | : | A R Fleming |
| Second Defendants | : | A R Fleming |
| Third Defendants | : | A R Fleming |
| Interested Party | : | J A Abberton |
Solicitors:
| Plaintiff | : | Tottle Partners |
| First Defendants | : | Clayton Utz |
| Second Defendants | : | Clayton Utz |
| Third Defendants | : | Clayton Utz |
| Interested Party | : | Lavan |
Case(s) referred to in decision(s):
Lehman Brothers Holdings Inc v City of Swan [2010] HCA 11; (2010) 240 CLR 509
Mighty River International Ltd v Hughes [2018] HCA 38; (2018) 265 CLR 480
Re Alita Resources Ltd; Ex parte Tucker [2020] WASC 430
Re Alita Resources Ltd; Ex parte Tucker [2020] WASC 430(S)
Tucker as joint and several administrator of Alita Resources Ltd (Receivers and Managers Appointed) (Administrators Appointed) [2019] WASC 355
HILL J:
(This judgment was delivered extemporaneously and has been edited to correct matters of grammar and so as to include complete references in the form of footnotes).
On 21 December 2020, Galaxy Resources Ltd (Galaxy) filed an originating process and an interlocutory process against the administrators of Alita Resources Ltd (Alita), Lithco No 2 Pty Ltd (Lithco) and Tawana Resources Pty Ltd (Tawana) (collectively, Companies).
The plaintiff seeks an order under s 447A of the Corporations Act 2001 (Cth) (Act) and s 90‑15 of the Insolvency Practice Schedule restraining the second meeting of creditors of Alita, Lithco and Tawana from proceeding on 23 December 2020 at 3.00 pm, and seeks an order that it be held not earlier than 27 January 2021. If orders were made as sought by the plaintiff, it is arguable that this will require the convening period for the second creditors meeting to be extended.
In support of the application, the plaintiff has filed four affidavits: an affidavit of Martin Ronald Rowley, a director of the plaintiff, filed 21 December 2020; two affidavits of Peter Richard Keeves, a solicitor employed by Herbert Smith Freehills, the solicitors for SMS Innovative Mining Pty Ltd (SMS), filed 22 December 2020; and an affidavit of Caroline Cecilie Spencer, a solicitor employed by Tottle Partners, the solicitors for the plaintiff, filed 22 December 2020.
The application was opposed by the administrators, as well as the sole creditor of the Companies, Austroid Corporation (Austroid). The administrators filed an affidavit of Adriano Poncini, a solicitor employed by the defendants, dated 22 December 2020, and Austroid filed two affidavits of Zachary Sharp, a solicitor employed by Lavan, the solicitors for Austroid, both dated 22 December 2020.
Factual background
The defendants are the joint and several administrators of Alita and its two subsidiaries, Lithco and Tawana. The primary asset of the Companies is the Bald Hill lithium mine in the Eastern Goldfields region of Western Australia.
The plaintiff is a shareholder of Alita and holds approximately 12% of the issued share capital.[1] It is clear from the evidence before me that the plaintiff is not a creditor of any of the Companies.
[1] Affidavit of Martin Ronald Rowley filed 21 December 2020 [9], 'MR-6'.
On 4 December 2020, the defendants were appointed as administrators of the Companies. On the same date, Richard Tucker and John Bumbak of KordaMentha were appointed as receivers.[2]
[2] Affidavit of Martin Ronald Rowley filed 21 December 2020 [13] - [14].
On 8 December 2020, orders were made by this court shortening the convening period for the second creditors meeting.[3] The first creditors meeting was held on 16 December 2020.[4] On the same date, the defendants issued a notice of meeting for the second creditors meeting, which is due to be held on 23 December 2020.
[3] Orders of Master Sanderson made 8 December 2020 in COR 148 of 2020.
[4] Affidavit of Martin Ronald Rowley filed 21 December 2020 'MR-9'.
There is only one known creditor of Alita, being Austroid, who holds the secured debt of approximately $48 million. Austroid has submitted two interrelated DOCA proposals for consideration at the meeting. If these proposals are accepted, they will result in the secured debt being converted to equity and 100% of the issued shares in Alita being transferred to Austroid, the mining tenements being transferred to Lithco, Tawana and Lithco being released from liability in respect of $28 million of the existing debt but remaining liable for the remainder of the debt on an unsecured basis, provision of a new $40 million secured loan to Tawana and Lithco for use on continuing expenditure, and immediate resumption of mining operations at the Bald Hill mine.[5] In the notice of meeting, the defendants express the view that the Austroid DOCA proposals are expected to provide a better outcome than liquidation and recommend that the proposals be accepted.
[5] Affidavit of Martin Ronald Rowley filed 21 December 2020 [22.1], [22.3].
The administrators have also entered into a funding agreement with Austroid to provide the administrators with funding.
On Sunday 20 December 2020, the plaintiff wrote to the defendants proposing an alternative proposal, namely, that the secured creditor receive 100 cents in the dollar, and that Galaxy pay a premium of 'not less than $5 million above the value of the secured debt' which would be available for the benefit of shareholders.[6] The proposal was conditional on the defendants agreeing to adjourn the second meeting of creditors to a date in January 2021, by no later than 12 noon on Monday, 21 December 2020. The defendants did not agree to this proposal.
[6] Affidavit of Martin Ronald Rowley filed 21 December 2020 [25], 'MR-11'.
The affidavits of Mr Keeves annex copies of correspondence that has passed between Herbert Smith Freehills and the solicitors for the receivers and managers of Alita.[7] By this correspondence, SMS indicated that it is also interested in participating in any sale process of the companies and their assets.[8]
[7] Affidavit of Peter Richard Keeves filed 22 December 2020; Second affidavit of Peter Richard Keeves filed 22 December 2020.
[8] Affidavit of Peter Richard Keeves filed 22 December 2020 'PK2' - 'PK3'.
The plaintiff contends that unless the second creditors meeting is adjourned, the opportunity for Galaxy to make and have accepted a superior proposal will be lost, and that if the Austroid DOCAs are accepted and completed, Alita's assets will be sold at an undervalue to Austroid and Galaxy's shareholding will be lost.
The affidavit of Adriano Poncini annexes correspondence that has passed between the solicitors for Austroid and the solicitors for the defendants.[9] From this correspondence, it is apparent that:
(a)Austroid opposes any adjournment of the meeting; and
(b)if the DOCA is not considered by the creditors of the meeting, Austroid will consider this to be a breach of the loan agreement, require immediate repayment of the $385,000 it has advanced to the administrators, and will withdraw its proposal.
[9] Affidavit of Adriano Poncini sworn 22 December 2020, 'AP1' - 'AP3'.
It is apparent from the notice of meeting, as well as previous judgments of this court, that there is a long and somewhat complicated history to the external administration of the Companies.[10] In summary, administrators and receivers were previously appointed by the plaintiff to each of the Companies in August 2019, following the purchase by Galaxy of the then‑secured creditor's debt. At that time, two alternative DOCA proposals were put forward: one by China Hydrogen Energy Ltd (CHEL), and one by Galaxy. The then‑administrators considered the CHEL DOCA was the superior proposal and in December 2019, executed that DOCA. On 27 November 2020, orders were made by Master Sanderson varying the terms of the CHEL DOCA. I note that the CHEL DOCA provided, inter alia, that the Alita shares would be transferred to the proponent of the DOCA.
[10] See Tucker as joint and several administrator of Alita Resources Ltd (Receivers and Managers Appointed) (Administrators Appointed) [2019] WASC 355; Re Alita Resources Ltd; Ex parte Tucker [2020] WASC 430; Re Alita Resources Ltd; Ex parte Tucker [2020] WASC 430(S).
On 3 December 2020, the DOCA effectuated, which extinguished in full all claims of creditors against the Companies, excluding the secured debt.
On or about that same date, Austroid purchased CHEL's debt and became the only secured creditors of the Companies.
Statutory regime
Part 5.3A of the Act is headed, 'Administration of a company's affairs with a view to executing a deed of company arrangement'. The object of this part, as set out in s 435A of the Act, is to maximise the chances of a company – or parts of it – continuing in existence, or where this is not possible, results in a better return for creditors and members than would result from an immediate winding up.
As was noted by the majority of the High Court in Lehman Brothers Holdings Inc v City of Swan,[11] it is clear from this part of the Act that it is creditor driven - that is, effect is to be given to the will of the majority of creditors who vote at the meetings. Any arrangement proposed by administrators must be approved solely by the company's creditors; no court approval is required. For that reason, courts are reluctant to override or seek to sideline creditors in making any orders under s 447A of the Act.
[11] Lehman Brothers Holdings Inc v City of Swan [2010] HCA 11; (2010) 240 CLR 509 [39] (French CJ, Gummow, Hayne & Kiefel JJ).
Section 445D of the Act gives the court power to make an order terminating a deed of company arrangement on a number of grounds.
Where a DOCA includes a proposal for the transfer of shares, the transfer can only occur where the deed administrator either obtains the written consent of the owner of the shares or leave of the court is obtained, under s 444GA of the Act. A shareholder of the company is entitled to be heard in opposition to any application for leave under s 444GA(2).
A member of the company also has the ability to apply to have the DOCA declared void under s 445G of the Act.
As was noted by Kiefel CJ and Edelman J in Mighty River International Ltd v Hughes:[12]
The chief difference between pt 5.3A and earlier provisions for statutory composition and arrangements in corporate insolvency was 'the role played by the court. Earlier provisions required court approval before the scheme was effective; pt 5.3A provides for disallowance by the court after the deed has been made.' (emphasis in original)
[12] Mighty River International Ltd v Hughes [2018] HCA 38; (2018) 265 CLR 480 [6].
Disposition
In considering whether orders should be made in terms of the interlocutory process for an order restraining the second creditors meetings, the first matter to be addressed is whether there is a serious question to be tried, and second, where the balance of convenience lies.
It was not immediately apparent what the plaintiff contended was a serious question or questions to be tried. In the plaintiff's oral submissions, senior counsel for the plaintiff submitted that there was a serious question to be tried as to whether the administrators were in breach of their duties as officers of the company. In their written submissions, there is also a contention by the plaintiff that there is reason to think that the court may not approve the proposed transfer of the shares because it would unfairly prejudice the interests of shareholders.
Even if I was to accept there is a serious question to be tried on each of these matters, in my view each of these matters can be raised after a DOCA has been entered into. In circumstances where the Act makes plain the consideration of any proposal is a decision for creditors and not for the court prior to the proposal being accepted, it is, in my view, necessary that there be a very strong case for the court to intervene to prevent the process in the Act from proceeding. On the evidence before me, I do not consider there is a strong case that would require intervention of the court prior to entry into any DOCA.
In respect of the balance of convenience, the evidence before me is that any extension of time would result in the Austroid proposal being withdrawn.
This factor alone is sufficient for me to consider that the balance of convenience favours the meetings proceeding. In any event, I do not consider that any of the other factors relied upon by the plaintiff support an adjournment of the meetings. As is plain from the history of this matter, Galaxy Resources was the original secured creditor of the company and previously put a proposal to the then-administrators. There is no sufficient explanation as to what time it requires to put an alternative proposal, why it has not been able to put a proposal capable of acceptance to the defendants in the time it has had available or why any of the matters it refers to cannot be raised after any proposal is considered by the meetings of creditors.
While I accept the submission of senior counsel for the plaintiff that there is likely to be a delay in finalising the DOCA, due to the necessity to obtain foreign investment review board (FIRB) approval, given the delay to date and the absence of any evidence as to any likely delay, I do not consider this is a sufficient basis to grant the orders sought. In my view, the balance of convenience favours the creditors meetings proceeding as scheduled.
Given this finding, it is unnecessary for me to consider whether an extension of time should be granted, and whether the plaintiff has standing to apply for any extension of time.
Conclusion
For these reasons, the interlocutory orders sought by the plaintiff are refused. The interlocutory process dated 21 December 2020 will be dismissed.
I am satisfied that, given the similarity of the orders sought in the originating process and the interlocutory process it is appropriate that the defendants have their costs of today. I will hear from the parties in respect of the costs of the interested party.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
ME
Associate to the Honourable Justice Hill11 JANUARY 2021
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