Hill, in the matter of Ovato Limited (Administrators Appointed)
[2022] FCA 903
•3 August 2022
FEDERAL COURT OF AUSTRALIA
Hill, in the matter of Ovato Limited (Administrators Appointed) [2022] FCA 903
File number(s): NSD 565 of 2022 Judgment of: STEWART J Date of judgment: 3 August 2022 Catchwords: CORPORATIONS – application by administrators for orders pursuant to ss 443A(1) and 447A of the Corporations Act 2001 (Cth) and s 90-15 of the Insolvency Practice Schedule (Corporations) – where administrators of public group of companies seek to continue to trade the business of the group while assessing options for recapitalisation or sale of group – whether administrators are justified in entering into funding arrangement to facilitate ongoing trade during prospective sale period – where administrators seek to limit personal liability to repay the funding – whether funding arrangement is in the best interests of creditors – application allowed Legislation: Corporations Act 2001 (Cth) Pt 5.3A, ss 435A, 443A, 447A; Sch 2, Insolvency Practice Schedule (Corporations) s 90-15
Federal Court of Australia Act 1976 (Cth) ss 37AF(1)(a) and 37AG(1)(a)
Cases cited: In the matter of RCR Tomlinson Ltd (administrators appointed) & Ors [2018] NSWSC 1859
Korda, in the matter of Ten Network Holdings Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2017] FCA 1144; 35 ACLC 17-044
Krejci, in the matter of Union Standard International Group Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 1111
Niccol, in the matter of Fly365 Pty Ltd (in liq) [2020] FCA 1303
Re Unlockd Limited (administrators appointd) & Ors [2018] VSC 345 at [60]-[64]
Silvia v FEA Carbon Pty Ltd(admin apptd) (recs and mgrs apptd) [2010] FCA 515; 185 FCR 301
Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717; 144 ACSR 347
Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) [2020] FCA 571; 144 ACSR 310
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 24 Date of hearing: 2 August 2022 Counsel for the First Plaintiff D Sulan SC and N Bailey Solicitor for the First Plaintiff Johnson Winter & Slattery ORDERS
NSD 565 of 2022 IN THE MATTER OF OVATO LIMITED (ADMINISTRATORS APPOINTED) ACN 050 148 644 & ORS CHRISTOPHER CLARKE HILL, ROSS ANDREW BLAKELEY & BEN PETER CAMPBELL IN THEIR CAPACITY AS JOINT AND SEVERAL VOLUNTARY ADMINISTRATORS OF EACH OF OVATO LIMITED ACN 050 148 644 (ADMINISTRTORS APPOINTED) (and others named in the Schedule)
First Plaintiff
ORDER MADE BY:
STEWART J
DATE OF ORDER:
3 AUGUST 2022
THE COURT ORDERS THAT:
1.Pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS), being Schedule 2 to the Corporations Act 2001 (Cth), the first plaintiffs are justified in:
(a)entering into and performing the Acknowledgement and Seventh Amendment Deed between Scottish Pacific Business Finance Pty Ltd ACN 008 636 388 (ScotPac), HC Management Pty Ltd ACN 169 916 885, the second to sixtieth plaintiffs and the first plaintiffs (Seventh Amendment Deed); and
(b)drawing down funds pursuant to the Seventh Amendment Deed.
2.Pursuant to s 447A(1) of the Corporations Act and s 90-15 of the IPS, Pt 5.3A of the Corporations Act operate in relation to the plaintiffs as if s 443A(1) of the Corporations Act provides that:
(a)any liability incurred by the first plaintiffs arising out of, or in connection with the Seventh Amendment Deed or any loan or monies borrowed or raised by the second to the sixtieth plaintiffs from ScotPac, including monies borrowed or raised, interest or discount charges incurred in respect of monies borrowed or raised and borrowing or funding costs, are in the nature of debts incurred by the first plaintiffs in the performance and exercise of their functions as joint and several administrators of each of the second to the sixtieth plaintiffs; and
(b)notwithstanding the liabilities in paragraph (a) are debts incurred by the first plaintiffs in the performance and exercise of their functions as joint and several administrators of each of the second to the sixtieth plaintiffs, the first plaintiffs will not (except as expressly provided in the Seventh Amendment Deed) be personally liable to repay such debts or satisfy such liabilities to the extent that the assets the subject of the security in Confidential Exhibit CCH-2 of the affidavit of Christopher Clarke Hill affirmed on 1 August 2022 (Supporting Affidavit) are insufficient to satisfy the debts and liabilities incurred by the first plaintiffs.
3.The first plaintiffs take all reasonable steps to cause a copy of the Court’s orders (Orders) be given with sealed copies of the interlocutory process filed on 2 August 2022 (Application), within two (2) business days of the making of the orders, to creditors (including persons or entities claiming to be creditors) of each of the second to sixtieth plaintiffs, including notifying creditors that documents relied upon in support of the Application (redacted in accordance with the Orders) will be provided by the first plaintiffs, by way of a FileShare link, upon request to a nominated email address, and so making the documents available.
4.Any person who can demonstrate a sufficient interest have liberty to apply to vary or discharge any orders made pursuant to orders 1 or 2 above on 24 hours’ written notice to the first plaintiffs and the Court.
5.Pursuant to ss 37AF(1)(a) and 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth), on the basis that it is necessary so as to prevent prejudice to the administration of justice, the publication or disclosure of:
(a)The percentage figures in paragraph 52 and the whole of paragraphs 62 to 64 of the Supporting Affidavit, paragraphs 8 and 11 of counsel’s submissions dated 2 August 2022, Confidential Exhibit CCH-2 and Exhibit CCH-4 is prohibited for a period of six years;
(b)paragraphs 26, 28, 29, 39, 42, 43, 56 and 69 of the Supporting Affidavit, paragraph 7 of the submissions and a transcript of the closed portion of the hearing on 2 August 2022 is prohibited until the earlier of the following:
(i)the conclusion of a sale of the business of the second to sixtieth plaintiffs; and
(ii)the finalisation of the external administration of the second to sixtieth plaintiffs.
6.The plaintiffs’ costs of and incidental to this application be costs in the administrations of the second to sixtieth plaintiffs, jointly and severally.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
STEWART J:
Introduction
Chris Hill, Ross Blakeley and Ben Campbell, together the first plaintiff, are the voluntary administrators of the ASX listed Ovato Limited and 58 of its subsidiaries. The administrators seek orders pursuant to ss 443A(1) and 447A of the Corporations Act 2001 (Cth) and s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS) (which is Sch 2 to the Act) that they are justified in:
(1)entering into and performing the Acknowledgement and Seventh Amendment Deed (together, the Seventh Amendment Deed) between the plaintiffs, Scottish Pacific Business Finance Pty Ltd and a deed trustee (together, ScotPac); and
(2)drawing down funds pursuant to the Seventh Amendment Deed.
The Ovato group conducts one of two national integrated print and distribution businesses in Australia and New Zealand, providing services including the printing of catalogues for well-known national businesses, the printing of promotional materials, custom product packaging and direct marketing as the largest Print Post mailer in Australia.
The administrators were appointed to the 59 companies on 21 July 2022. Since that time, they have sought to continue to trade the business of the group on a “business as usual” basis while assessing viable options for a sale or recapitalisation of the business. The administrators have engaged in a sales campaign, with expressions of interest to purchase the whole or part of the business or its assets due by 28 July 2022 and a current expected deadline of binding offers by 11 August 2022. The administrators are optimistic about the prospects of a sale.
The administrators have formed the opinion that continuing to trade Ovato’s business during the sales campaign will maximise the prospect of a sale of the business as a going concern, which in turn is expected to provide a greater return to creditors. The difficulty is that the group has limited cash reserves which restricts the administrator’s ability to keep trading.
The group has had a financing facility in place with ScotPac since at least July 2020. ScotPac holds a number of securities for the credit that it extends to the group. In simple terms, the facility agreement operated so that ScotPac would make an early payment (at a discounted percentage called the “early payment percentage”) to group companies (referred to as the Clients) based on invoices issued by the Clients to customers. Pursuant to the facility agreement, the Clients’ bank accounts were transferred to ScotPac so that when the issued invoices were paid by customers, the money was paid into an account that had been transferred to, and was held by, ScotPac.
The “early payment percentage” was such that, unless a customer did not pay the issued invoice in full, the early payment was fully covered by the receivable. Further, the structure meant that any costs, fees or other charges in respect of the facility were likely to be covered by the balance of the receivable over and above the early payment amount.
In the event that an invoice was not paid, ScotPac also had security over the assets the subject of the ScotPac securities.
As at the date of the administrators’ appointment, the amount owed to ScotPac pursuant to the facility was considerably less than the amount of receivables owing to the Ovato group by customers, meaning the facility can be repaid in full (with a substantial balance remaining for the Ovato group and other creditors) without recourse to any other assets of the Ovato group or the ScotPac securities. However, if the efforts to sell the business fail and the group companies go into liquidation, the administrators fear that some of the pre-appointment receivables from customers will not be recovered because customers will likely claim a set-off of the debt owing against damages for breach of their respective contracts. The administrators therefore believe that the ongoing trading of the group will maximise the chances of recovery of the pre-appointment securities.
The administrators have estimated the level of funding that the group will require in order to keep trading until the end of the anticipated period for the conclusion of the sale process. It is a considerable sum, and they are understandably not prepared to be personally liable for its repayment. ScotPac has agreed to extend the facility (by way of the Seventh Amendment Deed) and provide the required funding subject to a specified limit. The limit is higher than the presently anticipated funding requirement for the requisite period. The funding will enable the administrators to continue to trade the Ovato business.
Amongst other things, the Seventh Amendment Deed provides as follows:
(1)The “early payment percentage” is less than what it is under the existing facility;
(2)Other than in the case of negligence, fraud or wilful misconduct or a loss caused by a breach by the administrators of two identified obligations in the Seventh Amendment Deed, the liabilities of the administrators for any amount payable in connection with the Seventh Amendment Deed and specified ancillary documents is limited to the assets the subject of the ScotPac securities.
(3)If the assets the subject of the ScotPac securities are insufficient to satisfy the above liability, ScotPac agrees that it will not seek to recover the shortfall against the administrators personally.
(4)The Seventh Amendment Deed is contingent upon the Court making orders as sought in the application and will not be binding unless the orders are made.
In short, the administrators have negotiated a deal for continued funding for the group in order to continue to trade during the anticipated sale period, but the deal depends on approval by the Court and the administrators being excused from personal liability to repay the funding.
Legal principles
The object of Pt 5.3A of the Act and the IPS (insofar as it relates to Pt 5.3A) is set out in s 435A of the Act, namely, to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence, or, if that is not possible, results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.
Section 443A of the Act relevantly provides that an administrator is liable for debts they incur in the performance, or purported performance or exercise, of any of their functions and powers as administrator, including for the repayment of money borrowed.
In order to avoid the consequence of s 443A, when a company in administration borrows funds from a third party financier to help fund the company’s ongoing trade during administration, administrators commonly seek orders limiting their personal liability: Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717;144 ACSR 347 at [90] citing Korda, in the matter of Ten Network Holdings Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2017] FCA 1144; 35 ACLC 17-044 at [42].
Where the continued trade is for the benefit of creditors, personal liability of administrators can be (and has been) excluded, including pursuant to s 447A of the Act, prior to any such liability being incurred: Virgin No 2 at [91], citing Silvia v FEA Carbon Pty Ltd(admin apptd) (recs and mgrs apptd) [2010] FCA 515; 185 FCR 301 at [14]. As noted in Virgin No 2 at [89], Sloss J in Re Unlockd Limited (administrators appointd) & Ors [2018] VSC 345 at [60]-[64] helpfully set out the principles applicable to such an application under s 447A with extensive reference to authority. It is not necessary to repeat them here.
The Court is empowered under s 90-15 of the IPS to make such orders as it sees fit in respect of the administration of the group. The function of such orders, or judicial directions, is not to determine the rights and liabilities associated with a particular transaction, but rather to confer a level of protection on the administrator: Krejci, in the matter of Union Standard International Group Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 1111 at [9].
The fact that a s 90-15 direction may relate to a decision or action of a “commercial character” does not prevent such a direction being made: In the matter of RCR Tomlinson Ltd (administrators appointed) & Ors [2018] NSWSC 1859 at [14]. In that case, where the administrators sought a direction that they be justified in procuring the borrowing of loan funds by the companies in administration, Black J explained:
The Court’s preparedness to grant such a direction in those circumstances reflects the intrinsic unfairness of leaving a voluntary administrator to be at risk of liability, in respect of a complex decision of that kind, where any decision that is made, including making no decision, will have inevitable risks for some or all of the affected constituencies.”
Similarly, in Niccol, in the matter of Fly365 Pty Ltd (in liq) [2020] FCA 1303, there was a direction that the liquidators were justified in entering into a funding agreement and were authorised to carry its terms into effect. Relevant to that decision was the conduct and purpose of the external administrators in seeking the funding, including that it be for the benefit of creditors.
Consideration
The administrators have formed the view that the ongoing trade of the group’s business is in the best interest of creditors. In order for that ongoing trade to occur, funding is required. I am satisfied that the relief that they seek is necessary for that purpose.
The administrators have considered the best interests of creditors of the group. Given that the funding enables continuation of the business, which in turn maximises the prospect of preserving the business of the group with a view to its sale or recapitalisation, it is also in the best interests of creditors for the terms of that funding agreement to be endorsed. The purpose, therefore, of the proposed entry into the Seventh Amendment Deed, is, entirely appropriately, to benefit creditors of the group, and fulfils the proper purpose of seeking a s 90-15 direction. Such a direction will offer the administrators a level of protection in respect of their decision to obtain funding to secure the ongoing operation of a national business whilst the prospect of a sale of the business continues to be actively explored for the benefit of creditors.
It is noteworthy that the relief from personal liability that the administrators seek is limited to liability to ScotPac under the Seventh Amendment Deed, and ScotPac has agreed to that limitation. Thus, other post-appointment creditors are not prejudiced by that relief.
In the circumstances, I am satisfied that the principal relief that the administrators seek is justified as being in the best interest of creditors because it maximises the chances of the group, or its business, continuing in existence which will likely result in a better return to creditors.
Final matters
I am persuaded that it is necessary to prevent prejudice to the proper administration of justice within the meaning of s 37AG(1)(a) of the Federal Court of Australia Act 1976 to make non-publication orders in respect of certain details of the group’s current cash position and anticipated cash needs and of the existing and contingent facility with ScotPac. The public disclosure of those details could prejudice the group’s competitiveness, the sale process and the ability of the administrators, or others in a similar position, to access funding. In the event that any of those details are required by any creditor or other sufficiently interested party in order to assess their position in respect of seeking a variation or the setting aside of any of the orders, appropriate arrangements can be made to facilitate that.
I am also satisfied as to the arrangements for giving creditors notice, including the ability to have the matter returnable to set aside or vary any of the orders. See Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) [2020] FCA 571; 144 ACSR 310 at [50]-[51]. I appreciate that in respect of funds already drawn down, it will be difficult if not impossible for the orders to be varied or set aside, but the way in which the facility works is that the funds will only be drawn down as and when invoices are issued to customers – the funds will not be drawn down all at once, but can be expected to be drawn down gradually over time. The prejudice in this respect is accordingly limited. See RCR Tomlinson at [13].
I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart. Associate:
Dated: 3 August 2022
Schedule
No: NSD565/2022
Federal Court of Australia
District Registry: New South Wales
Division: General
Second Plaintiff
OVATO LIMITED ACN 050 148 644
Third Plaintiff
ARGYLE PRINT PTY LTD ACN 001 753 420
Fourth Plaintiff
ATTIC FUTURA PTY LTD ACN 058 491 268
Fifth Plaintiff
CANBERRA PRESS PTY LTD ACN 072 132 266
Sixth Plaintiff
CRAFT PRINTING PTY LTD ACN 073 088 909
Seventh Plaintiff
D. LIVINGSTONE PTY LTD ACN 008 471 976
Eighth Plaintiff
FORTY TWO INTERNATIONAL PTY LTD ACN 095 622 889
Ninth Plaintiff
HANNAN FINANCE CORPORATION PTY LTD ACN 105 770 956
Tenth Plaintiff
HOLLER ADMINISTRATION PTY LTD ACN 122 047 821
Eleventh Plaintiff
HOLLER AUSTRALIA PTY LTD ACN 127 752 523
Twelfth Plaintiff
IPMG ADMINISTRATION PTY LTD ACN 123 230 713
Thirteenth Plaintiff
IPMG CONSULTING PTY LTD ACN 611 368 346
Fourteenth Plaintiff
IPMG DIGITAL PTY LTD ACN 122 262 819
Fifteenth Plaintiff
IPMG HOLDOO PTY LTD ACN 615 558 944
Sixteenth Plaintiff
IPMG MANAGEMENT (NO 2) PTY LTD ACN 052 506 037
Seventeenth Plaintiff
IPMG PTY LTD ACN 123 230 259
Eighteenth Plaintiff
IPMG SUBOO PTY LTD ACN 615 559 549
Nineteenth Plaintiff
KIERIE INVESTMENTS PTY LTD ACN 003 418 273
Twentieth Plaintiff
KTAR PTY LTD ACN 108 207 558
Twenty First Plaintiff
LINQ PLUS PTY LTD ACN 070 732 071
Twenty Second Plaintiff
MANNINGTREE INVESTMENTS PTY LTD ACN 072 132 300
Twenty Third Plaintiff
MASSMEDIA STUDIOS PTY LTD ACN 094 222 563
Twenty Fourth Plaintiff
MAX AUSTRALIA PTY LTD ACN 093 947 963
Twenty Fifth Plaintiff
MJV PTY LTD ACN 108 207 629
Twenty Sixth Plaintiff
NDD DISTRIBUTION PTY LTD ACN 074 517 909
Twenty Seventh Plaintiff
OFFSET ALPINE PRINTING GROUP PTY LTD ACN 003 394 876
Twenty Eighth Plaintiff
OFFSET ALPINE PRINTING PTY LTD ACN 003 094 602
Twenty Ninth Plaintiff
OVATO FINANCE PTY LTD ACN 053 814 976
Thirtieth Plaintiff
OVATO PACKAGING PTY LTD ACN 050 411 759
Thirty First Plaintiff
OVATO PRINT CAIRNS PTY LTD ACN 050 487 879
Thirty Second Plaintiff
PACIFIC O'BRIEN PUBLICATIONS PTY LTD ACN 069 892 440
Thirty Third Plaintiff
PACIFIC PUBLICATIONS HOLDINGS PTY LTD ACN 051 748 344
Thirty Fourth Plaintiff
PMP ADVERTISING SOLUTIONS PTY LTD ACN 051 748 157
Thirty Fifth Plaintiff
PMP DIRECTORIES PTY LTD ACN 006 457 503
Thirty Sixth Plaintiff
PMP HOME MEDIA PTY LTD ACN 051 757 718
Thirty Seventh Plaintiff
PMP PROPERTY PTY LTD ACN 051 748 246
Thirty Eighth Plaintiff
PMP PUBLISHING PTY LTD ACN 053 814 878
Thirty Ninth Plaintiff
PMP SUBCO NO 1 PTY LTD ACN 052 506 073
Fortieth Plaintiff
PMP SUBCO NO 2 PTY LTD ACN 008 472 115
Forty First Plaintiff
PMP SUBCO NO 3 PTY LTD ACN 008 472 106
Forty Second Plaintiff
PMP SUBCO NO 4 PTY LTD ACN 008 471 985
Forty Third Plaintiff
PMP SUBCO NO 5 PTY LTD ACN 003 925 479
Forty Fourth Plaintiff
PMP SUBCO NO 6 PTY LTD ACN 600 279 721
Forty Fifth Plaintiff
PMP WHOLESALE PTY LTD ACN 004 386 663
Forty Sixth Plaintiff
PROPSEA PTY LTD ACN 108 206 800
Forty Seventh Plaintiff
RED PPR HOLDINGS PTY LTD ACN 111 284 961
Forty Eighth Plaintiff
SHOMEGA PTY LTD ACN 060 808 013
Forty Ninth Plaintiff
SHOW-ADS PTY LTD ACN 004 879 627
Fiftieth Plaintiff
SOUTHERN INDEPENDENT PUBLISHERS PTY LTD ACN 117 373 636
Fifty First Plaintiff
SPIN COMM SYD PTY LTD ACN 065 742 627
Fifty Second Plaintiff
SYNC COMMUNICATIONS MANAGEMENT PTY LTD ACN 079 529 267
Fifty Third Plaintiff
THE ARGUS & AUSTRALASIAN PTY LTD ACN 051 747 892
Fifty Fourth Plaintiff
THE FEDERAL PUBLISHING CO PTY LTD ACN 000 013 776
Fifty Fifth Plaintiff
THE GANG OF 4 PTY LTD ACN 095 624 678
Fifty Sixth Plaintiff
THE INDEPENDENT PRINT MEDIA GOUP PTY LTD ACN 071 231 215
Fifty Seventh Plaintiff
TIGERSTONE PTY LTD ACN 108 206 855
Fifty Eighth Plaintiff
TOTAL SAMPLING PTY LTD ACN 063 659 923
Fifty Ninth Plaintiff
WARWICK FARM BUSINESS PARK PTY LTD ACN 129 141 046
Sixtieth Plaintiff
WOODOX PTY LTD ACN 067 150 789
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