Hurt v Ausroc Metals Ltd

[2017] WASC 169

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   HURT -v- AUSROC METALS LTD [2017] WASC 169

CORAM:   PRITCHARD J

HEARD:   15 JUNE 2017

DELIVERED          :   15 JUNE 2017

FILE NO/S:   COR 137 of 2017

BETWEEN:   DAVID ASHLEY NORMAN HURT

First Applicant

CHRISTOPHER MICHAEL WILLIAMSON
Second Applicant

AND

AUSROC METALS LTD
Respondent

Catchwords:

Corporations Law - Deed of company arrangement - Extension of time to execute deed of company arrangement - Whether extension period warranted - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 444B(2)

Result:

Application granted

Category:    B

Representation:

Counsel:

First Applicant               :     Ms S Calautti

Second Applicant          :     Ms S Calautti

Respondent:     No appearance

Solicitors:

First Applicant               :     Jackson McDonald

Second Applicant          :     Jackson McDonald

Respondent:     No appearance

Cases referred to in judgment:

Re Ansett Australia Ltd v Sydney Airports Corporation Ltd [2002] FCA 530

Re Hi‑Fi Sydney Pty Ltd [2015] NSWSC 781

Re Sydney Ringtread Tyres Pty Ltd (Administrator Appointed) [2001] NSWSC 424

PRITCHARD J: 

(This judgment was delivered extemporaneously on 15 June 2017 and has been edited from the transcript).

1. This is an application by originating process for an extension of time, and for liberty to apply for further extension, in which to execute a deed of company arrangement (DOCA) pursuant to s 444B(2)(b) of the Corporations Act 2001 (Cth) (the Application).

2. The Application is supported by the affidavit of David Ashley Norman Hurt sworn 14 June 2017.  Mr Hurt and Mr Christopher Williamson are the joint and several voluntary administrators of Ausroc Metals Ltd (in liquidation) (Ausroc).

3. The Application has been made on an ex parte basis, apparently having regard to the urgency of the Application, as the time period for execution of the DOCA under s 444B(2) expires today. However, according to the materials before the Court, the creditors of Ausroc have been put on notice of the Application being made, and none of them have informed the administrators that they object to the extension.

4. For the reasons which follow, the extension of time will be granted.

Factual background

1. Ausroc went into liquidation in August 2016.  Ausroc's creditors approved the liquidators appointing themselves the voluntary administrators of the company on 9 February 2017 at the first creditors' meeting.

2. A proposal subsequently emerged from one of Ausroc's secured creditors to enter into a DOCA.  That was considered at a reconvened second creditors' meeting on 25 May 2017.  The creditors voted that Ausroc should execute a DOCA in terms materially consistent with the proposal outlined in a report of the administrators of 17 May 2017, or any subsequent report of the administrators (the DOCA).

3. I should mention that a previous proposal was made by a third party to enter into a DOCA (the first proposed DOCA).  However, that proposal did not meet with the favour of the creditors and was not the subject of a decision by them to pursue it.

4. If executed, the DOCA will result in the injection of significant funds into Ausroc.  According to the administrator's report (to which I referred at [6]), which was annexed to Mr Hurt's affidavit, if the DOCA is executed, the priority creditors (that is, the employees of the company) stand to receive 100 cents in the dollar for every dollar that they are owed.  The secured creditors, of which there are two, stand to receive some return on what is owed to them.  However, the ordinary unsecured creditors are unlikely to receive any return.  As compared with the first proposed DOCA, the DOCA would be considerably more advantageous for creditors.

5. Clearly, if the DOCA is not entered into, there will be a very significant detriment for the creditors and, particularly, the priority creditors.  According to the administrators, the financial position of the company is so dire that there is unlikely to be any return to any creditors if the DOCA is not entered into.  For that reason, the administrators recommended that it would be for the greater benefit of the company and its creditors if the company executed the DOCA.

Applications for extensions of time under s 444B(2)(b) of the Corporations Act

1. Under s 444B(2) of the Corporations Act, 'the company must execute the [DOCA] within:  (a) 15 business days after the end of the meeting of creditors; or (b) such further period as the Court allows on an application made within those 15 business days.'

2. The function of the Court on an application under s 444B(2) of the Corporation Act 'is to balance the benefits and detriments to be obtained from pursuing the deed of company arrangement possibility against those which would flow if the period prescribed by s 444B(2) is allowed to expire without extension ... '.[1]

   [1] Re Sydney Ringtread Tyres Pty Ltd (Administrator Appointed) [2001] NSWSC 424 [4] (Barrett J).

3. The operation of s 444B(2) within the overall context of pt 5.3A of the Corporations Act was considered by Goldberg J in Re Ansett.[2]  I am indebted to his Honour's detailed discussion of the issues arising from the implications of a company being in administration (insofar as it gives rise to the statutory moratorium on proceedings against the company without the consent of the administrators or leave of the court, or on the company's action to take possession of property).  In particular, I note his Honour's observations at [53] to [55] and at [60] of his judgment.

   [2] Re Ansett Australia Ltd v Sydney Airports Corporation Ltd [2002] FCA 530 [58] (Goldberg J).

The Application

1. Mr Hurt deposed that the DOCA is a complex proposal, as it requires not just the injection of funds into the company, but also a capital raising to be carried out, and the conversion of the debt owed to the secured parties by the company into shares in the company.  Mr Hurt has deposed that preparing the documentation necessary to carry those proposals into effect has proved to be a complex exercise. 

2. A draft of the DOCA has apparently been prepared, but the administrators are not satisfied with its terms. The administrators consider that amendments are needed to those terms and a separate reconstruction deed is required, in addition to the DOCA itself.  Mr Hurt deposed that there has been insufficient time for those documents to be finalised and reviewed by the administrators and the administrators' solicitors.

3. This is not, therefore, a case like Re Ansett, or, for that matter, like Re Hi-Fi Sydney Pty Ltd,[3] where the extension of time under s 444B(2) was sought for the purpose of avoiding the consequences of the execution of the DOCA itself. Instead, this is a case in which the extension is sought for the purpose of enabling the documentation which is necessary to put the DOCA into effect to be properly prepared.

   [3] Re Hi‑Fi Sydney Pty Ltd [2015] NSWSC 781.

4. Mr Hurt deposed that he does not believe there will be any adverse impact on creditors if the Application is granted so as to allow an extension of time.  In particular, he referred to the impact on creditors and others of the continuation of the statutory moratorium that exists while the company is in administration.  Mr Hurt concluded that there would be no difficulty posed by the continuation of the statutory moratorium because, to his knowledge, Ausroc is not a party to any court proceedings that are currently on foot and, therefore, no such proceedings could have been stayed as a result of the company being in administration.  The secured creditors have not indicated to the administrators that they are impacted by being unable to enforce their securities.

5. Finally, I should note that, if the DOCA is not executed today before the expiry of the time period under the Corporations Act, and if an extension of time is not granted, the position will be that Ausroc will simply pass back into liquidation.

6. The consequences of permitting the expiry of the statutory period without the execution of the DOCA, on the one hand, when balanced against the impact of the grant of the extension on the other, clearly weighs in favour of the grant of the extension of time.  No prejudice appears likely to arise from the continuation of the statutory moratorium for the time being, and no creditors have been heard to complain about the extension.

7. One further matter should be mentioned. The extension sought is for a relatively lengthy period of time ‑ a further month within which to execute the DOCA ‑ having regard to the statutory time frame of 15 days under s 444B(2). Accepting Mr Hurt's evidence as to the complexity of the arrangements which need to be made under the proposed DOCA, that period of extension, of itself, may be justified. As initially drafted, the Application sought an order for liberty to apply for a further extension of time. The pursuit of that order led me to be concerned that there might be a perception that a further extension of time would be granted if requested. Counsel for the plaintiffs has now indicated that an order for liberty to apply is no longer sought. However, I would make the observation that the parties to the DOCA should not take the view that they can adopt a leisurely pace in their efforts to finalise and execute the DOCA and the related documentation, on the assumption that a further extension of time would be available if requested. Of course, any application for a further extension, were one to be made, would be assessed on its merits at the time. It suffices to say, however, that as s 444B(2) itself contemplates, it is in the interests of all that a DOCA be entered into expeditiously once the creditors have determined to pursue that course.

8. The orders which will be made are:

   (1)Pursuant to s 444B(2) of the Corporations Act, the time within which the second plaintiff must execute the instrument setting out the terms of the deed of company arrangement approved at the meeting of the second plaintiff's creditors on 25 May 2017 is extended to 4.00 pm on 14 July 2017. 

   (2)The first plaintiff give notice of these orders to the second plaintiff's creditors by means of a circular to be posted to the second plaintiff's creditors by ordinary post no later than 7 days after the date of these orders. 

   (3)The costs and expenses of this proceeding will be costs and expenses of the administration of the second plaintiff.