In the matter of AWA Limited (Administrators Appointed) (Receivers and Managers Appointed) ACN 111 674 661
[2014] NSWSC 249
•18 March 2014
Supreme Court
New South Wales
Medium Neutral Citation: In the matter of AWA Limited (Administrators Appointed) (Receivers and Managers Appointed) ACN 111 674 661 [2014] NSWSC 249 Hearing dates: Friday 7 March 2014 Decision date: 18 March 2014 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Order that administrators would be justified in entering into proposed transaction with commercial lender to raise funds to pay out secured creditor and retire receivers.
Catchwords: CORPORATIONS - external administration - voluntary administration - orders modifying application of Part 5.3A under s 447A - where administrators propose to enter into transaction with commercial lender to raise funds to pay out secured creditor and retire receivers - whether order required to make administrators personally liable and have indemnity and lien in respect of repayment of money borrowed - held, not necessary in light of s 447A(1)(d) - whether judicial advice should be given where no question of law procedure or propriety - held, advice given. Legislation Cited: Corporations Act 2001, s 443A, s 443D, s 447A, s 447D
Corporations Amendments (Insolvency) Act 2007Cases Cited: Re Ansett Australia Limited (No 1) [2001] FCA 1806; (2001) 115 FCR 376; 40 ACSR 389
Re Ansett Australia Limited and Korda [2002] FCA 90; (2002) 115 FCR 409; 40 ACSR 433
Re One-Tel Networks Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83
Re Spyglass Management Group Pty Ltd [2004] FCA 1469; (2004) 51 ACSR 432
Sanderson v Classic Car Insurances Pty Limited (1985) 10 ACLR 115Category: Principal judgment Parties: Philip Patrick Carter, Daniel Austin Walley & Alan Lee Walker (plaintiffs)
Roderick Mackay Sutherland & Andrew John Spring (receivers)Representation: Counsel:
Mr D Sulan w Mr A Hochroth (plaintiffs)
Mr J O'Connor (receivers)
Solicitors:
Johnson Winter & Slattery (plaintiffs)
Eakin McCaffery Cox Lawyers (receivers)
File Number(s): 14/ 73276
Judgment
AWA Limited is an iconic Australian company, incorporated 105 years ago, that now delivers technology services to major public and private enterprises, vendors, service providers, integrators and distributors. It has approximately 250 employees in offices in Sydney, Melbourne, Brisbane, Adelaide, Perth and Newcastle, and a national service network with agents in more than 700 locations. On 25 February 2014, AWA's directors resolved under (CTH) Corporations Act 2001, s 436A, that the company was or was likely to become insolvent, and appointed the plaintiffs Philip Patrick Carter, Daniel Austin Walley and Alan Lee Walker as joint and several voluntary administrators. The administrators seek the direction of the court as to whether they would be justified in borrowing funds from a commercial lender to enable the payment out of a secured creditor and the retirement of receivers appointed by it.
The investigations of the administrators so far indicate that AWA's assets comprise factored debtors of about $2.3 million, non-factored debtors of about $1 million, February invoices amounting to about $2.2 million, March work in progress to date of about $400,000, inventory with a net recoverable value of about $300,000, fixed assets with a net recoverable value of about $300,000, cash of about $500,000 (currently held by the administrators), plus any goodwill value of the business. As to liabilities, a PPSR search reveals that there are 78 security interests registered by creditors. The primary secured creditor is Moneytech Finance Pty Ltd, which has provided a debt factoring service to AWA since about 2011, and is owed $2.741 million, secured by a fixed and floating charge over the assets and undertaking of the company granted on 19 April 2011 which, for the purposes of the PPSR, has become a migrated security over all AWA's present and after-acquired property. There is a potential redundancy liability, in respect of AWA's employees, of between $5 million and $6 million. Unsecured creditors - mainly trade suppliers - amount to approximately $1.5 million. Lessors and other contingent creditors are likely to add to the total, but their quantum has not yet been ascertained.
The administrators consider that the best commercial outcome for creditors to maximise recovery of the substantial book debts due to the company is a sale of AWA's business as a going concern, so that debtor customers have confidence in on-going services and are therefore prepared to pay outstanding invoices. An amount of between $750,000 and $850,000 is required to pay wages for March 2014 due on 14 March. Because, if those wages are not paid, it may be anticipated that employees will cease working, which will be destructive of the value of the business and the prospects of any sale, the administrators consider it important to effect a speedy sale.
Accordingly, since their appointment, the administrators have sought to elicit interest in a sale. Prior to 28 February 2014, approximately 40 parties had expressed interest, and following the publication of an advertisement in the Australian Financial Review on 27 February 2014, a further 15 to 20 parties expressed interest. The administrators have provided information, contained in a data room, to those who have signed a non-disclosure agreement. They propose to call for formal expressions of interest (to close on 12 March 2014), formulate a short-list of serious potential purchasers and make further due diligence information available to them, and seek non-binding indicative offers. They consider it likely that, should offers at the right level be received, a sale could be effected in one to two weeks.
However, on 28 February 2014, Moneytech, pursuant to its security, appointed Roderick Mackay Sutherland and Andrew John Spring as receivers and managers of the assets and undertaking of AWA. As a result, the administrators are no longer in control of the sale process. The administrators are of opinion that the receivers are less likely to consummate an expeditious sale - not least because of their obligations under Corporations Act, s 420A. In the meantime, the receivers are incurring remuneration of $200,000 to $250,000 per week, and propose to retrench some employees and factor further debtors. The administrators are of the opinion that these actions are not necessarily in the best interest of the creditors as a whole (though they may well be in the interests of the secured creditor to whom the receivers are primarily responsible).
The administrators have therefore sought funding to enable Moneytech to be paid out, and the receivers retired. That course will enable the administrators to regain control of the sale process, and avoid the incurring of two sets of remuneration for two sets of insolvency administrators, rather than only one.
The administrators have conducted a competitive process to find a lender and on 1 March 2014 held discussions with two potential financiers, Remagen (a commercial lender), and Robert Moran (a director of AWA), who introduced Woolley GAL II Pty Limited (a commercial lender). Both proposals were available only on a full recourse basis, namely that the lender have access to both the administrator's personal liability and indemnity and a lien on AWA's assets, on a joint and several basis. The administrators formed the view that the Woolley proposal was on slightly better terms as it carried lower fees, did not include an amortisation schedule and offered a longer term (and therefore more flexibility for the administrators).
The administrators wish to accept the Woolley proposal. In order to do so, they (and their partners) are prepared to guarantee its repayment. The administrators expect there to be sufficient assets in the administration to enable full repayment of the proposed loan within three or four months.
One of the administrators explained the proposal at a creditors' meeting on 7 March 2014, and took questions. There was no objection voiced by any creditor. A committee of creditors was then constituted and met immediately following the creditors' meeting. There was further discussion of the proposal, and again no objection to it. Moneytech has indicated that the proposal is acceptable to it, so long as it is paid in full.
By 7 March 2014, the administrators were concerned that if the receivers were not removed in the next day or so there was a real possibility of no sale being able to be effected within the following week, significant further costs being incurred by the receivers, approximately 70 staff being made redundant, and as a result the Woolley proposal not being sufficient to satisfy the increased liability to Moneytech.
On 7 March 2014 the plaintiffs in their capacity as the voluntary administrators of the company AWA Limited approached the Court seeking leave to file an originating process claiming the following relief:
1 Pursuant to s 447A of the Corporations Act 2001 (Cth) ("the Act"), Pt 5.3A of the Act is to operate in relation to AWA Limited (administrators appointed) (receivers and managers appointed) (AWA) as if:
(a) s 443A(1) provided that the repayment of money borrowed, interest in respect of money borrowed and borrowing costs in respect of the loan to be entered into in accordance with the loan agreement in or substantially the same form of Exhibit PC-1, tab 11 to the affidavit of Philip Patrick Carter sworn on 7 March 2014 ('the Loan Agreement") comprise debts incurred by the administrators in the performance of and exercise of their functions and powers as administrators of AWA;
(b) s 443D provided that the plaintiffs are entitled to be indemnified for the debts referred to in paragraph (a);
(c) s 443F provided that the plaintiffs have a lien on the company's property in respect of the indemnity referred to in paragraph (b).
2 Pursuant to s 447A of the Act, s 447D(1) of the Act is to operate in relation to AWA so that in an application by the administrators for directions pursuant to s 447D(1) in relation to the Loan Agreement and the Security Document referred to therein, the Court may give a direction the administrators may properly and justifiably enter into and give effect to the Loan Agreement and the Security Document (as defined in the Loan Agreement).
3 Pursuant to s 447D(1) of the Act, as it operates in accordance with paragraph 2 above, the Court directs that the plaintiffs may properly and justifiably enter into and give effect to the Loan Agreement and the Security Document (as defined in the Loan Agreement).
The relief sought in the originating process appears to be modelled on that given in Re Ansett Australia Limited (No 1) [2001] FCA 1806; (2001) 115 FCR 376; 40 ACSR 389; see also Re Spyglass Management Group Pty Ltd [2004] FCA 1469; (2004) 51 ACSR 432. In my view, that approach was misconceived, because while, when those cases were decided, s 447A relief was necessary to extend an administrator's personal liability referred to in s 443A and consequent right of indemnity under s 443D and lien under s 443F to the repayment of money borrowed, the amendments made by the Corporations Amendments (Insolvency) Act 2007 expressly extended the scope of s 443A to include repayment of money borrowed: see, in particular, s 443A(1)(d), (e), and (f). As such liabilities are now clearly covered by s 443A, an order extending the operation of Part 5.3A to capture them is no longer necessary.
Ultimately, counsel for the administrators accepted that this was so, and the application for s 447A relief was not pursued. Instead, the administrators sought only a direction, pursuant to s 447D, to the effect that they would be justified in entering into the proposed loan transaction.
It has been said that the ability of an administrator to approach the Court for directions under s 447D is intended to facilitate the administrator's functions and should be interpreted widely to give effect to that intention [Re One-Tel Networks Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83]. However, it is insufficient to justify giving such directions that the liquidator or administrator wants reassurance about a commercial decision; some such issue as a question of law or procedure, of power, propriety or reasonableness, is required to justify approaching the court for directions, as was explained by Goldberg J in Re Ansett Australia Limited and Korda [2002] FCA 90; (2002) 115 FCR 409; 40 ACSR 433, [65]:
The prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance.
In Sanderson v Classic Car Insurances Pty Limited (1985) 10 ACLR 115, Young J said (at 117) that the cases in which directions might properly be given (to a liquidator) fell into four categories, namely guidance on matters of law, guidance on questions of legal procedure, whether a liquidator should postpone a sale in order to achieve a better price, and where there are two competing offers for assets and a liquidator wishes to gain court directions in order to avoid a subsequent allegation that he or she has acted improperly in choosing one over the other. However, these categories are not exhaustive.
I must say that it was not entirely clear that this was an appropriate case for directions under s 447D. No question of power arose; no question of law or legal procedure was involved; and there was no suggestion of impropriety. The matter rose no higher than possible apprehension on the part of the administrators that their expedition in entering into this proposed transaction without further testing of the market might later be criticised. At least on the material that has been disclosed to the Court, that seems at best a remote possibility.
Nonetheless, there are two competing offers of a loan, one of which was introduced by an associate of the company. It is conceivable that further time might permit a more attractive offer to emerge, albeit at the risk of increasing the amount required to discharge the Moneytech charge. In those circumstances, it is possible, though it seems unlikely, that creditors might later criticise the administrators' haste.
Moreover, what to my mind tilts the balance in favour of giving directions in this case is the circumstance that not only will the administrators be assuming personal liability to repay the loan (albeit with a right of indemnity against the company's assets), but their partners will also be guaranteeing that liability. In those circumstances, where they and their partners are assuming a substantial liability for the ultimate benefit of the creditors, it seems to me not unreasonable that the administrators should wish the propriety of the proposed transaction to, so far as possible, be put beyond all doubt.
The material before the Court indicates that it is in the interests of the creditors generally that Moneytech be paid out and the receivers removed, and that this be done expeditiously, before the costs of the receivership increase; that the administrators have taken reasonable steps in the time available to source competing finance proposals; that the creditors have been consulted and none opposes the proposed transaction; that the secured creditor Moneytech is content with the proposal so long as it is paid out; and that the administrators (and their partners) are willing to assume personal liability, subject to their right of indemnity, to repay the moneys borrowed.
The need for expedition is such that it would not be reasonable to insist on further exploration of the market. In those circumstances, I am prepared to make the directions sought.
For those reasons, on 7 March 2014, upon the undertaking of the plaintiffs' solicitor to pay the appropriate filing fees, leave was granted to the plaintiffs to file the originating process, returnable instanter, and the Court ordered that:
(1) Pursuant Corporation Act, s 447D(1) the administrators would be justified in entering into and giving effect to an agreement substantially in the form of Exhibit PC1, Tab 11 in the affidavit of Philip Patrick Carter sworn 7 March 2014 herein ("the Loan Agreement") and the Security Document (as defined in the Loan Agreement).
(2) Costs of the application be costs in the administration.
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Decision last updated: 18 March 2014
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