In the Matter of Globaltech Corporation Pty Ltd (Administrators Appointed) [No 2]
[2024] WASC 259
•17 JULY 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: IN THE MATTER OF GLOBALTECH CORPORATION PTY LTD (ADMINISTRATORS APPOINTED) [No 2] [2024] WASC 259
CORAM: STRK J
HEARD: 11-12 JULY 2024
DELIVERED : 17 JULY 2024
FILE NO/S: COR 75 of 2024
BETWEEN: GORDON HENDERSON STEWART and RHODA STEWART as trustees of THE GRAMPIAN TRUST
Applicants / First Interested Party
AND
ROBERT CONRY BRAUER as joint and several administrator of GLOBALTECH CORPORATION PTY LTD (ADMINISTRATORS APPOINTED)
Respondent / First named First Plaintiff
SHAUN ROBERT FRASER as joint and several administrator of GLOBALTECH CORPORATION PTY LTD (ADMINISTRATORS APPOINTED)
Respondent / Second named First Plaintiff
GLOBALTECH CORPORATION PTY LTD (ADMINISTRATORS APPOINTED)
Respondent / Second Plaintiff
AUSTRALIAN MUD COMPANY PTY LTD and REFLEX INSTRUMENTS ASIA PACIFIC PTY LTD
Second Interested Party
BOART LONGYEAR AUSTRALIA PTY LTD ACN 000 401 025; BOART LONGYEAR COMPANY; BOART LONGYEAR CANADA INC; LONGYEAR SOUTH AFRICA (PTY) LTD; VERACIO AUSTRALIA PTY LTD ACN 660 227 949; VERACIO LTD.; and VERACIO CANADA LTD
Third Interested Party
Catchwords:
Companies - Insolvency - Voluntary administration - Requirement for administrator to be independent and impartial - Administrators and apprehended bias - Roles previously held by two partners of the administrators with the parent company of the majority shareholder of the company in administration, which group of companies also claim to be significant creditors of the company in administration - The 'double might' test - Consideration of the nature of the statutory power being exercised - The administrators' primary duties - Investigations and adjudication of proofs of debt - Knowledge to be attributed to the lay observer - Turns on own facts
Application to appointment special purpose administrator - Assertion of an apparent lack of progress - Creditors calling for involvement in investigations and adjudication process - Turns on own facts
Liberty to apply to vacate orders made ex parte - Hearing de novo - Application pursuant to Corporations Act 2001 (Cth) s 447A - Orders sought to modify the operation of s 443A - Application to limit administrators' personal liability - Interest of creditors - Whether they are best served, prejudiced or disadvantaged by orders sought - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 437A, s 438A, s 439A, s 440D(1)(b), s 443A, s 443D, s 447A(1)
Corporations Act 2001 (Cth), sch 2 (Insolvency Practice Schedule (Corporations)), s 90-15(1), s 90-20(1)(a)(d)
Insolvency Practice Rules (Corporations) 2016 (Cth), div 75
Rules of the Supreme Court 1971 (WA), O 67B r 5, O 58 r 23
Supreme Court (Corporations) (WA) Rules 2004, r 1.3(2)(a), r 2.8
Result:
Application dismissed
Category: B
Representation:
Counsel:
| Applicants / First Interested Party | : | AP Young KC & L Kirwan |
| Respondent / First named First Plaintiff | : | KM deKerloy |
| Respondent / Second named First Plaintiff | : | KM deKerloy |
| Respondent / Second Plaintiff | : | KM deKerloy |
| Second Interested Party | : | PJ Tydde |
| Third Interested Party | : | CA Dallimore |
Solicitors:
| Applicants / First Interested Party | : | K&L Gates |
| Respondent / First named First Plaintiff | : | Clayton Utz |
| Respondent / Second named First Plaintiff | : | Clayton Utz |
| Respondent / Second Plaintiff | : | Clayton Utz |
| Second Interested Party | : | Gilbert + Tobin |
| Third Interested Party | : | Ashurst |
Case(s) referred to in decision(s):
Abigroup Ltd v Abigano [1992] FCA 567; (1992) 39 FCR 74
Accord Pacific Holdings Pty Ltd v Gleeson [2011] NSWSC 1021
Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270
Australian Hardboard Ltd v Hudson Investment Group Ltd [2007] NSWCA 104; (2007) 70 NSWLR 201
Australian Mud Company Ply Ltd v Globaltech Corporation Pty Ltd (No 4) [2023] FCA 517
Australian Securities and Investments Commission v Franklin (liquidator), in the matter of Walton Constructions Pty Ltd [2014] FCAFC 85; (2014) 223 FCR 204
Australian Securities and Investments Commission v Jones [2023] WASCA 130
Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; (2003) 45 ACSR 612
Brash Holdings Ltd (Administrator Appointed) v Katile Pty Ltd [1996] 1 VR 24
Britax Childcare Pty Ltd v Infa Products Pty Ltd [2016] FCA 848; 115 ACSR 332
Cameron Hugh Shaw as joint and several administrator of G N Construction (Aust) Pty Ltd (administrators appointed), Ikonstrukt Pty Ltd (administrators appointed), Main Administration Services Pty Ltd (administrators appointed) [No 2] [2024] WASC 190
Cameron v Renouf [2008] WASC 60
Charisteas v Charisteas [2021] HCA 29; (2021) 273 CLR 289
CNY17 v Minister for Immigration and Border Protection [2019] HCA 50; (2019) 268 CLR 76
Commonwealth of Australia v Irving (1996) 65 FCR 291
Decon Australia Pty Ltd v TFM Epping Land Pty Ltd (No 2) [2021] FCA 32
Deputy Commissioner of Taxation (Cth) v Portinex Pty Ltd [2000] NSWSC 99; (2000) 156 FLR 453; 34 ACSR 391
Ebner v Official Trustee in Bankruptcy [2000] HCA 63; (2000) 205 CLR 337
Federal Commission of Taxation v Wellnora [2007] FCA 1234; (2007) 163 FCR 232
Habrok (Dalgaranga) Pty Ltd v Gascoyne Resources Ltd [2020] FCA 1395; (2020) 149 ACSR 1
Humich Nominees Pty Ltd v Commissioner of Main Roads [2020] WASCA 175
In the matter of Boart Longyear Limited [2021] NSWSC 1269
In the matter of Globaltech Corporation Pty Ltd (administrators appointed) [2024] WASC 196
In the matter of Renex Holdings (Dandenong) 1 Pty Ltd (administrators appointed) [2015] NSWSC 2003
Isbester v Knox City Council [2015] HCA 20; (2015) 255 CLR 135
Jahani, in the matter of Northern Energy Corporation Ltd (Administrators Appointed) (No 2) [2019] FCA 382
Johnson v Johnson [2000] HCA 48; (2000) 201 CLR 488
Kennon v Spry [2008] HCA 56; (2008) 238 CLR 366
Kirman and Brauer as joint and several administrators of Marine Produce Australia Pty Ltd (administrators appointed) [2023] WASC 236
Macks v Viscariello (2017) 130 SASR 1; 328 FLR 115; 353 ALR 201; [2017] SASCFC 172
Mentha, Re Griffin Coal Mining Company Pty Ltd (Administrators Appointed) [2010] FCA 1469; (2010) 82 ACSR 142
Mighty River International Ltd v Hughes [2018] HCA 38; (2018) 92 ALJR 822; 130 ACSR 427; 359 ALR 181
Popovic v Panagoulias [2014] WASCA 86
QYFM v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2023] HCA 15; (2023) 66 Fam LR 369
Re Bosnjak Holdings Pty Ltd [2005] FCA 275; (2005) 53 ACSR 8
Re Fogo Brazilia Holdings Pty Ltd [2022] NSWSC 556; (2022) 162 ACSR 380
Re Monarch Gold Mining Co Ltd; Ex parte Hughes [2008] WASC 201
Re Recycling Holdings Pty Ltd [2015] NSWSC 1016; (2015) 107 ACSR 406
Re Ten Network Holdings Ltd [2017] FCA 914; (2017) 252 FCR 519
Re Yeeda Pastoral Company Pty Ltd (Administrators Appointed) (ACN 094 819 717); Ex parte Richard Scott Tucker as joint and several administrator of Yeeda Pastoral Company Pty Ltd (Administrators Appointed) (ACN 094 819 717) [2024] WASC 120
Re Yeeda Pastoral Company Pty Ltd (Administrators Appointed) (ACN 094 819 717); Ex parte Richard Scott Tucker as joint and several administrator of Yeeda Pastoral Company Pty Ltd (Administrators Appointed) (ACN 094 819 717) [No 2] [2024] WASC 221
Secatore, Re Fletcher Jones and Staff Pty Ltd (Administrators Appointed) [2011] FCA 1493
Sev.en Gamma A.S. v IG Power (Callide) Pty Ltd (Administrators Appointed) [2024] FCA 30
Sino Group International Ltd v Toddler Kindy Gymbaroo Pty Ltd [2022] FCA 630
Webb v The Queen (1994) 181 CLR 41
Table of Contents
Introduction
The issues
The position of ASIC
The evidence
Evidence read and tendered
Commercially sensitive and confidential information
Conflicts in the evidence
Is there any reasonable apprehension of bias?
Overview - the applicants' position
Administrators and apprehended bias - legal principles
The context in which the application was made
Nature of the statutory power being exercised
Circumstances in which the power comes to be exercised
Knowledge to be attributed to the lay observer - the applicants' position
Disposition
Should the administrators be removed and replaced?
Should special purpose administrators be appointed?
Should the orders made on 24 May 2024 be modified or discharged?
The application
The relief sought
Personal liability - applicable principles
Disposition
Conclusion and orders
Sch A – Orders made on 10 May 2024 and 24 May 2024
Sch B – Applicants' amended interlocutory process dated 11 July 2024
Sch C – Administrators' amended interlocutory process dated 24 May 2024
STRK J:
Introduction
Globaltech Corporation Pty Ltd (administrators appointed) designs, develops and manufactures exploration instruments, analysis software, real‑time remote monitoring systems and data analytics for global mining and exploration operations. Its primary asset is the intellectual property in mining technology that it developed.
Robert Conry Brauer and Shaun Robert Fraser were appointed as the joint and several administrators of Globaltech by director resolution on 12 April 2024. The administrators are experienced insolvency practitioners and partners of the firm McGrathNicol, a specialist advisory and restructuring firm.
In May 2024, the administrators made ex parte applications to the court on two occasions. On 10 May 2024, the administrators obtained orders extending the convening period of the second meeting of creditors of Globaltech by eight weeks to 8 July 2024;[1] and on 24 May 2024 they obtained orders so as to not be personally liable under a funding deed for moneys borrowed in the course of the external administration.[2] In both sets of orders liberty was granted to persons who could demonstrate sufficient interest to apply to modify or discharge the orders on notice to the administrators and to Globaltech. A copy of the orders made on 10 May 2024 and 24 May 2024 are reproduced at sch A to these reasons.
[1] For the reasons delivered ex tempore by Master Russell on 10 May 2024: ts 1 - 13 (10 May 2024).
[2] For the reasons published: In the matter of Globaltech Corporation Pty Ltd (administrators appointed) [2024] WASC 196 (Strk J).
The administrators have undertaken considerable work since their appointment. They have conducted a public sale process for Globaltech's intellectual property assets or business as a going concern, and/or the recapitalisation of Globaltech. Expressions of interest were submitted by 16 interested parties; 15 submitted confidentiality agreements; of the 15, four submitted non‑binding indicative offers; of the four, two were shortlisted; and from the two shortlisted interested parties, two final binding offers have been received. The administrators say that they have substantially completed their investigations, and had considered the two final binding offers from interested parties. They are well advanced in preparing their report to creditors.[3]
[3] Affidavit of SR Fraser sworn 3 July 2024, pars 70 - 71.
The administrators must convene the second meeting of creditors of Globaltech, which meeting can be held at any time during or within five business days after the end of the convening period, which by further extension ends on 18 July 2024.[4]
[4] By operation of order 1 of the orders made on 5 July 2024, read with order 2 of the orders made on 10 May 2024 by Master Russell).
Gordon Henderson Stewart and Rhoda Stewart as trustees of The Grampian Trust hold 8.56% of the shares in Globaltech. Mr Stewart is also a director and the secretary of Globaltech, and claims to be a creditor of Globaltech.[5]
[5] First affidavit of GH Stewart affirmed 26 June 2024, par 5, GHS-1.
On an urgent basis, Gordon Henderson Stewart and Rhoda Stewart as trustees of The Grampian Trust (together the applicants) made an application to the court. While not their only complaint, the applicants complain that the administrators are not free from apprehended bias.
Pursuant to the liberty to apply to modify or discharge the 24 May 2024 orders granted by order 5 of 24 May 2024 orders,[6] the applicants applied for orders that the 24 May 2024 orders be vacated; that the administrators be removed and replaced by Thomas Donald Birch and Jeremy Joseph Nipps, partners of the firm Cor Cordis; and that the administrators pay the costs of the application personally.
[6] Reproduced at sch A to these reasons.
By leave granted to the applicants at the commencement of the hearing of their application on 11 July 2024, the application was amended in the form reproduced at sch B to these reasons. While the applicants continued to press for the vacation of the 24 May 2024 orders and the removal and replacement of the administrators, in the alternative to the removal and replacement of the administrators, they applied for the appointment of Mr Birch and Mr Nipps as additional administrators of Globaltech (that is, the appointment of Mr Birch and Mr Nipps as special purpose administrators).
The application was also amended to include reference to sections of the Corporations Act 2001 (Cth), and the Insolvency Practice Schedule (Corporations) (sch 2 to the Corporations Act). By the amended application, the applicants applied:
(a)for the 24 May 2024 orders to be vacated pursuant to the liberty to apply granted by order 5 of those orders;[7]
(b)under s 90-20(1)(a) and (d) for orders under s 90-15(1) of the Insolvency Practice Schedule (Corporations) to remove and replace the administrators;[8] and
(c)under s 90-20(1)(a) and (d) for orders under s 90‑15(1) of the Insolvency Practice Schedule (Corporations), and to the extent necessary s 447A(1) and s 440D(1)(b) of the Corporations Act, to appoint special purpose administrators.[9]
[7] ts 11 (11 July 2024).
[8] ts 20 (11 July 2024).
[9] ts 8 (11 July 2024).
The application was opposed by the administrators and was heard over 11 and 12 July 2024.
In advance of the hearing, notice was given on behalf of:
(a)Boart Longyear Australia Pty Ltd ACN 000 401 025, Boart Longyear Company, Boart Longyear Canada Inc, Longyear South Africa (Pty) Ltd, Veracio Australia Pty Ltd ACN 660 227 949, Veracio Ltd and Veracio Canada Ltd, each of 2455 South 3600 West, Salt Lake City, Utah 84119, USA (together the Boart Longyear interested parties); and
(b)Australian Mud Company Pty Ltd and Reflex Instruments Asia Pacific Pty Ltd (together the Imdex interested parties),
respectively, of their intention to appear by counsel at the hearing of the application.
Save for making an oral application on 11 July 2024 to restrict access to commercially sensitive information (discussed below),[10] the Boart Longyear interested parties were not heard in support nor in opposition to the application.
[10] Order 1 of the orders made on 12 July 2024; ts 108 (11 July 2024).
At the hearing, counsel for the Imdex interested parties was heard in support of the appointment of special purpose administrators in respect of certain matters in the administration of Globaltech concerning Boart Longyear Group Ltd (Ontario Corporation No. 2854330) and its related entities (together, the BLY entities).[11]
[11] Imdex interested parties' outline of submissions filed 11 July 2024, par 2; ts 27 ‑ 28 (11 July 2024); ts 182 ‑ 188 (12 July 2024).
The issues
The application was listed on an urgent basis, and it was necessary for it to be determined quickly. The application gave rise to the following issues.
First, is there a reasonable apprehension of bias?
Secondly, if there is established a reasonable apprehension of bias, should the administrators be removed and replaced?
Thirdly, should special purpose administrators be appointed?
Fourthly, should the orders made on 24 May 2024 be modified or discharged?
In light of the submissions made on behalf of the applicants, it is convenient to deal with the issues in the above order.
In the course of the hearing, counsel for the applicants made plain that it was not pressed that at the time of the administrators' appointment (or otherwise) there was a real, sensible possibility of a conflict of interest.[12] Further, while the applicants complained about the circumstances in which the administrators applied and secured an extension of the convening period of the second meeting of creditors of Globaltech pursuant to s 439A(6) of the Corporations Act, they did not seek to modify or discharge the orders made by Master Russell.
[12] ts 48 (11 July 2024).
The hearing proceeded on the basis that it was accepted that the applicants had the requisite standing to seek the orders pressed in the amended interlocutory process; that save for the making of an order as promoted by proposed order 4(d)(iii) of the amended interlocutory process, the court has the power to make the orders sought; and the Boart Longyear interested parties and the Imdex interested parties had demonstrated a sufficient interest in the matters in issue to be heard. As to the proposed order 4(d)(iii), after hearing counsel for the administrators, that part of the application was abandoned by the applicants at the hearing.[13]
[13] ts 173 (12 July 2024).
The position of ASIC
Although the interlocutory process (before amendment) did not record the same, in response to the court's enquiry, the applicants advised the court (and the amended interlocutory process recorded) that the applicants sought orders pursuant to s 90‑15(1) of the Insolvency Practice Schedule (Corporations).[14]
[14] ts 11 (11 July 2024).
The Supreme Court (Corporations) (WA) Rules 2004 (WA) r 2.8 requires a copy of the interlocutory process of an application made under and s 90-20 of the Insolvency Practice Schedule (Corporations) and the supporting affidavit to be served on the Australian Securities and Investments Commission (ASIC), at a reasonable time before the hearing of the application.
The application (before amendment) was served on ASIC by the applicants, and in response to the same ASIC confirmed that it considered the application a matter properly left for the determination by the court, and that it did not propose to intervene. ASIC further noted that it had not formed the view that any aspect of the application required regulatory intervention or warranted the making of submissions before the court by ASIC, but that its communication should not be taken as an expression of support for, or opposition to, the orders sought in the application.[15] ASIC was also later served with the amended interlocutory process, albeit in the evening following the first day of hearing.[16]
[15] Third affidavit of DB Pavey sworn on 4 July 2024, par 30, DBP-24.
[16] Fifth affidavit of DB Pavey sworn on 12 July 2024, par 6, DBP-2.
The evidence
Evidence read and tendered
The hearing proceeded on affidavit evidence. The material before the court was substantive, a total of 2033 pages. There was no cross‑examination of deponents.
Counsel for the applicants read without objection nine affidavits that were filed in the proceeding on behalf of the applicants, being the affidavit of Mr Stewart affirmed on 26 June 2024, to which he attached documents marked GHS‑1 to GHS‑33; the second affidavit of Mr Stewart affirmed on 4 July 2024; the affidavit of Khaled Hejleh affirmed on 26 June 2024 to which he attached documents marked KH‑1 and KH‑2 (Mr Hejleh was the managing director of Globaltech from 12 May 1999 to 26 September 2023); the second affidavit of Mr Hejleh affirmed on 1 July 2024; the affidavit of Desirée Bernadette Pavey sworn on 26 June 2024 to which she attached documents marked DBP‑1 to DBP‑9 (Ms Pavey is a solicitor employed by K&L Gates, solicitors for the applicants); the second affidavit of Ms Pavey sworn on 4 July 2024 to which she attached documents marked DBP‑10 to DBP‑12; the third affidavit of Ms Pavey to which she attached documents marked DBP‑13 to DBP‑24; the fourth affidavit of Ms Pavey sworn on 11 July 2024 to which she attached documents marked DBP‑1 to DBP‑4; and the fifth affidavit of Ms Pavey sworn on 12 July 2024 to which she attached documents marked DBP‑1 and DBP‑2.
Counsel for the applicants also read:
(a)the affidavit of Michael James Tomasz affirmed on 10 July 2024 to which he attached documents marked MJT‑1 to MJT‑16 (Mr Tomasz is the company secretary and general counsel of Imdex Ltd and the company secretary of its subsidiary companies, Australian Mud Company Pty Ltd and Reflex Instruments Asia Pacific Pty Ltd. His affidavit was filed on behalf of the Imdex interested parties);
(b)the affidavit of Mr Brauer sworn on 8 May 2024 to which he attached documents marked RCB‑1 to RCB‑6 (which affidavit was prepared for the purpose of the hearing before the Master on 10 May 2024); and
(c)the second affidavit of Mr Brauer sworn on 16 May 2024 to which he attached a document marked RCB‑7 (which affidavit was prepared for the purpose of the hearing on 24 May 2024).
Counsel for the applicants also tendered a number of documents containing information from ASIC's national database pursuant to s 1274B of the Corporations Act.[17]
[17] Exhibits A - E.
Counsel for the administrators read the first and second affidavits of Mr Brauer sworn on 8 May 2024 and 16 May 2024, respectively; the affidavit of Shane Henry Hurst sworn on 3 July 2024 (a director employed by McGrathNicol who is assisting the administrators with the day to day management of the administration of Globaltech under the supervision of the administrators); the affidavit of Mr Fraser sworn on 3 July 2024 to which he attached documents marked SRF‑1 to SRF‑15; the second confidential affidavit of Mr Fraser sworn on 3 July 2024 to which he attached documents marked SRF‑C1 and SRF‑C2; the third affidavit of Alistair Ronald Fleming sworn on 10 July 2024 to which he attached documents marked ARF‑5 to ARF‑16 (Mr Fleming is a partner of Clayton Utz, the solicitors for the administrators and Globaltech); and the affidavit of Fiona Jane Schmedje sworn 12 July 2024 to which she attached documents marked FJS1 and FJS2 (Ms Schmedje is a special counsel employed by Clayton Utz).
In addition to the submissions made in the course of the hearing, the applicants relied upon an outline of written submissions;[18] the administrators relied upon an outline of submissions in opposition to the application, and an outline of supplementary submissions which addressed the appointment of a special purpose administrator;[19] and the Imdex interested parties relied upon an outline of submissions in support of the appointment of a special purpose administrator.[20]
Commercially sensitive and confidential information
[18] Applicants' outline of submissions filed 2 July 2024.
[19] Administrators' outline of submissions filed 3 July 2024, and the administrators' outline of supplementary submissions filed 11 July 2024.
[20] Imdex interested parties' outline of submissions filed 11 July 2024.
The administrators applied for an order restricting access to the second confidential affidavit of Mr Fraser pursuant to the Rules of the Supreme Court 1971 (WA) O 67B r 5(1)(b) on the basis that the affidavit contains information and documents that are commercially sensitive and subject to confidentiality obligations. The administrators sought that the access of all persons be restricted, with the exception of any legal representatives of the 'Interested Parties', provided that they first provide an undertaking in the form proposed on behalf of the administrators.[21]
[21] The minute of proposed orders filed on behalf of the administrators on 3 July 2024.
I was satisfied that Mr Fraser's second affidavit contained confidential information, and it was appropriate to restrict access to it. I made an order pursuant to the Rules of the Supreme Court O 67B r 5(3) restricting access to Mr Fraser's second affidavit subject to the terms of that order.[22]
[22] Orders 1 - 3 of the orders made on 5 July 2024 pursuant to the Rules of the Supreme Court O 67B r 5.
As noted above at [13], an oral application made on behalf of the Boart Longyear interested parties on 11 July 2024 to restrict access to commercially sensitive information contained in Mr Stewart's first affidavit affirmed on 26 June 2024.[23]
[23] ts 108 (11 July 2024).
I was satisfied that sch A to the document marked GHS‑4, annexed to Mr Stewart's first affidavit was commercially sensitive and it was appropriate to restrict access to it. I made an order pursuant to the Rules of the Supreme Court O 67B r 5(3) restricting access to sch A to the document marked GHS‑4, annexed to Mr Stewart's first affidavit subject to the terms of that order.[24]
[24] Order 1 of the orders made on 12 July 2024.
These reasons have been prepared so as to not disclose the substance of the confidential information before the court.
Conflicts in the evidence
As noted above, there was no cross‑examination of deponents and the hearing proceeded on the affidavit evidence read and documents tendered. There were a number of conflicts in the affidavits filed, and a material conflict in the evidence of Mr Hurst and Mr Stewart.
Mr Hurst gave evidence of a meeting that he attended on 24 April 2024 with Mr Stewart of Globaltech, at Globaltech's premises in Forrestfield, and an account of part of a conversation with Mr Stewart concerning the funding of the administration.[25] Mr Stewart also gave evidence of that meeting, but denied that he and Mr Hurst had discussed the funding of the administration in the manner described by Mr Hurst at par 7 of his affidavit.[26]
[25] Affidavit of SH Hurst sworn 3 July 2024, particularly pars 6 - 7.
[26] Second affidavit of GH Stewart affirmed on 4 July 2024, pars 6 - 8.
In the absence of cross‑examination, I proceeded on the basis that the disputed allegations were to be ignored and the application would fall to be determined by consideration of the undisputed facts.
Is there any reasonable apprehension of bias?
Overview - the applicants' position
It was the applicants' position that in the circumstances, the conclusion was inescapable that a fair-minded lay observer might reasonably apprehend that the administrators might not bring an impartial mind to the resolution of questions they may be called upon to decide concerning the rights and liabilities of Globaltech on the one hand, and members of the Boart Longyear group of companies (described in these reasons as the BLY entities) on the other.
As to the questions that the administrators may be called upon to decide, the applicants were particularly concerned about:
(a)the investigations that will form the basis of the administrators' report to creditors, particularly investigations with respect to whether Globaltech might have causes of action that it may pursue against the BLY entities; and
(b)the exercise of discretion to admit proofs of debt submitted by the BLY entities wholly or in part, or to reject them for the purposes of voting at the second meeting of creditors.[27]
[27] ts 63 (11 July 2024).
As to the circumstances in which that power comes to be exercised, the applicants relied upon on all of the circumstances. That said, the administrators were particularly concerned that two partners of McGrathNicol (Jason Ireland and Robert Smith, not the administrators) had been directors of the parent company of the BLY entities from 2017 to sometime in late 2022.
The applicants complain that as at the date of their appointment, the administrators were (and continue to be) the partners of Messrs Ireland and Smith who:
(a)from 1 September 2017 until sometime in late 2022, were directors of the successive holding companies of the BLY entities;
(b)from 1 September 2017 until their retirement, were entitled to remuneration of $200,000 per annum, additional remuneration for being members of board committees, compulsory superannuation contributions, reimbursement for all out of pocket expenses and payments for 'extra services or special exertions';
(c)from 1 September 2017 until late 2021, held shares in the Australian‑registered holding company of the Boart Longyear group of companies (Boart Longyear Ltd);
(d)from 1 September 2017 until late 2021, were regarded as 'key management personnel' of the successive holding companies of the BLY entities;
(e)from 1 September 2017 until late 2021, attended all board meetings and meetings of board committees to which they were appointed; and
(f)since 1 September 2017, have benefited from directors' and officers' insurance paid for by the Boart Longyear holding companies.
The applicants submit that in substance, for all or part of six calendar years, from 2017 to 2022, Messrs Ireland and Smith owed professional and fiduciary duties to the Boart Longyear holding companies and their controlled entities. Further, they contend that the continuing relations between the administrators and Messrs Ireland and Smith are also professional and fiduciary in nature. They note that Messrs Ireland and Smith have taken joint appointments with Mr Brauer and Mr Fraser as external controllers of a variety of corporations and are known publicly to have worked together in those capacities.
It was submitted on behalf of the applicants that the failure of the administrators, upon their appointment, to make any disclosure to creditors of the appointments held by, and benefits which accrued and continue to accrue to, Messrs Ireland and Smith in and from the Boart Longyear holding companies, and the lengthy relationship between the BLY entities and McGrathNicol, should cause the court particular concern. It was submitted that it had the effect of denying creditors the opportunity of considering whether the administrators ought be removed at the first meeting of creditors.
The applicants characterised the administrators' amended Declaration of Independence, Relevant Relationships and Indemnities (DIRRI) as a belated, incomplete and begrudging disclosure, made only after being prompted by a creditor. Further, it was submitted that the administrators failed to make full and fair disclosure in the DIRRI, as amended, in that:
(a)the suggestion that Messrs Ireland and Smith ceased to be directors in November 2021 was false, as the ASIC records show they remained directors of the Australian entity (Boart Longyear Pty Ltd) in December 2021, and documents obtained from the Ontario Ministry of Public and Business Service Delivery record that Messrs Ireland and Smith remained directors of Boart Longyear Group Ltd (Ontario Corporation No. 2854330 and ARBN 652 848 103) at least as late as September 2022;
(b)the statement in the DIRRI (as amended) as it concerned funding obtained by the administrators from a BLY entity was incorrect; and
(c)the assertion that the administrators were not required to disclose the prior appointments of Messrs Ireland and Smith was fundamentally flawed.
The applicants maintained that the administrators did not appear to be independent of Boart Longyear Group Ltd and its controlled entities, and could not be regarded as independent of them.
The applicants maintained that a fair‑minded lay observer might reasonably apprehend that the administrators might not bring an impartial mind to the resolution of questions they may be called upon to decide concerning the rights and liabilities of Globaltech on the one hand, and members of the Boart Longyear group of companies on the other.[28]
Administrators and apprehended bias - legal principles
[28] Applicants' submissions filed 2 July 2024, par 73.
As to administrators and apprehended bias, in Australian Securities and Investments Commission v Jones [2023] WASCA 130, the Court of Appeal at [195] to [203] described the general principles, and at [204] to [236] summarised the leading authorities.
There was no dispute as between the parties that, like a liquidator, an administrator must be independent, which requires the administrator to be free of apprehended bias;[29] and that the test for apprehended bias of an administrator, as for a liquidator, is the conventional 'double might' test,[30] viewed through the lens of a fair‑minded lay observer. It was common ground that apprehended bias is established if a fair‑minded lay observer might reasonably apprehend that the administrator might not bring an impartial mind to the resolution of questions that the administrator may be called upon to decide.[31] The question is 'one of possibility (real and not remote), not probability'.[32]
[29] Australian Securities and Investments Commission v Jones [195], citing Commonwealth of Australia v Irving (1996) 65 FCR 291, 294; Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; (2003) 45 ACSR 612 [133]; Re Monarch Gold Mining Co Ltd; Ex parte Hughes [2008] WASC 201 [15]; Re Recycling Holdings Pty Ltd [2015] NSWSC 1016; (2015) 107 ACSR 406 [94]; Re Ten NetworkHoldings Ltd [2017] FCA 914; (2017) 252 FCR 519 [52]; Habrok (Dalgaranga) Pty Ltd v Gascoyne Resources Ltd [2020] FCA 1395; (2020) 149 ACSR 1 [442]; Re Fogo Brazilia Holdings Pty Ltd [2022] NSWSC 556; (2022) 162 ACSR 380 [273].
[30] Australian Securities and Investments Commission v Jones [196], citing CNY17 v Minister for Immigration and Border Protection [2019] HCA 50; (2019) 268 CLR 76 [18].
[31] ts 70 (11 July 2024); ts 163 (12 July 2024); Australian Securities and Investments Commission v Jones [196], citing Accord Pacific Holdings Pty Ltd v Gleeson [2011] NSWSC 1021 [35] - [36]; Australian Securities and Investments Commission v Franklin (liquidator), in the matter of Walton Constructions Pty Ltd [2014] FCAFC 85; (2014) 223 FCR 204 [58] - [60]; Re Recycling Holdings [94]; Re Ten Network Holdings [53], [80]; Habrok v Gascoyne [442]; Re Fogo Brazilia Holdings [284].
[32] Australian Securities and Investments Commission v Jones [196], also [222], citing Ebner v Official Trustee in Bankruptcy [2000] HCA 63; (2000) 205 CLR 337 [7]; Australian Securities and Investments Commission v Franklin (liquidator), in the matter of Walton Constructions Pty Ltd [77].
Further, as was observed by the Court of Appeal in Australian Securities and Investments Commission v Jones, as a matter of general principle, in evaluating whether a statutory decision‑maker's decision is flawed by apprehended bias, it is necessary to have regard to the nature of the statutory power being exercised, the character of the repository of that power and the circumstances in which that power comes to be exercised.[33] Thus, the way in which the double might test is applied differs from one statutory context to another, and the differences in the functions and duties of liquidators, on the one hand, and administrators, on the other, must be borne in mind when applying the test for reasonable apprehension of bias.[34]
[33] Australian Securities and Investments Commission v Jones [198], citing Isbester v Knox City Council [2015] HCA 20; (2015) 255 CLR 135 [22] - [23]; Humich Nominees Pty Ltd v Commissioner of Main Roads [2020] WASCA 175 [157] ‑ [158].
[34] Australian Securities and Investments Commission v Jones [198], citing Bovis Lend Lease v Wily [133]; Re Ten Network Holdings [52]; Habrok v Gascoyne [442].
The Court of Appeal in Australian Securities and Investments Commission v Jones at [199] observed that in applying the test for apprehended bias through the lens of the fair‑minded lay observer, it is necessary to consider what knowledge is to be attributed to the lay observer. The Court of Appeal further observed that in the context of questions of apprehended bias on the part of a judge, it has been said that the lay observer is to be taken to have knowledge of the nature of the decision, the circumstances which led to the decision and the context in which it was made.[35] The fair‑minded lay observer is taken to have 'a broad knowledge of the material objective facts … as distinct from a detailed knowledge of the law or knowledge of the character or ability of the [decision‑maker]'.[36]
[35] Australian Securities and Investments Commission v Jones [199], citing Isbester v Knox City Council [23]; and CNY17 v Minister for Immigration and Border Protection [58].
[36] Australian Securities and Investments Commission v Jones [199], citing Webb v The Queen (1994) 181 CLR 41, 73; CNY17 v Minister for Immigration and Border Protection [58]. See also Johnson v Johnson [2000] HCA 48; (2000) 201 CLR 488 [13]; Charisteas v Charisteas [2021] HCA 29; (2021) 273 CLR 289 [12]; QYFM v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2023] HCA 15; (2023) 66 Fam LR 369 [48], [72], [251], [298].
It was noted that while this approach cannot be directly applied to the context of an external administrator of a company, it provides assistance by way of analogy.[37]
[37] Australian Securities and Investments Commission v Jones [201].
I adopted and applied these principles in the disposition of the application. I did not understand that there was any dispute as to what the applicable principles were, rather the contest was as to their application in the circumstances of this case.
The context in which the application was made
As noted above, as a matter of general principle, in evaluating whether a statutory decision‑maker's decision is flawed by apprehended bias, it is necessary to have regard to the nature of the statutory power being exercised, the character of the repository of that power, and circumstances in which that power comes to be exercised.[38]
Nature of the statutory power being exercised
[38] Australian Securities and Investments Commission v Jones [198].
As to the nature of the statutory power being exercised by the administrators, and the character of the repository of that power, I note as follows.
Administrators are to investigate Globaltech's affairs
In general terms, the administrators have been charged with taking control of Globaltech's business, affairs and assets;[39] and investigating Globaltech's business, properties, affairs and financial circumstances to form an opinion about whether it would be in the interests of creditors for (i) Globaltech to execute a deed of company arrangement (DOCA), (ii) the administration to end, or (iii) Globaltech to be wound up.[40] Section 438A imposes a duty to investigate, form an opinion, and then to report that to the creditors.[41]
[39] Corporations Act s 437A.
[40] Corporations Act s 438A. (The Court of Appeal in Australian Securities and Investments Commission v Jones [238] described these tasks as the administrators' primary duties.)
[41] Macks v Viscariello (2017) 130 SASR 1; 328 FLR 115; 353 ALR 201; [2017] SASCFC 172 [210].
It was emphasised in Australian Securities and Investments Commission v Jones at [239] that the duty to investigate is not a freestanding one. That is, the administrators do not have a freestanding duty to investigate Globaltech's business, property, affairs and financial circumstances, independent of the task of forming an opinion about the future of the company. Rather, the administrators are required to investigate Globaltech's business, property, affairs and financial circumstances in order to form an opinion about each of the matters relating to the interests of Globaltech's creditors referred to in (i), (ii) and (iii) of s 438A(b).[42]
[42] Australian Securities and Investments Commission v Jones [239], citing Federal Commission of Taxation v Wellnora [2007] FCA 1234; (2007) 163 FCR 232 [210].
These investigations will form the basis of the administrators' report to creditors, which will inform creditors on making their decision as to the fate of Globaltech. The administrators must convene a meeting of Globaltech's creditors within the convening period (now extended), at which the creditors may resolve (i) that Globaltech execute a DOCA specified in the resolution (ii) that the administration should end, or (iii) that Globaltech be wound up.
However, the administrator faces a constricted time period and hence must balance the depth of the investigation against the time available. As was observed by Kiefel CJ and Edelman J:[43]
The requirement in s 438A(b) that an administrator must form the relevant opinions as soon as practicable after the administration begins necessarily requires that the opinions might be formed without the administrator having fully investigated and assessed all relevant matters. Opinions have no fixed voltage. They can be expressed with varying degrees of confidence.
[43] Mighty River International Ltd v Hughes [2018] HCA 38; (2018) 92 ALJR 822; 130 ACSR 427; 359 ALR 181 [53]. See also Deputy Commissioner of Taxation (Cth) v Portinex Pty Ltd [2000] NSWSC 99; (2000) 156 FLR 453; 34 ACSR 391.
As was observed by Burley J in Britax Childcare Pty Ltd v Infa Products Pty Ltd:[44]
… It has been accepted that the investigation conducted in the administration process is intended by Parliament to be a swift and practical' one; In the matter of Mustang Marine Australia Services Pty Ltd (admin apptd) - Perpetual Trustee Company Ltd v Mustang Marine Australia Services Pty Ltd [2010] NSWSC 1429 (Mustang Marine) at [109]. Consistent with this, the administrator's investigation is necessarily a preliminary investigation which involves the administrator carrying out his or her investigations in a manner which is modified in light of the tight timeframe and associated constraints provided for by Part 5.3A. An administrator, so constrained, cannot carry out a detailed investigation of at [sic] company in the same way as can a liquidator, and accordingly the administrator's actions must be looked at in the light of that more restricted range of activities which are available to him or her; Mediterranean Olives Financial Pty Ltd v Loaders Traders Pty Ltd (Subject to Deed of Company Arrangement) (No 2) [2011] FCA 178; (2011) 82 ACSR 300 (Mediterranean Olives) at [61] ‑ [62].
[44] Britax Childcare Pty Ltd v Infa Products Pty Ltd [2016] FCA 848; 115 ACSR 332 [88].
There is a wide range of evaluative, discretionary decisions that administrators are required to make with the benefit of appropriate expertise about what information should be verified and what can be followed up within the time constraints available.[45]
[45] Decon Australia PtyLtd v TFM Epping Land Pty Ltd (No 2) [2021] FCA 32 [112]; see also Sino Group International Ltd v Toddler Kindy Gymbaroo Pty Ltd [2022] FCA 630 [121] ‑ [126].
In the circumstances of the external administration of Globaltech, the investigation of potential claims that might be prosecuted by Globaltech against the BLY entities, and the potential for recovery against them, will likely (i) assist in informing the opinion the administrator must form as to the matters in s 438A(b), and (ii) thereby assist in informing the creditors in making the choice between the options to be presented to them at the second creditors' meeting.
Proofs of debt
Meetings in external administrations are governed by div 75 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (made under s 105‑1 of sch 2 to the Corporations Act).[46] Among other things, they prescribe the procedures to be adopted at meetings, including the second meeting of creditors convened under s 439A of the Corporations Act, at which the external administrator must preside.[47] It is the role of the external administrator at a meeting convened under s 439A to determine any question that arises as to the entitlement of a person to vote.[48]
[46] Insolvency Practice Schedule (Corporations) s 75-50(1).
[47] Insolvency Practice Rules (Corporations) 2016 r 75-50(1).
[48] Insolvency Practice Rules (Corporations) 2016 r 75-50(1) and r 75-100(1).
The Insolvency Practice Rules (Corporations) 2016 provide that at a second meeting of creditors, a creditor is not entitled to vote unless:
(a)their debt or claim has been admitted wholly or in part by the administrator of the company; or
(b)the creditor has lodged with the chairperson of the meeting or with the person named in the notice convening the meeting as the person who may receive particulars of the debt or claim:
(i)those particulars; or
(ii)if required, a formal proof of the debt or claim.[49]
[49] Insolvency Practice Rules (Corporations) 2016 r 75-85(3).
There are no legislated standards as regards to proof of debt in a voluntary administration. Where the administrator does not require formal proof, the creditor has the obligation to provide adequate particulars to ensure that the claim is accepted.
A creditor must not vote in respect of:
(a) an unliquidated debt;
(b) a contingent debt;
(c) an unliquidated or contingent claim; and
(d) a debt that the value of which is not established,
unless a just estimate of its value has been made.[50]
[50] Insolvency Practice Rules (Corporations) 2016 r 75-85(4).
The Insolvency Practice Rules (Corporations) 2016 provide that if necessary, an external administrator must ask a creditor to give evidence in writing in relation to a debt claimed by the creditor to establish the liability of the company for the debt.[51]
[51] Insolvency Practice Rules (Corporations) 2016 r 75-95.
In making a decision in relation to the BLY entities' entitlement to vote at the second meeting of creditors, the administrators would be bound to act in accordance with r 75‑100, which provides as follows:
(1)The person presiding at a meeting may determine any question that arises as to the entitlement of a person to vote.
(2)In deciding whether a person is entitled to vote at a meeting of creditors, the person presiding must:
(a)have regard to the merits of the person's claim; and
(b)act impartially and independently.
(3)If the person presiding is in doubt whether a proof of debt or claim should be admitted or rejected, her or she must mark that proof as objected to and allow the creditor to vote, subject to the vote being declared invalid if the objection is sustained.
(4)A decision by the person presiding to admit or reject a proof of debt or claim for the purposes of voting may be appealed against to the Court within 10 business days after the decision.
In Sino Group International Ltd v Toddler Kindy Gymbaroo Pty Ltd at [129] Anderson J summarised and adopted the following principles:
(a) First, authorities such as Selim v McGrath (2003) 47 ACSR 537; 177 FLR 85; [2003] NSWSC 927 (Selim) and El-Saafin & Anor v Franek & Ors (No 3) (2019) 143 ACSR 452 (El-Saafin) make a distinction between ruling on the entitlement to vote at meetings and ruling on proofs of debt for dividend purposes. The obligation to seek further information from a creditor 'if necessary' is imposed on the 'external administrator' and not on 'the person presiding at the meeting'.
(b) Second, the decision-making of the person presiding over the meeting is by reference to documents persons claiming to be creditors choose to present. It is also undertaken against the background of all relevant contextual matters of which the decision-maker is aware.
(c) Third, it is 'no part of the function of an administrator or the chairperson of a s 439A meeting to promote or advance the claims of certain persons to be creditors'.
(d) Fourth, if the debt or claim is for an unliquidated amount, or it is contingent, or it is a debt the value of which is not established, a just estimate of the value of the debt or claim must be made by the chairman of the meeting acting reasonably before the creditor is permitted to vote.
(e) Fifth, if the claim cannot be quantified by a just estimate, but it appears that the creditor is a creditor for at least some amount (for example, where a debt is subject to an uncertain contingency), it is appropriate to admit the creditor for voting purposes at a nominal value of $1.
(f) Sixth, the decision of whether to admit or reject the debt and the decision to estimate the just value of a debt or claim to be taken at the meeting will 'of necessity, be of somewhat summary nature'. The process of evaluation will take place shortly before the meeting without much time for consideration and it is not contemplated that the person evaluating will undertake any detailed inquiry. He or she will be expected do the best they can in the light of their pre-existing knowledge and the particulars supplied by the claimant. Accordingly, the situation is not one in which extensive debate or deliberation or detailed consideration will be possible. As Austin J observed in Selim at [103]:
He or she will do the best that can be done by reference to the factual material the claimant furnishes, viewed in the total context with which the decision-maker is dealing. If that material provides reasonable grounds, within that context, for ascribing a particular figure to the particular claim, the chairperson or administrator is no doubt expected to accept that position. If, on the other hand, there is little or no material from which a conclusion as to value can be drawn, a just estimate may be zero or perhaps the nominal amount of $1 assuming that admission is warranted.
Circumstances in which the power comes to be exercised
As noted above, as a matter of general principle, in evaluating whether a statutory decision‑maker's decision is flawed by apprehended bias, it is necessary to also have regard to the circumstances in which that power comes to be exercised.[52] Further, when applying the test for apprehended bias through the lens of a fair‑minded observer, it is necessary to consider what knowledge is attributed to a fair‑minded observer.
[52] Australian Securities and Investments Commission v Jones [198].
There was considerable evidence before the court as to the businesses conducted by each of Globaltech and the BLY entities; the corporate history of the BLY entities; the relationship as between Globaltech and the BLY entities before the appointment of the administrators; the relationship between Messrs Ireland and Smith and the BLY entities before the appointment of the administrators; the relationship as between the administrators and Messrs Ireland and Smith prior to and after the appointment of the administrators; and what has occurred after the appointment of the administrators. Set out below are the undisputed facts as I have found on the evidence read and documents tendered.
Globaltech
Globaltech was incorporated in Western Australia on 23 April 1999 and, as noted above, designs, develops and manufactures exploration instruments, analysis software, real‑time remote monitoring systems and data analytics for global mining and exploration operations. Its primary asset is the intellectual property in mining technology that it developed. For the year ending 30 June 2022 Globaltech reported revenue of $8 million, and for the year ending 30 June 2023 revenue of $4.4 million.[53]
[53] First affidavit of RC Brauer sworn 8 May 2024, RCB‑6 (page 62).
Mr Hejleh was the managing director of Globaltech from 12 May 1999 to 26 September 2023. On 26 September 2023, the board of Globaltech removed Mr Hejleh as a director and his employment with Globaltech was terminated.
Mr Stewart has been a director of Globaltech since 16 December 2005, and has been the secretary of Globaltech since 1 October 2018.[54] His employment with Globaltech was terminated in December 2023.
Boart Longyear Limited
[54] First affidavit of K Hejleh affirmed 26 June 2024, par 2; first affidavit of GH Stewart affirmed 26 June 2024, pars 2 - 3, GHS-2.
From 2007, Boart Longyear Limited (ACN 123 052 728) was a public company listed on the Australian Securities Exchange Ltd (ASX). While Boart Longyear Limited's registered office was in South Australia and it was listed on the ASX in Sydney (ASX:BLY), it was headquartered in Salt Lake City, Utah.[55] Boart Longyear Limited and its subsidiaries operated in four geographic regions defined as North America, Latin America, Asia Pacific and Europe/Africa.
Equipment distribution agreement and the acquisition of shares in Globaltech
[55] First affidavit of GH Stewart affirmed 26 June 2024, pars 7 - 8, GHS-3; GHS-5 (page 231).
On or about 31 October 2013, Globaltech entered into an equipment distribution agreement with Boart Longyear Australia Pty Ltd, pursuant to which Boart Longyear Australia Pty Ltd agreed to purchase certain products and services from Globaltech.[56] Boart Longyear Australia Pty Ltd was a wholly owned subsidiary of Boart Longyear Limited.[57]
[56] First affidavit of K Hejleh affirmed 26 June 2024, par 3.
[57] First affidavit of GH Stewart affirmed 26 June 2024, par 11.
In 2015, Votraint No 1609 Pty Ltd (a wholly owned subsidiary of Boart Longyear Limited) acquired 35% of the issued capital of, and became the principal shareholder in, Globaltech.[58] From about that time, entities controlled by Boart Longyear Limited became Globaltech's principal customers.
[58] First affidavit of GH Stewart affirmed 26 June 2024, par 9, GHS‑3 (page 205).
On 1 January 2016, the equipment distribution agreement as between Globaltech and Boart Longyear Australia Pty Ltd was amended when the parties entered into 'Amended and Restated Equipment Distribution Agreement' (Distribution Agreement).[59]
Boart Longyear Limited - 2017 recapitalisation proposal & the appointment of Messrs Ireland and Smith as directors
[59] First affidavit of GH Stewart affirmed 26 June 2024, par 11, GHS-4; first affidavit of K Hejleh affirmed 26 June 2024, KH-1.
On 13 June 2017 at Boart Longyear Limited's annual general meeting, its shareholders approved a recapitalisation proposal.[60] It had also agreed to take all requisite steps to re-domicile its business to the United States, the United Kingdom or Canada (or another jurisdiction agreed to by the supporting creditors) as soon as practicable after implementation of the recapitalisation.[61]
[60] First affidavit of GH Stewart affirmed 26 June 2024, par 12, GHS-5 (page 239); ts 43 (11 July 2024).
[61] First affidavit of GH Stewart affirmed 26 June 2024, GHS-5 (page 239).
On 1 September 2017, Boart Longyear Limited announced changes to its board of directors in conjunction with the implementation of the recapitalisation. Boart Longyear Limited appointed a number of new directors including Mr Ireland and Mr Smith of the firm McGrathNicol, who became directors of Boart Longyear Limited on 1 September 2017.[62]
[62] First affidavit of GH Stewart affirmed 26 June 2024, pars 12 - 13, GHS-5, GHS-6; ts 43 (11 July 2024).
Boart Longyear Limited recorded in its annual report for the year ended 31 December 2017, among other things, that Messrs Ireland and Smith became directors on 1 September 2017; they were among the company's 'Key Management Personnel'; Mr Ireland was a member of the company's remuneration and nominations committee; Mr Ireland remained the head of McGrathNicol's advisory business based in Sydney and he attended all board meetings in 2017 after his appointment; Mr Smith was a member of the company's audit, safety and risk committee; and Mr Smith remained a partner of McGrathNicol based in Melbourne specialising in business restructuring and improvement, and he attended all board meetings in 2017 after his appointment.[63]
[63] First affidavit of GH Stewart affirmed 26 June 2024, par 14, GHS-7.
As directors of Boart Longyear Limited, Messrs Ireland and Smith were indemnified by Boart Longyear Limited to the maximum extent permitted by law against liabilities incurred in their capacities as directors. In addition, during the financial year, Boart Longyear Limited paid premiums in respect of contracts insuring them as directors against liabilities incurred by them to the extent permitted by the Corporations Act.[64] The indemnity and the payment of insurance premiums continued during the course of their appointment as directors.[65]
Acquisition of further shares in Globaltech
[64] First affidavit of GH Stewart affirmed 26 June 2024, GHS-7 (page 357).
[65] First affidavit of GH Stewart affirmed 26 June 2024, GHS-8 (page 470); GHS-9 (page 586); and GHS-10 (page 703).
On 1 July 2018, Votraint No 1609 Pty Ltd acquired an additional 11.9% of the issued share capital in Globaltech, increasing its shareholding to 51.7% and obtaining control of Globaltech.[66]
[66] First affidavit of GH Stewart affirmed 26 June 2024, GHS-8 (page 537).
The Boart Longyear Limited annual report for the year ended 31 December 2018 included the directors' report, in which the acquisition was described as follows:[67]
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
During the second half of 2018 the Company completed a transaction to increase its position to a majority stake (51.7%) in Globaltech Corporation Pty Ltd. Boart Longyear and acted on its rights to convert debt to equity to increase the total ownership position.
The continued investment in Globaltech builds upon the in-house knowledge tied to electronic instrumentation and data collection in the mineral exploration and mining industry. This is an intentional decision to further support the Company's Geological Data Services strategy that is fully focused on developing digital technologies and services and delivering resource-defining information for mining clients.
Boart Longyear Limited - role of Messrs Ireland and Smith from 2018 to 2020
[67] First affidavit of GH Stewart affirmed 26 June 2024, par 16, GHS-8 (page 438).
Boart Longyear Limited recorded in its annual report for the year ended 31 December 2018, among other things, that Messrs Ireland and Smith remained directors throughout 2018; they remained among the company's 'Key Management Personnel'; Mr Ireland remained a member of the company's remuneration committee; as resident Australian directors of the company, Messrs Ireland and Smith were each entitled to director's fees of $200,000, plus fees for serving on committees; Mr Ireland remained the head of McGrathNicol's advisory business based in Sydney and he attended all board meetings in 2018; Mr Smith remained a member of the company's audit, safety and risk committee; and Mr Smith remained a partner of McGrathNicol based in Melbourne specialising in business restructuring and improvement, and he attended all board meetings in 2018.[68]
[68] First affidavit of GH Stewart affirmed 26 June 2024, par 15, GHS-8.
Boart Longyear Limited recorded in its annual report for the year ended 31 December 2019, among other things, that Messrs Ireland and Smith remained directors throughout 2019; in 2019 Mr Ireland became the holder of 7,119,285 shares in Boart Longyear Limited; in 2019 Mr Smith became the holder of 7,119,285 shares in Boart Longyear Limited; Messrs Ireland and Smith remained among the company's 'Key Management Personnel'; Mr Ireland remained a member of the company's remuneration committee; as resident Australian directors of the company, Messrs Ireland and Smith were each entitled to director's fees of $200,000, plus fees for serving on committees; Mr Ireland remained the head of McGrathNicol's advisory business based in Sydney and he attended all board meetings in 2019; Mr Smith remained a member of the company's audit, safety and risk committee; and Mr Smith remained a partner of McGrathNicol based in Melbourne specialising in business restructuring and improvement, and he attended all board meetings in 2019.[69]
[69] First affidavit of GH Stewart affirmed 26 June 2024, par 17, GHS-9.
Boart Longyear Limited recorded in its annual report for the year ended 31 December 2020, among other things, that Messrs Ireland and Smith remained directors throughout 2020; in 2020 Messrs Ireland and Smith remained shareholders in Boart Longyear Limited; Messrs Ireland and Smith remained among the company's 'Key Management Personnel'; Mr Ireland remained a member of the company's remuneration committee; as resident Australian directors of the company, Messrs Ireland and Smith were each entitled to director's fees of $200,000, plus fees for serving on committees; Mr Ireland remained the head of McGrathNicol's advisory business based in Sydney and he attended all board meetings in 2020; Mr Smith remained a member of the company's audit, safety and risk committee; Mr Smith remained a partner of McGrathNicol based in Melbourne specialising in business restructuring and improvement, and he attended all board meetings in 2020.[70]
Boart Longyear Limited - 2021 proposed recapitalisation and domiciliation scheme & the role of Messrs Ireland and Smith
[70] First affidavit of GH Stewart affirmed 26 June 2024, par 19, GHS-10.
On 13 May 2021, Boart Longyear Limited announced that it proposed to undertake a recapitalisation (reducing its debt to less than US$200 million, with approximately US$795 million of debt being converted to equity) and a re‑domiciliation scheme of arrangement to change the company's corporate and tax domicile to North America, where the vast majority of its management and employees were located.[71]
[71] First affidavit of GH Stewart affirmed 26 June 2024, par 20, GHS-11.
On 15 July 2021, Ontario Corporation No. 2854330 was incorporated, and was also named Boart Longyear Ltd.[72]
[72] First affidavit of GH Stewart affirmed 26 June 2024, par 21, GHS-12.
On 5 August 2021, the name of Boart Longyear Ltd (Ontario Corporation No. 2854330) was changed to Boart Longyear Group Ltd,[73] and it became registered as Australian Registered Body Number (ARBN) 652 848 103 on 14 September 2021.[74]
[73] First affidavit of GH Stewart affirmed 26 June 2024, par 23, GHS-14.
[74] First affidavit of GH Stewart affirmed 26 June 2024, par 23, GHS-15.
On 16 September 2021, the Supreme Court of New South Wales made orders approving a creditors' scheme of arrangement in respect of Boart Longyear Limited (ACN 123 052 728).[75] At the second court hearing on 16 September 2021 Boart Longyear Limited relied on a number of affidavits including an affidavit made by Mr Ireland (who was described in Black J's reasons for decision as a partner of McGrathNicol and a non‑executive director of Boart Longyear Limited) who gave evidence of the convening and results of the creditors' scheme meeting.[76]
[75] In the matter of Boart Longyear Limited [2021] NSWSC 1269; first affidavit of GH Stewart affirmed 26 June 2024, par 26.
[76] In the matter of Boart Longyear Ltd [7].
It is recorded on the register maintained by ASIC that on 18 September 2021, Messrs Ireland and Smith were appointed directors of Boart Longyear Group Ltd (Ontario Corporation No. 2854330 and ARBN 652 848 103).[77]
[77] First affidavit of GH Stewart affirmed 26 June 2024, GHS-15 (page 811).
On 30 September 2021, Boart Longyear Group Ltd (Ontario Corporation No. 2854330 and ARBN 652 848 103) acquired all of the issued shares in Boart Longyear Limited (ACN 123 052 728) and replaced Boart Longyear Limited as the holding company of the Boart Longyear corporate group listed on the ASX. From that time on, the 'BLY' securities listed and traded on the ASX were shares in Boart Longyear Group Ltd (Ontario Corporation No. 2854330 and ARBN 652 848 103).[78]
[78] First affidavit of GH Stewart affirmed 26 June 2024, par 28, GHS-18.
On 5 October 2021, Boart Longyear Group Ltd announced that the scheme of arrangement to give effect to the re‑domiciliation of Boart Longyear Group Ltd to Canada had been implemented.[79]
[79] First affidavit of GH Stewart affirmed 26 June 2024, par 29, GHS-19.
It is recorded in the register maintained by ASIC that on 10 December 2021, Mr Ireland and Mr Smith both ceased to be directors of Boart Longyear Limited (ACN 123 052 728).[80]
[80] First affidavit of GH Stewart affirmed 26 June 2024, par 30, GHS-20 (page 854).
Boart Longyear Group Ltd (Ontario Corporation No. 2854330 and ARBN 652 848 103) recorded in its annual report for the year ended 31 December 2021, among other things, that Messrs Ireland and Smith stepped down from the board of Boart Longyear Group Ltd effective 16 November 2021; in 2021 Messrs Ireland and Smith remained shareholders in Boart Longyear Group Ltd and each were issued additional shares; Messrs Ireland and Smith remained among the company's 'Key Management Personnel' until 16 November 2021; Mr Ireland remained a member of the company's remuneration committee until 16 November 2021; as resident Australian directors of the company, Messrs Ireland and Smith were each entitled to director's fees of $200,000, plus fees for serving on committees; Mr Smith remained a member of the company's audit, safety and risk committee until 16 November 2021; and Messrs Ireland and Smith attended all board meetings in 2021.[81]
[81] First affidavit of GH Stewart affirmed 26 June 2024, par 32, GHS-21.
Boart Longyear Group Ltd (Ontario Corporation No. 2854330 and ARBN 652 848 103) recorded in its annual report for the year ended 31 December 2022, among other things, that Messrs Ireland and Smith had retired as directors on 16 November 2021. They were not otherwise recorded as being directors in the annual report for the year ended 31 December 2022.[82]
[82] First affidavit of GH Stewart affirmed 26 June 2024, GHS-25 (pages 1158 - 1161).
On 16 November 2021, Mr Ireland prepared and signed a letter by way of formal confirmation of his resignation as a director of Boart Longyear Group Ltd, and resignation of his duties as a committee member on the remuneration, nomination and governance committee, with effect from 16 November 2021.[83] On 16 November 2021, Mr Smith prepared and authorised the application of his electronic signature to a letter by way of formal confirmation of his resignation as a director of Boart Longyear Group Ltd, and resignation of his duties as a committee member on the audit, safety and risk committee, with effect from 16 November 2021.[84]
[83] Affidavit of SR Fraser sworn 3 July 2024, par 14, SRF-3.
[84] Affidavit of SR Fraser sworn 3 July 2024, par 15, SRF-5.
It is recorded on the register maintained by ASIC that on 16 November 2021, Mr Ireland and Mr Smith both ceased to be directors of Boart Longyear Group Ltd (Ontario Corporation No. 2854330 and ARBN 652 848 103).[85]
[85] First affidavit of GH Stewart affirmed 26 June 2024, GHS-15 (page 811).
Further, on 16 November 2021, Boart Longyear Group Ltd (Ontario Corporation No. 2854330 and ARBN 652 848 103) announced to the ASX changes to its board of directors effective 16 November 2021. It recorded that the nomination of new directors by the company's new equity holders was contemplated as part of the recently completed recapitalisation as new equity holders had been granted nomination rights for directors and the Chair.[86] In that announcement Messrs Ireland and Smith were named as directors that had stepped down on 16 November 2021.
[86] Affidavit of FJ Schmedje sworn 12 July 2024, FJS-1.
On 17 November 2021, Boart Longyear Group Ltd (Ontario Corporation No. 2854330 and ARBN 652 848 103) by way of ASX announcement provided for release to the market, among other things, an Appendix 3Zs - Final Director's Interest Notice for Messrs Ireland and Smith.[87] As at that date, it was recorded that Mr Ireland held 13,283 common shares in Boart Longyear Group Ltd (Ontario Corporation No. 2854330 and ARBN 652 848 103); and Mr Smith held beneficially 13,283 common shares.[88]
[87] Affidavit of FJ Schmedje sworn 12 July 2024, FJS-2.
[88] Affidavit of FJ Schmedje sworn 12 July 2024, FJS-2 (pages 15 and 22).
However, inconsistent with the ASIC register, the annual reports of Boart Longyear Group Ltd (Ontario Corporation No. 2854330 and ARBN 652 848 103); the various ASX announcements, and the letters of resignation, it is recorded in a register maintained by the Ontario Ministry of Public and Business Service Delivery that Messrs Smith and Ireland remained directors of Boart Longyear Group Ltd on 15 April 2022,[89] and on 1 September 2022.[90] It was on this basis that the applicants maintain that Messrs Ireland and Smith were directors of Boart Longyear Group Ltd within the two years prior to the administrators' appointment to Globaltech.
[89] First affidavit of GH Stewart affirmed 26 June 2024, par 34, GHS-22.
[90] First affidavit of GH Stewart affirmed 26 June 2024, par 36, GHS-24.
Mr Smith informed Mr Brauer that, among other things:[91]
(a)he had been aware of Globaltech when he was told about some patent litigation (but could not remember exactly when he was told), and was also told when Globaltech became a subsidiary of the Boart Longyear Group, but he had no involvement in any decision‑making in relation to the operation of Globaltech or the various legal claims to which Globaltech was a party;
(b)his recollection was that Globaltech's performance was not material relative to the Boart Longyear Group which had around $1 billion in revenue and around 3,500 employees;
(c)the last board meetings for Boart Longyear Group Ltd that he attended were on 11 and 12 November 2021;
(d)he and Mr Ireland received a package of resolutions to sign off retrospectively on 30 November 2021; and
(e)he attended an exit interview on 14 December 2021, which was the last meeting he had in relation to Boart Longyear Group Ltd.
[91] Affidavit of SR Fraser sworn 3 July 2024, par 16.
On 4 February 2022, the Australian company formerly known as Boart Longyear Limited (ACN 123 052 728) became known as Boart Longyear Pty Ltd.[92]
Acquisition of further shares in Globaltech
[92] First affidavit of GH Stewart affirmed 26 June 2024, par 33, GHS-20.
On 15 June 2022, Geological Data Services Inc., was incorporated in Delaware, United States of America, and on or about 14 October 2022, at a meeting of shareholders of that company, it was resolved to change its name to Veracio Ltd.[93] Veracio Ltd is another wholly owned subsidiary of Boart Longyear Group Ltd.[94]
[93] First affidavit of GH Stewart affirmed 26 June 2024, par 35, GHS-23.
[94] First affidavit of GH Stewart affirmed 26 June 2024, par 37, GHS-25.
Mr Brauer deposed that Votraint No 1609 Pty Ltd gradually increased its shareholding in Globaltech Corporation to approximately 58%, and in around 2022, Votraint transferred its shareholding in Globaltech to Veracio Ltd.[95] While Mr Stewart deposed that the transfer occurred in about February 2023,[96] it is common ground that Veracio Ltd became and remains Globaltech's principal shareholder, holding 58.32% its issued shares.
[95] First affidavit of RC Brauer sworn 8 May 2024, par 8.
[96] First affidavit of GH Stewart affirmed 26 June 2024, par 38.
Four of Globaltech's current six directors (John Thomas Clark, Michael Ravella, Brian Durrant and Robert Buto) are the nominees of Veracio Ltd.[97]
Oppression proceeding
[97] First affidavit of GH Stewart affirmed 26 June 2024, par 39.
On 1 April 2024, the applicants commenced an oppression proceeding in the Federal Court of Australia against Veracio Ltd. The other plaintiffs in the Federal Court proceeding are Susan Elizabeth Shara Hejleh as trustee of the Alsala Family Trust, and Nasser Abu Hejleh. Globaltech is named as the second defendant.[98]
[98] First affidavit of GH Stewart affirmed 26 June 2024, pars 41 - 43, GHS-27.
Mr Stewart's evidence (as deposed in an affidavit made on 1 April 2024 which was filed in the Federal Court proceeding, and repeated in this application) was as follows.[99]
[99] First affidavit of GH Stewart affirmed 26 June 2024, par 42, GHS-26.
First, Mr Stewart deposed to his belief that Veracio Ltd and its nominee directors have acted to the benefit of Boart Longyear Group Ltd by failing to dispute the existence of an indemnity claimed by Boart Longyear Group Ltd against Globaltech.
Mr Stewart asserted that Veracio Ltd and its nominee directors have acted to the benefit of Boart Longyear Group Ltd by accepting (and asserting) that Globaltech is obliged to indemnify Boart Longyear Group Ltd; and further by permitting Boart Longyear Group Ltd to purport to set off against the indemnity $8 million obligation of Globaltech to Boart Longyear Group Ltd (which is disputed), amounts owed by Boart Longyear Group Ltd to Globaltech (which are not disputed). Mr Stewart deposed that despite the purported set offs, Boart Longyear Group now claims indemnity in the amount of $13 million.
With respect to the claimed indemnity, I noted that it was Mr Hejleh's evidence that the Distribution Agreement (amended and restated on 1 January 2016) included a clause by which Globaltech agreed to indemnify Boart Longyear Australia Pty Ltd from, among other thing things, legal costs and expenses incurred because of actual or alleged infringement of intellectual property rights; since about June 2022, Boart Longyear Group Ltd (Ontario Corporation No. 2854330 ARBN 652 848 103) has asserted that Globaltech is liable to pay to it an amount under that indemnity clause in connection with a number of litigious matters and since about March 2024, Veracio Ltd has asserted a similar right to indemnity; Boart Longyear Group Ltd (Ontario Corporation No. 2854330 ARBN 652 848 103) did not exist until 15 June 2022 and has no rights pursuant to the Distribution Agreement; the company now known as Veracio Ltd did not exist until 15 June 2022 and has no rights pursuant to the Distribution Agreement; and at all material times, Globaltech has denied that the Distribution Agreement afforded anyone a right of indemnity.[100]
[100] First affidavit of K Hejleh affirmed 26 June 2024, pars 3 - 9.
Further, Mr Hejleh deposed that prior to the termination of his employment with Globaltech in September 2023, Boart Longyear Group Ltd and its controlled entities had failed or refused to pay substantial sums owed to Globaltech, which were then in the order of about $3 million.[101]
[101] First affidavit of K Hejleh affirmed 26 June 2024, par 10.
Secondly, Mr Stewart deposed to his belief that Veracio Ltd and its nominee directors have acted to the benefit of Boart Longyear Group Ltd by manipulating the financial records to Globaltech's detriment.
Mr Stewart deposed that employees of Boart Longyear Group Ltd and Veracio Ltd, including Mr Durrant, have access to Globaltech's Oracle accounting system and have (mis)used it to Globaltech's detriment and Boart Longyear Group Ltd's benefit. He deposed that between about February and September 2023, Veracio and Boart Longyear Group Ltd's staff improperly and without Globaltech's authority: entered in that system unsubstantiated liabilities of Globaltech totalling approximately $1.35 million; and failed to enter into, or removed from, that system liabilities due to Globaltech from Boart Longyear Group Ltd totalling approximately $2.35 million. He complained that despite request, Veracio Ltd's nominee directors have caused or permitted those records to remain uncorrected.
Thirdly, Mr Stewart deposed that Veracio Ltd and its nominee directors have acted to the benefit of Boart Longyear Group Ltd by diverting business from Globaltech, poaching its employees and misappropriating its intellectual and other property to the detriment of Globaltech.
Mr Stewart deposed that by about May 2023, almost all purchase orders from Boart Longyear Group Ltd to Globaltech were cancelled at the direction and with the approval of Mr Clark (the chairman of Globaltech and the chief executive officer of Veracio Ltd). Mr Stewart complains that Veracio Ltd is now manufacturing products previously manufactured by Globaltech, using Globaltech's stock, tools and equipment, computers, software, firmware, procedures, methodologies, designs, intellectual property and know‑how.
Fourthly, Mr Stewart deposed that Veracio Ltd and its nominee directors have attempted to dilute minority shareholders' interests in Globaltech.
He deposed that as a result of the conduct of Veracio Ltd and its nominee directors, Globaltech's financial position is much weaker now than it was before that conduct commenced. It was Mr Stewart's evidence that as a result of being deprived of business, funds, plant, equipment and personnel, Globaltech has suffered, and is suffering, from significantly reduced revenue. Therefore, it has been compelled to minimise its expenditure, and it has been unable to continue to invest in research and development. He complains that purportedly to address Globaltech's financial malaise - for which he contends Veracio Ltd's nominee directors are directly responsible - those directors have mooted raising funds through a (dilutionary) capital raising.
As to this complaint, Mr Stewart deposed that in September 2023, Mr Clark proposed a share issue to raise $20 million of capital (which gave Globaltech an implied valuation of just $200,000). However, that share issue did not proceed after Mr Hejleh obtained written legal advice to the effect that it may be considered oppressive or unfairly prejudicial to Globaltech's minority shareholders. Mr Stewart further deposed that just days later, on 26 September 2023, the board removed Mr Hejleh as a director and terminated his employment by Globaltech.
He further deposed that on 13 March 2024, Mr Clark proposed a $25 million share issue to enable Globaltech to pay, among other things, Boart Longyear Group Ltd's disputed $13 million indemnity claim, which to the date of Mr Stewart's affidavit has not been further advanced.
Finally, Mr Stewart deposed that he has been denied access to information.
Mr Stewart deposed that his employment with Globaltech was terminated in December 2023, whereupon he was directed to hand over his Globaltech laptop (notwithstanding that he remains a director of Globaltech); Mr Stewart complains that since December 2023, despite his requests, he has been denied access to Globaltech's management accounts and financial books and records; he has been informed by Globaltech's accountant and lawyers that they have been directed by Veracio Ltd's nominee directors of Globaltech not to discuss anything relating to Globaltech with him; and in March 2024, Mr Clark refused to give information regarding the value of Globaltech's assets to any of Globaltech's minority shareholders.
On 26 April 2024, Veracio Ltd applied unsuccessfully to stay the oppression proceeding on the basis Globaltech was in voluntary administration.[102]
The appointment of the administrators
[102] First affidavit of GH Stewart affirmed 26 June 2024, par 47, GHS-29.
On 12 April 2024, the board of Globaltech resolved that:[103]
(a)in the opinion of the directors, Globaltech is insolvent, or is likely to become insolvent at some future time;
(b)the administrators be appointed as administrators of Globaltech, which appointment shall take effect from the date and time of passing the resolutions; and
(c)Globaltech execute, in accordance with the Corporations Act, the Instrument of Appointment.
[103] In accordance with Corporations Act 2001 (Cth) s 436A(1); affidavit of SR Fraser sworn 3 July 2024, SRF‑1.
The resolution was a unanimous one and Mr Stewart was one of the five directors in attendance.[104] The appointment was referred to Mr Brauer and Mr Fraser by Ashurst Australia acting on behalf of a shareholder of Globaltech.[105]
The first meeting of creditors
[104] Affidavit of SR Fraser sworn 3 July 2024, SRF‑1 (pages 16 ‑ 17).
[105] Affidavit of SR Fraser sworn 3 July 2024, SRF‑5 (page 30).
The first meeting of creditors took place on 24 April 2024.
Among other things, at the first meeting of creditors the administrators tabled their DIRRI, which had previously been circulated; noted that Globaltech was involved in three separate legal proceedings; noted that on 7 March 2024 orders were made in one of the proceedings requiring Globaltech to pay damages in the total amount of $7.9 million to Australia Mud Company Pty Ltd; advised creditors that a statutory demand for this debt was issued to Globaltech, which was the catalyst for the directors of Globaltech resolving to appoint the administrators on 12 April 2024; gave an overview of Globaltech's asset position, which included $167,000 cash at bank; noted that the next steps included undertaking investigations to identify potential liquidator recoveries; foreshadowed the likely application to the court to extend the convening period; and answered questions from creditors with respect to funding, noting the possibility of the administrators entering into a funding arrangement. Creditors were informed that an updated DIRRI would be made available to creditors if the administrators entered into a funding agreement, and the administrators would apply to the court to limit their personal liability if a funding agreement was entered into.[106]
In this case, the order reserving liberty to apply was made in circumstances where the application had been listed with expedition, for the limited purpose of ensuring that liberty was reserved to persons who could demonstrate sufficient interest so as to be heard to modify or discharge the orders.
Further, the Rules of the Supreme Court O 58 r 23 confers a broad discretion on the court to set aside orders which have been made ex parte, which rule applies by operation of the Supreme Court (Corporations) Rules (WA) 2004 r 1.3(2)(a). The court's discretion is only limited by the inherent requirement that it be exercised judicially.[191] On an application to set aside an ex parte order, it is not necessary for the applicant to adduce additional material; rather the application is to be heard de novo.[192]
[191] Popovic v Panagoulias [2014] WASCA 86 [36].
[192] Popovic v Panagoulias [54].
The Imdex interested parties did not seek to be heard with respect to this part of the applicants' application. The applicants and the administrators both accepted that the application was to be heard de novo.[193] While it was not necessary to enliven the court's jurisdiction to set aside an ex parte order under O 58 r 23 for the applicants to adduce additional material which throws a new and different light on the situation of the parties involved, there was additional evidence now before the court and I had regard to the same.
The application
[193] ts 106 - 107 (16 July 2024; ts 112 (11 July 2024).
On 24 May 2024, the administrators sought leave to amend the interlocutory process filed on 17 May 2024. An order that the administrators were justified in entering into the Funding Deed pursuant to s 90-15(1) of the Insolvency Practice Schedule (Corporations) was not pressed. The hearing de novo of the application made on 24 May 2024 is the hearing of the amended application in the form reproduced at sch C to these reasons.
The relief sought
The parties to the Funding Deed were Veracio Ltd as Lender and Mr Brauer and Mr Fraser, each in their capacity as joint and several administrators of Globaltech, as Borrowers.[194] By the application, the administrators seek orders relieving them from any personal liability in respect of debts or liabilities arising out of, or in connection with, any obligations under the Funding Deed pursuant to s 447A of the Corporations Act.
[194] Second affidavit of RC Brauer sworn 16 May 2024, RCB-7.
Counsel for the applicants described the administrators' application for relief a curious one, because (it was suggested) it is usually the case that an application is made by administrators in circumstances where the company to which they are appointed borrows money for the purpose of trading on. Counsel for the applicants noted that in this case, Globaltech was not the borrower under the Funding Deed, rather Mr Brauer and Mr Fraser, each in their capacity as joint and several administrators of Globaltech, had borrowed money from Veracio Ltd.[195]
[195] ts 77 (11 July 2024).
I did not understand however that it was submitted that an application for relief against personal liability as framed by the administrators with respect to the Funding Deed was beyond the court's power. Nor did I consider an application for relief by administrators who had borrowed funds to ensure the preservation of assets during the period of the administration to be unusual.[196]
Personal liability - applicable principles
[196] By way of recent examples, see Re Yeeda Pastoral Company Pty Ltd (Administrators Appointed) (ACN 094 819 717); Ex parte Richard Scott Tucker as joint and several administrator of Yeeda Pastoral Company Pty Ltd (Administrators Appointed) (ACN 094 819 717) [2024] WASC 120; Re Yeeda Pastoral Company Pty Ltd (Administrators Appointed) (ACN 094 819 717); Ex parte Richard Scott Tucker as joint and several administrator of Yeeda Pastoral Company Pty Ltd (Administrators Appointed) (ACN 094 819 717) [No 2] [2024] WASC 221. See also Kirman and Brauer as joint and several administrators of Marine Produce Australia Pty Ltd (administrators appointed) [2023] WASC 236.
Division 9 of pt 5.3A of the Corporations Act concerns the liability of administrators and the indemnity for debts of the administration.
Section 443A(1) of the Corporations Act provides that an administrator of a company is liable for debts he or she incurs in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers as administrator, for services rendered; or goods bought; or property hired, leased, used or occupied, including property consisting of goods that is subject to a lease that gives rise to a Personal Property Securities Act 2009 (Cth) security interest in the goods; or the repayment of money borrowed; or interest in respect of money borrowed; or borrowing costs.
Section 443A(2) of the Corporations Act provides that the liability of an administrator under s 443A(1) cannot be excluded by any agreement; and s 443A(1) does not otherwise prejudice an administrator's rights to bring an action or make a claim as against the company or anyone else.
Pursuant to s 443D of the Corporations Act, an administrator is entitled to be indemnified out of the company's property for the debts for which they are liable under s 443A. Subject to s 556 (priorities in a winding up), the right of indemnity under s 443D has priority over all the company's unsecured debts, certain PPSA security interests and debts secured by circulating securities interests. The administrators also have a statutory lien over the company's property to secure the right to the indemnity pursuant to s 443F.
If an administrator enters into a loan agreement with a financier, the loan and the interest payable on it are not considered to be a debt falling within s 443A and the indemnity in s 443D. For this reason, unless an order is made by the court modifying the operation of pt 5.3A of the Corporations Act, the administrator is personally liable for the loan and interest.
Relief was sought pursuant to s 447A of the Corporations Act, which empowers the court to make such orders as it thinks appropriate about how pt 5.3A is to operate in relation to a particular company. Section 447A gives the court broad powers, including the power to alter what would otherwise be the operation of pt 5.3A in relation to a particular company, even where the provision would on its separate construction exclude such an order.[197] Further, by empowering the court to make orders about 'how this Part is to operate', the section looks to the future rather than the past, but the temporal requirement is satisfied if the orders have effect from the time of their making. That is, it is possible for the court to make an order with future effect in respect of past matters or events.[198]
[197] Brash Holdings Ltd (Administrator Appointed) v Katile Pty Ltd [1996] 1 VR 24, 26 - 27; Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270; Re Bosnjak Holdings Pty Ltd [2005] FCA 275; (2005) 53 ACSR 8 [9].
[198] Deputy Commissioner of Taxation (Cth) v Portinex Pty Ltd [30].
Section 447A of the Corporations Act empowers the court to make orders which limit the personal liability of an administrator where it is satisfied that loan agreements are made for the purpose of allowing the company in administration to trade for the benefit of creditors.
In Secatore, Re Fletcher Jones and Staff Pty Ltd (Administrators Appointed), Gordon J stated:[199]
Section 447A(1) of the Act empowers the Court, in an appropriate case, to modify the operation of s 443A to exclude personal liability on the part of a voluntary administrator, and to provide that a loan taken by the company via the voluntary administrator is repayable on a limited recourse basis. Orders in similar terms have frequently been made in circumstances where the Court is satisfied that an administrator has entered into a loan agreement or other arrangement to enable the company's business to continue to trade for the benefit of the company's creditors.
[199] Secatore, Re Fletcher Jones and Staff Pty Ltd (Administrators Appointed) [2011] FCA 1493 [23] (citations omitted).
Where these circumstances arise, courts have expressed the view that administrators should not be expected to expose themselves to substantial personal liabilities. Where orders are made which relieve administrators from personal liability in respect of borrowings, the orders will permit the administrators to make commercial decisions about the ongoing operations of the company under administration by focusing on what is in the best interests of the creditors, absent the influence of any concern as to personal liability.
In Mentha, Re Griffin Coal Mining Company Pty Ltd (Administrators Appointed),[200] Gilmour J set out the factors that the court will take into account in considering an application for orders under s 447A to vary the liability of administrators under s 443A:
(a) whether the proposed arrangements are in the interests of the company's creditors and consistent with the objectives of pt 5.3A (set out in s 435A of the Corporations Act);
(b) whether the arrangements proposed are to enable the company's business to continue to trade for the benefit of the company's creditors;
(c) a consideration of whether the creditors of the company are not prejudiced or disadvantaged by the types of orders sought and whether they stand to benefit from the administrators entering into the arrangement; and
(d) whether notice has been given to those who may be affected by the order.
Disposition
[200] Mentha, Re Griffin Coal Mining Company Pty Ltd (Administrators Appointed) [2010] FCA 1469; (2010) 82 ACSR 142 [30].
By operation of s 447A(4)(c) of the Corporations Act, the administrators had standing to apply for an order pursuant to s 447A(1).
By the application, s 443A was the provision in pt 5.3A of the Corporations Act the operation of which was sought to be modified, and the administrators sought that pt 5.3A of the Corporations Act operate as set out in the amended application.
It is well established that the power of the court conferred under s 447A(1) extends to modifying the manner in which s 443D operates to order an indemnity where the statutory indemnity is insufficient or in doubt, and the manner in which s 443A operates so as to limit an administrator's personal liability. Applications for orders similar to those sought in this application have been favourably considered in circumstances where the court has been satisfied that the administrator entered into the funding arrangement to enable the company's business to continue to trade for the benefit of the creditors of the company.
In this case, Mr Brauer deposed that the administrators continued to trade Globaltech's business during the period of the administration, and based on his review and understanding, he believed that the administrators required additional funding to meet operating costs, including rent; insurance; general operations costs such as internet services; legal fees; and wages and entitlements for Globaltech's two remaining employees.[201]
[201] Second affidavit of RC Brauer sworn 16 May 2024, par 13.
The applicants submitted that the circumstances of this application, the arrangements proposed (that is, the Funding Deed) was not required nor sought so as to enable Globaltech's business to continue to trade for the benefit of its creditors. They complained that the proposed arrangements were not truly to enable Globaltech's business to continue to trade because Globaltech was and is not trading; and the evidence before the court made plain that the administrators were not engaged in any trading activities.
I do not think that Mr Brauer, through his evidence, sought to paint a picture that Globaltech had been actively engaged in the design, development and manufacture of exploration instruments, analysis software, real‑time remote monitoring systems and data analytics for global mining and exploration operations while in external administration. Mr Brauer's evidence makes plain that the administrators sought funding to meet their ongoing operating costs, including rent; insurance; general operations costs such as internet services; legal fees; and wages and entitlements for Globaltech's two remaining employees. The evidence also reveals that the administrators required funding to instruct patent attorneys to renewed patents registered by Globaltech, so as to preserve the primary asset of Globaltech, and incurred costs in excess of $60,000 in doing so.
The better characterisation of the proposed need and use of the funds is the preservation of Globaltech's business and assets for the benefit of the company's creditors. Without the continuing preservation of the business (particularly the patents), I accept that there was a risk that the value of Globaltech's assets would be diminished.
I also accept that such a purpose was in the interests of Globaltech's creditors and consistent with the objectives of pt 5.3A, and that the court has the power to make the orders promoted on behalf of the administrators pursuant to s 447A, which I consider has a clear nexus with how pt 5.3A is to operate in relation to Globaltech.
The orders proposed on behalf of the administrators are designed to achieve in relation to Globaltech the objects of pt 5.3A as stated in s 435A of the Corporations Act. That is, I am satisfied that Funding Deed and the orders sought promote the administration of the affairs of Globaltech in a way that will maximise the chances of it and its business continuing in existence.
The applicants submitted that it is not in the interests of Globaltech's creditors for the administrators to refrain from pursuing Globaltech's debts and instead borrow $800,000 from one of its principal debtors and incur interest on the amount borrowed.
I did not accept the submission made on behalf of the applicants that the Funding Deed was unnecessary, and therefore not in the best interests of the creditors. For the reasons set out above, entry into the Funding Deed rather than electing to pursue Globaltech's debtors (which included the BLY entities), or electing to sell Globaltech's inventory and stock to raise funds, was adequately explained and not unreasonable in the circumstances.
The applicants complain that had they been heard on 24 May 2024 they would have drawn to the court's attention the administrators' apparent lack of independence, and rely on the same in seeking that the orders of 24 May 2024 be vacated. For the reasons set out above, apprehended bias was not established on the evidence.
It was Mr Brauer's evidence, an insolvency practitioner with over 20 years of experience, that in his view the terms of the Funding Deed was reasonable, commercial, and appropriate in the circumstances, and he believed it to be the best option available for the administrators to fund the ongoing costs of trading and the operation of the business of Globaltech. The opinion of Mr Brauer held considerable weight.
The applicants observed that in the circumstances, there was good reason to be sceptical about Veracio Ltd's motives. Further, it was submitted that the Funding Deed had been obtained at the price of the administrators agreeing not to pursue claims against Veracio Ltd, which was not in the interests of Globaltech's creditors as a whole.
Whatever Veracio Ltd's motives may be, no term of the Funding Deed expressly curtailed the ambit of cl 2.2(c) so as to provide that the administrators' investigations (including with respect to claims that Globaltech may have against any of the BLY entities) would not constitute the fees, costs, expenses and remuneration of the administrators. As noted above, Mr Fraser deposed that at no stage were the administrators asked to agree with Veracio Ltd that they would not investigate its conduct or any potential claims against Veracio Ltd, or against any other entity of the Boart Longyear group and there was no such agreement. He further deposed that the administrators were investigating potential claims Globaltech may have against other parties including Veracio Ltd. Those investigations are ongoing and the administrators' views in relation to any potential claims would be included in the administrators' report to creditors.[202]
[202] Affidavit of SR Fraser sworn 3 July 2024, pars 53 - 54.
The applicants observed that the more money that is spent by the administrators, the larger the imposition on Globaltech's assets to pay the administrators' costs and expenses; and complained that no reasonable explanation has been proffered for the difference between the initial estimate that $250,000 was needed to complete the administration and the administrators' revised estimate.
I do not accept on the evidence before the court that the revision of the estimate, and the reasons for need for additional funds, were without reasonable explanation.
At the hearing of the application de novo, I must consider whether notice has been given to those who may be affected by the order. I am satisfied of the same.
On 28 June 2024, certain programming orders were made, which included an order that by 4pm on Saturday, 29 June 2024, the administrators must provide to all creditors of Globaltech (including entities or persons claiming to be creditors) and to ASIC, notice of the listing of the application for hearing on Friday, 5 July 2024 at 10am in a form approved by the court, and with that approved notice provide a copy of the application, these orders, and the orders made by the court on 24 May 2024, by: (a) email using such email address for the creditors and ASIC as are known to the administrators; and (b) placing a copy of the same on the website maintained by the administrators.
Further, it was ordered that by 4pm on Wednesday, 3 July 2024, should ASIC or any interested person wish to be heard with respect to the application, a notice of appearance (Form 4) together with any affidavit and outline of submissions on which they will seek to rely must be filed with the court, and must be served on the applicants, the administrators and Globaltech.
On the evening of 29 June 2024 the form of notice was approved by the court; and at the hearing of the application (adjourned to 11 July 2024) the two largest groups claiming to be creditors of Globaltech (the Imdex interested parties and the Boart Longyear interested parties), appeared through counsel.
Finally, I note that this application is heard de novo after moneys have been received by the administrators under the Funding Deed, and spent. On 23 May 2024, Veracio Ltd paid into the administration bank account the amount of $360,139.49 as a first drawdown under the Funding Deed. Those funds were not utilised until after the court made orders on 24 May 2024 limiting the administrators' personal liability under the Funding Deed. The funds have since been fully utilised to pay the costs and expenses of the administration.[203]
[203] Affidavit of SR Fraser sworn 3 July 2024, par 61.
In considering the application at this time, I am cognisant that by empowering the court to make orders about 'how this Part is to operate', s 447A(1) looks to the future rather than the past. However, I am satisfied that in this case, the temporal requirement was satisfied by the fact that the orders will have effect from the time of their making.[204]
[204] In the matter of Renex Holdings (Dandenong) 1 Pty Ltd (administrators appointed) [2015] NSWSC 2003 [14]; cited and applied in Cameron Hugh Shaw as joint and several administrator of G N Construction (Aust) Pty Ltd (administrators appointed), Ikonstrukt Pty Ltd (administrators appointed), Main Administration Services Pty Ltd (administrators appointed) [No 2] [2024] WASC 190.
Weighing all of these matters in the balance, I am prepared to grant relief in the form of the administrators' amended application, and I will not vacate the orders made on 24 May 2024.
Conclusion and orders
In light of these reasons, the application will be dismissed.
I will hear the parties as to the costs of the application, with respect to the costs of the interested parties, and reserved costs.
Sch A – Orders made on 10 May 2024 and 24 May 2024
Sch B – Applicants' amended interlocutory process dated 11 July 2024
Sch C – Administrators' amended interlocutory process dated 24 May 2024
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
KO
Associate to the Judge
17 JULY 2024
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