In the matter of Nexus Energy Ltd (subject to deed of company arrangement)
[2014] NSWSC 1689
•25 November 2014
Supreme Court
New South Wales
Medium Neutral Citation: In the matter of Nexus Energy Ltd (subject to deed of company arrangement) [2014] NSWSC 1689 Hearing dates: 25 November 2014 Decision date: 25 November 2014 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Hearing date vacated.
Catchwords: PROCEDURE - application by defendants to have hearing date vacated - relevant considerations - procedural fairness. Legislation Cited: Corporations Act 2001 (Cth) ss 444GA, 444GA(3), Pt 5.3A Category: Interlocutory applications Parties: Matthew Jason Caddy, Anthony Gregory McGrath and Jason Preston in their capacities as joint and several deed administrators of Nexus Energy Ltd (subject to a deed of company arrangement) (Plaintiffs)
Wingarra Pty Ltd (First Defendant)
Jersey Investments Pty Ltd as trustee for Fraser Family Trust (Second Defendant)
Detata's Pty Ltd (Third Defendant)
Bellevue Holdings Company Pty Ltd (Fourth Defendant)
Andrew Greig (Fifth Defendant)
Tess Aust Pty Ltd (Sixth Defendant)
Hannon Group Pty Ltd (Seventh Defendant)
Alybrit Investments Pty Ltd (Eighth Defendant)
Mayburys Pty Ltd as trustee for Carmich Superannuation Fund (Ninth Defendant)
Vicsom Nominees Pty Ltd (Tenth Defendant)
Peter Edwards (Eleventh Defendant)
VBS Investments Pty Ltd (Twelfth Defendant)
Pineross No 2 Investments Pty Ltd (Thirteenth Defendant)
Kippilaw Pastoral Pty Ltd (Fourteenth Defendant)
Ian James (Fifteenth Defendant)
Peter Evans (Sixteenth Defendant)
Hendrik Snyman (Seventeenth Defendant)Representation: Counsel:
E A Collins SC/P Holmes (Plaintiffs)
C R Newlinds SC/J Wright (Defendants)
I Jackman SC/D Sulan (Network Investment Holdings Ltd)
R M Foreman (as amicus) (Australian Securities and Investments Commission)
Solicitors:
Clayton Utz (Plaintiffs)
Piper Alderman (Defendants)
Herbert Smith Freehills (Network Investment Holdings Ltd)
Australian Securities and Investments Commission
File Number(s): 2014/305920
Judgment- ex tempore
The deed administrators of Nexus Energy Ltd ("Company") seek an order granting the Court's leave for the transfer of shares in the Company to a third party, Network Investment Holdings Ltd ("NIHL"), under s 444GA of the Corporations Act 2001 (Cth). The matter which must be established in order for such leave to be granted is that the transfer would not "unfairly prejudice" the interests of members of the Company. The application for leave is opposed by several members of the Company ("Shareholders") who have standing to oppose it under s 444GA(2) of the Corporations Act.
The Originating Process was filed on 17 October 2014, but it was some time before it could proceed, since it depended upon the provision of an expert's report. The matter was listed for directions on 31 October 2014 and was then set down for a hearing on 27-28 November 2014 in circumstances of urgency. I have referred to the circumstances which gave rise to that urgency in earlier judgments and I need not repeat them now. I note, in summary, that the urgency arises in part from the fact that the Company is presently dependent upon financial support by a secured creditor, NIHL, which is also the party to which the Company's shares would be transferred by the process provided under s 444GA of the Corporations Act, and its funding presently expires on 30 November 2014, having been extended to a date shortly after the two days allocated for the date of the hearing.
The Shareholders now apply to vacate the hearing date on 27-28 November 2014. They rely upon an affidavit of their solicitor, Ms Amanda Banton, dated 25 November 2014 which refers to recent developments in respect of the service of evidence in the proceedings, to which I will refer below. The deed administrators in turn rely on two affidavits, the first being an affidavit of Ms Crittenden, a solicitor acting for them, sworn 17 November 2014 which set out the then conditions to the funding provided to the Company and set out the commercial risks to the Company if the hearing date is vacated. In particular, Ms Crittenden refers to potential prejudice to the Company of two kinds, the first being prejudice if NIHL does not then extend the funding which is presently available to the Company beyond 30 November 2014, with the result that it appears inevitable that the Company will pass into liquidation. The second form of prejudice is that commercial arrangements, in respect of at least one project of the Company, also appear to require commitments to be given by 30 November 2014, or the company will face a loss of opportunity to take up those commitments.
By a further affidavit dated 25 November 2014, Ms Crittenden refers to service of various documents, to which I will refer below, in respect of the preparation for the hearing, and again refers to the consequences of not retaining the hearing date of 27 and 28 November 2014. Ms Crittenden refers to a telephone call with representatives of NIHL in which the deed administrators' legal representatives were advised that NIHL's position was that it was not prepared to grant a further extension of the funding available to the deed administrators, or agree to an extension to the date by which the DOCA conditions must be satisfied, at this time. Mr Newlinds, who appears for the shareholders, characterises this as, to use his words, holding a gun to the Court's head. I would not adopt that characterisation, although it is plain that NIHL is, to some extent, using the extended date of its funding to seek to preserve the present hearing date, and, at least to some extent, the risk to the Company of liquidation arising from a loss of those hearing dates is a consequence of NIHL's position. That is, however, not to say that that threat is anything other than very real. There is, plainly, something between a possibility and a substantial likelihood that vacating the hearing date in this matter will have the consequence that the Company will be placed in liquidation, and that consequence is inconsistent with the wider objectives of Pt 5.3A of the Corporations Act, so far as they contemplate maximising the prospects of a Company's continuing in existence, or, if that is not possible, achieving a better return for the Company's creditors and members than in a winding up of the Company.
Having said that, it is important to recognise the nature of the Court's task to which Mr Newlinds draws attention. The statutory jurisdiction to approve the transfer of shares in a company in administration exists if, and only if, the Court is satisfied that the transfer would not unfairly prejudice the interests of members of the company. The language of that section recognises that there is a potential, first, for prejudice to interests of members and, second, that that prejudice may be unfair. I proceed on the basis that the Court will seek to hear proceedings urgently, where a company is in administration and facing the risk of liquidation if those proceedings are not determined urgently. Nonetheless, the proceedings must be determined in a way that affords real procedural fairness to affected parties, including a fair opportunity to engage with the evidence which they have to meet. That evidence may ultimately be substantial, and it may ultimately be capable of prevailing, but procedural fairness requires that a party in an opposing interest be given a proper opportunity to test that evidence.
In the present case, the parties have operated under extraordinary time pressures, and nothing that I say as to the process by which evidence has been served should be understood as a criticism of any of the parties or any of their representatives, who have plainly worked with extraordinary diligence to assemble a substantial volume of material within a very short time. However, it is nonetheless the fact that a very substantial volume of material has been served within the last week before the hearing, in proceedings which involve a significant amount of intrinsic complexity. Ms Collins, who appears for the deed administrators, points out that the material which has been served does not change the deed administrators' position, or indeed the substance of the expert evidence on which they rely, from that with which it began, namely, that the shares in the Company are presently of significant negative value, and there is, the deed administrators contend, therefore no prejudice to the Shareholders in their being transferred to NIHL, where they have no value in a liquidation. Mr Newlinds, I note, has foreshadowed that the Shareholders will contend that that is not the proper test, where the shares have value to an acquirer, but that is not the issue which presently gives rise to difficulty, which is that of the underlying valuation of the shares.
To provide a brief chronology of recent events, an original report of Mr Edwards of Lonergan Edwards was completed on 30 October 2014, and released to the market, immediately before the first directions hearing, and in turn relied on a report of Gaffney Cline & Associates ("GCA") dated 30 October 2014. By 19 November 2014, it had become clear that the Shareholders' primary position was to object to the tender of that report, on the basis that its assumptions would not be made good, as well as by a substantive contest as to the correctness of some of those assumptions. Not surprisingly, and this at least could have been anticipated by the Shareholders (and Mr Newlinds indicates it was anticipated by the Shareholders), the deed administrators took subsequent steps to lead further evidence which might seek to support the assumptions contained in that report. By 19 November, a further affidavit of Mr Edwards had been served which identified 89 documents on which Mr Lonergan relied and Mr Edwards had also added additional commentary to his report, which was then provided in redacted form. By 21 November, a list of further documents to be tendered had been provided, including additional documents in relation to the October GCA report. Some of those documents, amounting to six lever arch folders, were made available in the evening of Friday 21 November, some six days prior to the ultimate hearing.
Further affidavits were also served on the evening of 21 November, supported by a further four lever arch folders of documents. These included a new version of an expert report of GCA, which apparently included additional information which had been excluded from the previous version of that report on the basis of confidentiality. A difficulty which has been frankly and properly acknowledged by Ms Collins is that that form of report did not itself indicate what was the new material, so a recipient of it would be left to seek to compare the earlier report and a new report so as to identify what was the new material, and Ms Collins indicated that even today she was not in a position to identify that new material. The Shareholders were in turn first provided with an unredacted copy of the expanded Lonergan Edwards report on Saturday 22 November, now five days before the hearing, and first provided with the particular documents relied on in respect of the GCA report on Sunday 23 November, now four days before the hearing.
Ms Banton indicates that five lever arch folders of documents had been served since Friday 21 November. In some commercial matters, five lever arch folders of documents would not be a substantial quantity of documents, but it seems to me that I can and should proceed, on the basis of all of the evidence before me, on the basis that these are documents of some complexity, involving both issues as to the assessment of particular projects and financial information, which require particular skill and expertise to digest. I accept that many and possibly all of these documents were previously produced on subpoena, but that is not an answer to the difficulty that the Shareholders need to be given a fair opportunity to respond to the documents on which the deed administrators in fact rely, rather than being left to anticipate what might be relied on from the larger volume of documents produced on subpoena.
It is plain that the parties and particularly the deed administrators devoted significant efforts to preparing this evidence within a compressed timetable. It is also plain that, as events have developed, substantial quantities of material have been served late and the Shareholders have been placed in a position where effectively the case to which they have to respond shifts beneath them, so far as the deed administrators seek to improve it by additional evidence served at a very late stage. It seems to me that that must cause significant practical difficulties in responding to a case. Whether the Shareholders ultimately have a strong or weak basis for objection to the acquisition of their shares is a matter that cannot be known prior to a hearing, and may depend on matters such as that foreshadowed previously by Mr Newlinds, as to the appropriateness or otherwise of the discount rate to be applied by the expert or the treatment of tax losses. However, the issue that presently faces the Court is not ultimately whether they have a strong or a weak response to the application, but whether they are afforded a fair opportunity to articulate that response, whatever it might be. Ultimately, I have come to the conclusion, with considerable reluctance, that events have developed in a way that the Shareholders would not in fact had a fair opportunity to respond to that case if a hearing proceeds on 27-28 November.
I should add that a further matter has emerged in the course of the hearing which may in any event have required that the hearing date be vacated. Ms Collins fairly acknowledges that, as matters stand, it is very difficult to see that this case could be completed within the two days that have been allocated to it. No doubt, the Court could allocate additional days and would look to do so in a matter of urgency of this character. However, it must be recognised, as Mr Newlinds points out, that the position of NIHL is that it presently does not intend to extend its financial support to the Company beyond 30 November. It may advance that position to seek to preserve the hearing dates, but the consequence of that position is that, if the hearing cannot be completed within the time presently allocated to it, the Company will go into liquidation in any event. NIHL's position may be final or it may not be final. If it changes, then a hearing at a later date may be accommodated. If it does not change, then a hearing that commenced but did not complete would have no benefit because the Company would go into liquidation in any event. That is the product not of any fault on the part of the deed administrators or any fault on the part of the Shareholders, but is simply the product of the commercial position that NIHL has taken, no doubt for its own good reasons. In those circumstances, it seems to me that there would be a further difficulty with proceeding with a hearing where, it seems to me, Ms Collins is right that there is a real doubt that the hearing could be completed within two days, given the extent of the evidence which has now been served and the fact that Shareholders have, fairly, indicated that they wish to cross-examine the deponents of affidavit evidence and NIHL will not presently extend finance to the Company beyond that time.
For these reasons, I am satisfied that the hearing date must be vacated. A question then arises as to whether a further hearing date should be allocated, and when it should be. Mr Newlinds' position was, at least initially, that there is no point in allocating a further hearing date, because NIHL's position is that it will not extend funding and that the Company will therefore go into liquidation shortly after 30 November. I do not propose to proceed on that basis, because NIHL has not necessarily committed itself to a final position and may review its present position. It seems to me that the preferable course is to allocate a final hearing date, to preserve the opportunity of the Company's survival if NIHL ultimately determines that they should further extend the funding. There is, of course, nothing that the Court can do to achieve that result if that is not NIHL's determination.
A question then arises as to the date which should be allocated. Ms Banton in her affidavit submitted that that date should be in February 2015, because the Shareholders were not confident that they could be ready for a hearing in the last week of term in December 2014, a date which had previously been raised as an alternative by the Court, because of the time which would be taken to prepare expert evidence. I am not satisfied that I should defer the hearing date to that time, for several reasons. First, as has been recognised since this matter was first listed, this matter is objectively urgent and there are real costs to various constituencies, including other creditors of the Company and its employees, if the Company is forced into liquidation. Second, as Mr Newlinds came close to acknowledging in submissions, there are two possibilities here. The first is that experts have been retained by the Shareholders, and have been progressing their work as material has been received, at least since this matter was first listed before the Court on 31 October, and possibly from prior to that time when the Shareholders' legal representatives were first retained. In that circumstance, notwithstanding that some material will have been received late, other material, including Lonergan Edwards' first report, would have been available for almost three months by the time of a hearing in late December 2014. The other possibility is that the shareholders have made a forensic decision not to progress expert evidence, against the contingency that either the Lonergan Edwards report would not be admitted, or that they would be able to make good their case other than by expert evidence. If that forensic decision has been made, then there is no reason why they should not be left to its consequences, so as to preserve any opportunity which remains for the Company's survival.
In these circumstances, it seems to me that the proper course is to tentatively list the matter for hearing commencing 16 December 2014, and to reserve four hearing days in that week against the contingency that the hearing will not complete in the two days that were previously allocated to it. In doing so, I recognise that that date may have to be vacated if commercial events develop such that the Company has been placed in liquidation in the meantime and there is no further issue to be determined at that time.
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Decision last updated: 03 December 2014
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