In the matter of Premier Energy Resources Pty Ltd

Case •

[2023] NSWSC 1185

•

05 October 2023

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: In the matter of Premier Energy Resources Pty Ltd [2023] NSWSC 1185
Hearing dates: 28 September 2023
Date of orders: 28 September 2023
Decision date: 05 October 2023
Jurisdiction:Equity - Corporations List
Before: Williams J
Decision:

Application for orders under s 447A of the Corporations Act 2001 (Cth) validating the appointment of an administrator dismissed

Catchwords:

CORPORATIONS — Voluntary administration — Administrators — Where one director of company forged signature of second director on a letter of resignation as director, before purportedly resolving as sole director to appoint a voluntary administrator pursuant to s 436A of the Corporations Act 2001 (Cth) — Where appointment documents provided to administrator included director’s forged letter of resignation — Where administrator on notice of the forgery allegation from approximately one week after his purported appointment — Where administrator maintained that he relied on the documents and considered that his appointment was valid — Where no evidence that administrator had made any inquiries about the forgery allegation before coming to that view — Where administrator proceeded to advertise company’s asset for sale and deal with shareholders and creditors of the company in his capacity as administrator — Where administrator declined to make any application to the Court to determine the validity of, or to validate, his appointment — Where administrator ultimately applied to the Court almost three months after his appointment seeking orders validating his appointment — Where validation of appointment would give the imprimatur of the Court to the forgery and the subsequent conduct of the administrator, and would deprive shareholders in dispute of the right to engage in procedure agreed between them in a Shareholder Deed to resolve deadlock between directors, which would be likely to affect future of the company — Where risk of insolvency, but no real risk of company incurring further debts except to existing related party creditors who may, depending on the outcome of the deadlock procedure, choose to fund the company with full knowledge of its financial position and circumstances.

Legislation Cited:

Corporations Act 2001 (Cth), ss 435A, 436A, 440D, 447A, 459P, 461(1)(k), 1322(4), 1322(4)(b), pt 5.3A

Insolvency Practice Rules (Corporations) 2016 (Cth), ss 75-140(1)(b), 75-140(3)

Cases Cited:

Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd (2004) 49 ACSR 1; [2004] FCA 130

Darin re Palamedia Limited [2010] NSWSC 451

Frisken, in the matter of NPH Group Pty Ltd (in liq) [2021] FCA 1155

Hayes v Doran [No 2] [2012] WASC 486 (S)

Hutton, in the matter of Big Village Australia Pty Ltd (Administrators Appointed) [2023] FCA 48

In the matter of AMJ Transport NSW Pty Ltd (in liquidation)ACN 164 981 837 [2019] NSWSC 818

In the matter of Foodora Australia Pty Ltd (Administrators Appointed) [2018] NSWSC 1426

In the matter of Robust Construction Services Pty Ltd (in liquidation) and Robust Construction Services 2 Pty Ltd (in liquidation) [2023] NSWSC 1156

Re Keneally (as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd)) (2015) 107 ACSR 172; [2015] NSWSC 937

Re Wood Parsons Pty Ltd (in liq) (2002) 43 ACSR 257; (2002) 21 ACLC 111; [2002] NSWSC 1058

Singleton v 24 Hr Cranes Pty Ltd [2003] NSWSC 1156

Wilson v Manna Hill Mining Co Pty Ltd (2004) ACSR 404; [2004] FCA 1663

Texts Cited:

N/A

Category:Principal judgment
Parties: Simon John Thorn in his capacity as administrator of Premier Energy Resources Pty Ltd (Administrator Appointed) ACN 646 696 317 (Plaintiff)
Earth Technics Pty Ltd ACN 002 406 797 (First Defendant)
Bobstan Investments Pty Ltd ACN 161 737 097 (Second Defendant)
Gregory Nominees Pty Ltd ACN 646 649 676 (Third Defendant)
Aussie Rehabilitation Services Pty Ltd ACN 658 652 870 (Fourth Defendant)
Representation:

Counsel:
Mr S Sykes (Plaintiff)

Solicitors:
Hicksons Lawyers (Plaintiff)

Appearances in person:
Mr R Robson (Director of the First Defendant)
Mr R B Clark (Director of the Fourth Defendant)
File Number(s): 2023/293985
Publication restriction: N/A

Judgment

Introduction

  1. By originating process filed on 15 September 2023, Mr Simon Thorn in his capacity as administrator of Premier Energy Resources Pty Ltd ACN 646 696 317 (the Company) applied for certain relief, including an order pursuant to s 447A of the Corporations Act 2001 (Cth) that Part 5.3A of that Act is to operate in relation to the Company as if Mr Thorn was validly appointed as administrator of the Company by a resolution made pursuant to s 436A of the Act on 20 June 2023. Further or in the alternative to that relief, Mr Thorn sought a declaration pursuant to s 1322(4) of the Corporations Act that his appointment as administrator of the Company on 20 June 2023, and all acts, matters, and things purporting to have been done, or any proceedings purported to have been instituted or taken pursuant to that appointment, are not invalid by reason of any contravention of a provision of the Corporations Act or by reason of any contravention of the Company’s constitution.

  2. The application was heard on an urgent basis on 28 September 2023 due to the impending expiry of the period within which the second meeting of creditors of the Company was required to be convened in the event that the Court granted the relief sought under s 447A.

  3. The four defendants in the proceedings are the four shareholders of the Company. Each of those defendants was notified of the proceedings and of the orders that were made listing the proceedings for hearing on 25 September 2023. Mr Luke Connor, who is a director of the Company, was also notified of the proceedings and the hearing date.

  4. Mr Ross Robson and Mr Richard Bernard Clark attended the hearing. Mr Robson is the sole director and majority shareholder of the first defendant, Earth Technics Pty Ltd ACN 002 406 797 (Earth Technics). Mr Clark is the sole director and shareholder of the fourth defendant, Aussie Rehabilitation Services Pty Ltd ACN 658 652 870 (Aussie Rehab). Each of those defendants was granted leave to appear by its sole director. There was no appearance for any other defendant when the matter was called outside the court. Mr Connor did not seek to be heard.

  5. At the conclusion of the hearing on 28 September 2023, I made orders dismissing Mr Thorn’s claims for relief under ss 447A and/or 1322(4) of the Corporations Act, and an order that his claim for remuneration and expenses to be paid from the Company’s assets on a quantum meruit basis be determined separately at a later time. Mr Thorn did not press his other claims for relief in the originating process. I also made an order for the rectification of the register maintained by the Australian Securities and Investments Commission (ASIC) in relation to the Company to reflect that Mr Clark did not resign as a director of the Company on 20 June 2023, contrary to the Form 484 signed by Mr Connor and lodged with ASIC on that date. I informed the parties that my reasons for making these orders would be published as soon as possible. These are those reasons.

Salient facts

  1. Affidavits sworn by Mr Thorn on 7 September 2023, 19 September 2023, and 22 September 2023 were read without objection, and a large volume of documents exhibited and annexed to those affidavits was tendered. An affidavit of Mr Clark affirmed on 20 September 2023 and an affidavit of Mr Robson made on 27 September 2023 were also read without objection. Each party tendered a small number of additional documents.

  2. No party challenged or disputed the evidence relied on by any other party. No witnesses were cross-examined. The issues in dispute were:

  1. whether Mr Thorn acted reasonably and consistently with the obligations of an external administrator during the period on and from 28 June 2023, when Mr Clark first informed Mr Thorn that his signature on the letter of resignation as a director of the Company had been forged, and challenged on that basis the validity of the resolution purportedly passed by Mr Connor as sole director of the Company on 20 June 2023 appointing Mr Thorn as voluntary administrator of the Company; and

  2. whether the Company is presently insolvent or likely to become insolvent in the future.

  1. The evidence establishes the following relevant facts.

  2. The Company was incorporated in December 2020 to supply coal fines.

  3. The current shareholders of the Company are:

  1. the first defendant—Earth Technics;

  2. the second defendant—Bobstan Investments Pty Ltd ACN 161 737 097 (Bobstan);

  3. the third defendant—Gregory Nominees Pty Ltd ACN 646 649 676; and

  4. the fourth defendant—Aussie Rehab.

  1. As I have already mentioned, Mr Robson is the sole director and majority shareholder of Earth Technics, and Mr Clark is the sole director and sole shareholder of Aussie Rehab. Mr Luke Connor is the sole director and sole shareholder of Bobstan.

  2. Mr Robson was the sole director of the Company at the time of its incorporation on 18 December 2020.

  3. On or about 13 April 2021, the Company purchased mining lease ML1463 from Hunter Enviro Mining Pty Ltd. ML1463 was ultimately transferred to the Company in or about May 2022.

  4. On 16 April 2021, Mr Connor and one Mr John Parsons were appointed as directors of the Company in addition to Mr Robson, who remained a director. Mr Parsons ceased to be a director on 11 January 2022, well before the events that have given rise to the present proceedings.

  5. The shareholders of the Company entered into a Shareholders Deed on 22 April 2021.

  6. Clause 5 of the Shareholders Deed sets out the rights of each shareholder in relation to the appointment of directors of the Company. Clause 5 was amended by a Deed of Variation dated 3 October 2022, but that amendment is not material to these proceedings.

  7. Clause 8 of the Shareholders Deed provides that, if the directors are unable to reach agreement about any matter at a meeting of the board of directors, any shareholder may give notice in writing to the other shareholders and the Company that a “Deadlock” has occurred and that the shareholder giving the notice wishes to have that deadlock resolved under clause 8.2. Clauses 8.2 to 8.4 set out the dispute resolution process to be applied in the event of any shareholder issuing such a “Deadlock Notice”. The process involves a meeting between senior representatives of the shareholders in the first instance. If that meeting does not resolve the Deadlock, then any shareholder—referred to as the “Exiting Shareholder”—is entitled to serve notice on the others stating the price per share at which that shareholder is willing either to sell all of its shares to the other shareholders, or to purchase all of the shares of the other shareholders (referred to as the “Remaining Shareholders”). The Remaining Shareholders then have 20 business days within which to advise the Exiting Shareholder whether they will purchase its shares. If the Remaining Shareholders so elect, then the Exiting Shareholder must sell its shares to the Remaining Shareholders at the stipulated price per share. If the Remaining Shareholders do not so elect, then the Exiting Shareholder must buy the Remaining Shareholder’s shares at that same price.

  8. Aussie Rehab was not a founding shareholder of the Company. It appears to have become a shareholder on or about 26 October 2022. Aussie Rehab became bound by the provisions of the Shareholders Deed pursuant to a Deed of Adherence entered into at about that time.

  9. On 18 November 2021, the Company entered into a Coal Fines Supply Agreement with Sunset Power International Pty Ltd trading as Delta Electricity (Delta and the Delta Contract).

  10. The Delta Contract provides for the Company to deliver 100,000 tonnes of coal fines per annum to Delta’s Vales Point power station for six years commencing on 1 December 2021 at the price of $5.80 per tonne, conditional on the successful completion of a trial burn at the Vales Point power station.

  11. On 13 October 2022, Delta issued a Dispute Notice to the Company under the Delta Contract. The Dispute Notice stated Delta’s contentions that the Company had breached the Delta Contract by failing to deliver coal fines for the trial burn to the Vales Point power station, and that, but for that breach, the trial burn would have been successfully completed and Delta would have been entitled to the supply of coal fines from the Company under the terms of the Delta Contract. The Dispute Notice stated that Delta had suffered, and would continue to suffer, substantial loss and damage by reason of the Company’s breach. The Dispute Notice also recorded the Company’s contention that the Delta Contract had expired or been terminated and that the company was not bound to supply the coal fines because the trial burn had not been completed.

  12. As I have already mentioned, it appears that Aussie Rehab acquired shares in the Company on or about 26 October 2022.

  13. On or about 30 November 2022, Mr Connor sent Mr Clark a spreadsheet that appears, on the face of it, to calculate the direct and indirect costs of supplying coal fines under the Delta Contract—including the costs that the Company had already incurred in acquiring the mining lease—and the revenue that would be earned from that supply, in two different scenarios. Both scenarios appear on the face of the spreadsheet to assume a supply of 200,000 tonnes per annum, rather than the 100,000 tonnes per annum stipulated in the Delta Contract. Both scenarios forecast a profit. There is no evidence about the context or purpose of this spreadsheet, save that it was created approximately six weeks after Delta issued the Dispute Notice referred to above. There is also no evidence explaining why the spreadsheet was prepared on the assumption of a 200,000-tonne supply volume.

  14. Delta and the Company participated in a mediation on 21 March 2023, but this did not resolve their dispute.

  15. On 23 March 2023, Mr Connor sought advice from Mr Thorn about “what options are available to my company Premier Resources” in circumstances where the dispute with Delta had not been resolved, and where Delta was “threatening legal proceedings…if we do not perform the contract on their new mediated terms.”

  16. Mr Robson resigned as a director of the Company on 12 April 2023, leaving Mr Connor as the sole director.

  17. On or about 18 April 2023, Mr Thorn had a discussion with Mr Connor regarding the options available to the Company, including liquidation, voluntary administration, receivership, or continuing to negotiate with Delta. Following that discussion, Mr Connor informed Mr Thorn that he had decided to continue negotiations with Delta to see if a resolution could be reached.

  18. Unsigned minutes of a shareholders meeting of the Company held on 25 April 2023 record a discussion about the Company’s solvency, and about the prospect of placing the Company into voluntary administration or liquidation.

  19. On 26 April 2023, Mr Connor sent an email to Mr Robson, Mr Clark, and Mr Gregory attaching documentation to be signed for a members’ voluntary winding up, including pre-prepared minutes of a meeting of members resolving that the Company be wound up voluntarily and that Mr Bradd Morelli of Jirsch Sutherland be appointed as liquidator.

  20. It appears from emails exchanged between Mr Connor and Mr Robson during late April and early May 2023 that Mr Robson declined to sign the documents and took the view that an external administration could be avoided by selling the Company.

  21. On 28 April 2023, Delta proposed expert determination of the dispute between the Company and Delta. By mid-May 2023, Delta’s solicitors were pressing Mr Connor for a response to that proposal and indicating that Delta would commence legal proceedings against the Company in the absence of a prompt response.

  22. Mr Connor met with Mr Thorn on 8 June 2023. Mr Connor informed Mr Thorn that he intended to wind up the Company because Delta would commence proceedings and because the Company did not have the funds for a legal battle. They discussed the options of winding up or voluntary administration, and Mr Connor expressed the view to Mr Thorn that winding up would be preferable. Mr Thorn sent an email to Mr Connor later that day attaching a package of documents to convene and hold the meetings necessary to place the Company into liquidation by resolution of members. Mr Connor replied to Mr Thorn stating that a shareholder meeting was scheduled for 5:00pm on 9 June 2023, and that Mr Robson was the only person resisting winding up.

  23. On 13 June 2023, Earth Technics appointed Mr Clark as a director of the Company. Mr Thorn accepts that Mr Clark was validly appointed as a director in accordance with clause 5 of the Shareholders Deed.

  24. On 14 June 2023, Mr Connor sent an email to Mr Thorn stating that the resolutions had been passed at the meeting of the Company’s shareholders on 9 June 2023 with 75 per cent voting in favour, but that the signed minutes had not been received from Mr Robson. The copy of those minutes tendered in evidence in these proceedings was signed only by Mr Connor on behalf of Bobstan.

  25. On 20 June 2023, Mr Thorn and Mr Connor had a telephone conversation in which they discussed the proposal to put the Company into voluntary administration. Mr Thorn then sent a letter to Mr Connor referring to his “recent request for this office to assist you in appointing an Administrator” to the Company, and enclosing “[p]ro-forma minutes for the sole directors meeting” and other documents to effect an appointment of Mr Thorn as voluntary administrator.

  26. At 7:41pm on 20 June 2023, Mr Connor sent an email to Mr Thorn attaching the voluntary administration documents signed by Mr Connor, including a document described as minutes of a meeting of the sole director of the Company attended by Mr Connor, at which it had been resolved that, “in the opinion of the sole director, the company is insolvent or is likely to become insolvent at some future time”, and that Mr Thorn be appointed as administrator pursuant to s 436A of the Corporations Act. Mr Connor’s email to Mr Thorn stated that: “A meeting was held 20 June 2023 to enter VA following the resignation of Richard Clark as Director of Premier Energy Resources Pty Ltd this afternoon.” Mr Connor sent a further email to Mr Thorn at 8:52pm on 20 June 2023 attaching a copy of a letter of resignation that appears, on the face of it, to have been signed by Mr Clark, together with meeting minutes signed by Mr Connor resolving to accept Mr Clark’s resignation, and a Form 484 signed by Mr Connor notifying ASIC of the change to the Company’s officeholders.

  27. On 21 June 2023, Mr Thorn lodged a Form 505 with ASIC notifying his appointment as administrator of the Company, and issued his first report to creditors, advising that he had been appointed on 20 June 2023 “by resolution of the Company’s Director”.

  28. On 21 June 2023, Mr Clark sent an email to Mr Thorn stating (emphasis added):

“1.   Shareholders are surprised that Premier Energy Resources has gone into administration.

2.   Two shareholders were preparing a business plan that would return monies loaned , in their entirety, to respective shareholders , the managing Director was aware of this prior process.

3.   We are also surprised that a shareholder lost its recent directorship, with no notification to other shareholders.

4.   We also would like details on why the company was put into administration, as there was no outstanding invoices and Premier is not trading at this time.”

  1. Mr Thorn replied to Mr Clark by email on 22 June 2023, stating:

“I confirm receipt of your email & note your comments.

The Director of the Company determined to place the Company into Voluntary Administration. This decision was made on the basis that the Director considers the Company is or is likely to become insolvent.

Should the business plan that you refer to at point 2 have merit, you may wish to propose a Deed of Company Arrangement for creditors to consider.

Please do not hesitate to contact me should you have any queries or wish to discuss this matter.”

  1. Mr Thorn did not respond to point 3 of Mr Clark’s email.

  2. On 28 June 2023, Mr Robson sent an email to a member of Mr Thorn’s staff, stating:

“The appointment of Simon Thorn was unlawful. Luke Connor had no authority to do so and none of the minor shareholders or the second Director were informed of his activity. As you would realise, Luke will be the only beneficiary of administration or liquidation.”

  1. Mr Clark had a telephone conversation with Mr Thorn on the morning of 28 June 2023, following which he sent an email to Mr Thorn stating (emphasis added):

“Thanks for your time on the phone just now, it is news to me you have in your possession a signed Director resignation letter from me, for clarity, I did not sign such paperwork, this has been falsified, it seems to me to be fraudulent, nor did I consent to it being signed on my behalf.”

  1. Mr Clark requested that Mr Thorn send him a copy of the resignation letter in Mr Thorn’s possession.

  2. Mr Clark sent a further email to Mr Thorn about 30 minutes after the email referred to above dated 28 June 2023, in which Mr Clark informed Mr Thorn that he had received advice that Mr Thorn’s appointment as administrator of the Company was invalid. In his affidavit affirmed on 20 August 2023, Mr Clark has deposed that he did not sign any papers to remove himself as a director of the Company.

  3. On the afternoon of 28 June 2023, Mr Thorn sent an email to Mr Clark and Mr Robson. Mr Thorn’s email relevantly stated (emphasis added):

“I am writing to you both to respond to the question raised by each of you about my appointment as Voluntary Administrator (VA) of Premier Energy Resources Pty Ltd (PER).

My appointment as VA of PER followed an attempt by Luke Connor, Director and Shareholder of PER, to place PER into voluntary liquidation. I understand that only 2 of the 4 shareholders executed the documents to place the Company into voluntary liquidation following the meeting on 9 June 2023 so it could not proceed. At this time, Luke Connor was the sole Director of PER after Ross Robson ceased being a director effective 12 April 2023.

I understand Richard Clark was appointed Director effective 13 June 2023, so that PER had 2 Directors. A copy of the relevant documents provided to me are attached.

I understand Richard Clark resigned as Director effective 20 June 2023, leaving Luke Connor as the sole Director. A copy of the relevant documents provided to me are attached.

You have both questioned the validity of the VA appointment. …

In response to any question regarding the validity of my appointment as VA I advise that I have acted on the documents. Being independent and not knowing any of the parties involved with PER, I have no reason to dispute the documents provided to me.

…

Any dispute between the shareholders regarding the VA is not something I can adjudicate on at this point. Should you wish to have the validity of my appointment reviewed, I consider an application for Directions be made to the NSW Supreme Court. As PER is presently without funds, I invite you to make such an application for the Court to determine the appropriate course for PER.

…”

  1. Mr Clark and Mr Robson attended the first meeting of creditors held on 29 June 2023. The minutes record that Mr Thorn acted as Chairperson of the meeting and that (emphasis added):

“The Chairperson provided an update of the Administration including the circumstances of his appointment as Administrator. It was noted that the validity of the appointment had been questioned by Ross Robson and Richard Clark, both shareholders of the Company. The Chairperson advised that based on the records available to him the appointment made was valid. It was noted that a previous attempt by the Director, Luke Connor, to have the Company placed into voluntary liquidation failed as only two of the four directors voted in favour.

Richard Clark of Aussie Rehabilitation Services queried whether the Chairperson would be making an application to the Court regarding the validity of his appointment. The Chairperson advised that he had already outlined to Mr Clark in correspondence the relevant provisions of the Act under which an application for directions may be brought and that as shareholders they had standing to bring such an application. The Chairperson further noted that as the Company was without funds, he would not be making the application.”

  1. It is not necessary to refer to each and every communication between Mr Clark and Mr Thorn after the first meeting of creditors. There were numerous communications between them, some of which concerned the business and solvency of the Company, including proposals and offers made by Mr Clark as to the terms on which amounts that Mr Connor and Bobstan claimed to be owed by the Company might be compromised, on which Bobstan might exit the Company as a shareholder, and on which Mr Thorn’s appointment might be brought to an end. It is clear from the totality of the communications that, in proposing arrangements to bring Mr Thorn’s appointment to an end, Mr Clark was not accepting that the appointment was valid. Mr Clark consistently maintained that he had not resigned—or signed any document to resign—as a director of the Company, that he was a director of the Company when Mr Connor purported to pass a resolution pursuant to s 436A of the Corporations Act as sole director, and that Mr Thorn’s appointment was therefore invalid. Mr Thorn consistently maintained that he had no reason to dispute the documents that had been provided to him, that he considered that his appointment was valid, that he did not intend to make any application to the Court concerning the validity of his appointment due to lack of funds to cover the costs of such an application (which Mr Thorn estimated as $20,000), and that Mr Clark could make such an application if he wished to do so.

  2. For example, Mr Clark wrote to Mr Thorn on 4 July 2023 that “I have given you proof that the appointment is invalid”, and that “I am told you need to go to court to have your appointment ratified and provide us with an opportunity to represent our concerns in the appropriate forum”. Mr Thorn replied on 5 July 2023: “The Company is without funds. You have standing to bring the application should you so choose. Alternatively, should you put me in funds I will make the application.” There is no evidence that Mr Thorn made inquiries of Mr Connor seeking his response to Mr Clark’s allegations that his signature on the letter of resignation dated 20 June 2023 had been forged.

  3. Mr Thorn proceeded to advertise the Company’s mining lease for sale and to prepare his second report to creditors, which was issued on 14 July 2023.

  4. Mr Thorn’s second report to creditors summarised information provided by “the Director” about the Company. The report recorded that the Company “was a startup entity attempting to supply coal fines to a buyer subject to a mining lease”, and that it had made a loss of $337,776 in the 2021 financial year, and a loss of $12,500 in the 2022 financial year. Delta had submitted a proof of debt for $20,570,066. The Company’s only other creditors were related parties who had funded the Company’s operations during its startup phase through loans. The Company’s assets comprised $1,982 cash at bank and the mining lease. Mr Thorn withheld his estimate of the realisable value of the mining lease in his report in circumstances where he was marketing it for sale.

  5. The related party loans referred to in Mr Thorn’s second report are:

  1. a loan of $500,000 made by Bobstan, which Mr Thorn described as a secured loan. Mr Robson disputes that the loan is secured. Counsel for Mr Thorn conceded during the hearing of these proceedings that, irrespective of whether the loan is secured, it is not presently due and payable according to the terms of the written loan agreement;

  2. a loan of $100,000 made by Legacy Enviro Pty Ltd (Legacy Enviro), which Mr Thorn described as a secured loan. Legacy Enviro is another company associated with Mr Connor. Mr Robson also disputes that this loan is secured. Counsel for Mr Thorn conceded during the hearing of these proceedings that, irrespective of whether the loan is secured, it is not presently due and payable according to the terms of the written loan agreement;

  3. an unsecured loan of $150,000 from Bobstan;

  4. an unsecured loan of $35,000 from Earth Technics; and

  5. an unsecured loan of $3,000 from Mr Connor.

  1. There is no evidence about the terms of the three loans that Mr Thorn described as unsecured loans.

  2. The proof of debt submitted by Delta for $20,570,066 alleges that the Company breached the Delta Contract by failing to deliver any trial burn coal fines, and that Delta thereby lost the opportunity to receive a supply of coal fines from the Company under the Delta Contract. Although the loss is described as a loss of opportunity, the proof of debt asserts that the trial burn (if conducted) would have been successful, and calculates Delta’s damages claim on the basis that the Company would have supplied coal fines in the volume and at the price stipulated in the Delta Contract. The $20,570,066 quantum of Delta’s claim reflects the difference between the price Delta would have paid during years one and two of the Contract and the prices that it has been paying on the New South Wales domestic coal market in circumstances where Delta does not have an alternative supply of coal fines. The proof of debt states that Delta will calculate the quantum of its claim for years three to six if assets become available to pay a distribution to unsecured creditors.

  3. Mr Thorn’s report also referred to a proof of debt lodged by Aussie Rehab for $280,000, which Mr Thorn described as relating to services provided to the Company to assist with the trial supply of coal fines to Delta. Mr Thorn’s report stated that the terms of the agreement had been breached, and that the agreement had been terminated prior to his appointment. Accordingly, Mr Thorn considered that the proof of debt may be “invalid”. Mr Clark maintains that the Company is indebted to Aussie Rehab, but informed the Court during the hearing on 28 September 2023 that he has no intention of pressing for payment of the debt if the administration is not validated and the Company has an opportunity both to resolve the shareholder dispute through the Deadlock process under the Shareholder Deed and to negotiate a resolution of its dispute with Delta. Mr Robson indicated that this was also the position of Earth Technics in relation to the $35,000 unsecured debt.

  4. Mr Thorn’s report stated that, at the second creditors’ meeting, he would seek approval for payment of his remuneration for the period from 20 June to 9 July 2023 in the sum of $19,877 (excluding GST), and for payment of his future remuneration in an amount of up to $15,000 (excluding GST).

  5. On 21 July 2023, solicitors acting for Mr Clark and Aussie Rehab wrote to Mr Thorn in the following terms (emphasis in original):

“We understand that you were (purportedly) appointed Administrator of Premier and that the s439A meeting of creditors has been convened by you for Monday 24 July, 2023.

It is understood that Mr Clark has made it known to you that he disputes the validity of your appointment. We have seen you reply to him by email of Date: Wed, Jun 28, 2023 at 4:31PM. Your reply includes the comment that ‘Should you wish to have the validity of my appointment reviewed, I consider an application for Directions be made to the NSW Supreme Court. As PER is presently without funds, I invite you to make such an application for the Court to determine the appropriate course for PER’.

With respect, the dispute about the validity of your appointment is serious and you have an obligation to take steps to clarify whether or not the appointment is valid. Where the validity of the appointment of a voluntary administrator is put in issue, it is not appropriate for the voluntary administrator simply to ‘retire from the field’. The taking of such a course of action has been described as capable of being ‘a clear breach of duty’ (see Re Windows on the World Steel Windows Pty Ltd (In Administration) [2020] VSC 880 (22 December 2020) at [37].

In this case, the facts are telling. Our client says that he did not sign or authorise the signature of a letter of resignation as director. He supposedly resigned on the day of your appointment. That, in itself, is suspicious.

…

To the extent possible, our client, through his company, has claimed to be a creditor without admitting the validity of your appointment. On the same basis, he wishes to attend the meeting and vote to adjourn the meeting.”

  1. Mr Thorn replied to the effect that he was willing to consider adjourning the second meeting of creditors for up to 45 business days in order to engage further with the issues raised by Mr Clark’s solicitors. Mr Thorn requested “submissions” about why it was in the interests of creditors for the Company not to be wound up, how creditors’ claims were proposed to be dealt with (particularly Delta), and how the Company could “move forward” if the shareholder dispute could not be resolved. Mr Thorn stated that adjourning the meeting of creditors would result in additional costs of the administration, which was not in the best interests of creditors. Mr Thorn’s response did not address the issues raised by Mr Clark’s solicitors about the validity of Mr Thorn’s appointment.

  2. Mr Clark responded directly to these questions raised by Mr Thorn on 24 July 2023. Mr Clark referred to the Deadlock procedure in the Shareholders Deed as the means by which the shareholder dispute could be resolved, and set out his views concerning Delta’s willingness to negotiate and the willingness “on the buyout side” (referring to Mr Clark, Mr Robson and their respective companies) “to work with Delta”. Mr Thorn responded disputing Mr Clark’s assessment of Delta’s position and stating that a shareholder dispute is secondary to the interests of creditors when a company is insolvent. That response elicited a further letter from Mr Clark’s solicitors to Mr Thorn dated 24 July 2023, reiterating that Mr Clark had not resigned as a director, that the principal question was the validity of Mr Thorn’s appointment, and that the creditors’ meeting should be adjourned for the 45 days provided for in s 75-140(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth) (the IPRC) to allow time for Mr Thorn to take further advice on whether he would make an application to the Court concerning the validity of his appointment. In relation to the interests of creditors, the letter stated:

“The proposed solution for dealing with claims of creditors is for Mr Clark to continue the negotiations with the one, large, disputed creditor Delta Electricity and for the secured debts to be repaid when they become due for payment some years in the future. The other small debts can be addressed separately when time permits.”

  1. At the second meeting of creditors on 24 July 2023, Mr Thorn advised the meeting that he had determined that it was appropriate to adjourn the meeting for 45 business days in accordance with ss 75-140(1)(b) and (3) of the IPRC. The meeting was duly adjourned.

  2. As I have mentioned earlier in these reasons, Mr Thorn commenced these proceedings on 15 September 2023. On 20 September 2023, the Court made an order extending the period for holding the second meeting of creditors so that the meeting would not be required to be held before the Court had determined Mr Thorn’s application for orders validating his appointment as administrator.

  3. Shortly prior to the hearing on 28 September 2023, Aussie Rehab issued a Deadlock Notice under the Shareholder Deed. Mr Clark and Mr Robson’s submissions acknowledged that they had been unwilling to provide further shareholder funding to the Company in the recent past. They attributed this to their difference of opinion with Mr Connor in relation to the Company’s prospects of resolving its dispute with Delta. They informed the Court that they would be prepared to fund the Company if Bobstan exited the Company through the Deadlock mechanism and Mr Connor ceased to be a director. There was no evidence of their ability to fund the Company or the extent of any funding that they would be capable of providing.

Applicable legal principles

  1. Section 447A of the Corporations Act confers on the Court power to “make such order as it thinks appropriate about how [Part 5.3A] is to operate in relation a particular company.” The overriding requirement for an order made under s 447A is that it must be designed to achieve the objective of Part 5.3A as expressed in s 435A, and that the order has a nexus with how Part 5.3A is to operate in relation to the particular company.[1] Section 435A provides that the object of Part 5.3A is “to provide for the business, property and affairs of an insolvent company to be administered in a way that: (a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or (b) if it is not possible for the company or its business to continue in existence—results in a better return for the company’s creditors and members than would result from an immediate winding up”.

    1. Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd (2004) 49 ACSR 1; [2004] FCA 130 at [55]-[56] (Goldberg J); In the matter of Foodora Australia Pty Ltd (Administrators Appointed) [2018] NSWSC 1426 at [7] (Black J) (Re Foodora).

  2. The power under s 447A has been applied in numerous cases to make orders validating the appointment of administrators that would otherwise be invalid, or dispelling uncertainty that would otherwise exist about the validity of the administrators’ appointment. [2] These include cases in which there were doubts about whether instruments of appointment had been forged. [3]

    2. For example, Re Wood Parsons Pty Ltd (in liq) (2002) 43 ACSR 257; (2002) 21 ACLC 111; [2002] NSWSC 1058 (Austin J); Darin re Palamedia Limited [2010] NSWSC 451 (Barrett J) (Darin); Re Foodora (Black J); In the matter of AMJ Transport NSW Pty Ltd (in liquidation) ACN 164 981 837 [2019] NSWSC 818 (Emmett AJA); Frisken, in the matter of NPH Group Pty Ltd (in liq) [2021] FCA 1155 (Cheeseman J) (Frisken); Hutton, in the matter of Big Village Australia Pty Ltd (Administrators Appointed) [2023] FCA 48 (Anderson J) (Hutton).

    3. Singleton v 24 Hr Cranes Pty Ltd [2003] NSWSC 1156 (Hamilton J); In the matter of Robust Construction Services Pty Ltd (in liquidation) and Robust Construction Services 2 Pty Ltd (in liquidation) [2023] NSWSC 1156 (Williams J).

  3. The factors relevant to the exercise of the discretion include:[4]

    4. Frisken at [22]-[23] (Cheeseman J), citing Hayes v Doran [No 2] [2012] WASC 486 (S) at [279] (Kenneth Martin J); Hutton at [33] (Anderson J).

  1. whether the company is insolvent, or is likely to become insolvent;

  2. whether the administrators made inquiries to confirm the validity of their appointments, including by seeking external legal advice;

  3. the potential disruption that may be caused by a future challenge to the validity of the administrators’ appointment;

  4. the conduct of the directors prior to the administrators’ appointment, and whether it would be wrong to give the imprimatur of the Court to that conduct by validating that appointment;

  5. the work carried out by the administrators—and, in the present case, by the liquidators—on the assumption that their appointments were valid;

  6. whether substantial injustice would be occasioned to any person by the validation of the appointment of the administrators and, in the present case, by the consequential effect of such validation on the validity of the appointment of the liquidators; and

  1. whether the proposed orders under s 447A are otherwise consistent with the objectives of Part 5.3A of the Corporations Act.

Consideration and determination

  1. Mr Clark’s evidence referred to at [44] above that he did not sign any papers to remove himself as a director of the Company is consistent with all of his correspondence with Mr Thorn since learning that Mr Thorn had purportedly been appointed as administrator by Mr Connor purporting to act as sole director, and since learning that Mr Thorn had been provided with a document purporting be a letter of resignation of Mr Clark as director. Mr Clark’s evidence is unchallenged in these proceedings. Bobstan did not appear and adduce any evidence to the contrary. Mr Thorn did not adduce any evidence to the contrary from Mr Connor. Mr Connor did not seek leave to be heard in the proceedings, notwithstanding that he was served with Mr Clark’s submissions which made it clear that the forgery allegation was pressed. On the basis of Mr Clark’s unchallenged evidence, I find that his signature on the resignation letter was forged. The contemporaneous correspondence between Mr Connor and Mr Thorn to which I have referred above records Mr Connor’s determination that the Company should be placed in external administration, and it was Mr Connor who provided the forged resignation letter to Mr Thorn on 20 June 2023 as part of the suite of documents evidencing his purported appointment. There is no evidence suggesting that any person other than Mr Connor had any reason to forge Mr Clark’s signature on a resignation letter. I therefore find that the signature was forged by Mr Connor, or by someone acting at Mr Connor’s behest, for the purpose of Mr Connor being able to rely on the resignation letter in purporting to act as sole director in resolving to appoint a voluntary administrator.

  2. Counsel for Mr Thorn accepted that the Court would determine these proceedings accepting Mr Clark’s evidence of forgery. It was submitted on behalf of Mr Thorn that the Court should nevertheless validate his appointment as administrator. It was submitted that this would be consistent with the purpose of Part 5.3A of the Corporations Act for two reasons: the Company is insolvent, or likely to become insolvent, and the relationship between the shareholders has broken down to such an extent that it “materially frustrates the commercial viability and sensible operations of the Company”. In short, it was submitted that, the Company will end up in liquidation in any event, either in insolvency or as a result of a just and equitable winding up.

  3. In circumstances where it was conceded that the related party debts are not presently due and payable, Mr Thorn’s contention that the Company is insolvent, or is likely to become insolvent, rested principally on the Delta claim, and the lack of cash at bank or shareholder funding to meet the costs of defending the proceedings that Delta has indicated it will commence against the Company if the administration is not validated.

  4. Those circumstances certainly give rise to a risk that the Company may become insolvent in the future. Whether or not that risk eventuates depends on the outcome of the Deadlock process that Aussie Rehab has now initiated under the Shareholder Deed, the outcome of the subsequent negotiations that Mr Clark intends to engage in with Delta (assuming that Mr Clark remains a director of the Company following the Deadlock process) with a view to the Company supplying coal fines under the Delta Contract, and the availability of sufficient shareholder funding for the Company to commence production and delivery of coal fines to Delta in order to begin generating revenue. Delta has not alleged in its Dispute Notice or proof of debt that the Delta Contract has come to an end. On the contrary, the Dispute Notice and the proof of debt are drafted in terms that imply that the Delta Contract remains on foot. I therefore infer that there is some prospect of Delta being willing to engage in further negotiations if the shareholder dispute can be resolved through the Deadlock process. Delta’s lack of any alternative source of coal fines—as referred to in its proof of debt—provides further support for that inference as a matter of commercial reality. Nevertheless, given the absence of any evidence as to the ability of Mr Clark and Mr Robson to provide funding for the Company to perform its obligations to Delta, and as to the amount of the funding that they would be able to provide if they were so able, the risk of future insolvency is material.

  5. Notwithstanding the existence of that risk, I do not consider that the Court should exercise its discretion to validate Mr Thorn’s appointment in the present case. I have come to that decision for the following reasons.

  6. Once Mr Thorn was notified of Mr Clark’s allegation that he had not in fact resigned as a director of the Company, and that his letter of resignation was a forgery, Mr Thorn was obliged to look into the allegation and, if he was unable to satisfy himself that his appointment was valid, to make an application to the Court. [5] I reject the submissions made on behalf of Mr Thorn that, whilst it would have been “best practice” for him to promptly investigate or to make an application to the Court, he was not obliged to do so. Determining the validity of his appointment, or having the appointment validated by the Court, was essential to Mr Thorn’s entitlement to advertise the Company’s mining lease for sale, to report to creditors, to convene meetings of creditors, and to take other steps that he purported to take as administrator. Mr Thorn was obliged to look into the allegations concerning the forgery of Mr Clark’s letter of resignation and the consequential invalidity of Mr Thorn’s appointment promptly after the forgery allegation was first made on 28 June 2023. As I have already noted, there is no evidence that Mr Thorn even questioned Mr Connor about those allegations. Instead, as I have outlined above, Mr Thorn persisted in rebuffing Mr Clark’s complaints by asserting that he relied on the documents, and that he considered that his appointment was valid on the basis of those documents. In circumstances where Mr Thorn was aware that one of those documents was allegedly forged (and that, if the forgery was established, the other documents did not evidence a valid appointment), this was tantamount to rejecting the forgery allegation without any investigation. I reject the submission that Mr Thorn was justified in so acting because he lacked the funding to make an application to the Court. Mr Thorn did ultimately commence these proceedings, and I infer from that fact that funding was not an insurmountable obstacle to commencing proceedings earlier. It was not appropriate for Mr Thorn, who appears to have been content to accept the appointment without requiring any security for his costs and remuneration, to seek to impose upon Mr Clark the burden of the cost of commencing court proceedings to determine the validity of the appointment, while Mr Thorn continued to purport to deal with the Company’s assets and creditors as administrator in circumstances where he had no proper basis for assuming that his appointment was valid. Mr Thorn failed to discharge his obligation to investigate the alleged invalidity of his appointment, and to make a prompt application to the Court to determine that issue or to validate his appointment.

    5. Re Keneally (as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd)) (2015) 107 ACSR 172; [2015] NSWSC 937 at [44] (Black J) and the authorities there referred to, including Wilson v Manna Hill Mining Co Pty Ltd (2004) ACSR 404; [2004] FCA 1663 (Lander J) at [63].

  7. In my opinion, an order validating the appointment of Mr Thorn would give the imprimatur of the Court to the conduct of Mr Connor in forging or procuring the forgery of Mr Clark’s signature on the letter of resignation, and to the unsatisfactory conduct of Mr Thorn in failing to investigate and promptly bring to the Court the doubts raised about the validity of his appointment. Moreover, that outcome would cause substantial injustice to Aussie Rehab because the administration, borne out of forgery and validated under s 447A, would deprive it of the ability to have the shareholder dispute determined in accordance with the Deadlock procedure under the Shareholders Deed, being the mechanism by which the parties have agreed to resolve their disputes. As I have already mentioned, Mr Clark is hopeful that, following completion of that process, Aussie Rehab will remain a shareholder of the Company, and that the Company will have an opportunity to compromise Delta’s claim and to perform its obligations under the Delta Contract. If the Court were to validate Mr Thorn’s appointment, Mr Connor would have been permitted to bypass the agreed Deadlock process by forgery, and to force the Company directly into voluntary administration with a view to winding it up and taking a distribution in partial repayment of the Company’s debts to Bobstan and Legacy Enviro that are not presently due and payable.

  8. Declining to exercise the discretion under s 447A to validate Mr Thorn’s appointment will not result in substantial injustice to Mr Connor, Bobstan, Delta, or any other person. It will be open to Mr Connor to resign as a director of the Company if he does not wish to continue in that office. Bobstan will be entitled to participate in the Deadlock process in accordance with the terms of the Shareholder Deed. As creditors of the Company, Bobstan, Legacy Enviro, and Mr Connor will be entitled to apply to the Court under s 459P of the Corporations Act to wind up the Company in insolvency. As a contributory, Bobstan will also be entitled to apply for winding up on the just and equitable basis under s 461(1)(k) if it considers that the state of relations between the shareholders warrants this course, notwithstanding the Deadlock process under the Shareholder Deed. Indeed, these same paths to winding up may be instigated by Aussie Rehab and/or Earth Technic if that they come to the view that the Company’s negotiations with Delta will not result in a revenue stream for the Company sufficient to pay its debts as and when they become due and payable. If the Court declines to make a validating order, Delta will be entitled to commence the proceedings that it says it intends to commence against the Company, having refrained from doing so during the purported administration due to the provisions of s 440D of the Corporations Act. The Company is not presently trading and there are no creditors other than related party creditors and Delta. The Company will not incur debts to Delta over and above Delta’s existing contingent claim if the administration is not validated and the Company takes steps both to negotiate a compromise of Delta’s claim and to perform its obligations under the Delta Contract. The related party creditors—some of whom are likely to be required to provide additional funding and/or services to the Company if it is to be able to perform the Delta Contract—are well aware of the financial position of the Company, and cannot be compelled to provide further funding or services to the Company.

  9. As I have said, there is a risk that Mr Clark and Mr Robson may fail to realise their hopes for the Company, and that the Company will be wound up in the short or medium-term future under either s 459P or s 461(1)(k) of the Corporations Act. In circumstances where there are no third party creditors who may be prejudiced by the Court declining to exercise the discretion to validate Mr Thorn’s appointment as administrator, the risk that the Company may be wound up under a legitimately invoked statutory process does not favour a validating order giving the Court’s imprimatur to the continuation of Mr Thorn’s appointment, which is the result of a forgery that Mr Thorn failed to take the necessary steps to investigate and bring to the Court in a timely manner.

Conclusion and orders

  1. For all of the reasons explained above, I made the following orders at the conclusion of the hearing on 28 September 2023:

  1. Note that the Plaintiff does not press the claims for final relief in prayer 1 and prayer 5 of the originating process.

  2. Order that the Plaintiff’s claims for relief in prayers 2, 3 and 6 of the originating process are dismissed.

  3. Order that the register kept by the Australian Securities and Investment Commission be rectified pursuant to s 1322(4)(b) of the Corporations Act 2001 (Cth) to reflect the position that Mr Richard Bernard Clark did not resign as a director of Premier Energy Resources Pty Ltd ACN 646 696 317 on 20 June 2023, contrary to the information contained in the Form 484 signed by Mr Luke Connor and lodged with the Australian Securities and Investment Commission on 20 June 2023.

  4. Order that the Plaintiff’s claim for relief in prayer 4 of the originating process be determined separately from all other questions in these proceedings.

  5. List the proceedings for directions before the Corporations Judge on 16 October 2023 for directions programming the Plaintiff’s claim in prayer 4 of the originating process for hearing.

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Endnotes

Decision last updated: 05 October 2023

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