In the matter of Regional Express Holdings Limited (Administrators Appointed)

[2024] NSWSC 1672

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Regional Express Holdings Limited (Administrators Appointed) [2024] NSWSC 1672

Hearing dates:

18 December 2024

Date of orders:

18 December 2024

Decision date:

18 December 2024

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Grant leave to the Plaintiff to commence proceedings against the First Defendant.

Catchwords:

CORPORATIONS – Management and administration – Whether leave should be granted to continue proceedings against a company in administration – Where voluntary administrators neither consent to nor oppose grant of leave – Where proceedings are a regulatory action concerning allegations of public relevance.

Legislation Cited:

- Australian Securities and Investments Commission Act 2001 (Cth), s 12DA

- Corporations Act 2001 (Cth), ss 180, 440D, 674, 1041H

Cases Cited:

- Australian Competition and Consumer Commission v ACN 135 183 372 Pty Ltd (admin apptd) [2012] FCA 586

- Australian Competition and Consumer Commission v Advanced Medical Institute Pty Ltd (admin apptd) (No 3) (admin apptd) [2011] FCA 348

- Australian Competition and Consumer Commission v Phoenix Institute of Australia Pty Ltd (Subject to Deed of Company Arrangement) (2016) 116 ACSR 353; [2016] FCA 1246

Category:

Procedural rulings

Parties:

Australian Securities and Investments Commission (Plaintiff)
Regional Express Holdings Limited (admins apptd) (First Defendant)
Lim Kim Hai (Second Defendant)
The Honourable John Randell Sharp AM (Third Defendant)
Siddharth Dilip Khotkar (Fourth Defendant)
Lincoln Lin Feng Pan (Fifth Defendant)

Representation:

Counsel:
M Borsky KC/R Kruse (Plaintiff)
D Krochmalik (First Defendant)
E Holmes SC (Second Defendant)
D Sulan SC/A Smith (Third Defendant)
D F C Thomas SC (Fourth and Fifth Defendants)

Solicitors:
Norton Rose Fulbright Australia (Plaintiff)
White & Case LLP (First Defendant)
Becketts Lawyers (Second Defendant)
Arnold Bloch Leibler (Third Defendant)
Ashurst Australia (Fourth and Fifth Defendants)

File Number(s):

2024/459470

Judgment – EX TEMPORE (Revised 19 December 2024)

1. By Originating Process filed on 10 December 2024 the Plaintiff, the Australian Securities and Investments Commission (“ASIC”) seeks, inter alia, declarations of contraventions of ss 180 and 674 and 1041H of the Corporations Act 2001 (Cth) (“Act”) and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”) in respect of certain matters concerning Regional Express Holdings Ltd (admins apptd) (“Rex”) and four directors of Rex in the period between February 2023 and May 2023. After the period that is in issue in these proceedings, and after ASIC had commenced its investigation in respect of the matters in issue in these proceedings, Rex was placed in voluntary administration.

2. Section 440D of the Act relevantly provides that, during the administration of a company, a proceeding in a court against the company cannot be begun or proceeded with except with the administrator’s written consent or with the Court’s leave and in accordance with such terms (if any) as the Court imposes. That matter was rightly recognised by ASIC in the terms of its Originating Process which sought, in paragraph 1, an order that it have leave, nunc pro tunc, to proceed against Rex under s 440D(1)(b) of the Act.

3. ASIC and the voluntary administrators appointed to Rex have discussed, and now agreed, the terms on which such leave could potentially be granted and Rex (by its voluntary administrators) now neither consents to, nor opposes, the grant of leave on the basis of those proposed conditions. Those conditions, broadly, provide that ASIC will not seek any order against Rex beyond the declaratory relief sought in the Originating Process, including an order for a pecuniary penalty, and will not seek an order against Rex or its external administrators with respect to the cost of the proceedings. The purpose of those conditions is plain enough, namely that they preserve ASIC’s ability to seek declaratory relief against Rex, so far as that is an aspect of the wider case that it brings, but preserve the position of creditors in the voluntary administration and any subsequent external administration of Rex by ensuring that the proceedings do not create additional financial claims against Rex, which might dilute the return to creditors in a voluntary administration or subsequent external administration.

4. Section 440D of the Act contemplates that, in the ordinary course, there will be a suspension of proceedings against a company in voluntary administration so as to allow the administrators an opportunity to work out and address those claims by the mechanism contemplated by Pt 5.3A of the Act, which might include, for example, the entry into a deed of company arrangement. However, the Court has a discretion to grant leave to commence or continue proceedings, which ASIC here invokes, which is to be exercised having regard to the objectives of Pt 5.3A of the Act. Plainly, it is relevant that the relief sought in particular proceedings, here declaratory relief, is relief that could not be obtained under the terms of a deed of company arrangement or other resolution of a voluntary administration. The case law has recognised that one circumstance in which the court may grant such leave is where regulatory action is brought to address issues as to alleged misleading or deceptive conduct or issues that have a public relevance: for example, Australian Competition and Consumer Commission v Advanced Medical Institute Pty Ltd (admin apptd) (No 3) (admin apptd) [2011] FCA 348; Australian Competition and Consumer Commission v ACN 135 183 372 Pty Ltd (admin apptd) [2012] FCA 586; Australian Competition and Consumer Commission v Phoenix Institute of Australia Pty Ltd (Subject to Deed of Company Arrangement) (2016) 116 ACSR 353; [2016] FCA 1246.

5. Mr Borsky, with whom Mr Kruse appears for ASIC, points to several factors which are relevant to the grant of leave. First, ASIC does not bring these proceedings as a creditor in respect of Rex and is not here seeking to advance any private interest or financial interest, but instead to advance a public interest as a regulator, and it has no capacity to advance that interest by, for example, participating in a deed of company arrangement. In particular, the proceedings are here brought by ASIC in its regulatory role in enforcing continuous disclosure obligations. As I have noted above, ASIC does not seek a pecuniary penalty or costs orders against Rex. Mr Krochmalik, who appears for Rex on the instructions of the voluntary administrators, accepts that that mitigates any cost to the voluntary administration of the conduct of the proceedings.

6. Mr Borsky also submits, and I accept, that it is appropriate that Rex be party to the proceedings, where the penalties sought against other Defendants are founded on Rex’s alleged contravention of continuous disclosure requirements, and declaratory relief that is sought in respect of Rex, although it does not have adverse financial consequences for Rex, may nonetheless serve a public purpose. As I noted above, on the terms now agreed between ASIC and the voluntary administrators, Mr Krochmalik does not oppose the orders which are sought, and recognises that the conditions to them will minimise any adverse consequence of the proceedings for the voluntary administration.

7. For these reasons, I am satisfied that I should, on the conditions agreed between ASIC and the voluntary administrators, which will be recorded in the form of order made by the Court, grant leave under s 440D of the Act to ASIC to commence these proceedings against Rex. I make orders accordingly in the form initialled by me and placed in the file.

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Decision last updated: 23 December 2024