In the matter of Ten Network Holdings Limited (Admins Apptd) (Recs and Mgrs Apptd) and Others

[2017] NSWSC 1247

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:	In the matter of TEN Network Holdings Limited (Admins Apptd) (Recs and Mgrs Apptd) and Others [2017] NSWSC 1247
Hearing dates:	12 and 13 September 2017
Decision date:	18 September 2017
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	The Further Amended Originating Process be dismissed with costs.
Catchwords:	CORPORATIONS — Voluntary administration — Deed of company arrangement – where deed to be put to second creditors’ meeting – whether s 439A report inadequate – whether deed proponent and members entitled to vote – whether orders should be made as to voting entitlements
Legislation Cited:	- Broadcasting Legislation Amendment (Broadcasting Reform) Bill 2017 (Cth) - Corporations Act 2001 (Cth), Pt 5.3A, Ch 6CA, ss 437A, 439A, 439B(2), 439C, 444F, 444GA, 445D, 447A, 447D, 563A, 600A, 600K, 600H, 1324, 1605, 1615, Sch 2 ss 75-41, 90-15–90-20 - Corporations Amendment (Sons of Gwalia) Bill 2010 (Cth) - Corporations Regulations 2001 (Cth), reg 5.6.23, Sch 8 cl 8201(a) - Court Suppression and Non-publication Orders Act 2010 (NSW) - Insolvency Practice Rules (Corporations) 2016 (Cth), rr 75-85, 75-225 - Personal Property Securities Act 2009 (Cth) - Supreme Court (Corporation) Rules 1999 (NSW), r 2.13
Cases Cited:	- Australian Securities and Investments Commission v Edge [2007] VSC 170; (2007) 211 FLR 137 - Bathurst City Council v Event Management Specialist Pty Ltd [2001] NSWSC 34; (2001) 36 ACSR 732 - DSG Holdings Australia Pty Ltd v Helenic Pty Ltd [2014] NSWCA 96; (2014) 86 NSWLR 293 - Fleet Broadband Holdings Pty Ltd v Paradox Digital Pty Ltd [2005] WASC 261; (2005) 228 ALR 598 - Hagenvale Pty Ltd v Depela Pty Ltd (1995) 17 ACSR 139 - Hamilton v National Australia Bank Ltd (1996) 66 FCR 12 - Lam Soon Australia Pty Ltd (administrator appointed) v Molit (No 55) Pty Ltd [1996] FCA 899; (1996) 70 FCR 34; 22 ACSR 169 - Lehman Brothers Holdings Inc v City of Swan [2010] HCA 11; (2010) 240 CLR 509 - Le Meilleur Pty Ltd v Jin Heung Mutual Savings Bank Co Ltd [2011] NSWSC 1115; (2011) 256 FLR 240 - Mighty River International Ltd v Hughes [2017] WASC 152 - Re Atlas Iron Ltd [2016] FCA 366; (2016) 112 ACSR 554 - Re Bevillesta Pty Ltd [2011] NSWSC 417; (2011) 84 ACSR 215 - Re Boart Longyear Ltd (No 2) [2017] NSWSC 1105 - Re Bolton; Ex Parte Beane [1987] HCA 12; (1987) 162 CLR 514 - Re Mirabela Nickel Ltd (subject to Deed of Company Arrangement) [2014] NSWSC 836 - Re Pan Pharmaceuticals Ltd [2003] FCA 598; (2003) 46 ACSR 77 - Re QRx Pharma Ltd [2015] FCA 1140; (2015) 235 FCR 456 - Re Recycling Holdings Pty Ltd [2015] NSWSC 1016; (2015) 107 ACSR 406 - Traivelog Pty Ltd v Electro Metals Technologies Ltd [2015] QSC 27 - Woodside Energy v Federal Commissioner of Taxation [2009] FCAFC 12; (2009) 174 FCR 91 - Young v Sherman [2002] NSWCA 281; (2002) 20 ACLC 1559
Texts Cited:	- Australian Law Reform Commission report no 45, General Insolvency Inquiry (1988) - Australian Restructuring, Insolvency & Turnaround Association, ARITA Code of Professional Practice (3rd ed, 2014) - Australian Securities and Investments Commission, Regulatory Guide 82: External administration: Deeds of company arrangement involving a creditors’ trust (2005) - D Cowling, “Sons of Gwalia: Back to Court?” (2011) Butterworths Corporations Law Bulletin [1]
Category:	Principal judgment
Parties:	WIN Corporation Pty Ltd (First Plaintiff) Birketu Pty Ltd (Second Plaintiff) Andrew Lancaster (Third Plaintiff) Mark Korda (First Defendant) Jarrod Villiani (Second Defendant) Jenny Nettleton (Third Defendant) Ten Network Holdings Ltd (Admins Apptd) (Recs and Mgrs Appointed) (Fourth Defendant) The Ten Group Pty Ltd (Admins Apptd) (Recs and Mgrs Apptd (Fifth Defendant) Network Ten Pty Ltd (Admins Apptd) (Recs and Mgrs Apptd) (Sixth Defendant) Network Ten (Sydney) Pty Ltd (Admins Apptd) (Recs and Mgrs Apptd) (Seventh Defendant) Network Ten (Brisbane) Pty Ltd (Admins Apptd) (Recs and Mgrs Apptd) (Eighth Defendant) Network Ten (Melbourne) Pty Ltd (Admins Apptd) (Recs and Mgrs Apptd) (Ninth Defendant) Network Ten (Perth) Pty Ltd (Admins Apptd) (Recs and Mgrs Apptd) (Tenth Defendant) Network Ten (Adelaide) Pty Ltd (Admins Apptd) (Recs and Mgrs Apptd) (Eleventh Defendant) Caprice Pty Ltd (Admins Apptd) (Recs and Mgrs Apptd) (Twelfth Defendant) Chartreuse Pty Ltd (Admins Apptd) (Recs and Mgrs Apptd) (Thirteenth Defendant) Television & Telecasters (Properties) Pty Ltd (Admins Apptd) (Fourteenth Defendant) Ten Online Pty Ltd (Admins Apptd) (Fifteenth Defendant) Ten Ventures Pty Ltd (Admins Apptd) Sixteenth Defendant) Ten Employee Share Plans Pty ltd (Admins Apptd) (Seventeenth Defendant) CBS International Television Australia Pty Ltd (Eighteenth Defendant) CBS Broadcasting, Inc. (Nineteenth Defendant) Showtime Distribution B.V. (Twentieth Defendant) Twentieth Century Fox Film Corporation (Australia) Pty Ltd (Intervening Party)
Representation:	Counsel: A S Bell SC/D F C Thomas/D Hume (Plaintiffs) R McHugh SC/T L Wong (1st to 17th Defendants) J A C Potts SC/P Kulevski (18th to 20th Defendants) I R Pike SC/C N Bova (Intervening Party)   Solicitors: Atanaskovic Hartnell (Plaintiffs) Baker & McKenzie (1st to 17th Defendants) Corrs Chambers Westgarth (18th to 20th Defendants) Dentons Australia (Intervening Party)
File Number(s):	2017/271140

Judgment

1. By their Further Amended Originating Process, WIN Corporation Pty Ltd (“WIN”), Birketu Pty Ltd (“Birketu”) and Mr Andrew Lancaster seek a range of orders against Messrs Korda and Villiani and Ms Nettleton (“Administrators”) in their capacity as voluntary administrators of Ten Network Holdings Limited (admins apptd) (recs and mgrs apptd) (“Holdings”) and other companies within the Ten Group (together, “Ten Group companies”). I will refer to the Administrators and the Ten Group companies, collectively, as the “Ten parties”. Relief was also sought against CBS International Television Australia Pty Ltd, CBS Broadcasting, Inc and Showtime Distribution B.V. (together, “CBS”). Another entity, Twentieth Century Fox Film Corporation (Australia) Pty Ltd (“Fox”) was heard in the proceedings under r 2.13 of the Supreme Court (Corporations) Rules 1999 (NSW) without becoming party to them.

2. These proceedings have been conducted in circumstances of substantial urgency. They were commenced by an ex parte application seeking short service brought in the Corporations List on 6 September 2017; directions were made for the conduct of the proceedings on 7 September 2017; they were heard on 12 and 13 September 2017; and judgment is delivered in them less than twelve days after they were commenced and less than five days after they were heard. The urgency of the proceedings was necessitated by the fact that a second meeting of creditors had been convened, initially for 12 September 2017, then deferred to tomorrow, 19 September 2017, and the Plaintiffs had sought final relief to prevent the holding of that meeting (although they prefer to characterise that relief as requiring an adjournment of the meeting) rather than interlocutory relief.

3. Despite the short time frame within which the proceedings were commenced and heard, a substantial volume of evidence, including transactional and other documents, was tendered. Part of that evidence was tendered subject to claims for commercial confidentiality, and several non-publication orders were made pursuant to the Court Suppression and Non-publication Orders Act 2010 (NSW). It has not been necessary to refer to matters that are the subject of such orders in this judgment. I also had the benefit of detailed written submissions from the Plaintiffs, the Ten parties and CBS and of detailed oral submissions over two days of hearing. I will not seek to summarise the detail of the evidence led or the submissions of Counsel, beyond what is necessary to determine the issues in the proceedings.

4. I should also note, by way of introduction, that I have not had regard to commercial developments which may have occurred after the hearing was completed and judgment was reserved, where the parties did not seek to relist the matter for further hearing or lead further evidence of any such development. While that approach may seem artificial, it reflects the fundamental proposition that a court must reach its decision on the evidence led by the parties at the hearing before it, as to which the parties have had an opportunity to be heard. I also note that the question for the Court is not, and should not be, which of any competing commercial proposals put by interested parties would be most advantageous to the creditors of the Ten Group companies, including employees, and shareholders to any extent their shares have any continuing value. That is a matter that is properly left for their decision, to be made in the manner provided in Pt 5.3A of the Corporations Act 2001 (Cth) (“Act”) where a company is in voluntary administration, and it would be inconsistent with the Act for the Court to arrogate that decision to itself.

The parties, the affidavit evidence and a chronology of events

5. By way of background, and obviously, the Ten Group companies operate a major Australian free to air television network, and Holdings and several of those companies are presently in voluntary administration. The First Plaintiff, WIN, is a regional free to air television broadcaster and an affiliate of the Ten Network. WIN claims to be a creditor on the basis of a liquidated debt of $33,333.33 under the WIN Program Supply Agreement and an unliquidated claim for damages, if the WIN Program Supply Agreement is terminated, and has submitted a proof of debt in the administration (Sophocles 6.9.17 [36]; Ex P2, 1753–1756). The Second Plaintiff, Birketu, is a shareholder in Holdings and party to a Program Supply Agreement with the Sixth Defendant, Network Ten Pty Ltd, which has variously been amended and novated from time to time. The Third Plaintiff, Mr Lancaster, is the Chief Executive of WIN and a director of Holdings. He claims to be a creditor in respect of unpaid directors’ fees of $13,500 and has also submitted a proof of debt in the administration (Sophocles 6.9.17 [40]; Ex P2, 1776–1784). The Fifth–Seventeenth Defendants are companies within the Ten Group which are direct or indirect subsidiaries of Holdings. The Eighteen–Twentieth Defendants are the proponents of a proposal deed of company arrangement and creditors’ trust (“Proposed CBS DOCA”) which is to be put before the second meeting of creditors of the Ten Group companies.

6. I will first refer briefly to the affidavit evidence led in the proceedings and then turn below to a chronology of events and the range of relief sought by the Plaintiffs. The Plaintiffs rely on the affidavit of their solicitor, Mr Michael Sophocles, sworn on 6 September 2017 which exhibited four lever arch folders of background documents and a further lever arch folder of documents tendered on a confidential basis. The Ten parties rely on an affidavit of Ms Chloe Taylor dated 11 September 2017 which exhibits a supplemental report (“Supplemental Report”) issued on 11 September 2017, by way of supplement to the Administrators’ report issued under s 439A of the Act dated 4 September 2017 (“Section 439A Report”). The Ten parties also rely on the affidavit of Mr Kamran Beiglari dated 11 September 2017 which proved the dispatch of the Section 439A Report to creditors and estimated the costs of dispatch of a one page circular or the complete Section 439A Report to Holdings’ shareholders either by email or by post, by reference to their elections whether to receive notices of meeting and proxy forms by email. The Ten parties also rely on a second affidavit of Mr Beiglari also dated 11 September 2017, which referred to the dispatch of the Supplemental Report to creditors by email and by post.

7. CBS relies on the affidavit of Mr Stephen White dated 11 September 2017, which refers to the supply of television content by CBS to the Ten parties under contracts, some dating back to 2006, and referred to negotiations that had been under way between Ten and CBS in respect of the renegotiation of those contracts, to provide more favourable terms to Ten, before the shareholder guarantors (including Birketu and Illyria Nominees Television Pty Ltd as trustee for Illyria Investment Trust No 4 (“Illyria”)) withdrew their support for the Ten Group companies and the Administrators were appointed to the Ten Group companies. Mr White was cross-examined, but that no challenge was made to his evidence of the negotiations between the Ten Group companies and CBS in respect of more favourable programming supply arrangements for the Ten Group companies.

8. Turning now to the chronology of events, prior to the appointment of the Administrators to the Ten Group companies on 14 June 2017, the Ten Group was financed by the Commonwealth Bank of Australia (“CBA”) under a Loan Facility Agreement dated 16 October 2013 (“CBA Loan Facility”) which was secured by a Security Trust Deed and General Security Deed both dated 24 February 2014. Each of Birketu, Illyria and Consolidated Press Holdings Pty Ltd (“CPH”) had given shareholder guarantees in respect of the CBA Loan Facility.

9. On 2 May 2017, CPH advised the Ten Group that CPH “will not extend or renew its guarantee of the [CBA Loan Facility] when it expires on 23 December 2017”. Ten Group provided a copy of that advice to Mr Lancaster and a representative of Illyria on 2 May 2017, shortly after it was received by Ten Group (Ex T4, tab 2).

10. On 9 June 2017, a financial adviser to Birketu and Illyria advised Holdings that Birketu and Illyria would also not extend or increase or extend their existing guarantees in respect of the CBA Loan Facility or agree to the deferral of the accrued guarantee fees. It appears that the board and management of Holdings then took steps, together with Ten Group’s financial advisers, to assess the capacity of Ten Group to continue as a going concern without the shareholder guarantees in place. The financial advisers to Birketu and Illyria then wrote to the directors of Holdings on 12 June 2017, the Queen’s Birthday public holiday, threatening (and I use that term advisedly) that:

“to the extent [Birketu and Illyria] are damaged by you failing to prevent drawdowns under the existing facility in breach of the statutory requirements [referred to in that letter], they will reserve their rights to pursue the statutory compensation rights they may have against you personally.”

It was perhaps not surprising that, after the receipt of that letter, the directors of the Ten Group companies resolved to appoint voluntary administrators to those companies on 14 June 2017 on the basis that those companies were insolvent or likely to become insolvent.

11. I should note, for completeness, that there was a collateral dispute between the parties as to whether the failure of the Ten Group resulted from its inability to restructure costs in relation to content agreements with CBS and Fox or from the steps taken by shareholder guarantors including Birketu and Illyria to withdraw their shareholder guarantees, or, I interpolate, both. It is not necessary to address that dispute in order to determine this application, nor is it possible to do so where the factual issues involved were not fully addressed by evidence in this hearing.

12. A first meeting of creditors of the Ten Group companies was held on 26 June 2017. CBA Corporate Services (NSW) Pty Ltd (as Security Trustee of the CBA Security) appointed Messrs Carter, Hill and McEvoy as receivers and managers (“Receivers”) of ten of the fourteen companies within the Ten Group on 30 June 2017 (Sophocles 6.9.17 [21]). An amended and restated CBA Loan Facility Agreement was also executed on 30 June 2017 (Ex P2, 940), the same date as the Receivers were appointed, by which CBA extended its loan facility to the Ten Group companies to meet operating costs during the receivership but also provided for the expiry of that facility on 31 August 2017 (Sophocles 6.9.17 [22]; Ex P2, 940–1078).

13. On 17 July 2017, the Federal Court of Australia made orders extending the convening period for the second meeting of creditors in respect of the Ten Group companies to 20 November 2017. The Receivers also appointed financial advisers to undertake a process for the sale or recapitalisation of the Ten Group companies and interested parties were invited to submit a letter expressing their interest and ability to meet proposed timelines by 21 July 2017 (Sophocles 6.9.17 [25]).

14. By letter dated 7 August 2017, the Receivers’ financial advisers invited recapitalisation or acquisition proposals for the Ten Group companies and they also provided an information memorandum to Mr Lancaster and the legal and financial advisers to WIN and Birketu on that date (Sophocles 6.9.17 [27]–[28]; Confidential Ex P3; Ex P3A, 15–24). The Receivers’ legal advisers then provided draft transaction documents including a draft creditors’ trust deed and draft deed of company arrangement (Ex P3A, 139) to WIN or Birketu and their advisers on 9 August 2017.

15. On 18 August 2017, Birketu and Illyria submitted a recapitalisation proposal which expired, in accordance with its terms, on 21 August 2017 (Sophocles 6.9.17 [31]; Ex P2, 1121). That proposal involved two alternative structures, one of which depended upon the passage of the Broadcasting Legislation Amendment (Broadcasting Reform) Bill 2017. The first proposed structure (“Structure 1”) provided that:

“75% of the shares held by each Ten shareholder other than Birketu and Illyria will be transferred to Birketu and Illyria for zero consideration with Court consent under section 444GA [of the Corporations Act], such that when combined with [Birketu’s and Illyria’s] existing shareholding, Birketu and Illyria will, in aggregate, hold approximately 80% of the total Ten shares on issue. In the event that the Court consent is not granted, then [Birketu and Illyria] will seek to pursue an alternative structure that has a similar commercial outcome for [Birketu and Illyria], including potentially an issue of shares for nil consideration to achieve the same outcome (subject to [Australian Securities and Investments Commission (“ASIC”)] and [Australian Securities Exchange Ltd (“ASX”] relief or shareholder approval). We would consider based on the Mirabella precedents there are good grounds for that relief.” [emphasis added]

The reference to “Mirabella” in that passage is to the decision in Re Mirabela Nickel Ltd (subject to deed of company arrangement) [2014] NSWSC 836 where the Court approved a transfer of existing shareholders’ shares to creditors under a deed of company arrangement, under s 444GA of the Act where those shares had no value in a liquidation. I will return to the significance of Birketu’s and Illyria’s assessment of the prospects of that approval below.

16. The alternative structure (“Structure 2”) proposed by Birketu and Illyria would apply if Birketu and Illyria did not elect to adopt Structure 1 prior to 30 September 2017, and provided that:

“ASIC and ASX relief is sought for the purpose of issuing at zero cost, approximately 1.07 billion options (with a zero exercise price) to Birketu and Illyria (Purchaser Options). When combined with [Birketu’s and Illyria’s] existing shareholding, the Purchaser Options will represent an aggregate 80% of the fully diluted equity capital in Ten. For the avoidance of doubt, the existing Ten shareholders (excluding Birketu and Illyria) will retain 20% of the fully diluted equity capital in Ten.”

That structure appears to have been directed to allowing Birketu and Illyria to acquire an 80% interest in Holdings in a manner that sought to avoid a contravention of the broadcasting legislation even if the Broadcasting Legislation Amendment (Broadcasting Reform) Bill was not passed by the Commonwealth Parliament.

17. Several subsequent meetings to discuss Birketu’s and Illyria’s proposal took place between Birketu’s and Illyria’s representatives and the Receivers and on two occasions also with the Administrators and their representatives (Sophocles 6.9.17 [32]). Shortlisted bidders, including Birketu and Illyria, were invited to submit final binding proposals by 24 August 2017.

18. Birketu and Illyria submitted a revised proposal on 25 August 2017 (Sophocles 6.9.17 [33]; Ex P2, 1480–1748), including its proposed transaction deed (Ex P2, 1570), a proposed deed of company arrangement (Ex P2, 1627) and a proposed creditors’ trust deed (Ex P2, 1687) (to which I will refer, together as the “Proposed Birketu & Illyria DOCA”). That proposal attached an email from CBA which contained a qualified indication of CBA’s willingness to extend continuing financing to the Ten Group for a further four months if the Receivers determined to accept Illyria’s and Birketu’s proposal. That email advised that, if the Receivers “determine that the bid by Illyria/Birketu is the preferred bid then, the Bank has credit approval to extend the [CBA Loan] [F]acility from 31 August until 15 December 2017” on specified terms, including the provision of guarantees by Birketu and Illyria; the provision of a further bank guarantee from another bank by Birketu to support its guaranteed obligations to CBA; and consents of existing guarantors (including CPH) on an unconditional basis and on terms satisfactory to CBA. That email also provided that:

“This consent is not in any way a formal consent, is not legally binding on the Bank and will not be legally binding unless and until all terms set out above have been satisfied.” (Ex P2, 1505)

19. The Proposed Birketu & Illyria DOCA remained open for acceptance until 5pm on 25 August 2017, unless extended by Birketu and Illyria (Ex P2, 1484) and there is no evidence of such an extension, although I will refer to correspondence as to the status of that proposal below. The Ten parties also point out that that proposal required entry into an Extension, Release and Amendment Deed, requiring that the CBA Loan Facility and CBA Security remain on foot, with an extended Termination Date (Ex P2, 1486) and, as I will note below, those facilities have now expired and been repaid.

20. The CBS proposal was preferred by the Receivers and Administrators and an Exclusivity Deed between CBS, the Administrators and the Ten Group companies (Ex P10) was executed on 25 August 2017 and a CBS Transaction Deed between CBS and the Administrators was executed on 27 August 2017 (Ex P2, 759). In the result, Birketu and Illyria were unsuccessful bidders in the sale and recapitalisation process, although the parties differ as to whether they are properly characterised as a disappointed “under-bidder” or a disappointed “over-bidder” in that process. I will refer briefly to that question below.

21. The transaction with CBS was announced on 28 August 2017 (Ex P2, 1749). That announcement indicated that the Receivers and Administrators:

“today announced that wholly owned entities of the New York Stock Exchange listed, CBS Corporation have entered into a binding Transaction document to acquire the business and assets of Network Ten …

The Transaction contemplates an acquisition of Network Ten by CBS, which will be effected by way of a refinance of existing secured debt arrangements (including shareholder guarantor fees) in full and a deed of company arrangement (DOCA) that will be put to creditors at the second creditors’ meeting. Further details on the expected return to creditors and timing of the second creditors’ meeting will be provided by the Voluntary Administrators in their Report to Creditors to be released in the coming days.

The decision to enter into an exclusive transaction deed with CBS followed a rigorous sales process run in connection with [an] independent adviser [to the Receivers].”

22. On 30 August 2017, the Federal Court of Australia made certain orders in connection with the proposed CBS transaction, including limiting personal liability of the Administrators in respect of the proposed borrowings by the Ten Group companies from CBS. On 31 August 2017, the CBA Loan Facility provided by CBA to the Ten Group companies expired, by the terms of that agreement as amended and restated on 30 June 2017 (definition of “Termination Date”, Ex P2, 978).

23. By email dated 3 September 2017, the solicitors acting for Illyria (which is not party to these proceedings) wrote to the solicitors for the Administrators, copied to the solicitors for the Receivers which had by then been reappointed by CBS after repayment of the CBA Loan Facility, identifying several complaints in respect of the announcement of the CBS proposal and expressing an expectation that the Section 439A Report would:

“at the very least, contain a summary of the terms of [the] DOCA comprised in the binding recapitalisation proposal submitted by Birketu and Illyria (B&I Proposal), a statement of the advantages and disadvantages of each of the CBS Proposal and B&I Proposal, a statement of the advantages and disadvantages of each of the CBS Proposal and B&I Proposal, and the reasons of the administrators for recommending the CBS Proposal over the B&I Proposal.”

In referring to the “binding recapitalisation proposal” submitted by Birketu and Illyria and the need for an outline of it in the Section 439A Report, Illyria’s solicitors either overlooked, or chose not to recognise, the fact that Birketu’s and Illyria’s proposal had by then expired in accordance with its terms. No question of any choice between continuing competing proposals could arise, at least at that point, where the CBS proposal had by then been accepted by the Receivers and Birketu’s and Illyria’s proposal had expired and was no longer open for acceptance.

24. The Administrators issued their Section 439A Report (Ex P1) on 4 September 2017, convening a second meeting of creditors of the Ten Group companies for 12 September 2017. That report states (section 1.1) that it was agreed between the Administrators, the Receivers and the secured creditors (comprising CBA, CPH and, notably, also Birketu and Illyria) that the Receivers appointed by CBA would assume control of the sale and recapitalisation process and the Administrators would continue to operate the Ten Group’s business. It appears that the Administrators were nonetheless consulted about, and participated in, the Receivers’ decision as to which of the competing bids to accept, since they express views as to the merits of the relevant bids in the Section 439A Report and the Supplemental Report. Section 1.2 of the Section 439A Report refers to the outcome of the sale and recapitalisation process, by which CBS or its nominee will become the 100% owner of the Ten Group, subject to:

“creditors of each Ten Group Company approving a Deed of Company Arrangement, the Court approving the transfer of the shares in Ten Network Holdings Limited to [CBS] and FIRB [Foreign Investment Review Board] approval being received.”

Section 1.3 of the Section 439A Report sets out, in summary form, the estimated return to relevant classes of creditors from the transactions, the proposed CBS DOCA and the creditors’ trust.

25. Section 2 of that report deals with the history of the administration, including the appointment of the Administrators, the object of administration, the purpose of the Section 439A Report, and with the appointment of Receivers and Managers to companies within the Ten Group. Section 3 sets out the structure of Ten Group’s operations, outlines its historical performance and refers to the reports as to affairs submitted by directors, and also refers to liabilities of the Ten Group companies to CBS (in its capacity as the new secured creditor in place of CBA) of approximately $142 million; to priority employee creditors of between $14 million and $56 million; to trade and other creditors of between $30 million and $35 million; and to CBS and Fox of $348 million and $195 million respectively, by way of potential damages claims under programming contracts. Section 3.10.4 of that Report provides further information as to potential claims by CBS and Fox and by other programming creditors, the latter estimated as being up to $65 million, and refers to contingent liabilities of Ten Group companies in respect of other proceedings that are on foot against those companies.

26. Sections 4 and 5 of that report deal with progress of the voluntary administrations and with the Administrators’ investigations respectively. Section 6 of the Section 439A Report refers to the sale and recapitalisation process. Section 6.1 refers to components of the CBS Transaction Deed and section 6.1.1 sets out several conditions precedent to completion of the transaction. The CBS Transaction Deed was not annexed to the Section 439A Report, but has since been disclosed to creditors with the Supplemental Report. Section 6.2.4 of the Section 439A Report stated that:

“The Receivers received two binding offers on 24 August 2017. In assessing the offers received, the Receivers and Administrators considered:

●   Effective value, and hence the outcome for creditors;

●   Execution certainty including:

-   Offer complexity, and the impact of this complexity on the completion timeframe and risk;

-   Likely support by creditors/creditor groups;

-   Regulatory approvals;

-   Ability of the parties to achieve the conditions precedent.

The Receivers and Administrators determined, having regard to the factors set out above, that the [CBS] Transaction represented the best offer received for Ten Group, and the best return for creditors as a whole.”

27. Section 7 of that report deals with the sale and recapitalisation process and with the Proposed CBS DOCA, containing a summary of its key features, refers to the transfer of shares in Holdings to CBS, subject to the Court’s approval under s 444GA of the Act, and also refers to creditors’ entitlements under the proposed creditors’ trust. Section 8 provides further information as to the proposed creditors’ trust, including referring to ASIC’s guidelines for creditors’ trusts, and section 8.4.3 deals with the creditor pools established under the creditors’ trust, to which I will refer below in relation to the question of differential treatment of creditors under the creditors’ trust.

28. Section 9 deals with the alternatives available to creditors. Section 9.1 stated that:

“It is [the Administrators’] obligation to make recommendation to creditors on which alternative is in the best interests of creditors. Our recommendation considers what is in the best interests of creditors with regard to repaying their existing debts.

There are three options available to creditors, who will vote in respect of each Ten Group Company individually:

1.   The Ten Group to execute the DOCA

2.   The Administrations to end, or

3.   Each company to be wound up.”

The Plaintiffs, in their revised outline of submissions, criticised the alternatives identified by the Administrators in the Section 439A Report as failing to recognise a fourth option, for the Ten Group to execute the Proposed Birketu & Illyria DOCA. I will address that criticism below.

29. Section 9 of that report also indicates that, on a liquidation scenario involving a close down of operations of the Ten Group, the secured creditor would receive an estimated return of 10 cents in the dollar; priority creditors would receive an estimated return of 82 cents in the dollar, unsecured creditors would receive an estimated return of nil and, by extension, there would be no return to shareholders. Section 9.3 of that report expresses the view that:

“It is our opinion that it would be in creditors’ interests for each of the Ten Group companies to execute the DOCA. It is not in creditors’ interests to wind up any company or to bring the Administrations to an end. As detailed in the financial analysis of the alternatives (section 9.2), the DOCA and Creditors’ Trust will result in a better return to creditors than if the Ten Group companies were liquidated.”

30. Section 9.4 sets out the Administrators’ reasons for that recommendation, namely that:

“1.   The Transaction, which includes the [proposed CBS] DOCA will result in the continuation of the Ten Group’s business, and provide a better outcome for creditors.

2.   Given the existing appointment of the Receivers to most of the Ten Group companies, bringing the Administrations to an end will not alter the current positions of the companies, as they will remain subject to an external administration. In relation to companies not in receivership, ending the Administrations will return control of the companies to their directors in circumstances which will not have materially changed from the point at which those same directors resolved to appoint voluntary administrators.

3.   Placing the Ten Group companies into liquidation will result in a lower return being available to creditors than under the proposed DOCA. Further, as we are not aware of any offences in relation to the Ten Group, it is unlikely that placing any of the companies into liquidation will result in any recoveries that would be available for creditors.”

31. Section 10.1 of that report sets out the estimated return to creditors, including those who have a right to claim under the proposed creditors’ trust, a matter which had also been summarised previously in the report. That report also attaches the notice of the second meeting of creditors, then convened for 12 September 2017, but since deferred; the orders made by the Federal Court of Australia on 31 August 2017 in respect of the conduct of the administration; and information as to the historical financial performance of the Ten Group companies. That report also attaches a limited report by Mr Gothard, who was appointed by the Federal Court of Australia on 18 July 2017 to prepare that report and take certain other steps, which expresses the view that Ten Group became insolvent on 13 June 2017, when shareholder guarantors advised that they would not continue to support the CBA loan facility beyond its maturity date. The Section 439A Report also attaches the Proposed CBS DOCA and the proposed Ten Group Creditors’ Trust Deed.

32. On 5 September 2017, the solicitors for the Plaintiffs wrote to the solicitors for the Administrators, alleging deficiencies in the Section 439A Report and requesting that the Administrators adjourn the second meeting of creditors. When that did not occur, these proceedings were commenced, by an application for short service, on 6 September 2017. On 7 September 2017 the Court made orders, with the Administrators’ consent, adjourning the second meeting of creditors to 19 September 2017, to allow a determination of these proceedings on their merits.

33. By email dated 10 September 2017 (Ex P5) to the Ten parties’ solicitors, after these proceedings had commenced, the solicitors for Illyria took issue with the suggestion that Birketu’s and Illyria’s bid had “lapsed”, without identifying any aspect of its terms that avoided that result (Ex P5). By a further letter dated 11 September 2017 (Ex P4) to the Ten parties’ solicitors, the solicitors for Illyria again took issue with the proposition that the Proposed Birketu & Illyria DOCA had “lapsed” on 25 August 2017, notwithstanding that was what its terms provided. They suggested that any administrator acting in the best interests of creditors would inquire whether a competing bid would remain open after the time for its expiry. I do not accept that proposition, where the Receivers and Administrators had solicited competing bids that were to be the parties’ best bids and were to be lodged by 24 August 2017, and the bid lodged by Birketu and Illyria expressly provided for its expiry at the specified time. That letter also referred to telephone calls made to the Receivers and Administrators by the financial and other advisers of Birketu and Illyria on 25 August 2017 which were not returned or terminated swiftly, which was perhaps not surprising when the Receivers and Administrators were presumably then in the process of assessing the competing proposals. That letter also referred to the email sent by Illyria’s legal advisers on 3 September 2017, to which I referred above, and suggested that email was:

“clearly consistent with [Illyria’s] proposal either still being open at that time, or with [Illyria] continuing to be prepared to enter into negotiations as necessary to resubmit their proposal.”

As I noted above, the express terms of that proposal had the result that it was not still open at that time.

34. The letter from Illyria’s solicitors dated 11 September 2017 also purported to confirm on behalf of Illyria that:

“Its joint proposal with Birketu remains open as at the date of this letter, subject to any necessary and agreed modifications that may be required to the transaction documents in light of the events that have occurred since 24 August 2017, subject to Atanaskovic Hartnell on behalf of Birketu confirming the same.”

It may be that the reference to necessary and agreed modifications was intended to include, for example, addressing the expiry of the CBA funding on which Birketu’s and Illyria’s earlier proposal had relied. Whether or not Birketu and Illyria were then prepared to enter into further negotiations, they did not, as at 3 September 2017 or at the date of Illyria’s solicitors’ letter dated 11 September 2017, advance any further proposal in a form that could then have been accepted by the Receivers or Administrators so as to give rise to a binding contract.

35. On 11 September 2017, the Administrators issued their Supplemental Report (Ex T1) which sought to address a number of the matters raised by the Plaintiffs in these proceedings. That report referred to requests for additional information received from Fox, WIN and Mr Lancaster in his capacity as a creditor and to the application brought by Birketu, WIN and Mr Lancaster in these proceedings. The Supplemental Report contained (section 2) an outline of the orders then sought by the Plaintiffs in these proceedings, although some of those orders are no longer pressed in full, and cross-referred to sections of the report which dealt with those matters. The Supplemental Report confirmed, in section 9, the Administrators’ opinion that it would be in creditors’ interests for each of the Ten Group companies to execute the Proposed CBS DOCA, and that it was not in creditors’ interests to wind up the Company or bring the administration to an end, and confirmed their view that the Proposed CBS DOCA and creditors’ trust would result in a better return to creditors than if the Ten Group companies were liquidated. I will refer to other information provided in that report in dealing with the issues raised by the Plaintiffs below.

An issue that is not determined by this judgment

36. Before turning to the matters that the Plaintiffs pressed in this hearing, I should note that this judgment will not determine the question whether the Administrators were or are obliged to put two competing offers by CBS on the one hand and Birketu and Illyria on the other hand to the second meeting of creditors to be held tomorrow or to any adjourned meeting. There are several reasons why that question, to which some attention was given in submissions, will not be determined. The most important reason is that the Plaintiffs, including Birketu, did not press an amendment of the Amended Originating Process to raise that question where that would have resulted in an adjournment of the hearing and raised the question whether the second meeting should go ahead. In particular, they did not press their proposed claim for an order that the Administrators be required to put the Proposed Birketu & Illyria DOCA or a “substantially similar proposal” to the second meeting of creditors once it became apparent that the Ten parties would need to be allowed an opportunity to lead evidence in response to that claim and the hearing would have to be adjourned to permit that to occur.

36. There are other reasons why that issue likely could not have been determined in this judgment. First, as I noted above, the Proposed Birketu & Illyria DOCA had lapsed on 25 August 2017 and the funding on which it relied had expired on 31 August 2017, so there would have been no utility in determining whether an offer that was no longer open could have been put to the second meeting of creditors. Second, there is no evidence that a “substantially similar proposal” to that offer had been formulated and put to the Administrators, in any form that could have been accepted by the Administrators or creditors, at the time of the hearing before me. Third, so far as Birketu and Illyria may subsequently have formulated any similar or different offer, they did not seek to reopen the proceedings to lead evidence of it or have whether it should be put to creditors determined.

37. I should, however, also add several tentative observations as to that question, although they are not necessary to my decision, which may be of practical importance to the manner in which complex administrations are conducted. First, there is no doubt that, at the second meeting of creditors convened under s 439A of the Act, it is the creditors and not the administrators who decide whether the relevant company should execute a deed of company arrangement specified in the resolution before that meeting (even if it differs from any proposed deed that accompanied any notice of meeting) or alternatively that the administration should end or that the company should be wound up. The creditors and not the administrator have the power to make that decision, because s 439C of the Act so provides, although the administrator has a casting vote if the majority of creditors by number and value reach a different result. The Administrators did not suggest to the contrary in this case.

38. It is perhaps difficult to see why, in a complex administration, the administrators should not or do not have power to take steps to negotiate a deed of company arrangement which will be put to creditors for approval, even if their doing so potentially narrows the range of other options that may be available to creditors. The administrators have wide statutory powers while a company is under voluntary administration, under s 437A of the Act, including control of the company’s business, property and affairs, power to terminate or dispose of the company’s business and power to exercise any power that the company or any of its officers could have exercised if the company were not in administration. Where a company’s assets are under the control of receivers, there would be no utility in putting a deed of company arrangement proposal to creditors unless the receivers would cooperate in its implementation. Where a bidding process for assets is conducted by receivers and administrators, one might expect that bidders would generally not make their best offer until that offer can lead to a concluded (although potentially conditional) transaction, and not if that offer would simply be the starting point for further negotiations at or after a second meeting of creditors. I emphasise, however, that these observations are tentative and not necessary to the decision in this matter.

39. It is important to recognise, of course, that it is also always open to creditors at the second meeting of creditors to vote to adjourn that meeting, and it is open to them to do so in this case if they consider that their interests may be advanced by further negotiations between the Receivers, the Administrators and Birketu and Illyria on the one hand or CBS on that other, and are prepared to accept any commercial and financial risks that may arise from taking that course.

The Plaintiffs’ criticisms of the information provided in the Section 439A Report and the Supplemental Report

41. I now turn to the relief sought by the Plaintiffs, as set out in their Further Amended Originating Process filed by leave on 13 September 2017. The Plaintiffs subsequently advised the Court, also by leave, of several aspects of the Further Amended Originating Process which were not pressed, whether because they had been addressed in the Supplemental Report or otherwise. The Plaintiffs put the principal basis for the relief sought as a suggested non-compliance with disclosure requirements in respect of the Section 439A Report, and I will therefore deal with that issue first, although it was not the first relief claimed in the Plaintiffs’ Further Amended Originating Process. In oral submissions, Dr Bell, who appeared with Mr Thomas for the Plaintiffs, aptly referred to the “shopping list of matters” (in his phrase) where the Plaintiffs say the information contained in the Section 439A Report is inadequate; noted the Administrators’ reliance on the Supplemental Report; and also submitted that the Supplemental Report continued to be “inadequate or worse still has now become misleading” and did not avoid the suggested deficiencies in the Section 439A Report (T76).

42. The Plaintiffs seek a declaration that the Section 439A Report does not satisfy the requirements of s 439A of the Act by reference to specified matters; in the alternative to that order, an order under s 447A of the Act that the operation of that section be modified to require the provision of information as to the same topics; and, in the further alternative, an order under s 90-15 of the Insolvency Practice Schedule (Corporations) (“IPSC”) or under s 1324 of the Act restraining the Administrators from holding the second meeting of creditors called for 12 September 2017 until further order or, alternatively, until no fewer than five business days after information is circulated to creditors as to the same topics. No question of making any of those orders will arise, unless the Plaintiffs first establish that adequate information as to these topics has not already been provided by the Administrators to creditors in the Section 439A Report, as supplemented by the Supplemental Report.

43. Before turning to the Plaintiffs’ particular complaints, I should refer to the statutory basis of the relief sought. The Plaintiffs and the Ten parties drew attention to the case law concerning disclosure under s 439A(4) of the Act. In Australian Law Reform Commission Report number 45, General Insolvency Inquiry (Harmer Report), to which Ward J (as her Honour then was) referred in Le Meilleur Pty Ltd v Jin Heung Mutual Savings Bank Co Ltd [2011] NSWSC 1115; (2011) 256 FLR 240 at [329], the Commission observed that:

“The report to creditors should contain information enabling creditors to make an informed decision whether the best interests of creditors would be served by a deed of company arrangement.”

44. The Ten parties point out, and I accept, that Pt 5.3 of the Act was intended to provide for a relatively prompt process and that the amount of information which could be provided to creditors at a second meeting of creditors would generally be less than would be provided in a scheme of arrangement, given the time restrictions and the need to have material sent to creditors quickly: Hagenvale Pty Ltd v Depela Pty Ltd (1995) 17 ACSR 139 at 146. I recognise that the level of information to be provided, in this case, is to be determined in the context that the time for completion of the administration has been extended, by order made by the Federal Court of Australia, to which I have referred above. The Ten parties also recognise that creditors must be put in a position where they are adequately informed at the second meeting of creditors: Re Pan Pharmaceuticals Ltd [2003] FCA 598; (2003) 46 ACSR 77 at [41]; Mighty River International Ltd v Hughes [2017] WASCA 152 at [246].

45. In Australian Securities and Investments Commission v Edge [2007] VSC 170; (2007) 211 FLR 137 at [331], Dodds-Streeton J observed that “the contents and scale of a s 439A report will necessarily vary according to the circumstances and scale of the administration to which it relates” and that such a report:

“must include, or be accompanied by, a reasoned statement of opinion on the course which will serve the creditors’ interests, as a basis for decision on a resolution referred to in s 439C(a) to (c) of the Act.”

46. In ReRecycling Holdings Pty Ltd [2015] NSWSC 1016; (2015) 107 ACSR 406 at [30]–[33], Brereton J observed, in respect of the content of a report under s 439A of the Act and the availability of relief for misleading information contained in or omissions from such a report under s 445D of the Act that (omitting citations):

“Section 445D(1)(a) speaks of information which was false or misleading and “can reasonably be expected to have been material to creditors of the company in deciding whether to vote in favour of the resolution that the company execute the deed”, and s 445D(1)(c) speaks of an omission that “can reasonably be expected to have been material to such creditors in so deciding“. The reference to “reasonably be expected” and to “creditors” as distinct from “all creditors” or “the creditors”, contemplates consideration of the position of the hypothetical reasonable creditor, as distinct from particular creditors; thus, the test of materiality is an objective one, and involves something which could potentially rationally influence the decision of the hypothetical reasonable creditor …. The notion of a material omission thus depends on the objective quality and potential of the information, and not whether anyone was in fact misled …, though its actual subjective impact may be relevant once one reaches the second, discretionary, stage of the inquiry.

It is to be observed that s 445D(1)(a) is concerned with the provision of false or misleading information to the administrator or to creditors (without limitation as to the context in which it is provided), while s 445D(1)(b) is concerned with the inclusion of such information in the context of a s 439A(4) report. The only reference to omissions (as distinct from the provision of false or misleading information) is in s 445D(1)(c), which is concerned only with a s 439A(4) report: s 445D(1)(c) speaks of an omission “from such a report or statement”, which in turn is a reference to “a report or statement under subs 439A(4)” referred to in s 445D(1)(b). Whether there is an omission from such a report is necessarily influenced by what such a report is required to include, as specified in s 439A(4); namely:

(a)    a report by the administrator about the company’s business, property, affairs and financial circumstances; and

(b)    a statement setting out the administrator’s opinion about each of the following matters:

(i)    whether it would be in the creditors’ interests for the company to execute a deed of company arrangement;

(ii)    whether it would be in the creditors’ interests for the administration to end;

(iii)    whether it would be in the creditors’ interests for the company to be wound up;

and also setting out:

(iv)    his or her reasons for those opinions; and

(v)    such other information known to the administrator as will enable the creditors to make an informed decision about each matter covered by subparagraph (i), (ii) or (iii); and

(c)    if a deed of company arrangement is proposed — a statement setting out details of the proposed deed.

But while a material omission may be established by the omission of a matter referred to in s 439A(4), one may also be established by the omission of “a matter of significance which should have been included in the report or statement and which would be highly material in the decision to be made by the creditors” … Thus an administrator may need to make inquiries to obtain relevant information beyond the duty to investigate under s 438A, depending on “an assessment of the nature of the question to be investigated, the information in the administrator’s hands, the cost and difficulty of making further investigation, and (most importantly) the significance of the issue under investigation to the creditors’ decision”, and a DOCA may be set aside if failure to make such inquiries results in a material omission … However, in assessing the adequacy of the information contained in a report, the court must recognise that the administrator’s investigation has to be conducted in a short timeframe, and with limited resources and limited powers of compulsion. Together with the reference in s 439A(4)(b)(v) to “such other information known to the administrator” as will enable the creditors to make an informed decision, this is indicative that, at least generally speaking, there will not be an omission if the information in question is not known, or reasonably capable of being ascertained, by the administrator.”

47. The Ten parties rightly accept that the information provided to creditors at the second meeting of creditors must also comply with the Administrators’ obligation, under the ARITA Code of Professional Practice, 3rd edition, to “take care to communicate with affected parties in a manner that is accurate, honest, open, clear, succinct and timely in order to ensure their effective understanding of the processes, and their rights and obligations” (Part C, section 8).

48. The Plaintiffs also rely on s 447A of the Act which relevantly provides that the Court may make such order as it thinks appropriate about how Pt 5.3A of the Act is to operate in relation to a particular company on the application of, inter alia, a creditor of the company or any other interested person. No submission was made that WIN and Mr Lancaster do not have standing to seek such an order. The Plaintiffs also rely on s 90-15 of the IPSC which provides that the Court may make such orders as it thinks fit in relation to an external administration (as defined) of a company, on its own initiative, during proceedings before the Court or under an application under s 90-20 of the IPSC. It is common ground between the parties, and I accept, that s 90-15 of the IPSC took effect from 1 September 2017, and applies in relation to an ongoing external administration, including where the matter to be reviewed occurred before the commencement date, under ss 600K and 1615 of the Act. Section 90-20 permits such an order to be made by a person with a financial interest in the external administration of the company or an officer of the company. Mr Lancaster has standing to seek such an order. Regulation 5.6.23 of the Corporations Regulations 2001 (Cth) refers to the creditors who are entitled to vote at a meeting of creditors in an administration.

49. The Ten parties also submit that the existence of remedies under s 445D and s 600A of the Act provides a strong reason for the Court to decline to intervene before a second meeting of creditors is held. They point to the observations of the plurality of the High Court of Australia in Lehman Brothers Holdings Inc v City of Swan [2010] HCA 11; (2010) 240 CLR 509 at [30]–[32], including that:

“Earlier provisions required court approval before the scheme was effective; Pt 5.3A provides for disallowance by the Court after the deed has been made.”

50. The Ten parties also refer to the observations of the Court of Appeal in DSG Holdings Australia Pty Ltd v Helenic Pty Ltd [2014] NSWCA 96; (2014) 86 NSWLR 293 at [80]–[81] that:

“…the premise of the new procedure [in Pt 5.3A] is that creditors will be able to meet and vote on their common interest in the company executing a deed of company arrangement or being wound up, subject to the protections given by s 600A (and s 445D). This informs the construction to be given to “interests of creditors” in this context, as considered further below.

In short, s 600A is part of the protection given to creditors who are disadvantaged by a deed of company arrangement (cf Young v Sherman [2001] NSWSC 1020; (2001) 40 ACSR 12 at [73]). The legislation contemplates that a related entity may vote decisively on certain specified matters (resolutions to wind up a company, or to execute a deed of company arrangement, or other votes under Pt 5.3A) together with other creditors. The effect is that a discretion is conferred upon the court to set aside the outcome, or require a further vote, perhaps under different conditions. That reflects a legislative recognition that the reasons for the voting of related entities may diverge from other creditors, in a way that should be subjected to curial oversight. However, the fate of the company and its creditors insofar as it is determined by the deed of company arrangement is determined by those creditors voting in a single group, even though those same creditors would, if they were asked to approve a scheme of arrangement, meet and vote in separate meetings.”

51. Importantly, in determining any subsequent application under s 445D of the Act, brought on the basis that the Section 439A Report was materially misleading or omitted material information, the Court would have a discretion whether to grant relief if the relevant information would not have affected the voting at the second creditors’ meeting: Re Recycling Holdings Pty Ltd above at [72]–[73], [80]–[81]. It seems to me that these matters would generally tend against granting the injunctive relief that is sought in an application of this kind, although they are not conclusive that such relief could never be granted or should not be granted in this case.

Provision of independent expert’s report

52. By paragraph 11(a) of the Further Amended Originating Process, the Plaintiffs seek a declaration that the Section 439A Report does not satisfy the requirements of s 439A(4) of the Act because it did not include an independent expert’s valuation of the business conducted by the Ten Group Companies, both on the basis that the Ten Group companies are wound up and on a going concern basis. Alternatively, by paragraphs 12(i) and 13(b)(i)(1) of the Further Amended Originating Process, the Plaintiffs seek orders to modify s 439A(4) so as to require the inclusion of information as to that matter or to restrain the second meeting of creditors until such information has been provided to creditors. The question of the independent expert’s valuation is addressed in note 1 of section 2 of the Supplemental Report. A report of that nature is likely to be provided to shareholders in respect of the foreshadowed application under s 444GA of the Act for approval of a transfer of shares in Holdings to CBS and it is common ground that the Administrators have retained KPMG to provide an independent expert’s report for the purposes of that application.

53. In their revised outline of submissions, the Plaintiffs submitted that the Section 439A Report:

“contains no independent expert valuation of the Ten Group, either on a going concern basis or on a liquidation basis. In these circumstances, it is not credible to assert that the Report gives such information as enables creditors to make an informed decision on whether the proposed DOCA is in creditors’ interests.”

The Plaintiffs also place continued weight on the omission of an independent expert’s report as to the valuation of the Ten Group companies in their outline of reply submissions and in oral submissions. Dr Bell made clear, in oral submissions, that the Plaintiffs did not submit that an independent expert’s report was required in every deed of company arrangement, irrespective of the size of the company or the number of creditors, but submitted such a report was required in a “complex situation” (T78). That submission left open whether that proposition had a degree of generality to it, such that independent experts’ reports would be required as a matter of ordinary practice in any complex administration, or was ultimately no more than a submission that an independent expert’s report should be required in this particular case.

54. Dr Bell also sought to answer a potential concern that requiring such a report would likely delay the administration by pointing to the fact that it was commissioned some time ago and also by questioning the urgency of the second meeting of creditors, and indeed of the administration of the Ten Group companies generally, on the basis that the Federal Court of Australia had extended the convening for the second meeting of creditors, and the Proposed CBS DOCA had a sunset date of 15 December 2017, which could be extended by agreement (T79). I am not persuaded by that submission. It seems to me that the Court can properly infer that the administration of a substantial company group, with many employees and which depends on arrangements with third parties (in this case including program suppliers and advertisers) would ordinarily have a degree of urgency, in that there would be a risk of damage to the companies if they are left in a position of insolvency or likely insolvency and commercial uncertainty for an extended period. I give little weight to the fact that the “sunset date” under the Proposed CBS DOCA is not until 15 December 2017, where that period contemplates an application to be made under s 444GA of the Act, and that application will, as the Administrators rightly recognise in their reports, take some time.

54. The Plaintiffs sought on notice to produce, and the Ten parties produced, the draft of that report as it existed as at 4 September 2017 when the Section 439A Report was issued to creditors. The Plaintiffs then did not seek to tender that draft KPMG report, and I infer that it would not have assisted them to establish their claim that the inclusion of that draft report, as it existed at that date, in the Section 439A Report would have provided useful information to creditors. The most obvious situation in which that draft report, as it then existed, would not have provided such useful information would be if, as at that date, KPMG had not yet formed a view as to the value of the relevant business either on the basis that the Ten Group companies were wound up and on a going concern basis.

55. The Ten parties point out, and I accept, that there is no corresponding requirement in a voluntary administration to that which exists under Sch 8 cl 8201(a) of the Corporations Regulations requiring a report, in a creditors’ scheme of arrangement, on the expected dividend that would be available to scheme creditors if the company were to be wound up. The Ten parties also submit, and I accept, that the structure of Pt 5.3A of the Act, and particularly s 439A(4)(b) of the Act, contemplates that the Administrators will provide their opinion as to which of the options available to creditors at the second creditors’ meeting is preferable, and the expression of their view as to that matter has a similar function in a voluntary administration to that of an independent experts report in a scheme of arrangement in which the company is the proponent.

56. I am not satisfied that the Section 439A Report did not satisfy the requirements of s 439A(4) of the Act by reason that such an independent expert’s report was not provided. That section requires the provision of information known to the Administrators that will enable the creditors to make an informed decision about the specified matters. It has not been established that the Administrators knew information in respect of an independent expert’s valuation of the business, as at the date of the Section 439A Report, including any conclusions as to valuation that might in future be reached by the independent expert, that would then have enabled creditors to make such an informed decision about the specified matters. I am also not satisfied that an order should be made under s 447A of the Act modifying the operation of s 439A(4) to require provision of such a report. Such a modification seems to me to be inconsistent with structure of Pt 5.3A of the Act, so far as that Part contemplates that the Administrators, rather than third party experts, will make a recommendation to creditors at the second creditors’ meeting. It also seems to me to be inconsistent with the well-recognised objectives of Pt 5.3A of providing a relatively prompt resolution of the position in respect of a company in administration, so as to maximise the chances of the company or its business continuing in existence, or result in a better return for creditors and members than would result from an immediate winding up. A requirement, whether generally or in this case, for the provision of an independent expert’s valuation of the relevant business has the capacity to delay the second creditors’ meeting in a manner which is inconsistent with that objective. I am not satisfied that the Administrators should be restrained from holding the second meeting of creditors until that information is provided for the same reasons.

Provision of information concerning the Proposed Birketu & Illyria DOCA

58. By paragraph 11(b) of the Further Amended Originating Process, the Plaintiffs seek a declaration that the Section 439A Report does not satisfy the requirements of s 439A(4) of the Act because it did not include the terms of the “Proposed Birketu [&] Illyria DOCA”. The term “Proposed Birketu [&] Illyria DOCA” is defined in the Further Amended Originating Process as:

“the proposed form of DOCA for the Ten Group Companies submitted to the Administrators by Birketu and Illyria.”

Alternatively, by paragraphs 12(ii) and 13(b)(i)(2) of the Further Amended Originating Process, the Plaintiffs seek orders to modify s 439A(4) so as to require the inclusion of information as to that matter or to restrain the second meeting of creditors until such information has been provided to creditors.

59. In their outline of reply submissions and oral submissions, the Plaintiffs placed weight on the proposition that the Supplemental Report continued to present only three options contained in section 9.1 of the report, and did not present creditors with an opportunity to vote on the Proposed Birketu & Illyria DOCA. The Ten parties respond that the Administrators were not required to disclose the Birketu and Illyria proposal in the Section 439A Report on the basis that it was heavily conditional, had expired by the time that report was issued and was not capable of implementation because it was premised on the CBA Loan Facility continuing, which has now expired and been discharged. The Ten parties also rely on the Supplemental Report as disclosing the terms of the Proposed Birketu & Illyria DOCA, notwithstanding their position that acceptance of that proposal (at least in the form it existed before its expiry on 25 August 2017) could not be recommended to creditors at the second meeting.

60. I am not persuaded by Plaintiffs’ criticism of the three options presented in the Section 439A Report, at least as at the date the Section 439A Report was issued. As I have noted above, the DOCA proposal put by Birketu and Illyria had expired in accordance with its terms by that date. As I also noted above, the Plaintiffs did not press an amendment to include a claim for an order that the Administrators be required to put the Proposed Birketu & Illyria DOCA or a substantially similar proposal to the second meeting of creditors, once it became apparent that the Ten parties would need to be allowed an opportunity to lead evidence in response to such an application and the hearing would have had to be adjourned to permit that to occur. It is, of course, open to creditors at the second meeting of creditors to vote to adjourn that meeting for up to 45 business days under s 439B(2) of the Act, if they consider that their interests may be able to be advanced by further negotiations between the Receivers, the Administrators and Birketu and Illyria, and are prepared to accept any commercial and financial risks that may arise in such a course. The Court may also make orders permitting a longer adjournment of such a meeting in an appropriate case.

61. As I noted above, section 6.2.4 of the Section 439A Report stated that, in assessing the two offers received by the Receivers on 24 August 2017 (or, in the case of Birketu, 25 August 2017), the Receivers and Administrators considered, inter alia, “[e]ffective value, and hence the outcome for creditors.” The Plaintiffs submit that neither the Section 439A Report nor the Supplemental Report supplies information as to the “effective value” of the Proposed Birketu & Illyria DOCA, and that section 6 of the Supplemental Report only provides that information with regard to the CBS transaction. I referred above to an associated question as to whether Birketu was properly characterised as a disappointed “under-bidder” or a disappointed “over-bidder” in the sale and recapitalisation process. It is common ground that the Proposed Birketu & Illyria DOCA provided for a payment of $35 million to a creditors’ trust, which was to be applied, inter alia, to payment of $7.4 million to CBS, and the Proposed CBS DOCA provided for a payment of $32 million to a creditors’ trust, which was not required to fund a payment to CBS. The question which proposal was more favourable depends upon whether one judges the proposal by reference to its face value or the return to unsecured creditors other than CBS. The Proposed CBS DOCA provided a better return to most unsecured creditors of the Ten Group companies than the then Proposed Birketu & Illyria DOCA, at the time the Receivers and Administrators were assessing the two proposals on 25 August 2017, with the exceptions that CBS did not participate in the return to creditors under and Fox received a marginally worse return and a later return under, that proposal. I will return to the treatment of Fox under that proposal below.

62. Dr Bell refers, in oral submissions (T82) to the reference to the “effective value” of the relevant proposals in section 6.2.4 of the Section 439A Report. Dr Bell submits that that matter was not adequately addressed in that report, but recognises that that question is taken up in the Supplemental Report in section 6. Dr Bell submits that that section does not provide information as to the comparative transaction value of the Proposed Birketu & Illyria DOCA. Dr Bell also submits that creditors were entitled to know the “effective value” of the proposed Birketu & Illyria DOCA at the second meeting of creditors, so that they could, for example, request the Administrators to see if the proposed Birketu & Illyria bid was still “on the table”. As I have noted above, it is open to creditors to adjourn the second meeting of creditors and express a wish that the Administrators pursue make such an inquiry.

63. The Ten parties respond that the “effective value” of the Proposed Birketu & Illyria DOCA is not material to creditors’ decision-making process, as distinct from the return that they can expect to receive if that DOCA and creditors’ trust were implemented (notwithstanding that the then Birketu and Illyria proposal had then expired) which was disclosed in section 8 of the Supplemental Report and appendix 7 to that report (Ex T1, 16–17, 94).

64. These submissions also raise matters raised elsewhere by the Plaintiffs, and addressed elsewhere in this judgment, in respect of the status of the Proposed Birketu & Illyria DOCA, at the time the Section 439A Report was issued. There was plainly less reason to include information about it, in the initial report, where it had lapsed, although further information is provided in the Supplemental Report. It seems to me that creditors were provided, in the Supplemental Report, with the information that was most relevant to their decision as to the options put before the second meeting of creditors, and whether to adjourn that meeting, namely the comparative returns to the several classes of creditors under the Proposed CBS DOCA and the Proposed Birketu & Illyria DOCA respectively. It also seems to me that information as to a suggested “transaction value” for the then Birketu and Illyria proposal had lesser significance where that proposal had lapsed in accordance with its terms before the Section 439A Report was sent to creditors. I am reinforced in that view because, as I noted above, the somewhat qualified offer of CBA to provide further financial support to the Ten Group for a period of some four months to the end of 2017, if Birketu’s and Illyria’s proposal was accepted by the Receivers, was plainly then no longer operational where that proposal was not accepted by the Receivers and CBA’s facility had been repaid.

65. Even apart from the further disclosure made in the Supplemental Report, I would not make an order in the form sought. The provision of information concerning that lapsed DOCA to creditors in the Section 439A Report, beyond the information now provided in the Supplemental Report, would not assist creditors in making the decision between the options specified in s 439C of the Act or determining whether to adjourn the second meeting of creditors. I am also not satisfied that an order should be made under s 447A of the Act modifying the operation of s 439A(4) to require provision of that information and I am not satisfied that the Administrators should be restrained from holding the second meeting of creditors until that information is provided for the same reasons.

Information concerning reasons for Administrators’ opinion and comparison of the Proposed CBS DOCA and the Proposed Birketu & Illyria DOCA

66. By paragraph 11(c) of the Further Amended Originating Process, the Plaintiffs seek a declaration that the Section 439A Report does not satisfy the requirements of s 439A(4) of the Act in that it fails to include information as to:

“the Administrators’ reasons for forming the opinion that it is in the creditors’ interests for the Company [sic] to execute the Proposed CBS DOCA, and the other information known to the Administrators as will enable the creditors to make an informed decision as to whether it is in the creditors’ interests for the Company [sic] to execute the Proposed CBS DOCA, including the reasons why the Proposed CBS DOCA is said to be preferable to the Proposed Birketu [&] Illyria DOCA and the basis for concluding that the Proposed CBS DOCA allegedly has greater execution certainty.”

Alternatively, by paragraphs 12(iii) and 13(b)(i)(3) of the Further Amended Originating Process, the Plaintiffs seek orders to modify s 439A(4) so as to require the inclusion of information as to that matter or to restrain the second meeting of creditors until such information has been provided to creditors.

67. The Administrators’ reasons for forming the opinion that it is in creditors’ interests to execute the Proposed CBS DOCA, at least at the date the Section 439A Report and Supplemental Report were issued, are addressed in section 6.2.4 of the Section 439A Report and section 8 of the Supplemental Report. I am satisfied that at least the Supplemental Report provides an adequate explanation of the Administrators’ reasons for forming the opinion that it is in the creditors’ interests for the Ten Group companies to execute the Proposed CBS DOCA, and the other information known to the Administrators that will enable the creditors to make an informed decision as to whether it is in the creditors’ interests for the companies to execute the Proposed CBS DOCA, including the reasons why the Proposed CBS DOCA is said to be preferable to the Proposed Birketu & Illyria DOCA. That conclusion follows from the fact that I have not been persuaded by the range of criticisms of the Section 439A Report and Supplemental Report addressed throughout this judgment and the additional issues addressed below.

68. It is also convenient, at this point, to address several additional criticisms made by the Plaintiffs, in their outline of reply submissions and in oral submissions, of a comparison of outcomes between the Proposed CBS DOCA and the Proposed Birketu & Illyria DOCA that was contained in section 8 of the Supplemental Report. In particular, section 8.2 of that report provides a comparison of the conditions precedent and execution risks of the Proposed CBS DOCA and the Proposed Birketu & Illyria DOCA and associated transactions.

69. The Plaintiffs submit in their reply submissions and in oral submissions (T88) that the comparison table at section 8.2 of the Supplemental Report comparing the Proposed CBS DOCA and the Proposed Birketu & Illyria DOCA incorrectly treated the Proposed CBS DOCA as “better” (in the sense of having lesser transaction risk) in respect of the issue of a “s 444GA application”. The Ten parties respond, and I accept, that the Plaintiffs’ complaints as to the comparison of execution risk arising in respect of the applications under s 444GA of the Act largely reflect the substantive issues as to that section which I address in this judgment. It does seem to me that the title of this row of the table, as “s 444GA application” is perhaps incomplete, so far as the Proposed Birketu & Illyria DOCA raised alternative structures, one of which involved an application under s 444GA of the Act and the other of which did not. However, it seems to me that the Administrators’ then assessment that the Proposed CBS DOCA had lesser execution risk in respect of its structure, expressed in this table, had a reasonable basis. The Proposed Birketu & Illyria DOCA would necessarily extend over a longer period, because of the time contemplated for Birketu and Illyria to make an election between their alternative Structure 1 and Structure 2, until 30 September 2017. Both transactions involved applications under s 444GA of the Act, as to which the primary risk that the shares had equity value and the Court would not approve the transaction existed for both transactions; and the significance in such an application of any difference between a transfer of 75% of other shareholders’ shares to Birketu and Illyria or 100% of their shares to CBS is uncertain. Birketu’s and Illyria’s Structure 2 involved an options issue which would be highly dilutive of other shareholders, which would require discretionary relief from ASIC and ASX. It seems to me that that structure involved a significant degree of risk, because of its dilutive character and because it was a possibility less transparent means of substantially reducing the interests of other shareholders in Holdings than an application under s 444GA of the Act. It would at least be open to ASIC or ASX to decline such relief on the basis that Birketu and Illyria could properly be left to follow the procedure specified by s 444GA of the Act, even if that left them unable to avoid the application of the broadcasting legislation as it then stood.

70. In their outline of reply submissions and oral submissions, the Plaintiffs also criticised the comment in that table relating to “voting” that “CBS has value to vote down any proposal”. The Ten parties respond that that comment would be understood by reference to the explanation in section 3 of the Supplemental Report of how voting occurs at the second meeting of creditors, as directed only to the vote by value, and not as directed to the vote by number or the exercise of the chairperson’s casting vote. It seems to me that the use of the phrase “vote down” in that table was unfortunate, since a vote by creditors having the majority in value against a proposal would not be determinative, where the chairperson has a casting vote, if the majority of creditors in number favoured that proposal. However, it does not seem to me that that matter, in itself or combined with any other criticisms made by the Plaintiffs of the Section 439A Report and Supplemental Report, would warrant the relief sought.

71. In their outline of reply submissions and oral submissions, the Plaintiffs also criticise the comparison in that table as to “timing” between the Proposed CBS DOCA and the Proposed Birketu & Illyria DOCA. It seems to me that there is some force in that criticism, so far as “target” date referred to for the Proposed CBS DOCA may not take account of the time likely to be required for the proposed application under s 444GA of the Act. However, it also does not seem to me that that matter is material, where Birketu’s and Illyria’s proposal (had it not expired) was likely to be completed later than the CBS proposal because Birketu and Illyria would not be required to make the structure election contemplated by their proposal until the end of September 2017, and their proposal also required either an application under s 444GA of the Act which could not be commenced until that election was made or relief from ASIC and ASX which might well have been controversial, for the reasons noted elsewhere in this judgment.

72. In their outline of reply submissions and oral submissions (T89), the Plaintiffs also submit that the comparison as to “repudiation of key leases” in that table is not properly directed to a condition precedent or other execution risk factor. The Ten parties refer to provisions of the Proposed Birketu & Illyria DOCA requiring the deed administrator to seek orders under s 444F of the Act, if requested to do so in writing, and to a schedule that contemplated, at least as a possibility, that the Administrators could be required to repudiate three leases in respect of Melbourne, Adelaide and Pyrmont premises from which Ten operates its broadcasting business (Ex P2, 1382). The Ten parties submit that, if the Administrators acted in accordance with such a direction and were unable to obtain relief from the Court under s 444F of the Act, then the Ten Group companies would be at risk of eviction from the premises from which they conduct their business. They point out that, by contrast, the Proposed CBS DOCA involved the termination of only one lease, of a substantially smaller value, and did not require any application to the Court under s 444F of the Act or raise any substantial risk to the operation of Ten Group’s business.

131. It seems to me that the order that the Plaintiffs seek that CBS should not be permitted to vote in respect of its debt, or should be permitted to vote only for a $1.00, claim would be inconsistent with the policy of Pt 5.3A of the Act generally and s 439C of the Act in particular. That section relevantly provides that, at the second meeting of creditors convened under s 439A of the Act, the creditors may resolve:

“(a)   that the Company execute a deed of company arrangement specified in the resolution (even if it differs from the proposed deed (if any) details of which accompanied any notice of meeting); or

(b)   that the administration should end; or

(c)   that the Company be wound up.”

139. That section contemplates a choice, by a majority of creditors by value and by number, between three mutually exclusive courses. The Plaintiffs do not seek to exclude CBS from voting in respect of the question whether the administration should end, or the companies should be wound up, and could not reasonably seek to do so where it has a substantial financial interest in the Ten Group companies, but only from voting on the question whether the companies should execute the Proposed CBS DOCA.

140. That approach seems to me to have two difficulties that are such that it could not and should not be adopted. The first is that, in principle, a creditor of a company in voluntary administration is no less a creditor, and no less entitled to the exercise of the vote attaching to its status as a creditor, because it proposes a deed of company arrangement that may assist the survival of the company and its business for the consideration of the second creditors’ meeting. A contrary view would create a significant disincentive to a major creditor of a company in voluntary administration proposing such a deed of company arrangement if, by doing so, it placed itself at risk of being excluded from voting in part or all of the second creditors’ meeting on an application by another creditor of the kind that the Plaintiffs now bring.

141. Second, and possibly more fundamentally, the order that the Plaintiffs seek has the risk of fundamentally compromising the voting at the second creditors’ meeting and potentially creating results that are inconsistent or incapable of implementation, particularly on a vote of creditors by value. If the proponent of a deed of company arrangement is excluded from voting on it, it is possible that a majority by value or number would not be achieved in favour of a resolution to execute that deed of company arrangement. However, when the proponent of that deed of company arrangement comes to voting on the resolutions that the administration should end or the company should be wound up, it would be entitled to vote against those resolutions, because it considers the proposed deed of company arrangement should be executed, although it was excluded from voting on the resolution to do so. In that situation, if that proponent can vote on the resolutions that the administration should end and that the company should be wound up (as the Plaintiffs accept in this case), and votes consistently with its view that the deed of company arrangement should be executed, then a majority in value would vote against each of the possible outcomes at the second creditors’ meeting. It may not be possible to predict the ultimate outcome of such a meeting, which may be affected by votes by number of creditors and any exercise of the casting vote by the chairperson. Irrespective of that result, the intended operation of s 439C of the Act, such that a majority of creditors by, relevantly, value will choose one course of action from three mutually exclusive options would no longer be achieved.

142. The Plaintiffs respond, in reply, that an “extraneous reason” for a creditor to support a DOCA, including CBS’s interest as potential purchaser, may give reason to terminate the DOCA under s 445D of the Corporations Act: Bathurst City Council v Event Management Specialist Pty Ltd [2001] NSWSC 34; (2001) 36 ACSR 732 at [8]. While I accept that proposition, at least as a statement of general principle, it does not follow that CBS should therefore be excluded from voting at the second meeting of creditors, rather than the question of any termination of the DOCA being addressed in any subsequent application under s 445D of the Act, when the Court can have regard to all relevant matters, which will inevitably include the interests of other constituencies, such as employees of the Ten Group and trade creditors and other third parties with continuing trade relationships with the Ten Group.

143. For these reasons, I am not satisfied that I should make the orders sought by the Plaintiffs to prevent or restrict CBS voting at the second meeting of creditors.

Whether shareholders in Holdings should be entitled to vote at the second creditors’ meeting

144. The relief sought by the Plaintiffs also includes several orders which are directed to the position of members of the Ten Group companies, although the intent of those orders appears to be that shareholders in Holdings, as distinct from companies within the Ten Group holding shares in other companies within the Ten Group, should be entitled to receive notice of and vote at the second creditors’ meeting.

145. Paragraphs 6–8 of the Further Amended Originating Process relevantly seek an order under s 447A of the Act that the operation of s 439A(3)(a) of the Act be modified in relation to the Ten Group companies by inserting the words “and to the members of the company” after the word “creditors”. That section, prior to such a modification, relevantly provides for the manner in which the administrator must convene a second meeting of creditors, by giving written notice of the meeting to so many of the companies’ creditors as reasonably practicable. The Plaintiffs abandoned their earlier reliance on s 75-225 of the Insolvency Practice Rules in this claim. It is common ground that, by reason of s 1605 of the Act, that rule does not apply and s 439A of the Act continues to apply, where the administrator was required to convene the second creditors’ meeting under s 439A of the Act as it stood prior to 1 September 2017, the convening period for the meeting as extended by the Federal Court ended on or after 1 September 2017 and the meeting had not been convened as at 1 September 2017. It is also common ground between the parties, and I accept, that the intention of the transitional provisions is that, where s 439A continues to apply by reason of the transitional provision in s 1605 of the Act, then the Insolvency Practice Rules including r 75-225 do not apply.

146. Alternatively, the Plaintiffs seek an order under s 90-15 of the IPSC requiring the Section 439A Report to be provided to as many members of the Ten Group companies as reasonably practicable (which did not, in terms, extend to the Supplemental Report) and an order under s 90-15 of the IPSC or alternatively s 600H of the Act that the members of Holdings are entitled to vote in their capacity as creditors during the external administration of Holdings. Section 600H of the Act deals with the postponement of claims against a company in specified circumstances.

147. Section 3 of the Supplemental Report set out the Administrators’ approach to voting by shareholders of Holdings as follows:

“Holdings has approximately 17,000 shareholders.

The Administrators have acted on the basis that shareholders whose claims against Holdings are either:

1.   claims for a debt owed in the person’s capacity as a shareholder; or

2.   claims that arises [sic] from buying, holding, selling or dealing in the shares in Holdings (“subordinate claims”)

and are, by operation of the Act:

●   only entitled to receive a copy of the [Section] 439A Report and this report if they make a request to the Administrators in writing;

●   not entitled to vote at the Second Meeting of Creditors of Holdings unless the Court makes an order entitling them to vote.”

148. The relief sought by the Plaintiffs in respect of this issue is premised on the basis that shareholders in Holdings are creditors or contingent creditors of Holdings. That turns on the proposition that shareholders in Holdings have claims against Holdings arising from a failure to comply with continuous disclosure requirements under rule 3.1 of the ASX Listing Rules and Ch 6CA of the Act in respect of the notice given by CPH that it would not renew its shareholder guarantee from December 2017. The Plaintiffs submit that members’ proceedings against Holdings, including representative proceedings, are under “active consideration” and Mr Sophocles’ affidavit refers to media coverage speculating about the possibility of such actions (Sophocles 6.9.17 [41]; Ex P2, 1785–1799).

149. The Ten parties respond that none of the Plaintiffs has standing to seek these orders, because Birketu is the only Plaintiff which is a shareholder of Holdings, and it does not have a subordinate claim against Holdings. The Ten parties submit that Birketu had an appointee (Mr Lancaster) on Holdings’ board and was aware of all significant events affecting the Ten Group as they unfolded. The Ten parties also submit that members of Holdings are not entitled to vote at the second meeting of creditors unless they obtain leave to do so under s 600H(1)(b) of the Act and that leave under s 600H(1)(b) of the Act should not be granted, because there is no prospect that members of Holdings would receive a return as a result of any decision made at the second meeting of creditors. The Ten parties point out that such shareholders are within the definition of “non-participating creditors” which are excluded from participating in or receiving any distribution from the creditors’ trust under the Proposed CBS DOCA; if the administration came to an end, the Receivers would likely assume operating control of the Ten Group business, which would not have sufficient assets to meet unsecured claims; and, in a winding up, there is likely to be no return for unsecured creditors (Ex P1, 49; Ex P2, 777). The Ten parties also point to the likely costs of sending even a one page circular to members. I give little weight to that matter, given the scale of the administration and the costs likely to have been incurred in it.

150. There are several substantial difficulties with the factual premise underlying this claim. The first is that, as the Ten parties submit, only Birketu, among the Plaintiffs, is a shareholder in Holdings and it has no basis for such a claim and is not a creditor or contingent creditor of Holdings on that basis. As I have noted above, Mr Lancaster, and I infer Birketu through him, knew of the position taken by CPH shortly after it was taken. Second, there is no evidence that any shareholder of Holdings has advised it of any intention to bring such a claim and the media reports on which the Plaintiffs rely refer, inter alia, to the view expressed by a well-known firm that commonly brings such claims that, on the information currently available, it did not believe that Holdings had breached its disclosure obligations. While that view is not conclusive of that matter, it also provides no support for the speculation that such claims exist or might be brought.

151. Third, the Plaintiffs made no substantive attempt to establish, by evidence, that shareholders in Holdings had in fact had claims against Holdings, arising from any failure to announce that matter. No attempt was made to establish, for example, that that matter was material so as to require disclosure under r 3.1 of the ASX Listing Rules of Ch 6CA of the Act. That proposition was not self-evident, not least because, until 9 June 2017, there was no suggestion on the evidence that Birketu and Illyria would not leave their guarantees in place; the CPH guarantee would not expire for some months, until the end of December 2017; the CBA Loan Facility then remained in place; and it appears that Birketu and Illyria were investigating the possibility of assuming the liability under the guarantee that CPH was no longer prepared to assume, until they chose to terminate their own guarantees on 9 June 2017. The termination of Birketu’s and Illyria’s shareholder guarantees, which was plainly material to the Ten Group, was promptly made publicly available, not least because the Ten Group companies then appointed voluntary administrators.

152. I also do not accept the construction which the Plaintiffs give to s 600H of the Act to support voting by members of Holdings. That section relevantly provides:

“600H Rights if claim against the company postponed

(1) A person whose claim against a company is postponed under section 563A is entitled:

(a)   to receive a copy of any notice, report or statement to creditors only if the person asks the administrator or liquidator of the company, in writing, for a copy of the notice, report or statement; and

(b)   to vote in their capacity as a creditor of the company, at a meeting ordered under subsection 411(1) or during the external administration of the company, only if the Court so orders.

(2)   In this section:

external administration includes the following:

(a) voluntary administration;

(b) a compromise or arrangement under part 5.1;

(c) administration under a deed of company arrangement;

(d) winding up by the Court;

(e) voluntary winding up.”

153. Section 563A of the Act in turn provides that:

“563A Postponing subordinate claims

(1)    The payment of a subordinate claim against a company is to be postponed until all other debts payable by, and claims against, the company are satisfied.

(2)   In this section:

claim means a claim that is admissible to proof against the company (within the meaning of section 553).

debt means a debt that is admissible to proof against the company (within the meaning of section 553).

subordinate claim means:

(a)   a claim for a debt owed by the company to a person in the person’s capacity as a member of the company (whether by way of dividends, profits or otherwise); or

(b)   any other claim that arises from buying, holding, selling or otherwise dealing in shares in the company.”

154. The Plaintiffs submit that s 600H(1)(b) of the Act does not deprive claimant shareholders of a vote, because it does not apply in the case of a voluntary administration, since s 563A only applies in a liquidation and not in a voluntary administration and no person’s claims against a company are postponed under s 563A in a voluntary administration. That submission assumed, without establishing, that there existed claimant shareholders who would be entitled to a vote as creditors or contingent creditors, if they were not otherwise deprived of it by that paragraph.

155. The Plaintiffs acknowledge that in Re QRx Pharma Ltd [2015] FCA 1140; (2015) 235 FCR 456, an ex parte application for orders under ss 447A or 447D of the Act, in respect of notifications to a class of shareholders, Jagot J did not accept an argument that had previously been raised in professional commentary (see D Cowling, “Sons of Gwalia: Back to Court?” (2011) Butterworths Corporations Law Bulletin [1]) that s 600H(1) of the Act was not capable of applying to shareholder claimants in a voluntary administration to render their entitlement to notice conditional upon request or render their entitlement to vote conditional upon Court order. Her Honour there noted a “substantial infelicity in the drafting of the relevant provisions” but expressed the view that that section applied to shareholder claimants in a voluntary administration, to avoid the outcome that the section had “misfired completely”. The Plaintiffs submit that, contrary to that view, the language of that section has the consequence that it did not operate to make shareholder claimants’ voting rights conditional upon a Court order under s 600H(1)(b) of the Act, and the Court is not permitted to fill a gap in the statute.

156. The Plaintiffs submit, in short, that s 563A(1) applies only in a winding up, and there cannot be a person whose claim is postponed under that section unless and until a company is being wound up. They submit that s 600H(1) exhaustively identifies the circumstances in which s 600H applies, and the scope of that section cannot be expanded by the reference to “administrator” in s 600H(1)(a) or the extended definition of “external administration” in s 600H(2). The Plaintiffs also submit that the words “is postponed” in s 600H(1) cannot be “distorted” to mean “would be postponed if the company were to enter liquidation”. I do not accept that submission. As I will note below, it does not seem to me that there is any distortion in reading the words “is postponed” as “is postponed”, on the premise that the company is in liquidation and the question of postponement arises.

157. The Ten parties respond by referring to the Revised Explanatory Memorandum to the Corporations Amendment (Sons of Gwalia) Bill 2010 (Cth) which provided (at [1.4]) that:

“The Bill also provides that a person bringing a subordinated claim does not have an entitlement to a copy of any notice, report or statement to creditors unless they make a written request to the external administrator, nor do they have a right to vote as a creditor of the company unless given leave by the Court. The Bill inserts a definition of external administration clarifying that the reforms to voting rights and the right of creditors to receive reports, as contained in the Bill, apply to voluntary administrations …”.

158. The Plaintiffs accept, in their submissions in reply, that the Revised Explanatory Memorandum to the Corporations Amendment (Sons of Gwalia) Bill suggested that the reforms in relation to information and voting rights applied to voluntary administrations, among other forms of external administration, but submit that the statutory text did not achieve its intended object. The Plaintiffs submit, and I generally accept, that extrinsic materials cannot displace the meaning of the statutory text and that, even if the statutory language has miscarried, the Court’s function is to give effect to the will of Parliament as expressed in the law as enacted: Re Bolton; Ex Parte Beane [1987] HCA 12; (1987) 162 CLR 514 at 518; Woodside Energy v Federal Commissioner of Taxation [2009] FCAFC 12; (2009) 174 FCR 91 at [25]. It is not necessary to address the possible qualifications to that proposition to which the parties referred in submissions.

159. The Ten parties also refer to the reference to requests made to an “administrator” in s 600H in respect of meetings ordered “during the external administration of the company”, and to the definition of “external administration” in s 601H(2)(a) to include a “voluntary administration”. The Ten parties also submit that the “claims” to which s 600H(1) refers are those subordinate claims that are “to be postponed” in the event of a liquidation. They submit that the conclusion reached by Jagot J in Re QRx Pharma Ltd above was correct. The parties also advanced subtle submissions as to whether s 600H could apply to a voluntary administrator, in the relatively uncommon situation where a liquidator appointed a voluntary administrator during the liquidation. I do not find it necessary to address those matters for the purposes of this application.

160. It seems to me that, on its proper construction, and without any reference to any assumed or imputed purpose of s 600H of Act, that section applies within a voluntary administration. The introductory words to s 600H(1), referring to “[a] person whose claim against a company is postponed under s 563A” are, in my view, intended to identify the category of persons who are only entitled to receive a copy of, relevantly, a report to creditors on request and are only entitled to vote in their capacity as a creditor of the company, at a meeting during a voluntary administration, if the Court so orders. The reference to a person whose claim against a company is postponed under s 563A assumes a situation where that section is capable of application and, so far as it is to be determined, in a voluntary administration, whether a person’s claim against a company is postponed under that section, that question is to be determined by reference to a winding up in which that section would apply. It was not necessary for the legislature to add specific language achieve that result, where that proposition was implicit in the structure of the section.

158. The Plaintiffs also submitted that, if s 600H of the Act did operate as a bar to voting in the absence of a Court order, the Court should make an order to permit shareholders to vote at the creditors’ meeting. The Plaintiffs submit, and I accept, that matters that may be relevant to such an order would include whether a shareholder “might reasonably be considered to possess a real financial interest in the external administration”: Revised Explanatory Memorandum to the Corporations Amendment (Sons of Gwalia) Bill 2010, [1.15]; Re Atlas Iron Ltd [2016] FCA 366; (2016) 112 ACSR 554 at [46]; Re Boart Longyear Ltd (No 2) [2017] NSWSC 1105 at [259]. The Plaintiffs also submit that:

“The shareholders in the present case might reasonably be perceived to possess such an interest because of the extensive public speculation about a class action based on [Holdings’] disclosures to the market.”

162. I am not satisfied that speculation as to the possibility of a class action, the basis of which has not been established, provides any reasonable basis to consider shareholders in Holdings presently have a real financial interest in the external administration, where the evidence otherwise suggests that they would likely receive no return in a liquidation. It also does not seem to me that there is a proper basis for making that order where, in the present circumstances, the merits of any claim by such shareholders, if it is assumed to exist, remain speculative.

Summary, orders and costs

163. In summary, I am not satisfied that the Plaintiffs have established that any deficiencies in the Section 439A Report, as supplemented by the Supplemental Report, are such as to warrant orders requiring that further information be provided to creditors or that the second creditors’ meeting be restrained. It will be a matter for creditors at that meeting to determine whether that meeting should be adjourned by reason of, inter alia, any recent commercial developments, or for any other reason. I am not satisfied that CBS should be prevented, in advance, from voting at the meeting, or its vote restricted to a nominal amount. Any challenge to the outcome of that meeting is properly brought after the event. I am also not satisfied that shareholders in Holdings are entitled to be provided further information concerning or to vote at the second creditors’ meeting.

164. For these reasons, the Further Amended Originating Process should be dismissed. My preliminary view is that the Plaintiffs should pay the Defendants’ costs of the proceedings as agreed or as assessed and, in accordance with the usual position as to a person who seeks to be heard under r 2.13 of the Supreme Court (Corporations) Rules without being joined as a party, there should be no order as to Fox’s costs of the proceedings. I will hear any party which seeks further to be heard as to costs.

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Decision last updated: 18 September 2017