Jockel v Robert Michael Kirman, Robert Conry Brauer and Matthew Wayne Caddy as joint and several liquidators of Alita Resources Ltd (in Liq) (ACN 147 393 735)
[2024] WASC 119
•10 APRIL 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: JOCKEL -v- ROBERT MICHAEL KIRMAN, ROBERT CONRY BRAUER AND MATTHEW WAYNE CADDY as joint and several liquidators of ALITA RESOURCES LTD (IN LIQ) (ACN 147 393 735) [2024] WASC 119
CORAM: HILL J
HEARD: 25 MARCH 2024
DELIVERED : 25 MARCH 2024
PUBLISHED : 10 APRIL 2024
FILE NO/S: COR 195 of 2023
BETWEEN: FERGUS JOCKEL
First Plaintiff
PAUL VINCENT O'FARRELL
Second Plaintiff
AND
ROBERT MICHAEL KIRMAN, ROBERT CONRY BRAUER AND MATTHEW WAYNE CADDY as joint and several liquidators of ALITA RESOURCES LTD (IN LIQ) (ACN 147 393 735)
First Defendant
LITHIUM RESOURCES INVESTMENTS
First Interested Party
LOK CHEE WEI
Second Interested Party
Catchwords:
Corporations - Application to terminate winding up of company - Whether plaintiffs have standing to seek termination of winding up of company - Where parties entered into various arrangements in relation to taxation liabilities said to be owed - Where company will be solvent as a result of share sale agreement and resolution of taxation issues - Exercise of court's discretion to terminate winding up of company - Turns on own facts
Corporations - Winding up - Application under s 90-15 for appointment of directors - Exercise of court's discretion - Turns on own facts
Legislation:
Insolvency Practice Schedule (Corporations) (sch 2 to the Corporations Act 2001 (Cth)) s 90-15, s 90-20
Result:
Winding up terminated
Category: B
Representation:
Counsel:
| First Plaintiff | : | P R Edgar SC |
| Second Plaintiff | : | P R Edgar SC |
| First Defendant | : | W C J Zappia |
| First Interested Party | : | G R Donaldson SC |
| Second Interested Party | : | T Watson |
| Amicus Curiae | : | M Moharich |
Solicitors:
| First Plaintiff | : | Palisade Corporate |
| Second Plaintiff | : | Palisade Corporate |
| First Defendant | : | Clayton Utz |
| First Interested Party | : | Corrs Chambers Westgarth |
| Second Interested Party | : | Douglas Cheveralls Lawyers |
| Amicus Curiae | : | Office of the Chief Tax Counsel |
Case(s) referred to in decision(s):
Anderson v Palmer [2002] NSWSC 192
Hughes, Re Vah Newco No 2 Pty Ltd (in liq) (No 2) [2020] FCA 1436
Krejci (liquidator), in the matter of Community Work Pty Ltd (in liq) [2018] FCA 425
Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 35 ACSR 70; [2000] NSWSC 756
Re Living Creatively Exhibitions Pty Ltd (in liq) (Subject to Deed of Company Arrangement) [2013] NSWSC 717
Re Manband Pty Ltd (in liq) (Subject to Deed of Company Arrangement) [2018] NSWSC 1282
Re SNL Group Pty Ltd (in liq) [2010] NSWSC 797
Re Warbler Pty Ltd (1982) 6 ACLR 526
Re Yelin Group Pty Ltd [2012] NSWSC 74
Tucker, Re Black Oak Minerals Ltd (Subject to Deed of Company Arrangement) (in liq) [2019] FCA 293
Vero Workers Compensation (NSW) Ltd v Ferretti [2006] NSWSC 292; (2006) 57 ACSR 103
HILL J:
(This judgment was delivered extemporaneously and has been edited from the transcript.)
By originating process dated 12 December 2023, the plaintiffs, who are directors of Alita Resources Limited (Alita), sought orders pursuant to s 90‑15 and s 90‑20 of the Insolvency Practice Schedule (Corporations) (sch 2 to the Corporations Act 2001 (Cth) (Act)) (IPS) for the winding up of Alita to be terminated and for Mr Chris Ellison, Mr Norman Ashton, and Mr Roderick Sutton to be appointed as directors of Alita.
The application to terminate the winding up of Alita is not opposed by the liquidators or the interested parties who appeared at the hearing of the application today.
The First Interested Party, Lithium Resources Investments Pty Ltd (Lithium Resources), is a shareholder of Alita, who is entitled to 9.9% of its issued share capital.[1] Mineral Resources Limited (Mineral Resources) is the ultimate holding company of Lithium Resources.[2] The Second Interested Party, Lok Chee Wei, is also a shareholder of Alita and holds 10,000 shares.[3]
[1] Affidavit of Paul Vincent O'Farrell filed 12 December 2023 [43], 'PVO-14', 'PVO-19', 'PVO-23'.
[2] Affidavit of Michelle Leanne Dean filed 1 March 2024 [6], 'MLD-1'.
[3] Plaintiffs' submissions filed 25 March 2024 [20]; Affidavit of Robert Michael Kirman filed 23 March 2024, 'RMK-40'.
I also had the benefit of submissions from Mr Moharich from the Australian Taxation Office, who sought and was granted leave to appear at the hearing today.[4]
[4] Email from the Australian Taxation Office to the Associate to Hill J dated 25 March 2024.
At the hearing today, the following affidavits were read and relied upon by the parties:
(a)two affidavits of Paul Vincent O'Farrell filed 12 December 2023 and 22 March 2024;
(b)four affidavits of Tyler Declan Greatrex filed 14 December 2023, 18 December 2023, 15 January 2024, and 24 January 2024;
(c)two affidavits of Alistair Ronald Fleming filed 14 December 2023 and 18 December 2023;
(d)two affidavits of Michelle Leanne Dean filed 1 March 2024 and 19 March 2024: one open and one confidential; and
(e)two affidavits of Robert Michael Kirman filed 23 March 2024: one open and one confidential.
Factual background
Alita is a company whose shares are listed on the Singapore Exchange Ltd (SGX). Until 1 November 2023, Alita owned a lithium mine in Bald Hill. Since 28 August 2019, except for a very brief period, Alita has been subject to some form of external administration, including a deed of company arrangement dated 23 December 2020 proposed by Austroid (Austroid DOCA).[5]
[5] Plaintiffs' submissions filed 14 December 2023; Affidavit of Paul Vincent O'Farrell filed 12 December 2023 [11] ‑ [15].
On 27 September 2023, I made orders in COR 134 of 2023 terminating the Austroid DOCA and, pursuant to s 447A(1) of the Act, ordered that s 446AA of the Act was to apply on the termination of the Austroid DOCA.[6] As a result, on the termination of the Austroid DOCA, Alita was placed into voluntary liquidation with the defendants appointed as liquidators.[7]
[6] Orders of Hill J dated 27 September 2023.
[7] Plaintiffs' submissions filed 25 March 2024 [14].
Originally, the plaintiffs sought an urgent hearing of the originating process, which was then opposed by the defendants. Shortly before the first directions hearing, the Australian Taxation Office (ATO) lodged a proof of debt with the defendants. The proof of debt contended that Alita was contingently liable to the ATO for income tax for an amount of approximately $200 million. Of this, approximately $127 million was said to be attributable to the year ended 30 June 2023, with the remainder attributable to the period from 1 July 2023 to 31 October 2023.[8]
[8] Affidavit of Alistair Ronald Fleming filed 18 December 2023, 'ARF-7'.
Orders were made programming the originating process through to a hearing on 29 February 2024.[9]
[9] Orders of Hill J dated 20 December 2023.
On 29 January 2024, the ATO issued Alita with notices of assessment in respect of the 2019, 2022, 2023 and 2024 financial years in the amount of approximately $202.8 million (Assessments) and submitted an amended proof of debt in that amount in the liquidation of Alita.[10]
[10] Affidavit of Michelle Leanne Dean filed 1 March 2024, 'MLD-3'.
The hearing on 29 February 2024 was then adjourned administratively until 13 March 2024 and then again until today to enable to discussions to take place between the parties, in particular with the ATO.[11]
[11] Orders of Hill J dated 26 February 2024; Orders of Hill J dated 12 March 2024.
The plaintiffs accept that Alita is ultimately jointly and severally liable for the tax liabilities of the Alita consolidated group, which until 1 November 2023, included its subsidiaries Tawana Resources Pty Ltd and Lithco No. 2 Pty Ltd.[12]
[12] Plaintiffs' outline of submissions filed 25 March 2024 [23]; Affidavit of Paul Vincent O'Farrell filed 12 December 2023, 'PVO-6', 'PVO-8', 'PVO-9', 'PVO-10', 'PVO-11'; Affidavit of Alistair Ronald Fleming filed 14 December 2023, 'ARF-4'; Affidavit of Tyler Declan Greatrex filed 24 January 2024, 'TDG-2'.
On 22 March 2024, the plaintiffs, the defendants, Mineral Resources and the ATO entered into various arrangements regarding Alita's tax position. These arrangements comprise:[13]
(a)a 'Deed of Debt Arrangement and Security' dated 22 March 2024;
(b)an 'Escrow Deed' dated 22 March 2024;
(c)an 'Irrevocable Direction and Authority' dated 22 March 2024;
(d)a 'Deed of Amendment Share Sale Agreement' dated 22 March 2024; and
(e)a 'Tax Process Deed' dated 22 March 2024.
[13] Defendant's submissions filed 24 March 2024 [18] - [21]; Plaintiffs' submissions filed 25 March 2024 [28].
The effect of the agreements is that:[14]
[14] Plaintiffs' submissions filed 25 March 2024 [29].
(a)Mineral Resources is required to pay 50% of the outstanding tax debt for the 2023 Assessment to the ATO;
(b)the ATO has agreed to defer further enforcement action in regard to Alita's tax liabilities pending finalisation of any objections made to the Assessments by Alita, should it be returned to the control of its directors (Objections);
(c)the ATO has agreed that 50% of the general interest charge which has accrued to the date of any court orders made will be remitted in respect of the unpaid balance of the 2023 Assessment;
(d)the liquidators are released from liability for Alita's taxation liabilities;
(e)prior to the termination of the liquidation, the liquidators are to pay their expenses of the liquidation from the funds they presently hold;
(f)the liquidators will transfer $2.5 million plus any surplus cash to Alita;
(g)the liquidators will transfer $97.5 million to a newly created interest-bearing escrow account, pending the resolution of the Objections as security to the ATO for the taxation liabilities and debts;
(h)Mineral Resources has guaranteed to the ATO payment of the balance of Alita's tax liabilities and debts to the extent that Alita does not have sufficient assets to pay those amounts;
(i)Mineral Resources has agreed to fund Alita's costs of the Objections, as well as providing additional funding to Alita to ensure it retains solvent during this process; and
(j)Alita has agreed that Mineral Resources will have conduct of the Objections on behalf of Alita and its subsidiaries, with Alita being kept informed and consulted.
The plaintiffs say that the effect of these agreements ensure that Alita is solvent and that the circumstances where Mineral Resources can have recourse to the assets of Alita are limited.[15]
[15] Plaintiffs' submissions filed 25 March 2024 [47].
These agreements are conditional on the orders proposed by the plaintiffs being made and the winding up of Alita being terminated.[16]
[16] Plaintiffs' submissions filed 25 March 2024 [30].
The liquidators conducted a poll of Alita's shareholders in relation to the proposal to terminate the winding up of Alita. The purpose of this poll was to provide an opportunity to shareholders to express their views on this application. The results of the poll are in evidence before me today. In summary, of the shareholders who voted on the resolutions, in excess of 91% of shareholders holding in excess of 96% of shares supported the termination of the winding up. From the evidence before me today, I accept that a significant number of shareholders voted on the poll.[17]
[17] Affidavit of Robert Michael Kirman filed 23 March 2024 [154].
A number of the proxies submitted by shareholders contained a note expressing a concern as to the potential conflict of interest arising from Mineral Resources leading the negotiations with the ATO. The concern was that Mineral Resources could advocate for a larger portion than necessary be borne by Alita and requested the court consider the appointment of directors from the shareholders' group to oversee the negotiations. I note that these shareholders also expressed the view that the relisting of Alita should be prioritised.[18]
[18] Affidavit of Robert Michael Kirman filed 23 March 2024, 'RMK-40'.
Termination of winding up of Alita
Legal principles
The court has power to terminate a winding up pursuant to s 482(1) of the Act as well as s 90‑15 of the IPS. Where the winding up is a voluntary winding up (as in this case), s 90‑15 of the IPS must be relied upon.[19]
[19] Tucker, Re Black Oak Minerals Ltd (Subject to Deed of Company Arrangement) (in liq) [2019] FCA 293 [72] (Banks‑Smith J), citing Re Manband Pty Ltd (in liq)(Subject to Deed of Company Arrangement) [2018] NSWSC 1282 [19] (Black J) and Krejci (liquidator), in the matter of Community Work Pty Ltd (in liq) [2018] FCA 425 (Gleeson J). See also Hughes, Re Vah Newco No 2 Pty Ltd (in liq) (No 2) [2020] FCA 1436.
The court has a discretion as to whether a winding up should be terminated. There are no criteria specified in the Act or the IPS to indicate when an application to terminate a winding up will be granted.
While the court is not required to find special reasons for granting an application to terminate a winding up, there must be a valid reason to exercise the discretion in favour of the applicant, taking into account the interests of the creditors, the liquidator, the members of the company, and weighing in balance the public interest in matters of commercial morality and the winding up of insolvent companies.[20]
[20] Vero Workers Compensation (NSW) Ltd v Ferretti [2006] NSWSC 292; (2006) 57 ACSR 103 [17] (Austin J).
The factors that generally inform the exercise of the court's discretion to terminate a winding up include:[21]
(a)the attitude and interests of creditors (including future creditors who might be prejudiced if the company was released from winding up);
(b)the interests of the liquidator (particularly with respect to costs) and contributories;
(c)the nature and extent of creditors and whether all debts have been discharged;
(d)the company's current trading position and general solvency;
(e)any explanation for any non-compliance by directors with their statutory duties and of the circumstances leading to the winding up order;
(f)the nature of the company's business;
(g)the public interest, including the public interest in upholding commercial morality; and
(h)evidence the directors of the company are willing to be directors of the company if the winding up is terminated.
[21] Re Warbler Pty Ltd (1982) 6 ACLR 526; Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 35 ACSR 70; [2000] NSWSC 756 at [47] and following; Anderson v Palmer [2002] NSWSC 192 at [6]; Vero Workers Compensation (NSW) Ltd v Ferretti Pty Ltd [17]; Re Yelin Group Pty Ltd [2012] NSWSC 74 at [8] ‑ [11].
In Re Living Creatively Exhibitions Pty Ltd (in liq) (subject to deed of company arrangement), Black J summarised the principles which are relevant to the exercise of discretion in the following terms:[22]
Generally, the court will not terminate a winding up unless a company will have additional financial strength and stability to provide confidence that it can continue without an appreciable risk of returning to liquidation. A question will arise as to whether sufficient steps have been taken to recapitalise a company or restore its solvency so that, in the language of Re Pine Forests of Australia (Canberra) Pty Ltd at [3], its 'financial health' is such that it may safely be released from the form of external administration focussed mainly on the interests of creditors and returned to the mainstream of commercial life where it may, under the control of its directors, incur new debts that have to be paid as and when they fall due. (citations omitted)
[22] Re Living Creatively Exhibitions Pty Ltd (in liq) (Subject to Deed of Company Arrangement) [2013] NSWSC 717 [7].
Similarly, in Re SNL Group Pty Ltd (in liq), Bergin CJ observed that:[23]
It is clear that in determining whether to terminate the winding up of a company, it is usual that the most significant matter for consideration is the solvency of the company. The other considerations, such as the extent of the creditors, the status of the debts and the nature of the company's business will be taken into account in determining whether the company has returned to, or will be returned to solvency.
[23] Re SNL Group Pty Ltd (in liq) [2010] NSWSC 797 [24].
On occasions, the court is asked, as in this case, to make a prospective order terminating a winding up, for example where the termination is to take effect on the happening of a particular event or at a time in the future.[24]
Disposition
[24] See, for example, Tucker, Re Black Oak Minerals Ltd (Subject to Deed of Company Arrangement) (in liq).
I accept that, as directors of Alita, the plaintiffs have standing under s 90‑20 of the IPS to bring an application under s 90‑15. This section enables the court to make such orders as it thinks fit in relation to the external administration of a company, which I accept includes the power to order the termination of the winding up.
In this case, it is relevant to note that there have been three material changes in circumstances since orders were made on 27 September 2023, which had the effect of Alita being voluntarily wound up under s 446AA of the Act.
First, as a consequence of the share sale agreement, I accept that, subject to the resolution of the notices of assessment issued by the ATO, Alita will be solvent.
Second, the shareholders of Alita have been asked for their views on the proposal and overwhelmingly support the termination of the winding up. While I note the concerns expressed by the shareholders as to the potential conflict of interest, I consider this conflict can be addressed by the proposed appointments of independent directors to the board of Alita.
Third, and most importantly, the plaintiffs, the liquidators, Mineral Resources and the ATO have entered into a series of agreements which address the notices of assessment issued by the ATO and how these (if the objections to them are unsuccessful) will be paid. It is a condition of these arrangements that orders be made by the court to terminate the winding up of Alita.
I turn then to the factors that inform the exercise of the court's discretion to terminate a winding up.
I accept that, on the evidence before me, the effect of the agreements entered into between the parties is that if orders are made for the termination of the winding up, Alita will be solvent and that sufficient funds have been set aside to pay the ATO. This is a relevant consideration favouring termination of the winding up. In particular, I accept that the only creditor of Alita is the ATO and that Alita is not presently trading. The agreed arrangements will recapitalise Alita to a sufficient extent for a period of at least 18 to 24 months which, in my view, is sufficient time for directors to consider what should be proposed for the future of Alita.
I also accept that Mineral Resources, as a well-resourced company listed on the ASX, is able to meet its obligations under the arrangements.
The evidence before me is that the funds currently held by the liquidators will be sufficient to pay all outstanding remuneration of the liquidators, together with the amounts contemplated by the proposed orders. The liquidators support the application and accept that Alita will be solvent if the liquidation is terminated.
The only known creditor of Alita, the ATO, supports the termination of the winding up. In addition, the evidence before me is that the shareholders who voted on the poll conducted by the liquidators overwhelmingly support the termination of the winding up of Alita.
The affairs of Alita which led to the winding up have been examined by two voluntary administrators. These insolvency practitioners highlighted possible breaches of the Act by former directors. However, none of these directors are current directors, none are proposed to be re‑appointed and there is no suggestion the current directors were involved in any such breaches.
In this case, the orders contemplate that termination of the winding up take effect on receipt of the funds being paid into the escrow account. Under the minute of proposed orders, it is proposed that this will occur within five business days of any orders made.
In this case, I accept that the terms of the agreements entered into by the parties do not create a risk that Alita will be removed from external administration prior to it being restored to a position of solvency. I also accept that there is only a short timeframe between the date of the proposed orders and the proposed date of the termination of the winding up. In these circumstances, I accept the short delay between making the orders and the proposed date of the termination of the winding up should not prevent orders being made in the terms proposed or that any significant risk arises from this short delay.
Appointment of directors
In addition to the termination of the winding up, the plaintiffs also seek orders for the appointment of three directors to Alita. Counsel for the plaintiffs submitted that these orders should be made to 'put in place a board of substance and quality to ensure that Alita's affairs will be functional.
The plaintiffs propose that the following individuals be appointed: Mr Chris Ellison, the managing director of Mineral Resources; Mr Roderick Sutton, an accountant by profession with over 36 years' experience in business advisory; and Mr Norman Ashton, an accountant by profession and the former managing partner of PPB Advisory. On the evidence before me, I accept that both Mr Sutton and Mr Ashton will be independent directors.
The defendants do not oppose this order being made.
In my view, while the order sought by the plaintiffs is somewhat unusual, I consider in the particular circumstances of this case, it is appropriate to make such an order. This is for two primary reasons. First, it reflects the commitment of Mineral Resources to Alita and its future. Second, in my view, it addresses shareholder concerns of a potential conflict of interest of Mineral Resources. I consider this can be addressed by the proposed appointments of Mr Ashton and Mr Sutton, as independent directors, to the board of Alita.
In relation to the note on the polls submitted by a number of shareholders, there is no evidence before me that either of the persons proposed by these shareholders have consented to their appointment as directors. For this reason, I do not consider either can or should be appointed. It is sufficient to note that once the winding up of Alita is terminated, the shareholders will be able to exercise their rights under the Act to appoint or remove any directors at a general meeting of the company, should they wish to do so.
Conclusion
For these reasons, at the conclusion of the hearing on 25 March 2024, I made orders in the form of 'Annexure A' to these reasons.
Annexure A
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
JN
Associate to the Honourable Justice Hill
10 APRIL 2024
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